<PAGE>
As filed with the Securities and Exchange Commission on January 14, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEK INFORMATION, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7389 84-1334615
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
5619 DTC Parkway, 12th Floor
Englewood, Colorado 80111-3017
(303) 357-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Timothy C. O'Crowley
Chief Executive Officer
5619 DTC Parkway, 12th Floor
Englewood, Colorado 80111-3017
(303) 357-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Laurie P. Glasscock, Esq. Francis S. Currie, Esq.
G. James Williams, Jr., Esq. Davis Polk & Wardwell
Carin M. Kutcipal, Esq. 1600 El Camino Real
Chrisman, Bynum & Johnson, P.C. Menlo Park, California 94025-4112
1900 Fifteenth Street (650) 752-2000
Boulder, Colorado 80302
(303) 546-1300
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
<TABLE>
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<CAPTION>
Proposed Maximum Amount of
Aggregate Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock...................... $57,500,000 $15,180
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
amount of the registration fee.
This registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell securities, and we are not soliciting an offer to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated
PROSPECTUS
Shares
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+[LOGO OF iINTEK.] +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Common Stock
This is the initial public offering of common stock by Intek Information,
Inc. We are selling shares of our common stock at an estimated initial
public offering price between $ and $ per share.
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There is currently no public market for the common stock. We have applied to
list our common stock on the Nasdaq National Market under the symbol "INTK."
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds, before offering expenses, to Intek.................... $ $
</TABLE>
The underwriters may also purchase up to additional shares of common
stock from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
Delivery of the shares of common stock will be made on or about , 2000.
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Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Chase H&Q
Robertson Stephens
U.S. Bancorp Piper Jaffray
Wit Capital Corporation
, 2000
<PAGE>
[Cover 1 is the portion of the cover visible when opening the front cover of
the prospectus. Reversed-out (white) copy over full page "I3 circle logo."
"Intek provides an integrated set of solutions that takes our clients from
concept to launch and operation of their e-commerce and other direct-to-
customer initiatives."]
<PAGE>
[The prospectus front cover is a gatefold; Cover 2 is the inside front cover
spread visible upon opening the gatefold cover. Four 4-color photographs, with
copy pertaining to each photo, laid out in the circle, to describe our service
offering.
PHOTO #1: This photo, at the top of the circle, is of several people in a
conference situation demonstrating our strategic consulting services. PHOTO #1
COPY: Headline: "Design"; Subhead: "Strategic Consulting"; "We help clients
architect their e-commerce and other direct-to-customer initiatives from
concept to launch and operation."
PHOTO #2: This photo, at the 3 o'clock position on the circle, is of two
employees in a computer room. PHOTO #2 COPY: Headline: "Build"; Subhead:
"Technology Solutions"; "We customize and operate a Web-based processing
platform that we integrate with our clients' existing systems, enabling them
to rapidly deploy their e-commerce and other direct-to-customer initiatives."
PHOTO #3: This photo, at the bottom on the circle, depicts an employee in a
Communications Center on the telephone with a client's customer. PHOTO #3
COPY: Headline: "Operate"; Subhead: "e-Operations"; "We provide communications
services that handle our clients' sophisticated transactions with their
customers via voice, e-mail, fax and real-time online communications."
PHOTO #4: This photo, at the 9 o'clock position on the circle, shows several
employees in a working conference session. PHOTO #4 COPY: Headline: "Analyze";
Subhead: "Customer Knowledge"; "We offer sophisticated database marketing and
analysis services to help our clients maximize their marketing efforts and
customer relationships."]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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Prospectus Summary.................................................. 1
Risk Factors........................................................ 6
Forward-Looking Statements.......................................... 13
Use of Proceeds..................................................... 13
Dividend Policy..................................................... 13
Capitalization...................................................... 14
Dilution............................................................ 16
Selected Historical and Pro Forma Financial Data.................... 18
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 20
Business............................................................ 27
Management.......................................................... 38
Employee Benefit Plans.............................................. 46
Related Party Transactions.......................................... 48
Principal Stockholders.............................................. 56
Description of Capital Stock........................................ 58
Transfer Agent and Registrar........................................ 61
Shares Eligible for Future Sale..................................... 61
Underwriting........................................................ 62
Legal Matters....................................................... 65
Experts............................................................. 65
Where You Can Find More Information................................. 65
Index to Consolidated Financial Statements of Intek Information,
Inc................................................................ F-1
Index to Unaudited Pro Forma Condensed Financial Information........ P-1
Index to Financial Statements of Acorn Information Services, Inc. .. A-1
</TABLE>
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Unless otherwise indicated, all references to "Intek," "we," "us" and
"our" refer to Intek Information, Inc., a Delaware corporation, and our
predecessor Colorado corporation.
All brand names and trademarks appearing in this prospectus are the
property of their respective holders.
i
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in our common stock. You should read the
entire prospectus carefully, including the information under "Risk Factors"
beginning on page 6 and the financial statements beginning on page F-1, before
making an investment decision.
Our Company
Intek provides an integrated set of strategic, technological, operational
and analytical solutions that takes our clients from concept to launch and
operation of their e-commerce and other direct-to-customer sales and marketing
initiatives. Our clients are Fortune 1000 and emerging Web-based companies
that, either because they sell complex products or employ complicated sales
processes, require sophisticated solutions. Our ability to design, build, and
operate e-commerce and other associated direct-to-customer initiatives enables
our clients to rapidly capitalize on their market opportunities. We provide
clients access to our strategic consultants, Web-based processing technology,
high-level customer support personnel and communication services, and database
marketing and analysis services. Our major clients in 1999 included Safeway,
Sega and Sony. In addition, we have recently established relationships with
emerging Web-based companies, including AutoWeb.
Our Market Opportunity
Our market is driven by the continued acceptance and rapid growth of the
Internet, which has dramatically changed the way businesses and consumers
communicate and conduct business. International Data Corporation, or IDC,
estimates that the actual number of Web buyers worldwide will increase from
nearly 31 million in 1998 to more than 182 million in 2003, and that the amount
of worldwide commerce conducted over the Internet will increase from
approximately $50 billion in 1998 to about $1.3 trillion in 2003. This dramatic
increase in the use of the Internet for commerce is creating significant new
opportunities and challenges for a broad spectrum of businesses.
In response to growing competitive pressures and the escalating rate of
technological innovation, many companies are outsourcing business functions to
access expertise, resources and technology that may otherwise be unavailable or
prohibitively expensive. As a growing number of companies offer more complex
products and services online, demand has increased for sophisticated outsourced
service providers that use an integrated approach in delivering technology
solutions and specialized services. Additionally, the delivery of these
multiple services must be flexible and easy for the customer to use and must
enable the client to maintain brand recognition and customer loyalty.
Our Services
Intek's comprehensive range of solutions for designing, building and
operating our clients' direct-to-customer initiatives consists of the following
four service offerings:
Strategic Consulting. We help our clients plan their e-commerce and other
direct-to-customer initiatives by determining their needs and objectives,
working with them to establish an overall program structure, and designing an
integrated solution that incorporates technology platforms, customer
communication processes, data requirements and personnel skills.
Technology Solutions. We customize and operate a Web-based technology
platform that enables us to rapidly deploy our clients' e-commerce and other
direct-to-customer initiatives. Our platform incorporates the front-end user
interface and reference materials, the transaction processing system and the
customer and client information databases, all of which can be tailored to meet
a client's specific needs. We integrate this platform with our clients' and
their vendors' existing systems to provide the sharing of information.
1
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e-Operations. We provide communications services that handle our clients'
sophisticated transactions with their customers via voice, e-mail, fax and
real-time online communications. These transactions include the sale of complex
products such as financial instruments for direct brokerage and online trading
firms, and computer and electronic equipment for technology manufacturers. Our
infrastructure, including our technology platform and communications centers,
permits efficient and reliable operations of our clients' complex direct-to-
customer-initiatives.
Customer Knowledge. We offer sophisticated database marketing and analysis
services to help our clients improve their marketing efforts and customer
relationships through a better understanding of their customers' buying
processes and behaviors.
Our Strategy
Intek's strategy is to be a leading provider of integrated solutions to
companies developing e-commerce and other direct-to-customer initiatives that
involve the sale of complex products or the use of complicated sales processes.
We support our clients in both business-to-consumer and business-to-business
transactions. Key elements of our strategy are to:
. target clients that provide substantial growth opportunities;
. pursue clients in specialized markets that require sophisticated
services;
. promote our brand through expanded sales and marketing efforts;
. broaden and continue to strengthen our service offerings; and
. continue to hire, train and retain talented people.
Our History
We incorporated in Colorado in March 1996 and reincorporated in Delaware
in August 1996. Effective October 1, 1999, we acquired all of the outstanding
capital stock of Acorn Information Services, Inc., a Delaware corporation based
in Connecticut that provides database marketing and analysis services. Also
effective October 1, 1999, we transferred software that we had developed to
Spider Technologies, Inc., a newly-formed wholly-owned subsidiary, and we then
distributed all of the stock of Spider to our stockholders.
Our principal executive offices are located at 5619 DTC Parkway, 12th
Floor, Englewood, CO 80111, and our telephone number is (303) 357-3000.
We maintain a Web site at www.intekinfo.com and our subsidiary, Acorn,
maintains a Web site at www.acornis.com. Information contained on these Web
sites does not constitute part of this prospectus and is not incorporated by
reference in this prospectus.
2
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The Offering
<TABLE>
<S> <C>
Common stock offered by Intek................. shares
Common stock to be outstanding after this shares
offering.....................................
Use of proceeds............................... For general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol........ "INTK"
</TABLE>
Unless otherwise noted, the information in this prospectus assumes that
all outstanding shares of preferred stock are converted into common stock upon
the closing of this offering and that the underwriters do not exercise their
option to purchase an additional shares of common stock from us to cover
over-allotments, if any.
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, plus (1)
1,504,190 shares issuable to holders of our preferred stock as payment-in-kind
dividends assuming the closing of this offering on March 15, 2000 and (2)
shares issuable to holders of our Series F preferred stock assuming the
sale of shares in this offering at an initial offering price of $ per share.
See "Related Party Transactions - Securities Issuances and Loans." It does not
include the following:
. 2,330,563 shares of common stock subject to options granted under our
1997 and 1998 stock plans at a weighted average exercise price of $6.28
per share;
. 4,750,000 shares of common stock available for future issuance under
our 2000 Stock Incentive Plan and our 2000 Employee Stock Purchase
Plan;
. 181,250 shares of common stock subject to a warrant issued to Sony
Electronics Inc. at an exercise price of $8.52 per share; and
. 527,778 shares reserved for contingent future issuance to the former
stockholders of Acorn.
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock, the options and warrant to purchase our
common stock and related matters.
3
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Summary Financial Information
The following table presents summary financial data. You should read this
information together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma Condensed
Financial Infomation."
The unaudited pro forma condensed statement of operations information for
the year ended December 31, 1999 gives effect to our acquisition of Acorn and
the spin-off of Spider as if those transactions had occurred on January 1,
1999. The following transactions are assumed to have occurred on January 1,
1999, in the pro forma as adjusted per share data in the pro forma as adjusted
statements of operations data and on December 31, 1999, in the pro forma as
adjusted balance sheet data:
. the issuance of shares in this offering at an assumed initial
public offering price of $ per share (after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses);
. the automatic conversion of all shares of preferred stock outstanding
as of December 31, 1999 into 9,560,188 shares of common stock;
. the issuance of 1,333,433 shares of common stock to the holders of our
preferred stock as payment-in-kind dividends as of December 31, 1999;
and
. the issuance of additional shares of common stock to the holders of
our Series F preferred stock assuming the sale of shares in this
offering at an initial offering price of $ per share. See "Related
Party Transactions - Securities Issuances and Loans."
Additional shares of common stock will be issued to the holders of our
preferred stock as payment-in-kind dividends subsequent to December 31, 1999.
If this offering were to close on March 31, 2000, we would issue 170,757
additional shares.
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------------
1999
Inception ----------------------
(March 6, 1996) Pro forma
December 31, 1996 1997 1998 Actual as adjusted
----------------- --------- --------- --------- -----------
(unaudited)
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue............... $ 480 $ 9,546 $ 17,664 $ 24,699 $ 26,707
Gross profit.......... 269 1,779 4,455 7,713 8,743
Loss from operations.. (1,802) (12,084) (9,509) (11,919) (10,597)
Net loss applicable to
common stockholders.. $ (1,809) $ (13,226) $ (11,464) $ (25,235) $(13,997)
Per share data:
Basic and diluted net
loss per share....... $ (1.07) $ (7.09) $ (6.14) $ (13.50) $
Weighted average
common shares........ 1,697,417 1,866,385 1,867,941 1,869,803
</TABLE>
4
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<TABLE>
<CAPTION>
December 31, 1999
---------------------
Pro forma
Actual as adjusted
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(unaudited)
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 6,204 $
Working capital......................................... 7,533
Total assets............................................ 26,378
Long-term borrowings, net of current portion............ 1,722 1,722
Total stockholders' equity (deficit).................... (41,997)
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before making an investment decision. Our business, financial condition and
operating results could be adversely affected by any of the following factors,
in which event the trading price of our common stock could decline, and you
could lose part or all of your investment. The risks and uncertainties
described below are not the only ones that we face. Additional risks and
uncertainties not currently known to us, or that we currently think are
immaterial, may also impair our business operations.
Risks Related to Our Business
We are dependent on a limited number of clients for a major portion of our
revenue.
A substantial majority of our revenue during the past two years has been
derived from on-going business with a few significant clients. In 1999, Sony
accounted for 27% of our revenue and our next three largest clients accounted
for a total of 29% of our revenue. We anticipate that our revenue will continue
to be concentrated with a limited number of clients and that the amount of
revenue from any particular client will vary from period to period. The
services required by any one client may be limited by a number of factors,
including industry consolidation, economic slowdown, internal budget
constraints and reduced demand for the client's products. Our inability to
maintain and develop long-term client relationships or to perform to our
significant clients' satisfaction, or the loss of, decrease in, or deferral of
work for, a significant client, could seriously harm our business, reputation
and financial results.
We do not have long-term contracts with our clients and contracts may be
cancelled with little or no penalty.
Our agreements with our clients generally provide for services and payment
on a month-to-month basis. Under most of our existing contracts, our clients
may reduce or cancel their agreements with us with little or no penalty. In
addition, we sometimes perform work for a client following expiration of a
contract or while the terms of a letter of intent, new contract or contract
extension are under negotiation. In those cases, we would not have a binding
agreement to rely on should a dispute arise with a client regarding delivery of
or payment for our services. Consequently, you should not anticipate our future
revenue based on the number or identity of the clients we have, the level of
services we have performed for those clients in the past or the scope of our
existing agreements with those clients. In addition, some clients may prohibit
us from doing work for their competitors.
Our stock price could decline because of quarterly fluctuations in our revenues
and operating results.
Our revenues and operating results may vary significantly from quarter-to-
quarter due to a number of factors. In future quarters, our operating results
may be below the expectations of public market analysts or investors, and the
price of our common stock may decline. Factors that could cause quarterly
fluctuations include:
. the beginning and ending of significant services for clients during a
quarter;
. the number, size and scope of our clients' direct-to-customer
initiatives;
. the utilization of our employees;
. fluctuations in demand for our clients' products;
. fluctuations in demand for our services resulting from clients' budget
constraints, program delays, economic downturns or similar events;
. expenses incurred in connection with possible acquisitions;
6
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. expenses relating to our sales and marketing efforts; and
. changes in the prices of services offered by us or our competitors.
Personnel and related costs constitute the substantial majority of our
operating expenses. Because we establish these expenses in advance of any
particular quarter, underutilization of our personnel may cause significant
reductions in our operating results for a particular quarter. Therefore, any
failure to generate revenues according to our expectations in a particular
quarter could seriously harm that quarter's financial results. To the extent
the addition of employees in anticipation of future work is not followed by
corresponding increases in revenues, we would incur additional expenses that
would not be matched by corresponding revenues.
We may not be successful in expanding our Strategic Consulting, Technology
Solutions and Customer Knowledge services.
Our ability to significantly increase our revenue and operating margins in
the future depends substantially on expanding our Strategic Consulting,
Technology Solutions and Customer Knowledge professional services. We have only
recently begun billing for our Strategic Consulting services and a material
amount of work done by our Technology Solutions group to date has not been
billable to our clients. In addition, we recently acquired Acorn to
significantly enhance our database marketing and analysis capabilities. We must
continue to develop our marketing efforts and billing policies with respect to
these services to increase revenues and profitability. To the extent we are
unable to do this, our margins and financial results may be impaired.
We may not be able to maintain or improve our e-Operations gross margins.
To date, a substantial majority of our revenue has come from our
communications center operations. Our ability to maintain or improve gross
margins for these operations depends on our continuing to provide high-end,
value-added services to our clients. If our e-Operations services become
commoditized or increased competition creates pricing pressures, our gross
margins could be impaired. Because our e-Operations services are expected to
generate a major portion of our revenue for the foreseeable future, any adverse
effect on the margins associated with these services would have a significant
negative effect on our overall gross margin.
Several of our executive officers have worked together for only a short time.
Ten of our fifteen executive officers joined us in 1999. As a result,
there is a risk that management will not be able to work together effectively
as a team. If we are unable to successfully integrate these and future managers
into our operations, we may not be able to execute our strategies, which could
harm our business.
We may be unable to attract, train, license and retain the talented people we
need to execute our growth plans.
We rely heavily on our management, consulting and key technical personnel
to develop business and execute our strategies. Most of our revenues to date
have been generated by the sales efforts of our senior management and key
technical personnel. We have not historically had a marketing department and
only recently hired a director of marketing as well as sales personnel. We need
to hire additional sales and marketing personnel to implement our sales and
marketing growth strategy. We may not be successful in attracting and retaining
additional sales and marketing personnel or in integrating our new sales and
marketing department with our operations.
We must attract a significant number of new employees to implement our
growth plans. The majority of our employees work in our communications centers
handling voice, fax, e-mail and other communications for our clients. It
generally takes approximately five weeks of training before a new employee can
perform these functions. In addition, a substantial portion of our e-Operations
services is for clients in regulated industries and may require that our
personnel working on behalf of these clients be licensed by
7
<PAGE>
governmental or regulatory agencies. Some of our personnel must be extensively
trained and pass rigorous tests to obtain certain licenses, such as NASD Series
6, 7 and 63 broker licenses. We have experienced, and may in the future
experience, difficulty getting personnel licensed as quickly as necessary to
meet clients' expanding programs. Additionally, if we have higher than
anticipated turnover in our communications centers, we may have to absorb costs
of training new personnel in excess of the costs to be paid by our clients.
Competition for talented people is particularly intense currently. In
addition, we face the issues of escalating recruitment and labor costs and
expectations of significant benefits. The loss of any of our key personnel or
our inability to meet our goals for hiring, training, licensing and retaining
personnel could damage our relationships with existing clients and impair our
business in the future.
We may not be able to manage and support our anticipated growth.
We are currently experiencing a period of significant growth that may
strain our managerial and operational resources. To support our growth, our
organizational infrastructure must grow accordingly. We expect this expansion
to continue to place a substantial strain on our managerial, operational and
financial resources. To manage the expected growth of our operations, we must:
(1) improve existing and implement new managerial, operational and financial
controls, reporting systems and procedures, (2) maintain and expand our
financial management information systems, (3) hire additional personnel who are
trained in managing these types of systems and (4) improve communications among
our management and operations personnel. If we fail to address these issues,
our revenues and profitability could be harmed because of the inability of our
operational infrastructure to support our levels of business activity.
We may not be successful in developing and maintaining brand awareness and a
good reputation.
An important part of our strategy is to develop and maintain widespread
awareness of our brand. We believe that establishing our brand and reputation
is critical for attracting and expanding our targeted client base, especially
as competition in our markets increases. To promote our brand, we plan to
increase our marketing expenses, which may cause our operating margins to
decline. In addition, our name may become closely associated with the business
success or failure of some of our clients. The failure or difficulties of one
of our high-profile clients could harm our reputation. If we are unsuccessful
in promoting or maintaining our brand or if our reputation is damaged, we may
become less competitive or lose market share.
Our recent transfer to Spider of software assets upon which we rely will lessen
our control over our primary technology platform and divert the attention of
some of our management and technical personnel.
To date, we have used our IntekWebDirect System as the technology platform
in the vast majority of solutions we have developed for our clients. In
November 1999, we transferred the proprietary software that we developed and
that is used in our IntekWebDirect System to a newly-formed subsidiary, Spider.
We then distributed all of the stock of Spider to our stockholders. Although we
have a 20-year non-exclusive license from Spider to use this software, as well
as certain other protections, we no longer control the development of the
software or the right to license it to third parties. If for any reason we had
to develop a new software platform to replace the software licensed from
Spider, we would incur significant costs and could experience substantial
delays in implementing solutions for our clients, which would harm our
business. In addition, Paul Tartre, president of our Technology Solutions
group, will spend 40% of his time on Spider matters, and Timothy O'Crowley, our
president and chief executive officer, will be chairman of the board of
directors of and a consultant to Spider. These roles will divert time that
these individuals would otherwise spend on our matters.
Spider may be unable to pay amounts due to us in connection with the spin-off.
In connection with the spin-off, we distributed $1 million to Spider. We
also agreed to share certain facilities, supplies and personnel with Spider,
for which it will pay us specified fees. We have accounted for the $1 million
distribution as a long-term receivable which is to be repaid by Spider's
minimum royalty
8
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obligation. If Spider is unable to generate sufficient revenue to pay its
obligations, we may not be able to recover the $1 million or the costs incurred
or to be incurred on its behalf pursuant to agreements entered into in
connection with the spin-off. This would have a negative effect on our results
of operations in the period in which the losses are recognized.
Demand for our clients' products and services could decline.
Our revenue depends upon customer demand for our clients' products and
services. In particular, a significant portion of our revenue is derived from
our communications center operations and depend upon the amount of time that
our personnel devote to our clients' customers. In addition, our revenue under
one new long-term contract with a major client are based on the client's sales
generated from our operation of its direct-to-customer initiative. We may enter
into additional contracts with similar terms. Accordingly, a decline in
customer demand for a significant client's products could result in
underutilization of our personnel and facilities, reduced revenue and
termination of our relationship with the client. These events could adversely
affect our business and financial results.
Our failure to comply with applicable regulations or to get and maintain
necessary licenses could harm our business.
Some of our operations for financial services, mortgage broker and
insurance clients are subject to regulation by federal, state and other
regulatory agencies. We also conduct marketing activities for clients in
regulated industries that require that we and, in some cases, certain of our
employees be licensed. New regulations and modifications to existing
regulations may be adopted at any time. In addition, the content and
geographical scope of our clients' initiatives change from time to time, which
may subject us to further regulations. Some agreements with our clients require
us to indemnify them if we are not in compliance with applicable regulations.
We are currently applying for licenses with respect to mortgage broker services
and telephone contact activities in certain states where we may have been
required to be licensed in connection with activities conducted in the past.
Our failure to have been so licensed or to comply with applicable regulations
in the future could expose us to enforcement actions, private actions for
damages, civil or criminal penalties or the possibility of being barred from
engaging in the securities business. We cannot assure you that we have been,
are now or will be in compliance with all applicable regulations.
We may not be successful in completing and integrating acquisitions.
We recently acquired Acorn to significantly enhance our database marketing
and analysis capabilities. Our strategy includes continuing to acquire
complementary businesses. Acquisitions are often expensive and time consuming
and require integrating widely dispersed operations with distinct corporate
cultures. These integration efforts may not succeed or may distract our
management from our existing business. Our failure to manage acquisitions
successfully could seriously harm our business. In addition, costs associated
with both completed and uncompleted acquisitions could adversely affect our
operating results and financial condition. Our operating results could also be
harmed by unanticipated liabilities of an acquired company, such as subsequent
litigation. We may need to raise additional funds to finance acquisitions, and
funds may not be available on favorable terms, if at all.
We could pay significant additional purchase consideration to the former
stockholders of Acorn.
If Acorn achieves its earn-out goals, we will pay significant additional
cash and stock consideration to the former stockholders of Acorn. The non-cash
amortization of this additional purchase consideration could significantly
affect our earnings over the next five years.
Our limited operating history makes it difficult for you to evaluate our
business, prospects and an investment in our common stock.
Although we were incorporated in March 1996, we did not begin providing a
number of our current services to clients until mid-1997. Our experience with
certain services we offer, such as the database
9
<PAGE>
marketing and analysis capabilities we significantly enhanced in October 1999,
are more limited. Because of our limited operating history, we may encounter
unexpected problems and expenses. These uncertainties make it difficult for you
to evaluate our business, prospects and an investment in our common stock.
We have incurred losses since inception and expect to incur losses for the
foreseeable future.
We have incurred net losses of approximately $36.2 million for the period
from inception (March 6, 1996) through December 31, 1999. Our stockholders'
deficit was approximately $42.0 million at December 31, 1999. We expect to
incur losses for the foreseeable future. In particular, we anticipate that our
sales and marketing expenses will increase substantially in the near future as
we add personnel and expand our brand awareness and other marketing efforts. We
do not anticipate that revenues will grow sufficiently in the near term to
offset these and other costs and expense increases.
Variations in our sales and implementation cycles make prediction of future
operating results difficult.
The sales cycle for our services is variable, typically ranging between a
few weeks to several months from initial contact with a potential client to
contract signing. Occasionally, the sales cycle is much longer. The timing of
the sales cycle may be affected by factors over which we have little or no
control, including the potential client's internal decision-making process and
our competitors' selling activities. In addition, the time required to
structure and implement a program for a client may vary depending upon the
complexity of the client's needs. This variability makes it difficult for us to
forecast future revenue amounts and timing.
A breach of our e-commerce security measures could reduce demand for our
services.
A requirement of the continued growth of e-commerce is the secure
transmission of confidential information over public networks. A party who is
able to circumvent our security measures could misappropriate proprietary
information or interrupt our operations. Any compromise or elimination of our
security could reduce demand for our services.
We may be required to expend significant capital and other resources to
protect against security breaches or to address any problems they may cause.
Because our activities involve the storage and transmission of proprietary and
confidential information, such as credit card numbers, security breaches could
damage our reputation and expose us to litigation and possible liability. Our
security measures may not prevent security breaches, and failure to prevent
security breaches may disrupt our operations.
Our business and services are subject to risks related to the Year 2000
problem.
The "Year 2000" problems of our clients, their vendors, our internal
systems and companies on the Internet generally could negatively affect our
systems or operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Issue."
Risks Related to Our Industry
Existing competitors may expand their services and new competitors may enter
our market.
A number of companies offer, on an individual basis, one or more of the
same services that we do. Many of these companies have greater name
recognition, marketing, technical and financial resources, and access to
capital than we have. In addition, there are relatively few barriers preventing
competitors from entering our market. We do not own any patented technology
that precludes or inhibits competitors from offering the same services we
offer. We also face competition from the in-house capabilities of existing or
potential clients, which could increase if economic conditions decline and
companies take or keep programs in-house to avoid layoffs. While competition in
any form can have a negative effect on our business, we believe the greatest
competitive threat to us would occur if a company were to offer the full range
of services we do on a more cost-effective or timely basis.
Our business depends on continued growth in the use and improvement of the
Internet.
10
<PAGE>
Because we are in the business of providing services to clients that use
the Internet to sell their products, our future success depends on the
continued expansion of, and reliance of consumers and businesses on, the
Internet. If consumers have difficulties when buying products on the Internet,
as happened with a number of Web sites this holiday season, they may be
reluctant to use the Internet in the future. In addition, the Internet may not
be able to support an increased number of users or an increase in the volume of
data transmitted over it. As a result, the performance or reliability of the
Internet may be adversely affected as usage increases. Increased demands will
require timely improvement of the infrastructure of the Internet, including
bandwidth access and other communications technology. The Internet has already
experienced certain outages and delays as a result of damage to portions of its
infrastructure. The effectiveness of the Internet may also decline due to
delays in the development or adoption of new technical standards and protocols
designed to support increased levels of activity. There can be no assurance
that the infrastructure, products or services necessary to maintain and expand
the Internet will be developed, or that the Internet will remain a successful
commercial medium.
Changes in government regulation of the Internet could adversely affect our
business.
Due to the increasing popularity and use of the Internet, any number of
state, federal, foreign and international laws and regulations may be enacted
regarding pricing, acceptable content, taxation, quality of products and
services, and other aspects of e-commerce. Any new legislation could inhibit
growth in the use of the Internet and decrease the acceptance and desirability
of the Internet as a commercial medium. Such a decrease could harm our future
operating performance.
Consumers' concerns and possible legislation about privacy of consumer
information on the Internet may adversely affect our business.
An important feature of our Customer Knowledge services is the ability to
collect and analyze customer data to refine and measure the effectiveness of
marketing programs. This information is captured with or without consumers'
knowledge when they visit a site on the Internet and volunteer information in
response to questions or other forms of solicitation concerning their
backgrounds, interests and preferences. However, privacy concerns may cause
consumers to stop visiting certain Web sites that collect this data or to
resist providing the personal data necessary to support this capability.
Moreover, privacy concerns, whether or not valid, may indirectly inhibit market
acceptance of the Internet as a means of commerce and marketing. Privacy
concerns could be heightened by legislative or regulatory requirements that
mandate notification to Internet users that the data captured on certain
Internet sites may be used by marketing entities to address product promotion
and advertising to that user. We can make no assurances that such legislation
or regulatory requirements will not be adopted. If the privacy concerns of
consumers are not adequately addressed, our future operating performance could
be harmed.
We need to keep pace with changing technologies.
Our success depends in part on our ability to integrate and adapt our
services to keep pace with advances in communications technologies and the new
and improved devices and services that result from these changes. Our inability
to respond quickly and cost-effectively to changing technologies and devices
could make our existing service offerings non-competitive and may cause us to
lose market share.
11
<PAGE>
Risks Related to the Offering
After the offering, a few existing stockholders could control or strongly
influence actions requiring the approval of stockholders.
After the offering, the stockholders named below will own approximately
the percentages of the outstanding common stock shown:
<TABLE>
<S> <C>
The Beacon Group III - Focus Value Fund, L.P. .......... %
Conning Capital Partners V, L.P. .......................
Timothy O'Crowley.......................................
Brinson Partners........................................
Resource Bancshares.....................................
---
%
===
</TABLE>
If these stockholders were to act together, they could substantially
influence our business and control certain stockholder votes. This
concentration of stock ownership may discourage someone from making a tender
offer or bid to acquire us at a price per share higher than the then current
market price.
Our stock price may be extremely volatile after the offering.
Prior to this offering, there has been no public market for shares of our
common stock. The initial public offering price of the shares of our common
stock will be determined by negotiation between representatives of the
underwriters and us. This price will not necessarily reflect the market price
of the common stock following this offering, and you may not be able to resell
your shares at or above the initial public offering price.
The market price for our common stock following this offering may be
volatile and could decline or fluctuate in response to a variety of factors,
including:
. the announcement of new services or pricing policies by us or our
competitors;
. acquisitions or strategic alliances by us or others in our industry;
. quarterly variations in our or our competitors' results of operations;
. failure to achieve financial analysts' or other estimates of our
results of operations for any fiscal period;
. changes in earnings estimates or recommendations by securities
analysts;
. announcements of technological innovations that render our
capabilities outdated;
. developments in our industry; and
. general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.
In addition, stock prices for many companies in the high technology and
emerging growth sectors have experienced wide fluctuations that have often been
unrelated to their operating performance. These factors and fluctuations, as
well as general economic, political and market conditions, may negatively
affect the market price of our common stock.
We may seek additional funding or make acquisitions, which may be dilutive to
stockholders or impose operational restrictions.
If we raise additional funds or make acquisitions through the issuance of
equity securities, it will reduce the percentage ownership of our stockholders.
These stockholders may experience additional dilution in net book value per
share, and any additional equity securities may have rights, preferences and
privileges senior to those of the holders of common stock. In addition, debt
financing, if available, may involve restrictive covenants that limit our
operating flexibility with respect to certain business matters.
12
<PAGE>
You should consider the following additional risks before purchasing our stock:
. declines in our stock price or other events could result in securities
class action litigation against us. Securities litigation involves
substantial costs and use of management's time, which could adversely
affect our business and financial results;
. our charter documents contain provisions that could make it more
difficult for us to be acquired and for you to receive a premium for
your stock;
. substantial sales of our common stock by current stockholders could
cause a decline in the price of our common stock;
. the exercise of options and warrants and purchases of stock under our
employee benefit plans will dilute your percentage ownership of our
common stock; and
. we may use the proceeds of this offering differently than you may
prefer or may fail to maximize our return on the proceeds.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus. These
statements are subject to risks and uncertainties, and there can be no
guarantee that these statements will prove to be correct. Forward-looking
statements include assumptions as to how we may perform in the future. When we
use words like "believe," "could," "may," "will," "estimate," "continue,"
"seek," "anticipate," "intend," "expect," "predict," "potential," and "plan" or
similar expressions, we are making forward-looking statements.
We have based these statements on our current expectations about future
events. Although we believe that the expectations reflected in our forward-
looking statements are reasonable, we cannot guarantee that these expectations
actually will be achieved. In evaluating these statements, you should consider
various factors, including the risks set forth in the section entitled "Risk
Factors" beginning on page 6. These risk factors may cause actual results to
differ materially from any forward-looking statements.
USE OF PROCEEDS
Assuming an initial public offering price of $ per share, we will
receive net proceeds of approximately $ from the sale of shares of common
stock in this offering (approximately $ if the underwriters exercise their
over-allotment in full), after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering for general corporate
purposes, including capital expenditures and working capital. In addition, we
may, if appropriate opportunities arise, use an undetermined portion of the net
proceeds to acquire or invest in companies offering services or products
complementary to ours. However, we currently have no commitments or agreements
with any third party regarding any such potential acquisition or investment.
Pending such uses, we will invest the net proceeds in investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not currently anticipate paying any
cash dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table shows our capitalization at December 31, 1999:
. on an actual basis;
. on an unaudited pro forma basis giving effect to (1) the automatic
conversion upon the closing of this offering of all outstanding shares
of preferred stock into 9,560,188 shares of common stock and (2) the
issuance of 1,333,433 shares of common stock to holders of our
preferred stock as payment-in-kind dividends assuming the closing of
this offering on December 31, 1999; and
. on an unaudited pro forma basis as adjusted to reflect (1) the
issuance of shares of common stock in this offering and the
receipt by us of net proceeds of approximately $ assuming an
initial public offering price of $ per share (after deducting the
estimated underwriting discounts and commissions and estimated
offering expense), and (2) the issuance of additional shares of
common stock to holders of our Series F preferred stock assuming the
sale of shares in this offering at an initial offering price of $
per share (see "Related Party Transactions-Securities Issuances and
Loans").
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Pro forma
as
Actual Pro forma adjusted
----------- ------------ ------------
(unaudited)
(in thousands, except share data)
<S> <C> <C> <C>
Long-term borrowings, net of current
portion................................ $ 1,722 $ 1,722 $ 1,722
----------- ----------- ---------
Convertible Preferred Stock, subject to
mandatory redemption; 79,000,000 shares
authorized, 35,255,741 shares issued
and outstanding actual; convertible
into 38,240,741 common shares; no
shares issued and outstanding pro forma
and pro forma as adjusted.............. 59,408 -- --
----------- ----------- ---------
Stockholders' equity (deficit):.........
Common stock, 170,000,000 shares
authorized, 1,881,444 shares issued
and outstanding, actual; 100,000,000
shares authorized, pro forma and pro
forma as adjusted; shares issued
and outstanding, pro forma; shares
issued and outstanding, pro forma as
adjusted ............................ 1 2
Additional paid-in capital.............. -- 59,407
Unearned compensation................... (1,266) (1,266)
Accumulated deficit..................... (40,732) (40,732)
----------- ----------- ---------
Total stockholders' equity
(deficit).......................... (41,997) 17,411
----------- ----------- ---------
Total capitalization................ $ 19,133 $ 19,133 $
=========== =========== =========
</TABLE>
The outstanding share information shown in the table above excludes:
. 2,330,563 shares of common stock subject to options granted under our
1997 and 1998 stock plans at a weighted average exercise price of
$6.28 per share;
. 4,750,000 shares of common stock available for future issuance under
our 2000 Stock Incentive Plan and our 2000 Employee Stock Purchase
Plan;
. 181,250 shares of common stock subject to a warrant issued to Sony
Electronics at an exercise price of $8.52 per share; and
. 527,778 shares reserved for contingent future issuance to the former
stockholders of Acorn.
14
<PAGE>
An additional 170,757 shares of common stock will be issued to the holders
of preferred stock as payment-in-kind dividends subsequent to December 31, 1999
assuming the closing of this offering on March 31, 2000.
For additional information about our stock plans, see "Employee Benefit
Plans," and for information about the warrant issued to Sony Electronics, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15
<PAGE>
DILUTION
The unaudited pro forma net tangible book value of our common stock at
December 31, 1999 was $ , or $ per share of common stock. The unaudited
pro forma net tangible book value per share represents the amount of our total
tangible assets less total liabilities, divided by shares of common stock
outstanding after giving effect to (1) the conversion of all outstanding shares
of preferred stock into 9,560,188 shares of common stock upon the closing of
this offering, (2) the issuance of 1,333,433 shares of common stock to holders
of our preferred stock as payment-in-kind dividends assuming the closing of
this offering on December 31, 1999, and (3) the issuance of additional
shares of common stock to holders of our Series F preferred stock assuming the
sale of shares in this offering at an initial offering price of $ per share
(see "Related Party Transactions - Securities Issuances and Loans"). It does
not include shares that we may issue in connection with the acquisition of
Acorn upon Acorn's achievement of certain contingencies.
After giving effect to this offering and the receipt of approximately $
of net proceeds from this offering (based on an assumed initial public offering
price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses), our unaudited pro
forma as adjusted net tangible book value at December 31, 1999 would have been
approximately $ million, or $ per share. This amount represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to purchasers
of common stock in this offering. Dilution is determined by subtracting
unaudited pro forma as adjusted net tangible book value per share after this
offering from the amount of cash paid by a new investor for a share of common
stock. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Unaudited pro forma as adjusted net tangible book value per
share at December 31, 1999..................................... $
Increase in unaudited pro forma as adjusted net tangible book
value per share attributable to new investors..................
----
Unaudited pro forma as adjusted net tangible book value per share
after this offering..............................................
----
Dilution per share to new investors............................... $
====
</TABLE>
The following table summarizes as of December 31, 1999, on the unaudited
pro forma as adjusted basis described above, the number of shares of common
stock purchased from us, the total consideration paid to us, and the average
price per share paid by existing stockholders and by new investors who purchase
shares of common stock in this offering, before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price Per
Number Percent Amount Percent Share
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ $ $
New investors(1)........
-------- -------- ---------- ---------
Total................. $
======== ======== ========== =========
</TABLE>
- ------------------
(1) If the underwriters' over-allotment option is exercised in full, sales in
this offering will reduce the number of shares of common stock held by the
existing stockholders to approximately % of the total shares of common
stock outstanding after the offering and will increase the number of shares
held by new investors to , or approximately % of the total shares of
common stock outstanding after the offering. See "Underwriting."
16
<PAGE>
The above table assumes no exercise of any outstanding stock options or
warrants. As of December 31, 1999, there were options outstanding to purchase a
total of 2,330,563 shares of common stock with a weighted average exercise
price of $6.28 per share. In January 2000, we issued a warrant to Sony
Electronics to purchase 181,250 shares at $8.52 per share. If any of these
options or the warrant are exercised, there will be further dilution to new
public investors. Please see "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Employee Benefit
Plans," and Notes 10 and 13 of Notes to Consolidated Financial Statements for
additional information about the outstanding options and warrant.
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Unaudited Pro
Forma Condensed Financial Information," included elsewhere in this prospectus.
Historical Presentation
The historical statements of operations data set forth below are derived
from and qualified by reference to our financial statements included elsewhere
in this prospectus. The historical periods are not necessarily indicative of
results to be expected in any future period.
Pro Forma Presentation
The pro forma financial data have been derived from our unaudited pro
forma condensed financial statements which were prepared to illustrate the
effects of certain transactions and events and the application of the net
offering proceeds. For a more complete discussion, this data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The unaudited pro forma consolidated statements of
operations data for the year ended December 31, 1999 give effect to our
acquisition of Acorn and the spin-off of Spider as if those transactions had
occurred on January 1, 1999. The pro forma consolidated balance sheet data give
effect to the sale of shares in this offering at an assumed initial public
offering price of $ per share (after deducting the estimated underwriting
discounts and commissions and estimated offering expenses) as if this offering
had occurred on December 31, 1999. The following transactions are assumed to
have occurred on January 1, 1999 in the pro forma as adjusted per share data in
the consolidated statements of operations data and on December 31, 1999 in the
pro forma consolidated balance sheet data:
. the issuance of shares in this offering at an assumed initial
public offering price of $ per share (after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses);
. the automatic conversion of all shares of preferred stock outstanding
as of December 31, 1999 into 9,560,188 shares of common stock;
. the issuance of 1,333,433 shares of common stock to the holders of our
preferred stock as payment-in-kind dividends as of December 31, 1999;
and
. the issuance of additional shares of common stock to the holders
of our Series F preferred stock assuming the sale of shares in this
offering at an initial offering price of $ per share. See "Related
Party Transactions - Securities Issuances and Loans."
Additional shares of common stock will be issued to the holders of
preferred stock as payment-in-kind dividends subsequent to December 31, 1999.
If this offering were to close on March 31, 2000, we would issue 170,757
additional shares.
18
<PAGE>
<TABLE>
<CAPTION>
Period from
March 6, 1996
(inception) Years Ended December 31,
to December 31, ------------------------------------------------
1996 1997 1998 1999
--------------- ---------- ---------- ------------------------
Pro forma
Actual as adjusted
----------- -----------
(unaudited)
(in thousands, except for share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue................. $ 480 $ 9,546 $ 17,664 $ 24,699 $ 26,707
Direct cost of servic-
es..................... (211) (7,767) (13,209) (16,986) (17,964)
---------- ---------- ---------- ----------- --------
Gross profit............ 269 1,779 4,455 7,713 8,743
Operating expenses:
Selling, general and
administrative........ 2,046 10,464 9,312 15,020 15,129
Depreciation and amor-
tization.............. 25 2,941 3,755 3,533 3,933
Research and develop-
ment.................. -- 458 897 1,079 278
---------- ---------- ---------- ----------- --------
Total operating ex-
penses................ 2,071 13,863 13,964 19,632 19,340
---------- ---------- ---------- ----------- --------
Loss of operations...... (1,802) (12,084) (9,509) (11,919) (10,597)
---------- ---------- ---------- ----------- --------
Other (expense) income:
Loss from Spider........ -- -- -- (1,055) (3,320)
Interest income........ 11 245 266 134 134
Interest expense....... (16) (30) (17) (150) (194)
Loss on disposal of
equipment and other... (2) (26) (270) (20) (20)
---------- ---------- ---------- ----------- --------
(7) 189 (21) (1,091) (3,400)
---------- ---------- ---------- ----------- --------
Net loss................ $ (1,809) $ (11,895) $ (9,530) $ (13,010) $(13,997)
========== ========== ========== =========== ========
Net loss applicable to
common stockholders:
Net loss............... $ (1,809) $ (11,895) $ (9,530) $ (13,010) $
Accretion of mandatorily
redeemable convertible
preferred stock........ (90) (469) (864) --
Cummulative dividends to
preferred
stockholders........... -- -- -- (11,361) --
Loss on repurchase of
Series A preferred
stock.................. -- (1,241) -- -- --
Series C preferred
stock.................. -- -- (1,465) -- --
---------- ---------- ---------- ----------- --------
Net loss applicable to
common stockholders.... $ (1,809) $ (13,226) $ (11,464) $ (25,235) $
========== ========== ========== =========== ========
Basic and diluted net
loss per share......... $ (1.07) $ (7.09) $ (6.14) $ (13.50) $
---------- ---------- ---------- ----------- --------
Weighted average shares
outstanding--basic and
diluted................ 1,697,417 1,866,585 1,867,941 1,869,803
========== ========== ========== =========== ========
Pro forma net loss per
share, assuming conver-
sion of preferred stock
and accrued dividends:
Basic and diluted net
loss per share........ $ (1.26)
===========
Weighted average common
shares outstanding--
basic and diluted..... 10,364,936
===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1997 1998 1999
------ ------- ------- --------------------
Pro forma
Actual as adjusted
------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Da-
ta:
Cash and cash equivalents...... $ 441 $ 2,235 $ 3,752 $ 6,204 $
Working capital................ 268 1,897 7,082 7,533
Total assets................... 1,296 17,086 18,644 26,378
Long-term borrowing, net of
current portion............... 58 20 7 1,722 1,722
Total stockholders' equity
(deficit)..................... (1,219) (12,920) (22,990) (41,997)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with Selected Historical
and Pro Forma Financial Data and the financial statements and notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those stated in the Risk Factors section and elsewhere in this prospectus.
Overview
We provide an integrated set of strategic, technological, operational and
analytical solutions that takes our clients from concept to launch and
operation of their e-commerce and other direct-to-customer sales and marketing
initiatives. Our clients are Fortune 1000 and emerging Web-based companies
that, either because they sell complex products or employ complicated sales
processes, require sophisticated solutions to effectively conduct their direct-
to-customer initiatives. Our services enable our clients to rapidly capitalize
on market opportunities, access sophisticated technology, use the services of
highly trained personnel and improve operating efficiencies.
We incorporated in Colorado in March 1996 and reincorporated in Delaware
in August 1996. In February 1997, we acquired Protocall Communications, a
customer support company in Livermore, California. The net purchase price of
Protocall after assumption of liabilities was approximately $6.7 million. We
recorded an intangible asset of $3.0 million for acquired customer
relationships and $3.6 million as goodwill. We are amortizing the customer
relationship intangible over three years and the goodwill amount over five
years. As a result of the Protocall acquisition, our communications center
services expanded. We opened our Hayward, California communications center in
May 1997.
We grew our business significantly in 1998. This growth came primarily
from expanding our communications center and technology development services to
existing clients and adding new clients. During 1999, we continued to expand
our e-Operations services, which include our communications center operations,
and our Technology Solutions services, as we increased services to our major
clients and, to a lesser extent, added new clients. We opened a large
communications center in Fort Scott, Kansas in June 1999 to support this growth
and planned future growth.
In October 1999, we acquired Acorn, which provides strategic consulting
and sophisticated data analytic services to its clients. The initial purchase
price for Acorn after assumption of outstanding borrowings was approximately
$2.0 million. Approximately $493,000 of the purchase price was allocated to
acquired goodwill and $950,000 to acquired intangibles. Goodwill will be
amortized on a straight-line basis over five years and intangibles will be
amortized on a straight-line basis over three years. We also agreed to make
significant future cash and stock payments to the former stockholders of Acorn
if Acorn meets certain earnings targets over the next three years. The non-cash
amortization of this additional purchase consideration could significantly
affect our earnings over the next five years.
Effective October 1, 1999, we transferred the rights to the proprietary
software that we had developed and that is used in our IntekWebDirect System to
a newly-formed subsidiary, Spider. We then distributed the stock of Spider to
our stockholders. Fifteen of our technical personnel became employees of
Spider. Spider is now primarily responsible for research and development
efforts with respect to the transferred software. As a result, our research and
development expenses for the fourth quarter of 1999 and on a pro forma basis
for 1999 were, and are expected to be for the foreseeable future, lower than
historical levels.
For federal income tax purposes, the distribution of the Spider shares to
our stockholders was a taxable event to us. The taxable gain was determined
based upon an independent valuation of Spider. To the
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extent the IRS requires the valuation of Spider to be increased and the taxable
gain exceeds the tax operating loss for 1999, we would owe alternative minimum
taxes, the payment of which would adversely affect our cash flow. Any increase
in the valuation would also decrease our net operating loss carryforward.
In connection with the spin-off, we distributed $1 million to Spider. We
also agreed to share certain facilities, supplies and personnel with Spider,
for which it will pay us specified fees. We have accounted for the $1 million
distribution as a long-term receivable which is to be repaid by Spider's
minimum royalty obligation. If Spider is unable to generate sufficient revenue
to pay its obligations, we may not be able to recover the $1 million or the
costs incurred or to be incurred on its behalf pursuant to agreements entered
into in connection with the spin-off. This would have a negative effect on our
results of operations in the period in which the losses are recognized.
To date, a substantial majority of our revenue has come from our e-
Operations services and nearly all of the remainder has been from Technology
Solutions services. In the fourth quarter of 1999, we began billing for our
Strategic Consulting services, which we had previously provided primarily as a
way to attract new clients for Technology Solutions and e-Operations services.
We also significantly enhanced our database marketing and analysis services in
the fourth quarter through our acquisition of Acorn. These types of
professional services traditionally have higher gross margins than our e-
Operations services.
Substantially all of our revenue to date has been based on time and
expenses as incurred. Recently we entered into a long-term contract with a
major client under which our revenues will be based primarily upon a percentage
of the client's revenues generated from our operation of its direct-to-customer
initiative. We may enter into additional contracts with similar terms in the
future. In addition, we have recently entered into fixed-price agreements for
certain Strategic Consulting services. To date, revenue under these fixed-price
agreements has been immaterial.
Direct cost of services consists primarily of compensation and benefits to
our employees engaged in the direct delivery of professional services related
to the development, implementation and support of programs for our clients.
Direct cost of services also includes materials, training, telecommunication
expenses and equipment necessary for execution of our clients' programs. Under
our agreements with Spider, we are not required to pay license fees for
transferred software until November 2002, which will have a positive effect on
our direct cost of services until that time.
Research and development expenses consist of charges, including labor and
materials, related to the development and enhancement of software and
technology platforms used in providing services to our clients.
Selling, general and administrative expenses consist primarily of
salaries, commissions, benefits, and related expenses for personnel engaged in
sales and client support; salaries and related expenses of executive
management, human resources, finance and administrative personnel; expenses
related to our facilities; marketing and branding expenses, including trade
shows and promotional events; and other general corporate expenses.
In January 2000, we issued a warrant to Sony Electronics for 181,250
shares of common stock. The value of this warrant is approximately $1.1 million
which will be changed to operations in the first quarter of 2000.
Depreciation and amortization expenses consist of the depreciation of
equipment used in our operations including phone switches and computer
equipment at our facilities.
Interest income is earned on cash balances in our bank accounts and short-
term investments. Interest expense is incurred on our debt and capital lease
obligations.
In connection with the Series F preferred stock financing, we provided
certain guarantees to the Series F preferred stock investors regarding the
future value of their investment. The adjustments we will be required to make
upon the closing of this offering will result in a charge of $13.2 million to
net loss applicable to common stockholders in the quarter in which the closing
occurs.
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Pro Forma Results of Operations
The pro forma information takes into account the acquistion of Acorn and
the spin-off of Spider as if those transactions had occurred on January 1,
1999. On a pro forma basis, Acorn contributed $2.9 million in revenue during
1999. In addition, on a pro forma basis, Acorn contributed $1.5 million in
gross profit, while incurring $2.1 million in operating expenses, resulting in
a loss for the year of $0.7 million.
During the first nine months of 1999, on a pro forma basis, Spider
incurred $1.2 million in expenses related to support services such as
accounting, payroll, human resources and insurance. Spider also incurred $1.1
million in research and development expenses related to the continued
development of the IntekWebDirect System. On a going-forward basis, R&D will
not include the effect of Spider. For the full year 1999, Spider's operating
expenses on a pro forma basis were $3.3 million.
Historical Results of Operations
The following table sets forth for the periods presented certain data from
our consolidated statements of operations as a percentage of revenues. These
data, other than the pro forma financial information, have been derived from
our audited financial statements and should be read in conjunction with the
financial statements and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 6, 1996
(inception) Years Ended December 31,
to December 31, ---------------------------------
1996 1997 1998 1999
--------------- ---- ---- -------------------
Pro forma
Actual as adjusted
------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue....................... 100% 100% 100% 100% 100%
Direct cost of services....... (44) (81) (75) (69) (67)
---- ---- --- ---- ----
Gross profit.................. 56 19 25 31 33
Operating expenses:
Selling, general and
administrative............. 426 110 53 61 57
Depreciation and
amortization............... 5 31 21 14 13
Research and development.... -- 5 5 4 1
---- ---- --- ---- ----
Total operating expenses.. 431 146 79 79 72
---- ---- --- ---- ----
Loss from operations.......... (375) (127) (54) (48) (40)
---- ---- --- ---- ----
Other (expense) income:
Loss from Spider.............. -- -- -- (4) (12)
Interest income............. 2 3 2 1 1
Interest expense............ (3) -- -- (1) (1)
Loss on disposal of
equipment and other........ -- -- (2) -- --
---- ---- --- ---- ----
Net loss...................... (376)% (124)% (54)% (53)% (52)%
==== ==== === ==== ====
</TABLE>
Comparison of Years Ended December 31, 1997, 1998 and 1999
Revenue. Revenue increased 39.5% to $24.7 million in 1999, from $17.7
million in 1998. This increase was primarily due to growth in initiatives for
major existing clients, as well as the addition of new clients and billing rate
increases. Furthermore, our acquisition of Acorn contributed an additional $0.9
million during the fourth quarter of 1999. In 1999, we discontinued working
with certain clients whose initiatives did not require the sophisticated level
of services on which we are focusing. Revenue increased 86.3% to $17.7 million
in 1998 from $9.5 million in 1997. This increase was primarily due to revenue
from our three largest clients that we had added in late 1997, as well as the
addition of new clients and the expansion of our Technology Solutions services.
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<PAGE>
Direct cost of services. Direct cost of services in 1999 was $17.0
million, or 68.8% of revenue, as compared to $13.2 million, or 74.8% of
revenue, in 1998. On a dollar basis, the increase in direct cost of services
was due to the increase in activities related to providing our services. Direct
cost of services in 1998 was $13.2 million or 74.8% of revenue compared to $7.8
million or 81.4% of revenue in 1997. This dollar increase resulted from costs
related to increased services to new and existing clients. The improvements as
a percentage of revenue in 1999 and 1998 over the respective prior years were
related primarily to the leveraging of fixed direct costs against increased
revenue.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses were $15.0 million, or 60.8% of revenue, in 1999
compared to $9.3 million, or 52.7% of revenue, in 1998. This growth in SG&A
resulted from hiring additional management and support personnel, adding
facilities and other activities related to the increase in revenue. In June
1999, we opened a new communications center in Fort Scott, Kansas. Our
acquisition of Acorn in October 1999 resulted in additional SG&A expense of
$0.3 million. In addition, we incurred $0.4 million in compensation expense
related to incentive stock options. SG&A expenses in 1998 were $9.3 million, or
52.7% of revenue, compared to $10.5 million, or 109.6% of revenue, for 1997.
This decrease was primarily a result of the termination of certain management
personnel acquired in the Protocall acquistion.
Depreciation and amortization expenses. Depreciation and amortization
(D&A) expenses in 1999 were $3.5 million compared to $3.8 million in 1998. The
decrease in D&A expenses was a result of the disposal or full depreciation of
certain equipment from the acquisition of Protocall. D&A in 1998 was $3.8
million compared to $2.9 million in 1997. The increase of $0.8 million in 1998
compared to 1997 resulted from the depreciation of equipment in our Hayward
facility for a full year and new equipment added during the year.
Research and development. Research and development (R&D) expenses in 1999
were $1.1 million compared to $0.9 million in 1998. The increase in R&D
expenses was a result of continued development and support of the
IntekWebDirect System. In October 1999, we transferred the IntekWebDirect
System software to Spider and we then distributed all of the stock of Spider to
our stockholders. Consequently, R&D expenses in the fourth quarter of 1999 were
negligible. Research and development expenses increased in 1998 to $0.9 million
from $0.5 million in 1997 due to the continued development and support of the
IntekWebDirect System.
Interest income. Interest income in 1999 was $0.1 million compared to $0.3
million in 1998 and $0.2 million in 1997. Fluctuations from year to year were
due to preferred stock financings and the investment of the proceeds in short-
term financial instruments.
Interest expense. Interest expense in 1999 was $0.2 million. Interest
expense in 1998 and 1997 was negligible. Interest expense in 1999 resulted from
our borrowings against our lines of credit and leases for office equipment and
furniture.
Loss on disposal of equipment and other expense. In early 1998, we
disposed of telecommunications equipment we considered no longer useful in our
operations. The result was a $0.3 million loss.
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<PAGE>
Selected Unaudited Historical Quarterly Financial Data
The following table sets forth certain unaudited consolidated statements
of operations data for the eight quarters ended December 31, 1999. In our
opinion, the quarterly data include all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of such
information. Operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 3,402 $ 3,646 $ 4,989 $ 5,627 $ 5,432 $ 4,879 $ 5,567 $ 8,821
Direct cost of
services............... (3,086) (2,688) (3,404) (4,031) (3,638) (3,420) (4,296) (5,632)
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 316 958 1,585 1,596 1,794 1,459 1,271 3,189
Operating expenses:
Selling, general and
administrative........ 2,213 2,143 2,445 2,511 2,911 3,182 3,864 5,063
Depreciation and
amortization.......... 1,070 1,056 770 859 765 775 875 1,118
Research and
development........... 154 189 224 330 328 344 389 18
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,437 3,388 3,439 3,700 4,004 4,301 5,128 6,199
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,121) (2,430) (1,854) (2,104) (2,210) (2,842) (3,857) (3,010)
------- ------- ------- ------- ------- ------- ------- -------
Other (expense) income:
Loss from Spider....... -- -- -- -- -- -- -- (1,055)
Interest (income)...... (26) (87) (108) (45) (14) (45) (23) (52)
Interest expense....... 1 13 1 2 5 6 8 131
Loss on disposal of
equipment and other... 269 1 -- -- -- 1 11 8
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,365) $(2,357) $(1,747) $(2,061) $(2,201) $(2,804) $(3,853) $(4,152)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Liquidity and Capital Resources
We have raised $51.0 million of equity capital to date from the sale of
common and preferred stock, net of offering expenses.
Cash and cash equivalents at the end of 1997, 1998 and 1999 were $2.2
million, $3.8 million, and $6.2 million, respectively. The increases in cash
were primarily from the net proceeds from the issuance of convertible preferred
stock of $22.8 million in 1997, $11.8 million in 1998 and $14.5 million in
1999. The proceeds were used primarily to fund operating activities, capital
expenditures and acquisitions.
Cash used in operations for 1997, 1998 and 1999 was $9.5 million, $9.0
million and $6.6 million, respectively. Our negative operating cash flow
resulted primarily from our net losses experienced over these periods. During
these periods we continued to develop our communication centers, hire key
management and other personnel and expand our technology infrastructure to
support our growth.
Cash used in investing activities was $9.0 million, $1.2 million and $7.4
million for 1997, 1998 and 1999, respectively. We have invested in
communication centers, expanded our technology resources and enhanced our
support infrastructure. In 1997, we acquired Protocall for $6.7 million, of
which $3.3 million was in cash. We also spent $5.6 million for computer and
communications equipment and facilities expansion, including the opening of a
communications center in Hayward, California. During 1999, we opened a
communications center in Fort Scott, Kansas and moved our headquarters
operations, which resulted in capital investments in computer systems, facility
expansion, furniture and fixtures. Effective October 1, 1999, we purchased
Acorn for initial consideration of $ 2.0 million, of which $0.6 million was in
cash.
Our financing activities have generated cash of $20.3 million, $11.7
million and $16.5 million for 1997, 1998 and 1999 respectively. Net proceeds
from the sale of preferred equity have generated cash of
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<PAGE>
$22.8 million, $11.8 million and $14.5 million for 1997, 1998 and 1999,
respectively. In June 1999, we obtained a two-year revolving line of credit
from Silicon Valley Bank. Borrowings under this secured line of credit bear
interest at the bank's prime rate plus 1.5%. The credit limit is based on 80%
of the eligible accounts receivable balance up to a maximum credit limit of
$5.0 million. In September 1999, we obtained a 30-month, $2.5 million credit
facility secured by the capital assets at the Fort Scott communications center
and a junior lien on most of our other assets. In the fourth quarter of 1999,
we drew $2.5 million against this line to purchase equipment for use in the
Fort Scott facility.
In March 1999, we received an $800,000 grant from the Kansas Department of
Commerce and Housing to offset costs for instruction, curriculum development,
training equipment, facilities and other expenses associated with our Fort
Scott facility. Under the terms of the grant, we are required to maintain
certain employee and wage levels in our Fort Scott facility until the third
quarter of 2001. We have been reimbursed for approximately $300,000 of expenses
as of December 31, 1999. If there are insufficient funds available to fund this
grant in the future, we may not be reimbursed for expenses covered by the grant
until funds become available, if at all.
In addition, in April 1999, we received a $400,000 loan from the Kansas
Department of Commerce and Housing under the Kansas Economic Opportunity
Initiatives Fund. The loan is interest free and will be forgiven in equal
amounts over a five-year period provided that we meet and maintain certain
employee and wage levels and do not vacate our Fort Scott facility during this
period. If we fail to meet these requirements, or otherwise breach the
agreement, we must repay all or part of the amount of the loan plus 12%
interest.
We believe that the proceeds from this offering together with our cash and
borrowing capacity will be sufficient to fund our activities for at least the
next 12 months.
If the offering is not completed in a timely manner, we will need to
decrease our planned business expansion efforts or raise additional capital
through debt or private equity placements to fund our activities over this
period. There is no assurance that such alternative financing will be available
on terms acceptable to us, if at all. Beyond twelve months, we expect to
generate sufficient cash flow from operations to fund our business. In
addition, although there are no commitments or agreements with any third party
with respect to any acquisition of other businesses, products or technologies,
we may, from time to time, evaluate potential acquisitions of other businesses,
products and technologies. In order to consummate potential acquisitions, we
may need to issue equity or debt securities and these issuances may be dilutive
to existing investors.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities"("SFAS No. 133").
The Company is required to adopt SFAS No. 133, as amended by SFAS No. 137, in
2001. SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Intek has not entered into any derivative financial
instruments or hedging activities. As a result, management believes adoption of
SFAS No. 133 will not have a material impact on the financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue
recognition in financial statements of public companies. Changes in accounting
policies to apply the guidance of SAB No. 101 must be adopted by recording the
cumulative effect of the change in the fiscal quarter ending March 31, 2000.
Management has not yet determined the effect SAB No. 101 will have, if any, on
its accounting policies or the amount of the cumulative effect to be recorded
from adopting SAB No. 101.
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<PAGE>
Quantitative and Qualitative Disclosures about Market Risks
Market risks represent the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
market prices and rates. We are exposed to market risks from changes in United
States interest rates. Historically, and as of December 31, 1999, we have not
used derivative instruments or engaged in hedging activities.
We had long-term borrowings (including current maturities) of $3.2 million
as of December 31, 1999. Of this amount, $2.3 million bears interest at a fixed
rate of 13.9%. The fair value of the fixed-rate debt would change approximately
$0.4 million for a 0.50% change in the level of interest rates.
We temporarily invest our excess cash in money market funds. Changes in
interest rates would not significantly affect the fair value of these temporary
cash investments because they are repriced on a daily basis.
Inflation
As a result of the relatively low levels of inflation during the last
three years, inflation did not have a significant impact on our results of
operations for those periods.
Income Taxes
We have historically concluded that there exists substantial doubt as to
the recoverability of our deferred tax assets. As a result, we have recorded a
valuation allowance of $9.7 million against those deferred tax assets. Our view
as to the ultimate recoverability of our deferred tax assets may change in the
near term based principally upon the successful execution of our business plan.
Year 2000 Issue
The "Year 2000" issue has been a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery after December 31,
1999. These problems arise from the inability of hardware and software to
distinguish dates in the "2000's" from dates in the "1900's" and from other
sources such as the use of special codes and conventions in software that make
use of a date field. We have not experienced any significant disruptions from
the Year 2000 rollover; however, we recognize the need to continue to ensure
that our operations will not be adversely affected by still undiscovered Year
2000 software failures.
To date, we have not incurred any material costs directly associated with
Year 2000 compliance efforts. We do not expect the total cost of Year 2000
problems to be material to our business, financial condition or operating
results. We will continue to evaluate any new software and hardware systems
that we may acquire to determine whether they are Year 2000 compliant. Despite
our current assessment, we may not identify and correct all significant Year
2000 problems on a timely basis. If the representations made by our various
vendors regarding Year 2000 compliance are inaccurate, additional Year 2000
compliance efforts may involve significant time and expense, and unremedied
problems could harm our business.
In addition, the software and hardware systems of our clients, third-party
service companies and others outside of our control may not be Year 2000
compliant. If these systems are not Year 2000 compliant, a systemic failure
beyond our control could result, including Internet, telecommunications or
general electrical failure. These type of failures would significantly
interfere with our ability to provide our services to our clients. If these
failures were prolonged, our business would be harmed.
26
<PAGE>
BUSINESS
Overview
Intek provides an integrated set of solutions that takes our clients from
concept to launch and operation of their e-commerce and other direct-to-
customer initiatives. Our services allow both traditional and Web-based
companies to quickly capitalize on market opportunities and to serve new and
existing customers while reducing the investments they may otherwise have to
make in technology, facilities and personnel infrastructure. Our comprehensive
range of services includes:
. Strategic Consulting. We provide strategic program design, specifying
the necessary technology platforms, customer communication processes,
data requirements and personnel skills necessary for the client's
initiative;
. Technology Solutions. We design and implement the software and
hardware components needed to rapidly deploy clients' initiatives and
to link our technology platform with the clients' and their vendors'
systems;
. e-Operations. We operate technology systems and provide high-level
customer support personnel and communications services on behalf of
our clients, conducting sophisticated transactions with their
customers via voice, e-mail, fax and real-time online communications;
and
. Customer Knowledge. We collect and analyze data to help our clients
improve their marketing efforts and customer relationships through a
better understanding of their customers' buying processes and
behaviors.
We enable our clients to implement their e-commerce strategies and
introduce new products and services by providing comprehensive direct-to-
customer services which are integrated with our clients' systems and
transparent to their customers.
Industry Background
The acceptance and rapid growth of the Internet has dramatically changed
the way businesses and consumers communicate, obtain information, purchase
goods and services, and conduct business. International Data Corporation, or
IDC, estimates that the number of users who make purchases over the Web will
increase from nearly 31 million in 1998 to more than 182 million in 2003, and
that the amount of worldwide e-commerce conducted over the Web will increase
from $50 billion in 1998 to about $1.3 trillion in 2003. Both new Web-based
companies and traditional providers of goods and services are transforming
their business processes into e-commerce processes in an effort to lower costs,
improve customer service and increase productivity.
Increasing use of e-commerce and associated direct-to-customer
initiatives. Emerging Web-based companies established to take advantage of
Internet sales opportunities are proliferating. To meet competitive pressures
from these companies, traditional businesses are reevaluating their sales and
marketing methods and increasingly seeking to sell directly to customers
through e-commerce and associated direct-to-customer initiatives rather than
relying solely on intermediaries, such as wholesalers and retailers. These
initiatives generally result in lower distribution costs and better control
over the customer experience and provide the basis for future targeted
marketing efforts. Direct sales can also provide companies with valuable end-
user customer information, including buying patterns, feature and function
preferences and customer support requirements. This information can be used to
design better products, enhance marketing programs and improve overall customer
satisfaction.
Increasing complexity of direct-to-customer initiatives. The process of
establishing e-commerce and other direct-to-customer initiatives is becoming
more complex as a result of the increasing sophistication of the products and
services being offered and, in many cases, the need to integrate the
initiatives into the existing business models of large traditional companies.
Comprehensive Internet strategies must include
27
<PAGE>
strategic and technological solutions that combine e-commerce and other direct-
to-customer support initiatives. Additionally, most direct-to-customer
initiatives require several alternative points of contact between a company and
its customers, including voice, e-mail, fax, real-time online communications
and mail. Companies are recognizing that the task of quickly and effectively
designing, building and operating these initiatives requires a specialized
range and level of skills, technology and infrastructure.
Growing trend to outsource. Many companies, whether implementing new, or
expanding existing, e-commerce and other associated direct-to-customer programs
often lack sufficient expertise, resources or the technical infrastructure to
move rapidly from concept to launch and operation. The skills and
infrastructure required to create and implement these initiatives are in short
supply, and the complexity of these efforts are increasing. This complexity,
the rapid pace of technological change and the difficulty of building in-house
resources are driving companies to outsource the development of their e-
commerce programs. IDC forecasts that the worldwide Internet services market
will grow from $7.8 billion in 1998 to $78.5 billion in 2003, representing a
five year compounded annual growth rate of 59%.
Typically, outsourcing service providers focus on only a subset of the
complete range of services required to take an e-commerce or other direct-to-
customer initiative from concept to launch and operation. As a growing number
of companies offer more complex products and services online, we believe that
demand has increased for more sophisticated outsourced service providers. These
companies are seeking service providers that can offer an integrated approach
to the technological and personnel services required to rapidly capitalize on
market opportunities.
The Intek Solution
We design, build and operate direct-to-customer solutions that integrate
and coordinate sophisticated e-commerce initiatives encompassing online and
offline components. Our services consist of Strategic Consulting, Technology
Solutions, e-Operations and Customer Knowledge. We typically initiate our
services with a strategic consulting engagement involving a team of our
management and technical personnel working with the client to plan their e-
commerce or other direct-to-customer initiatives. Based upon the specific
client's strategy, internal capabilities and existing technical platforms and
infrastructure, we will define a program to use all or some of our services to
meet their specific needs. We believe our comprehensive integrated services
approach allows our clients to:
Quickly capitalize on direct-to-customer market opportunities. Our
approach and services enable our clients to rapidly implement their e-commerce
and other direct-to-customer initiatives and take advantage of market
opportunities without lengthy start-up and in-house integration efforts. We
believe the expertise and infrastructure we have developed allow us to rapidly
and cost-effectively integrate new e-commerce initiatives and traditional
direct-to-customer programs. This integration creates an initiative that is
consistent across the various customer contact points and that is linked across
our, our client's and its vendors' systems. We also believe our experience
working with companies offering sophisticated products and using complicated
sales processes provides our clients with a competitive advantage as they
implement direct-to-customer initiatives. We believe that our ability to
improve time-to-market is particularly important for our target market of large
traditional and new Web-based companies that face urgent competitive needs to
establish direct-to-customer initiatives.
Access sophisticated technology. We use advanced software technology and
an infrastructure developed specifically for e-commerce and other direct-to-
customer initiatives to provide our integrated services to clients. Our
IntekWebDirect System enables effective transaction processing and customer
support across multiple communications channels, and provides personalization,
routing and management of customer interactions. It allows us and our clients
to rapidly deploy and maintain the technology across multiple geographic
locations, company divisions and hardware platforms. Our infrastructure
includes advanced networking technology that provides intra- and inter-company
communication, distribution of the IntekWebDirect System, and hosting and data
warehousing capabilities. The systems and infrastructure have been developed to
be scalable to meet our existing and potential clients' growth needs.
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<PAGE>
Improve the customer experience. We enable our clients to provide their
customers with a positive consumer experience, thereby maintaining and
promoting brand loyalty. Through our use of advanced technology, we can
communicate directly with our clients' customers by voice, fax, e-mail, and
real-time online communications. Our personnel educate customers about, and
assist them in obtaining, our clients' products and services. We believe we
offer our clients a superior level of service, including availability of 24
hour, seven day a week communications center services.
Access the services of highly-trained personnel. We train our personnel to
deal with our clients' complex products and complicated sales processes, which
we believe creates the basis for long-term client relationships. Some of our
clients work in regulated industries and therefore our personnel often must be
licensed by federal, state or other regulatory agencies in order to serve those
clients' customers. For example, our employees who work with certain financial
services products must be licensed by federal and state authorities to act as a
securities broker/dealer and must have Series 6, 7 and 63 licenses from the
NASD. We believe that providing these high-level services allows us to capture
sensitive aspects of business that have not traditionally been outsourced.
Reduce investment and improve operating efficiencies. We have made
significant investments in operations infrastructure, including technology
platforms, systems hardware, communications systems and highly-trained
personnel. This infrastructure provides clients with access to our economies of
scale and expertise to rapidly grow their direct-to-customer business while
limiting their additional fixed costs that may otherwise be necessary to create
and maintain their own infrastructure. Our clients have the flexibility to
scale their growth and to evolve the range of their direct-to-customer
initiatives, on a variable cost basis, preserving scarce capital resources for
other business-critical purposes.
The Intek Strategy
Our goal is to be a leading integrated services provider to companies
developing e-commerce or other direct-to-customer initiatives involving complex
products or sales techniques. Our strategies to achieve that goal are:
Target clients that provide substantial growth opportunities. We target
clients that we believe provide significant opportunities for growth. We direct
our marketing efforts toward Fortune 1000 and new Web-based companies with
which we can develop long-term relationships. We believe that our current
clients generally are, or are positioned to be, among the leaders in their
industries. We look to grow our business with our clients by offering them
additional services as their direct-to-customer initiatives grow and by
offering them new services as our capabilities expand.
Pursue clients in specialized markets that require sophisticated
services. We intend to focus our sales efforts on businesses in markets that
require complex solutions and skilled personnel. We believe our expertise with
sophisticated products, such as financial instruments, and with complicated
sales programs, such as those found in regulated industries, gives us a
competitive advantage in marketing to clients with similar products and
programs. In addition, we intend to leverage our expertise to target clients in
certain industries such as financial services.
Promote our brand through expanded marketing efforts. We believe that
building brand awareness and our reputation as a leading e-commerce solutions
provider is critical for attracting and retaining clients. We believe that no
existing company has established a prominent brand presence and that there
exists a market opportunity to establish our brand as a leading provider of
integrated services to companies developing e-commerce and other direct-to-
customer initiatives. We intend to build our brand awareness through targeted
branding efforts, focused on decision makers in various vertical markets. We
also plan to develop additional relationships with management consulting,
accounting, marketing and other professional firms that work with potential
clients.
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<PAGE>
Broaden and continue to strengthen our service offerings. We plan to meet
the evolving needs of businesses using e-commerce and other direct-to-customer
initiatives by adding to and improving our services through internal
development and strategic acquisitions. We believe we currently offer
sophisticated solutions that differentiate us from our competitors. Our focus
will continue to be on providing high value-added services. For example, we
acquired the database marketing and analysis firm Acorn in October 1999 to
complement our existing service offerings. We will continue to evaluate
selected acquisitions to complement our service offerings and seek the
personnel required to develop and implement comprehensive e-commerce direct-to-
customer initiatives.
Continue to hire, train and retain talented people. Our business involves
the delivery of sophisticated services that require consultants, technical
personnel and other highly-trained people. We believe that attracting and
retaining outstanding personnel is essential to our growth. We seek management,
marketing and technical personnel with expertise that will enhance our
operations and growth opportunities. In addition, we provide significant
training for our new and existing employees to allow them to increase their
skills and responsibilities.
Intek's Services
We provide an integrated service offering to companies that have or wish
to implement e-commerce and other direct-to-customer initiatives. We offer our
services on an outsourced basis using our technical and personnel resources to
deliver added value to our clients. Our services consist of Strategic
Consulting, Technology Solutions, e-Operations and Customer Knowledge. We
consult with our clients to select appropriate third-party vendors for other
services, such as handling product distribution and certain creative aspects of
direct-to-customer initiatives. At our clients' request, we will coordinate the
activities of the third-party vendors to enhance the smooth operation of our
clients' initiatives. We continually evaluate which services we wish to offer
on an outsourced basis to most effectively serve our clients. Our current range
of integrated services consists of:
Strategic Consulting. Our Strategic Consulting services are focused on
helping our clients increase sales and reduce costs, maintain customer loyalty
and develop better business processes. Strategic consulting during the initial
phase of a client engagement gives us the opportunity to develop a close, long-
term relationship with the client and provides the opportunity to work with the
client from inception to launch and operation of its initiative. Through our
strategic consulting, we determine the clients' needs and objectives, then work
with the clients to establish an overall program structure and to determine how
the technology platforms, customer communications, data requirements and
necessary personnel will work together. Steps in this process include:
. generating strategic options that address the complete range of issues
involved in establishing direct-to-customer initiatives, including
channels, branding, partnerships, pricing, technology deployment and
customer strategies;
. assessing the strategic options against the market opportunities, the
competitive environment, the client's overall business strategy, its
existing business processes and systems, available resources and
technologies, and timing requirements;
. determining the optimal client-specific strategic solution, including
the scope of the initiative and related initiatives, broad technical
requirements, timing and the parties responsible for each segment of
the initiative; and
. designing the overall initiative, including all deployment plans for
technology solutions, communications center operations and customer
data analysis. The planning includes implementation schedules, revenue
and cost structures, personnel requirements, technical partnerships
and operations management.
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<PAGE>
Our personnel also work with clients and third-party marketing experts to
design the clients' product launches and marketing campaigns. For certain
clients, we may provide specialized consulting services regarding regulatory
issues that are applicable to the client's direct-to-customer initiative. For
example, we consult with clients in the financial services business regarding
compliance with federal and state regulations.
Technology Solutions. We provide comprehensive technology design and
implementation services to facilitate e-commerce and other direct-to-customer
initiatives. Our solutions enable our clients to do business directly with
their customers via voice, e-mail, fax and real-time online communications.
Most of our technology solutions include implementation of our IntekWebDirect
System, which incorporates a Web-based software solution that we initially
developed and now license from Spider on a long-term basis. See "Related Party
Transactions -- Spin-Off of Spider Technologies" for additional information
about our license arrangement. Our IntekWebDirect System is specifically
designed to facilitate direct-to-customer initiatives using a modular design
approach that permits flexible and rapid implementation to meet a client's
specific needs. Our Technology Solutions services include:
. evaluating technology platforms to meet the clients' specific
requirements;
. installing, customizing and integrating the IntekWebDirect System
processing technology or other third-party technology platforms;
. designing the creative aspects of our IntekWebDirect System user
interfaces;
. customizing and configuring applications, such as customer interfaces,
order entry systems and customer information systems;
. integrating the direct-to-customer technology platform with the
clients' existing systems and, in most cases, to the clients' vendors'
systems;
. testing and documenting the systems; and
. providing on-going enhancements and optimization of the comprehensive
technical solution.
e-Operations. We use our high-level customer support personnel and
communications services to operate our clients' sophisticated e-commerce and
other direct-to-customer initiatives. We have made significant investments in
our infrastructure, such as technology platforms, systems hardware,
communications systems and highly-trained personnel. We have designed our
infrastructure specifically for efficient and reliable operations with complex
products and sales processes. Our e-Operations services include:
. managing the operations of our clients' direct-to-customer systems and
customer databases from our technology and communications centers;
. communicating with our clients' customers through voice, e-mail, fax
and real-time online communications;
. providing hosting and data warehousing for our clients;
. coordinating the activities of third-party vendors; and
. conducting one-to-one marketing programs that we design as part of our
Customer Knowledge services, including the upfront customer data
acquisition and subsequent program execution.
Our communications centers provide a full range of interaction between our
clients and their customers with a focus on services that require high levels
of skills, expertise and technology. Our communications center personnel are
assigned to specific clients' initiatives and are given extensive training in
the client's products and services in order to provide sales assistance and
technical support to our clients' customers. By using highly-trained personnel,
we are able to provide added value to our clients, and we become an integral
part of their businesses.
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<PAGE>
For our largest clients, we have personnel at two or more communications
centers to assure coverage, redundancy and reliability. In addition, some
clients have their own personnel at our communications centers to provide
assistance for complex programs and to increase client coordination. We have
servers in the technology centers of our Colorado, California and Kansas
facilities. The availability of multiple servers provides redundancy and back-
up to our clients.
Customer Knowledge. We offer sophisticated database marketing and analysis
services that are focused on understanding customers' buying processes and
behaviors to help our clients improve their marketing efforts and customer
relationships. Our Customer Knowledge services include:
. using sophisticated analytical methods to define and identify the
target population for clients, and to advise clients about capturing
key customer information and using external data sources to support
detailed profiles of their customers;
. analyzing the clients' customer and prospective customer information
to find patterns of purchasing behavior and tying them into the
clients' marketing objectives of improving sales effectiveness,
building customer loyalty or acquiring new customers;
. implementing a relationship marketing system for clients, using a
combination of a proprietary technology platform and off-the-shelf
tools. This system accepts customer contact marketing from all
channels, including Internet, e-mail, Web forms, business reply cards
and calls to communications centers, and integrates this data into a
single view of the customer;
. analyzing the effectiveness of the marketing channels and the
conversion rates so that adjustments can be made to improve sales and
marketing programs; and
. building meaningful and actionable reports that are accessible over
the Internet through secured interfaces to enable clients to have
real-time access to the entire marketing campaign lifecycle and make
the appropriate marketing decisions.
Our Clients
We have provided Strategic Consulting, Technology Solutions, e-Operations
and Customer Knowledge services to clients in various industries. These clients
are generally either large established companies or emerging Web-based
companies. Set forth below is a representative list of our clients and the
types of services we have performed or are contracted to perform for them.
<TABLE>
<CAPTION>
Types Of Services
--------------------------------------------
Strategic Technology Customer
Client Name Consulting Solutions e-Operations Knowledge
- ----------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
American Classic Voyages* X X
AutoWeb X X X
Pitney-Bowes* X X
Rx Remedy* X
Safeway X X X
Sega X X X
Sony X X
</TABLE>
- ------------------
* These companies were initially Acorn clients.
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During the past two years, we have derived a substantial majority of our
revenues from ongoing business with a few significant clients. For 1999, Sony
accounted for approximately 27% of our revenue, Sega accounted for 12% and our
next two largest clients, American Express and Safeway, accounted for an
aggregate of approximately 18%. The same four clients accounted for
approximately 54% of our revenue in 1998. We anticipate that a significant
portion of our revenues will remain concentrated with a few clients, but will
vary among clients from period to period.
Generally our work is performed and clients are charged based on time and
expenses according to the terms of written agreements. Recently we entered into
a contract with a major client under which our revenue will be based primarily
upon a percentage of the clients revenues generated by our operation of their
direct-to-customer initiatives. In addition, we have recently entered into
fixed-price agreements for certain strategic consulting services. In some
instances, we will perform work for a client following expiration of a contract
or while the terms of a letter of intent, new contract or contract extension
are being negotiated. Our contracts are generally terminable by the client on
30-days' written notice.
Sales and Marketing
We market our brand and integrated service offering to large companies
that are establishing or expanding their direct-to-customer initiatives and to
new companies formed to take advantage of commerce opportunities on the
Internet. Our marketing efforts will be focused on two primary objectives:
. educating potential clients and third-party influencers on e-commerce
and other direct-to-customer strategies, the effective application of
technology to direct-to-customer initiatives and the role of
electronic services and operations in meeting direct-to-customer
business objectives; and
. positioning our company and brand as an acknowledged leader in
designing, building and operating e-commerce initiatives for complex
products and sales processes.
We believe the importance of our brand and reputation will increase as new
competitors enter our market. We also believe that no existing company has
established a prominent brand presence as a provider of integrated services to
companies developing sophisticated e-commerce and other direct-to-customer
initiatives and that there exists a market opportunity to establish our brand
as a leader in that market. We intend to build our brand awareness through
marketing, focused on decision makers in various vertical markets, with an
emphasis on specific vertical markets where our experience and services provide
special value-added benefits to our clients. We have recently established a
core group of sales and marketing personnel to concentrate on the financial
services industry, in which we have substantial expertise.
Our efforts will include vertically-targeted direct campaigns utilizing
database marketing, advertisements in selected publications, an interactive and
educational Web site, information pieces published for industry forums and
educational seminars for high-level decision makers. We will promote our
expertise in trade forums and publications, and directly to prospective
clients.
We also plan to develop additional relationships with management
consulting, accounting, marketing and other professional firms that work with
potential clients. We have existing relationships with many of these firms
through our management team, board of directors and investors. We intend to
bring greater focus to leveraging these contacts and exploring a range of
partnerships, alliances and other formal relationships.
To expand our efforts in both sales and marketing, we have recently put in
place dedicated resources consisting of a head of sales and a head of
marketing, as well as two sales professionals. We intend to hire several
additional sales professionals over the next few months and to strengthen the
sales process. Prior to establishing this organization, our sales efforts had
been made primarily by senior management and key technical personnel. These
people will continue to be an important part of our sales and marketing
efforts.
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We anticipate incurring significant additional sales and marketing
expenses in the foreseeable future. These increased expenses may not be offset
by increased revenues, causing an adverse affect on our financial results.
Competition
We compete in the growing market of companies that support businesses
involved in e-commerce and other direct-to-customer initiatives. Many companies
offer, on an individual basis, one or more of the same services we do. In
addition, many potential clients could elect to perform these services in-
house. Our primary potential competitors in the areas in which we provide
services include the following:
. Strategic Consulting: consulting firms such as AnswerThink, Diamond
Technology Partners, Luminant, Mitchell Madison and the consulting
arms of the Big Five accounting firms;
. Technology Solutions: technology integrators, such as Andersen
Consulting, Cambridge Technology, Octane, Razorfish, Sapient, Seibel,
SilkNet, USWeb/CKS and Viant;
. e-Operations: customer support service companies, such as EDS, Perot
Systems, PFSWeb, Stream, and Teletech; and
. Customer Knowledge: data mining and analytics firms, such as Axciom,
Centrobe, Experian and Harte Hanks.
We believe that the principal competitive factor in our market is the
ability to provide a comprehensive range of high-end services to clients
quickly and cost effectively. We believe that the other competitive factors in
our market are operating performance and reliability, ease of implementation
and integration, and price. We believe that we compete favorably with respect
to these factors.
We anticipate that competition in our market will increase substantially.
We have no patents that preclude or inhibit others from offering the same
services that we do. Many of the companies with which we compete today in
limited areas, and other companies that may enter our market, have
significantly greater name recognition and marketing, technical and financial
resources than we have. If they or any other company were to offer comparable
services on a more cost-effective or timely basis than we do, our business and
financial results could suffer.
Technology
We provide our integrated services using Web-based software technology and
an infrastructure developed specifically for e-commerce and other direct-to-
customer initiatives. Our infrastructure incorporates advanced networking
technology that provides intra- and inter-company communications, including
hosting and distribution of our software technologies. We assure a high degree
of reliability through multiple Internet services and telecommunication
providers, redundant Web servers, back-up power supplies, multiple
communications centers and other measures.
Our technology solutions include our sophisticated IntekWebDirect System
transaction processing platform that provides personalization, routing and
management of customer interactions across multiple channels including voice,
e-mail, fax and real-time online communications. The IntekWebDirect System
supports most standardized services, protocols and interfaces for integration
into our clients' and their vendors' existing systems. Our Web-based platform
includes three primary components:
. a front-end user interface that provides product, company and customer
information as well as other data sources available through the Web to
dynamically build context-relevant information screens;
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. a transaction processing system, including custom links to our
clients' and their vendors' existing systems in order to handle order
entry, inventory control, payment management, product configuration,
fulfillment and shipping, and similar functions; and
. a customer database segment that maintains client and customer
information for transaction requirements and is structured to support
personalized marketing initiatives.
The IntekWebDirect System incorporates software code that was transferred
to Spider. We have a 20-year non-exclusive license to use the software and, in
general, to sublicense it to our clients. See "Related Party Transactions--
Spin-off of Spider Technologies" for more information about the spin-off of
Spider.
Our Customer Knowledge group uses sophisticated technologies and
analytical methods to enable our clients to maximize their marketing and
customer retention programs. The group has designed and developed database
marketing software in Java on an Oracle platform. In addition, the group
employs various analytical techniques that have been shown to be more effective
than standard methods.
Personnel and Training
At December 31, 1999, we had 704 full-time employees. Of these, 35 were in
executive, finance, sales and marketing, human resources and other
administrative positions in the Denver headquarters office; 62 were in the
technology, communications and consulting facility in San Diego; and 580 were
in communications center operations in Northern California, Denver and Fort
Scott, Kansas. Approximately 20% of the employees in our communications centers
are management and technical personnel. We also now have 27 employees in our
Shelton, Connecticut office, principally engaged in delivering our customer
knowledge and strategic consulting services. In addition, at any given time we
may have at our communications centers a substantial number of people from
temporary agencies. These people generally become our full-time employees
following a period of training and temporary employment with us.
Many of our employees are highly trained, not only in various
technologies, but in important aspects of our clients' businesses. For example,
some of our senior personnel who consult with financial services institutions
have previously worked in that industry. In addition, we provide training to
our communications center personnel specifically related to a client's product
or services. This training is generally covered by our agreements with the
client and may take several weeks or more. Using the same financial services
institutions example, the training may entail obtaining a Series 6, 7 or 63
license from the NASD. In certain cases, we may cross-train some personnel to
cover different clients' programs to provide back-up. Because our
communications center personnel are highly trained, we generally pay them more
and bill their services at higher rates than do traditional call center
employers.
Our success depends on our ability to continue to attract, retain and
motivate intelligent, skilled employees. Competition for these people,
especially those with technical and management capabilities, is particularly
intense now because of the strong economy and resulting growth of business
opportunities. We are adopting a stock purchase plan and will be expanding our
stock option program to provide additional incentives to our employees. None of
our employees is represented by any collective bargaining unit, and we have
never had a work stoppage. We believe our relations with our employees are
good.
Facilities
Our headquarters are located in approximately 15,700 square feet of leased
office space in Englewood, Colorado. This space is used by our executive,
financial, marketing and human resources personnel. The lease extends through
June 2005. Our San Diego personnel are located in a leased facility comprising
12,600 square feet, approximately 40% of which we are sub-leasing to Spider.
The lease for this facility expires in August 2003 and may be renewed for five
years. Our Shelton, Connecticut personnel are located in a 7,200 square foot
office under a lease that expires in April 2003.
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We operate communications centers in Hayward and Livermore, California,
Denver and Fort Scott, Kansas. The lease for our 7,565 square foot Hayward
facility expires in May 2000 and the lease for our 12,424 square foot Livermore
facility expires in April 2000. We plan to consolidate our Northern California
operations in another facility in the near future. We have signed a new lease,
with an eight-year term commencing on completion of the building, for a 21,254
square foot building in Livermore but intend to sublease it and lease another
facility. Until that facility is available, we are extending our existing
Livermore lease on a month-to-month basis. Our Denver communications center is
in a 21,600 square foot leased facility. The lease on this facility expires in
January 2001. In June 1999, we opened our new 35,000 square foot communications
center in Fort Scott, Kansas. The construction was financed by the City of Fort
Scott and leased to us through June 2005. Based upon our experience in Fort
Scott, we believe that we can furnish and staff a new communications center in
approximately 120 days.
Regulatory Matters
We provide services to companies in the financial services, insurance and
mortgage lending industries. These industries are subject to extensive federal
and state regulation. Although compliance with many of these regulations is
generally the responsibility of our clients, we and our employees must also
meet certain requirements.
State and federal regulations regarding our activities for our clients are
subject to change. In addition, the content and geographical scope of our
clients' initiatives change over time, possibly subjecting the initiatives to
regulations that previously did not apply. We attempt to monitor these changes
and to obtain licenses or make filings as necessary. We cannot assure you,
however, that we have been, are now or will be in compliance with all
applicable regulations at all times.
Financial services. We assist in the marketing of various mutual funds and
other financial products through a wholly- owned subsidiary. This subsidiary
and some of its employees must be registered with the SEC and licensed by the
NASD and state securities commissions. Some of our employees who assist in the
sales of financial products must pass a series of exams and meet certain
continuing education requirements in order to maintain their licenses. We
believe that we and our employees engaged in these activities are currently
registered and licensed as required. However, our failure to obtain and
maintain the necessary registration and licenses could expose us to private
actions for damages and enforcement actions for civil or criminal penalties.
For extremely serious violations, the NASD or the SEC could bar us or our
employees from engaging in the securities business for any specified period of
time or permanently.
Insurance services. We assist in the marketing of various insurance
products through a wholly- owned subsidiary. Most states have laws and
regulations governing the licensing and conduct of persons who market insurance
products. We and our employees who assist in the sales of insurance products
are required to be licensed by various state insurance commissions for the
particular type of insurance product to be sold and to participate in regular
continuing education programs which are currently paid for by us. Our
subsidiary and its employees are currently licensed in those states in which we
marketed insurance products in the past, but neither it nor its employees are
currently licensed in all fifty states.
Mortgage broker services. We assist in the marketing of mortgage lender's
products through a wholly-owned subsidiary. Most states have laws and
regulations governing the registration or licensing and conduct of persons who,
among other things, directly or indirectly solicit, accept or offer to accept
an application for a mortgage loan. Some states may require that we have a
local office or an employee who has experience in mortgage brokerage activities
or has completed the state's exam or both. We are currently licensed or exempt
from license requirements in 25 states. We are in the process of applying for
mortgage broker licenses in those remaining states in which we assist in the
marketing of mortgage-related products. We could be subject to a variety of
enforcement or private actions for failure to obtain a mortgage broker or
lender license in states in which we now assist in the marketing of, or have
assisted in the marketing of in the past, mortgage-related products.
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Business qualification laws. Because it is often a condition for the
various licenses that we must obtain and because we often provide services for
our clients to customers located throughout the United States, we and our
subsidiaries have registered to do business as a foreign corporation in each
state in which we or they conduct business. Failure to maintain registration in
a jurisdiction in which it is required could subject us or our subsidiaries to
taxes and penalties and limit our or their ability to conduct litigation in
such states.
Internet use. There is an increasing number of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by federal, state and foreign governments and
agencies. The requirement that we or our clients comply with any new
legislation or regulation, or any unanticipated application or interpretation
of existing laws, may decrease the growth in the use of the Internet, which
could in turn decrease the demand for our or our clients' products and
services, increase our cost of doing business or otherwise have a negative
effect on our business, results of operations and financial condition. In
addition, applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain.
Telephone contacts. Some of our communications center activities are
subject to FCC, FTC and state regulations regarding telephone calls to
residential telephone subscribers and telemarketing practices. Some states
require us to register under their telemarketing statutes. While we are
currently either licensed, exempt from license requirements or in the process
of obtaining a license in those states that regulate telemarketing activities,
we could be subject to a variety of enforcement or private actions for our
failure or the failure of our clients to comply with such regulations.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently party to any material legal
proceedings.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and our board of directors, as the board will be
comprised upon the closing of this offering, are as follows:
<TABLE>
<CAPTION>
Name Age(1) Position(s)
- ---- ------ -----------
<S> <C> <C>
Timothy C. O'Crowley(2)...... 44 Chairman of the Board, Chief Executive
Officer and President
G. Daniel Adams, Jr. ........ 41 Executive Vice President - Corporate
Operations
Sunil Gupta, Ph.D............ 45 Managing Director - Strategic Consulting
Steven Q. Hansen............. 35 Chief Financial Officer and Senior Vice
President
Timothy S. Hardin............ 47 President - e-Operations
Donald P. Hearn.............. 54 President - Financial Services Division
Jay D. Kirksey............... 43 Senior Vice President - Human Resources
Peter H. Kowalchuk........... 50 Senior Vice President - Marketing and
Communications
Shoba Murali................. 43 President - Customer Knowledge
James F. "Pat" O'Crowley..... 46 Executive Vice President - Corporate
Development
Patrick F. O'Neal............ 53 Managing Director - Sales
Jerry L. Parker.............. 56 Chief Operations Officer - Technology
Solutions
Raja Ramnarayan, Ph.D........ 44 Vice President - Customer Knowledge
Venkat V. Sharma............. 45 Chief Executive Officer - Customer
Knowledge
Paul A. Tartre............... 40 President - Technology Solutions and Chief
Information Officer
Stephen S.S. Hyde(3)......... 52 Director
Steven F. Piaker(3).......... 37 Director
Harold W. Pote(2)............ 53 Director
Rick L. Weller(2)............ 42 Director
Eric R. Wilkinson(3)......... 43 Director
</TABLE>
- ------------------
(1) As of December 31, 1999
(2) Member of Compensation Committee
(3) Member of Audit Committee
Timothy C. O'Crowley founded Intek in 1996 and has been our chairman,
chief executive officer and president since that date. From 1994 to 1996, Mr.
O'Crowley was chief executive officer and a director of FundMark Investment
Company Services, Inc., a consulting firm to the institutional asset management
industry, and managing director of Eden Financial Group, a consulting firm to
the financial products distribution industry. Before joining these firms, Mr.
O'Crowley was employed by E. F. Hutton and Company in numerous senior
management positions. He serves as a director of our subsidiary Acorn, chairman
of the board of directors of and a consultant to Spider, and a director of
Northern Trust Bank of Colorado. See "Related Party Transactions - Spin-off of
Spider Technologies" for a description of Mr. O'Crowley's consulting agreement
with Spider.
G. Daniel Adams, Jr. joined Intek in November 1999 as executive vice
president - corporate operations. Mr. Adams was chief operations officer from
1997 to 1999 and chief financial officer from 1996
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to 1997 for Switch Manufacturing, a consumer recreational products manufacturer
and marketer where he managed all aspects of the company's operations and
strategic alliances with partners. From 1994 to 1996, Mr. Adams was senior
director - operations with Kenetech Corp., a publicly-traded energy provider
and capital equipment manufacturer. Prior to 1994, Mr. Adams was an executive
with Black & Decker, a management consultant with McKinsey & Company and an
engineer at Schlumberger.
Sunil Gupta, Ph.D., joined Intek in October 1999 as vice president -
Customer Knowledge in conjunction with our acquisition of Acorn. Dr. Gupta was
vice president - interactive and analytical services for Acorn from July 1998
to October 1999. He was a professor of marketing at the University of Michigan
Business School from 1990 to 1998 and at Columbia University's Graduate School
of Business from 1983 to 1990. Dr. Gupta has also consulted with several
companies, most recently in the area of Internet marketing.
Steven Q. Hansen joined Intek in November 1999 as senior vice president
and chief financial officer. Mr. Hansen was vice president and acting chief
financial officer from August to October 1999, vice president - finance from
November 1998 to October 1999, and senior director - financial planning and
analysis from March 1997 to November 1998 for Convergent Communications, Inc.,
a publicly-traded integrated communications provider. From 1996 to 1997, he was
a director of finance for ICG Communications, Inc., a public competitive local
exchange carrier. From 1994 to 1996, Mr. Hansen was manager of financial
operations - Rocky Mountain division, for Pepsi Cola Company.
Timothy S. Hardin joined Intek in June 1997 as senior vice president -
client services and became president - e-Operations in October 1999. From 1989
to 1997, Mr. Hardin was a co-founder and president of Telelink Systems, a
teleservices company. From 1993 to 1995, he was a co-founder and director of
marketing for Market Reach Ltd. in London, England, a sister teleservices
company to Telelink.
Donald P. Hearn joined Intek in April 1999 as president - financial
services division. From 1995 to January 1999, Mr. Hearn was chairman and chief
executive officer of Chase Global Funds Services Company, a subsidiary of Chase
Manhattan Bank. From 1990 to 1995, he was an executive vice president with U.S.
Trust of New York in their mutual funds division. Prior to 1994, Mr. Hearn held
senior positions with First Data Investor Services, the Boston Company and
Dalbar.
Jay D. Kirksey joined Intek in November 1997 as senior vice president -
human resources. From 1994 to 1997, Mr. Kirksey was vice president of human
resources for ADT Security Services, Inc., a residential and commercial
security company. From 1993 to 1994, he was director of human resources for
Alert Centre, Inc. and from 1989 to 1993 he was director of human resources for
United Technologies Corporation.
Peter H. Kowalchuk joined Intek in July 1999 as senior vice president -
marketing and communications. From 1993 to July 1999, Mr. Kowalchuk was
director of international communications for Otis Elevator Company, a
subsidiary of United Technologies Corporation.
Shoba Murali joined Intek in October 1999 as president - Customer
Knowledge in conjunction with our acquisition of Acorn. Ms. Murali was
president of Acorn from September 1996 to October 1999. From January 1994 to
August 1996, she was co-founder, managing partner and a director of Equinox
Solutions Inc., a systems integration company. Prior to 1994, Ms. Shoba served
as artificial intelligence senior product manager for Digital Equipment and was
corporate accounts system integrations manager for financial services clients.
James F. "Pat" O'Crowley III joined Intek in May 1999 as executive vice
president - corporate development. From 1996 to May 1999, Mr. O'Crowley was a
founder and managing director of Coalter Group International, a business
consulting firm focused on improving clients' sales and profitability. From
January 1998 through May 1999, Mr. O'Crowley consulted with Intek on strategic
and operational matters. From 1993 to 1996, he served as vice president
international of HON Industries, a publicly-traded manufacturer of office
furniture and pre-fabricated fireplaces, and general manager of HON Export
Limited.
39
<PAGE>
Prior to 1993, he served as director of operations and finance and as general
manager for Latin American and Asian Operations for Tenneco's J. I. Case. Prior
to 1989, Mr. O'Crowley held a variety of senior finance, operations, marketing
and business development positions at International Harvester and its successor
company, Navistar.
Patrick F. O'Neal joined Intek as a managing director in September 1996
and was named managing director - sales in July 1999. He served as a member of
our board of directors from March 1996 to January 2000. Mr. O'Neal is also a
director of Spider and president of our subsidiaries, Intek Teleservices, Inc.,
Intek Insurance Agency, Inc. and Brokerage Administrators Corp. He has been an
officer and managing director for Eden Financial Group and FundMark Investment
Company Services, Inc. from 1982 to the present. Eden and Fundmark
substantially ceased operations in early 1996. Mr. O'Neal was a national
product manager at E. F. Hutton and Company from 1981 to 1982.
Jerry L. Parker joined Intek in May 1999 as chief operating officer -
Technology Solutions. From December 1998 to May 1999, Mr. Parker consulted
with us regarding computer systems and integration. From 1996 to December 1998,
Mr. Parker was chief executive officer of SSDS, Inc., a computer systems and
networking integration company. From 1993 to 1996, Mr. Parker was senior vice
president of the commercial division of BDM Technologies (now a part of TRW,
Inc.), where he was responsible for a division that provided system
integration, networking and technology consulting to Fortune 1000 companies.
Raja Ramnarayan, Ph.D, joined Intek in November 1999 as vice president -
Customer Knowledge in conjunction with our acquisition of Acorn. Dr.
Ramnarayan has been chief technology officer for Acorn since January 1997. He
was a principal consultant for Microsoft Corporation from 1996 to 1997 and an
engineering fellow for Honeywell from 1983 to 1996.
Venkat V. Sharma joined Intek in October 1999 as chief executive officer -
Customer Knowledge in conjunction with our acquisition of Acorn. Mr. Sharma
founded and became chief executive officer of Acorn in 1994. Prior to 1994, he
held positions at 3M and J. Walter Thompson. Additionally, he founded and was
president of C4 Information Services, a private market research company for the
cable television and communications industries, in 1994, and founded and was
president of VSA Technologies, a mainframe computer outsourcing company, from
1990 to 1994.
Paul A. Tartre joined Intek in 1996 as a managing director and chief
information officer. Mr. Tartre was named president - Technology Solutions in
August 1999. From 1987 to 1996, Mr. Tartre was senior vice president and chief
information officer for Eden Financial Services and FundMark Investment Company
Services. From 1983 to 1986, he was a software developer at NCR, and from 1986
to 1987 he was director of software development at Apricorn, Inc. Effective
November 1999, Mr. Tartre began to devote 40% of his time to Spider. See
"Related Party Transactions - Spin-Off of Spider Technologies" for more
detailed information about Mr. Tartre's continuing role with Spider.
Stephen S.S. Hyde has been a director since January 2000. Since September
1999, Mr. Hyde has been chairman of the board of Diabetes Manager.com, a
provider of diabetes management over the Internet. Since December 1986, he has
been chairman and president of IG Ventures, Ltd. From September 1978 to
December 1986, he was chairman of the board and chief executive officer of Peak
Health Care, Inc., a public HMO company that he founded. Prior to September
1978, Mr. Hyde was a financial advisor to the U.S. Department of Health and
Human Services, a consultant with the Health Management Group and a consultant
with Arthur Young & Company. He is a director of Lesvergers du Roi Corp., a
privately-held argricultural production and sales business.
Steven F. Piaker has been a director since May 1998. In 1994, Mr. Piaker
joined Conning & Company, an investment management and research firm focusing
on insurance and financial services industries, as vice president and became a
senior vice president in 1997, where he is responsible for helping to manage
all aspects of Conning's private equity business. Conning & Company is the
managing member of Conning Investment Partners V, LLC, which serves as the
general partner of Conning Capital Partners V,
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<PAGE>
L.P. one of our major stockholders. Since November 1999, Mr. Piaker has served
as a director of Spider.
Mr. Piaker is a director of TeleBanc Financial Corporation, Clark Bardes
Holdings, Inc., Answer Financial, Inc., Health Right Inc., MedSpan, Inc.,
Intersections, Inc. and Sterling Autobody, Inc.
Harold W. Pote has been a director since February 1999. Since 1993, Mr.
Pote has been a general partner of The Beacon Group, a private investment,
strategic advisory and wealth management firm, which is affiliated with one of
our major stockholders, The Beacon Group III-Focus Value Fund, LP. From 1984 to
1988, he was Chief Executive Officer of First Fidelity Bancorporation (and
Fidelcor, Inc., a predecessor company). Since November 1999, Mr. Pote has
served as a director of Spider. Mr. Pote is also a director of Norfolk Southern
Corp., the American Craft Museum, Drexel University, the President's Foreign
Intelligence Advisory Board and MCP Hahnemann School of Medicine.
Rick L. Weller has been a director since May 1998. From October 1997 to
January 1999, Mr. Weller was our chief financial officer. Since November 1999,
he has been chief operating officer for Ionex Telecommunications, Inc.,
competitive local exchange carrier. Since November 1999, Mr. Weller has served
as a director of Spider. In April 1999, Mr. Weller formed Compass Partners to
develop a telecommunications company. Compass Partners was instrumental in the
formation of Ionex Telecommunications, Inc. From January 1999 to March 1999,
Mr. Weller was chief financial officer for USA Global Link, Inc., an
international telecom entity. From January 1990 to September 1997, Mr. Weller
was vice president of Sprint Communications Corporation, where he was
responsible for financial management.
Eric R. Wilkinson has been a director since February 1997. Since 1994, Mr.
Wilkinson has been employed by The Beacon Group, where he is responsible for
the management of The Beacon Group III - Focus Value Fund, LP. From 1989 to
1994, he was a partner of Apax Partners & Cie Ventures S.A., a European private
equity firm, where Mr. Wilkinson shared responsibility for the firm's principal
investments. From 1983 to 1989, he was a partner of Bain & Company, the
strategic consulting firm. Since November 1999, Mr. Wilkinson has served as a
director of Spider. He is also a director of Doctors Health, Inc., Eyeweb Inc.,
International Components Corporation, National Century Financial Enterprises,
Inc., OnCare, Inc., The Identity Group, Inc. and director and president of
Generac Portable Products, Inc.
Officers serve at the discretion of the board of directors. Timothy
O'Crowley and James F. O'Crowley III are brothers.
Board Composition
Upon the closing of this offering, our board of directors will consist of
three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Members
----- ---------- -------
<S> <C> <C>
Class I...................... 2001 Stephen Hyde and Eric Wilkinson
Class II..................... 2002 Rick Weller and Steven Piaker
Class III.................... 2003 Timothy O'Crowley and Harold Pote
</TABLE>
Board Committees
Following the offering, our audit committee will consist of Stephen Hyde,
Steven Piaker and Eric Wilkinson and our compensation committee will consist of
Timothy O'Crowley, Harold Pote and Rick Weller.
The audit committee will select the independent public accountants to
audit our annual financial statements and will establish the scope and oversee
the annual audit. It will review our internal accounting procedures and review
other services provided by our independent accountants. The compensation
41
<PAGE>
committee will establish and review general policies relating to compensation
and determine the compensation for all officers of the company and any other
employee that the compensation committee may designate from time to time. It
will approve and administer our stock option plans, except with respect to
persons subject to Section 16 under the Securities Exchange Act of 1934, and
employee stock purchase plan. Our board may establish other committees from
time to time to facilitate the management of the business and affairs of our
company.
Director Compensation
Our directors have not received cash or stock compensation for their
services as directors in the past. Our directors have been and will be
reimbursed for all reasonable expenses incurred in connection with their
attendance at meetings of our board and committee meetings of the board. After
the closing of this offering, directors who are not officers or employees of
Intek or any of our subsidiaries will receive options for board service under
our 2000 Stock Incentive Plan. Upon the effectiveness of the registration
statement of which this prospectus is a part, each eligible director will
receive an option to purchase 10,000 shares of common stock. In the future,
each eligible director will receive an option to purchase 10,000 shares
immediately upon his or her initial election as a director. We will also grant
to each eligible director, immediately following each annual meeting of
stockholders, an additional option to purchase 5,000 shares of common stock if
that director has served continuously as a member of our board since the prior
annual meeting. The options have ten year terms. They will terminate one year
after the director ceases to provide services to us either as a director or
consultant. The initial 10,000 share options will vest immediately and the
annual 5,000 share options will vest one year after the date of grant. Options
will stop vesting if a director ceases to provide services to us either as a
director or a consultant. Option grants to directors are automatic and
nondiscretionary, and the exercise price of the options must equal the fair
market value of our common stock on the date of grant.
Compensation Committee Interlocks and Insider Participation
Before this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board. Timothy
O'Crowley and Harold Pote served as a committee authorized to make limited
grants of stock options. Timothy O'Crowley participated in deliberations of the
board of directors concerning executive compensation during 1999. After this
offering, our compensation committee will make all compensation decisions,
except that our board of directors will make compensation decisions with
respect to Timothy O'Crowley. Mr. O'Crowley is chairman of the board of, and a
consultant to, Spider and was its chief executive officer from October 1999 to
January 2000. Mr. Pote is a member of Spider's board. Spider does not have a
compensation committee. In addition, Steven Piaker and Eric Wilkinson are
members of both our and Spider's boards of directors. No other interlocking
relationship exists between our board of directors or compensation committee
and the board of directors or compensation committee of any other company.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table shows all compensation for services rendered to us in
all capacities that was awarded to, earned by, or paid to, our chief executive
officer and our four next most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 during 1999, whom we refer to
in this prospectus collectively as the "Named Executive Officers." We have
entered into agreements relating to the employment of the Named Executive
Officers which provide in certain circumstances for severance payments upon
termination (other than for cause) of their employment and for the acceleration
of the vesting of their stock options upon a change in control.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- -------------
Number of
Securities
Name and Principal Underlying All Other Annual
Positions Salary Bonus Options Compensation(1)
- ------------------ ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Timothy O'Crowley ......... $ 240,000 $ 11,000 537,500 $55,560(2)
Chairman of the Board,
Chief Executive Officer
and President
Paul Tartre ............... $ 190,000 $ 45,000 200,000 $ 4,967
Chief Information Officer
and President -- Technol-
ogy Solutions
Frank Richards(3).......... $ 165,000 $ 58,875 218,750(4) $ 9,224
Chief Operating Officer
Timothy Hardin ............ $ 156,875 $ 20,000 67,500 $ 8,266
President -- e-Operations
Patrick O'Neal ............ $ 160,000 $ 15,000 275,000 $ 6,540
Managing Director -- Sales
</TABLE>
- ------------------
(1) Represents compensation with respect to one or more of the following:
personal use of automobiles, life insurance premiums paid for the benefit
of the named executive officer and matching 401(k) contributions made by
us.
(2) During 1999, Mr. O'Crowley received $45,000 as chief executive officer of
Spider. Mr. O'Crowley resigned as chief executive officer of Spider in
January 2000.
(3) On January 13, 2000, Mr. Richards' responsibilities with us changed and he
resigned as an officer and director.
(4) Of this amount, 75,000 options were canceled in January 2000 as part of an
amendment to Mr. Richards' employment agreement.
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<PAGE>
Option Grants in 1999
The following table shows certain information regarding stock options
granted to the Named Executive Officers during 1999. All of these stock options
were granted under our 1998 option plan.
<TABLE>
<CAPTION>
Potential
Realizable Value
Percent of at Assumed
Total Annual Rates
Number of Options of Stock
Securities Granted to Exercise Appreciation for
Underlying Employees Price Option Term(1)
Options During Per Expiration ----------------
Name Granted Period Share Date 5% 10%
---- ---------- ---------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Timothy O'Crowley....... 137,500(2) 16.3% $6.44 2009
Frank Richards.......... 75,000(3) 8.9% $6.44 2009
Paul Tartre............. -- -- -- -- -- --
Timothy Hardin.......... 42,500(4) 5.0% $6.44 2009
Patrick O'Neal.......... 75,000(2) 8.9% $6.44 2009
</TABLE>
- ------------------
(1) These are hypothetical values using assumed annual rates of stock price
appreciation prescribed by the rules of the SEC.
(2) Vested on date of grant.
(3) These options were canceled in January 2000 as part of an amendment to Mr.
Richards' employment agreement.
(4) Vest over a 48 month period.
Aggregate Option Exercises and Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning option exercises for 1999, and exercisable and
unexercisable options held at December 31, 1999:
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1999 December 31, 1999(1)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy O'Crowley....... -- -- 500,686 36,815
Frank Richards.......... -- -- 130,061 88,689
Paul Tartre............. -- -- 166,998 33,615
Timothy Hardin.......... -- -- 22,605 44,895
Patrick O'Neal.......... -- -- 145,041 129,961
</TABLE>
- ------------------
(1) The value of in-the-money options is based on an assumed initial public
offering price of $ per share, less the per share exercise price,
multiplied by the number of shares underlying the option.
Employment Agreements
We entered into an employment agreement with Timothy O'Crowley dated
August 2, 1996, which was amended as of October 1, 1999, that provides for an
annual salary of $240,000 until August 1, 2002. After that date, the agreement
continues on a month-to-month basis. The base salary is subject to increase by
the board of directors. Mr. O'Crowley may terminate his employment voluntarily
upon 100 days' notice to us or immediately for cause if we violate a material
term of the agreement or move our headquarters from the Denver metropolitan
area. We may terminate his employment at any time without cause upon 20 days'
notice or immediately for cause. If Mr. O'Crowley is terminated without cause
or if he terminates the agreement for cause, he is entitled to receive monthly
payments equal to his last base salary for a period of
44
<PAGE>
18 months. The payments are not reduced by compensation Mr. O'Crowley may
receive from other sources. In addition, certain unexercised options vest and
become exercisable by Mr. O'Crowley on the date of termination by us without
cause. The options remain exercisable for the lesser of (1) the maximum length
of time the option is exercisable and (2) one year after the date of
termination. We also pay for key-man life insurance on Mr. O'Crowley's life in
the amount of $5,000,000 that is payable to us and an automobile allowance of
$6,000 per year. Pursuant to the agreement, the options to purchase 400,000
shares of common stock granted on February 14, 1997, will vest six months and
one day after the effective date of this offering. Mr. O'Crowley is subject to
a non-compete agreement for a period of 18 months following termination of his
employment unless he is terminated without cause.
We entered into an employment agreement with Frank Richards dated February
14, 1997, which was amended as of October 1, 1999. On January 13, 2000, we
entered into a new amendment that supersedes the prior agreements. Under this
amendment, we agree to pay Mr. Richards a salary of $13,750 per month from
January 1, 2000 through September 30, 2000. In the event we have not completed
our public offering by September 30, 2000, Mr. Richards shall remain our
employee for three additional months and receive a salary of $13,750 per month
until December 31, 2000. If Mr. Richards is terminated without cause, or if Mr.
Richards terminates the agreement due to our actions, he is entitled to receive
his full salary for the remainder of the term of the agreement. The payments
are not reduced by compensation Mr. Richards may receive from other sources.
Mr. Richards has relinquished his options to purchase 75,000 shares of our
common stock which were granted on October 1, 1999 but retains his options to
purchase 143,750 shares of our common stock.
We entered into a letter agreement with Timothy Hardin dated April 18,
1997, governing his employment with us. Under the agreement, we agreed to pay
Mr. Hardin an initial annual salary of $125,000 and to grant him stock options
to purchase 25,000 of our common stock at an exercise price of $13.92 per
share. The options vest over a three-year period beginning April 1998. If Mr.
Hardin is terminated without cause, he is entitled to receive salary and full
benefits for six months from the date of termination.
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<PAGE>
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan. In February 1997, our board of directors adopted
and our stockholders approved our 1997 Stock Option Plan. We reserved a total
of 1,243,052 shares for issuance under the 1997 plan. We increased this number
to 1,368,052 in August 1997, to 1,505,552 in May 1998 and to 1,755,552 in
October 1999. As of December 31, 1999, options to purchase 1,795 shares of our
common stock had been exercised, options to purchase 1,283,625 shares were
outstanding with a weighted average exercise price of $5.87, and options to
purchase 470,132 shares were available for future grant. Following the closing
of this offering, no additional options will be granted under the 1997 plan.
1998 Stock Option Plan. In May 1998, our board of directors adopted and
our stockholders approved our 1998 Stock Option Plan. We reserved a total of
864,417 shares for issuance under the 1998 plan. We increased this number to
1,564,417 in October 1999. As of December 31, 1999, no options to purchase
shares of our common stock had been exercised, options to purchase 1,046,938
shares were outstanding with a weighted average exercise price of $6.66, and
options to purchase 517,500 shares were available for future grant. Following
the closing of this offering, no additional options will be granted under the
1998 plan.
2000 Stock Incentive Plan. In January 2000, our board of directors adopted
and our stockholders approved our 2000 Stock Incentive Plan. We have reserved a
total of 2,750,000 shares for issuance under the 2000 Stock Incentive Plan. No
options have been granted under the 2000 plan as of January 14, 2000.
Our 1997, 1998 and 2000 option plans provide for the grant of both
incentive stock options that qualify under Section 422 of the Internal Revenue
Code and nonqualified stock options. We can grant incentive stock options only
to our employees. We can grant nonqualified stock options to employees,
directors and consultants. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant or, in the case of incentive stock options granted to holders of more
than 10% of our voting stock, not less than 110% of the fair market value. The
exercise price of nonqualified stock options must be equal to 85% of the fair
market value of our common stock on the date of grant under the 1997 plan, 50%
of the fair market value under the 1998 plan and 85% of fair market value under
the 2000 plan. Options generally have a term of ten years from date of grant,
but incentive stock options granted to stockholders holding 10% or more of our
stock have a term of five years. The maximum term of options granted under our
option plans is ten years. Options granted under our option plans generally
expire three months after the termination of the optionee's employment or
service. However, in the case of death or disability, the options generally may
be exercised up to 12 months following the date of death or disability. Options
will generally terminate immediately upon termination of employment or service
for cause.
Under our 1997 and 1998 plans, in the event of a major corporate
transaction such as a merger, share exchange or sale, or disposition of all or
substantially all of our assets, the vesting schedules of all options that
would have vested during the 12 month period following the major corporate
transaction will be accelerated. Our board has the option to accelerate the
vesting of all other options prior to a major corporate transaction. Instead of
allowing an optionee to exercise his options, the board may, in its discretion,
require some or all of the plan participants to accept a cash payment in
consideration for the termination of the person's option. All stock options
will be automatically accelerated if a person's employment is terminated
without cause within one year following a change of control transaction. This
offering does not constitute a change of control as defined in our option
plans.
Under the 2000 plan, in the event of a change in control, including a
merger, sale of all or substantially all of our assets, share exchange, or a
change in the majority of the incumbent board, options which would vest within
12 months after the change in control will be accelerated and immediately
exercisable. The Board has discretion to accelerate all other options prior to
the change in control. In addition, the Board may cancel outstanding options
and require participants to accept cash payment for their canceled options at
the price per share to be received in the change in control event. The 2000
Stock
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<PAGE>
Incentive Plan for certain matters will be administered by the Compensation
Committee of the board of directors consisting of two or more "outside
directors" as defined under section 162(m) of the Internal Revenue Code. The
2000 plan also provides for the automatic grant of options to non-employee
directors as discussed under "Management - Director Compensation."
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted in January 2000 and will be effective upon the closing of this
offering. The 2000 Employee Stock Purchase Plan provides our employees with an
opportunity to purchase our common stock through accumulated payroll
deductions. A total of 2,000,000 shares of common stock have been reserved for
issuance under the purchase plan, none of which have been issued to date.
Our board of directors or a committee appointed by our board will
administer the purchase plan. The purchase plan will permit eligible employees
to purchase common stock through payroll deductions of up to 10% of an
employee's base compensation on each pay day during the offering period,
provided that no employee may purchase more than 1,500 shares or $25,000 worth
of stock in one calendar year. Any employee employed by us on a given
enrollment date is eligible to participate during that offering period,
provided that they remain employed by us for the duration of that offering
period, and if immediately after the grant, the employee will not own 5% or
more of our stock. Unless the board of directors or its committee determines
otherwise, the purchase plan will be implemented in a series of offering
periods, each approximately six months in duration. Offering periods will begin
on the first trading day on or after January 1 and June 1 of each year and
terminate on the last trading day in the period six months later. However, the
first offering period shall commence on the closing of this offering and
terminate on the last trading day of May 2000. The price at which common stock
will be purchased under the purchase plan is equal to 85% of the fair market
value of the common stock on the first day of the applicable offering period or
the last day of the applicable purchase period, whichever is lower. Employees
may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. The board of
directors may amend, modify or terminate the purchase plan at any time as long
as the amendment, modification or termination does not impair vesting rights of
plan participants. The purchase plan will terminate on December 31, 2003,
unless terminated earlier in accordance with its provisions.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code. All employees who are at least
21 years old are eligible to make contributions to the 401(k) plan beginning
the first day of the month after the month they are hired. Participants may
make pre-tax contributions of up to 15% of their eligible earnings, subject to
a statutorily prescribed annual limit. After an employee has been with us for
one year, we make matching contributions on a discretionary basis on the basis
of $.50 for every $1 contributed by the employee, up to 6% of the employee's
annual salary. Each participant is fully vested in his or her contributions,
any of our matching contributions, and the investment earnings on either.
Contributions by the participants or us to the 401(k) plan, and the income
earned on these contributions, are generally not taxable to the participants
until withdrawn. Contributions by us, if any, will generally be deductible by
us when made. Contributions by us and the participants are held in trust, as
required by law. Individual participants may direct the 401(k) plan's trustee
to invest their accounts in authorized investment alternatives.
47
<PAGE>
RELATED PARTY TRANSACTIONS
Since our inception in February 1996, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or are to be party in which the amount involved exceeds $60,000, and in
which any director, executive officer, holder of more than 5% of our common
stock, or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest other than (1)
compensation agreements and other arrangements which are described in
"Management" and (2) the transactions described below.
Securities Issuances and Loans
In March 1996, we sold 1,582,143 shares of our common stock to Timothy
O'Crowley for $40,000 at $.025 per share. In August 1996, we sold 50,000 shares
of common stock to Patrick F. O'Neal, a Named Executive Officer, for $100,000
at $2.00 per share.
In August 1996, we sold 20,000 shares of Series A preferred stock for
$2,000,000 at $100 per share to Resource Bancshares Corporation. Resource
Bancshares sold 5,000 of these shares back to us for $1,741,000 at $348.20 per
share as part of the Series B preferred financing in February 1997 and
distributed 250 shares to affiliated persons. We issued warrants in connection
with this offering to Timothy O'Crowley and Resource Bancshares that were
cancelled as part of the Series B financing described below. As part of the
Series A transaction, Resource Bancshares was given the right to appoint two
(subsequently reduced to one) directors. This right will terminate upon the
closing of this offering. The 15,000 outstanding shares of Series A preferred
stock will be converted into 750,000 shares of common stock on the closing of
this offering.
Between February and April 1997, we sold 10,475,898 shares of Series B
preferred stock for $18.2 million at $1.741 per share, of which Beacon
purchased 9,615,738 shares and Stephen Hyde, a director, purchased 86,157
shares. Part of the consideration for Beacon's purchase was the retirement of
the $800,000 promissory note evidencing its loan to us in February 1997. A
portion of the proceeds were used to repurchase the shares of Series A
preferred stock from Resource Bancshares. As part of the Series B transaction,
Beacon was given the right to appoint two directors. This right will terminate
upon the closing of this offering. Beacon will be a holder of more than 5% of
our common stock upon the closing of this offering. In February 1997, we also
issued 1,863,270 shares of Series B preferred stock having a fair value of $6.4
million to the shareholders of Protocall as part of the Protocall acquisition.
Frank Richards, a Named Executive Officer, acquired 748,168 of these shares and
an incentive stock option to purchase 143,750 shares of our common stock at
$2.72 per share. During 1998 and 1999, 21,539 and 11,488 shares of Series B
preferred stock were returned to us by the former shareholders of Protocall as
adjustments for the price paid for Protocall in 1997. The 12,306,141
outstanding shares of Series B preferred stock will be converted into 3,076,535
shares of common stock upon the closing of this offering.
In November 1997, Beacon loaned us $1 million for an unsecured note
payable on demand and bearing interest at 15% per year. In December 1997,
Beacon loaned us $2 million for an unsecured note payable on demand and bearing
interest at 15% per year.
In December 1997, we sold 2,871,913 shares of Series C preferred stock to
Beacon for $5 million at $1.741 per share. A part of the proceeds were used to
repay the $3.0 million in loans made to us by Beacon plus accrued interest of
$16,000. Beacon also received a warrant to purchase up to 875,000 shares of our
common stock at $6.96 per share and a Series B anti-dilution warrant for the
purchase of an indeterminable number of Series B preferred shares. In May 1998,
Beacon exchanged these warrants for 3,500,000 shares of Series C preferred
stock and a new anti-dilution warrant, which will terminate upon the closing of
this offering, as part of the Series D preferred stock financing. The 6,371,913
outstanding shares of Series C preferred stock will be converted into 1,592,978
shares of common stock upon the closing of the offering.
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<PAGE>
In December 1997, Timothy O'Crowley agreed to place into escrow 50,000
shares of his common stock. The shares were contingently transferable to
Resource Bancshares. The shares were to be returned to Mr. O'Crowley if, prior
to September 18, 1998, we received at least $15 million in net proceeds from
the sale of common stock at a price per share equal to at least $8.80. Since
this event did not occur, the shares were transferred to Resources Bancshares
in 1998.
In January 1998, Timothy O'Crowley granted an option to purchase 62,500
shares of his common stock to Paul Tartre at an exercise price of $6.96 per
share for a term of 10 years.
In April 1998, Beacon loaned us $1.4 million and Timothy O'Crowley,
Patrick O'Neal and Rick Weller each loaned us $100,000 for unsecured notes
payable on demand and bearing interest at 15% per year.
In May 1998, we sold 8,841,911 shares of Series D preferred stock for $12
million at $1.36 per share, of which Conning Capital Partners V purchased
8,823,529 shares. As part of this transaction, Conning was given the right to
appoint two directors. This right will terminate upon the closing of this
offering. Conning will be a holder of more than 5% of our common stock upon the
closing of this offering. A part of the proceeds were used to repay the loans
aggregating $1.7 million made to us by Beacon and Messrs. O'Crowley, O'Neal and
Weller plus accrued interest of $12,082. In addition, Conning and Beacon were
each granted a right to purchase up to $3 million of additional Series D
preferred stock at $1.36 per share through April 1999, which were not
exercised. The 8,841,911 outstanding shares of Series D preferred stock will be
converted into 2,210,478 shares of common stock upon the closing of this
offering.
Between April and September 1999, we sold 2,510,691 shares of Series E
preferred stock to unaffiliated investors for $4.04 million at $1.61 per share.
The 2,510,691 outstanding shares of Series E preferred stock will be converted
into 627,671 shares of common stock on the closing of this offering.
In November 1998, we loaned Frank Richards $29,028 bearing interest at 8%
per year. The note is unsecured and is due and payable on the earlier of
November 20, 2003, upon the termination of Mr. Richard's employment with us or
upon his receipt of $29,028 from the sale of shares of our stock owned by him
or his family. Mr. Richards may pay the note with shares of our stock valued at
the fair market value at the date of payment.
In October 1999, we loaned $28,700 to Timothy O'Crowley and $33,000 to
Frank Richards to assist them in paying personal taxes incurred by each of them
as a result of their receipt of Spider stock in the spin-off. Each loan bears
interest at 7.75%, is due in full on September 1, 2001 and provides that one
half of the loan is forgiven each year if they are still employed at that time.
On November 23 1999, we loaned $600,000 to Timothy O'Crowley, our CEO. The
loan is a full recourse note secured by 150,000 shares of Mr. O'Crowley's
common stock. The loan bears fixed interest at 10.5%. The loan is due and
payable in full on November 23, 2000.
In November and December 1999, we sold 5,210,093 shares of Series F
preferred stock for $11,097,501 at $2.13 per share, of which Brinson Partners
purchased 3,755,869 shares. Brinson will hold more than 5% of our common stock
after the closing of this offering. The 5,210,093 outstanding shares of Series
F preferred stock will be converted into 1,302,523 shares of common stock upon
the closing of this offering, assuming no adjustment of the Series F preferred
stock conversion price. The conversion price, however, is subject to adjustment
depending on the public offering price per share of our common stock. The
following table sets forth the effect of the adjustment to the conversion price
on the number of shares of common stock to be issued based upon the high, mid
and low prices within the estimated public offering price range set forth on
the cover of this prospectus:
<TABLE>
<CAPTION>
Public
Offering Number of Shares of Common Stock
Price to be Issued Upon Converson
-------- -------------------------------- ---
<S> <C> <C>
$
$
$
</TABLE>
49
<PAGE>
Each series of preferred stock provides for the accrual of payment-in-kind
dividends from the date of issuance to the closing of our initial public
offering. Assuming that this offering closes on March 15, 2000, the following
numbers of shares of common stock will be issued as payment-in-kind dividends
on the various series of preferred stock:
<TABLE>
<CAPTION>
Name of Series Number of Shares
-------------- ----------------
<S> <C>
Series A................................................... 130,219
Series B................................................... 563,518
Series C................................................... 291,781
Series D................................................... 404,885
Series E................................................... 85,782
Series F................................................... 28,005
---------
Total.................................................... 1,504,190
=========
</TABLE>
Spin-Off of Spider Technologies
In October 1999, we transferred the proprietary software that is used in
our IntekWebDirect System to a newly-formed subsidiary named Spider
Technologies, Inc. We contributed $1 million in cash and certain other assets
to Spider and distributed 45,283,014 shares of Spider common and preferred
stock pro-ratably (on an as-converted to common basis) to our stockholders. We
also exercised a warrant for 1,000,000 shares of common stock of Spider that we
paid to the former Acorn stockholders (See "Acquisition of Acorn Information
Services"). The spin-off was taxable to us, and the spin-off and its tax
effects are shown in our 1999 financial statements.
The general purpose of the spin-off was to allow Spider to be an
independent software development and licensing business. We retained the
professional services business that integrates the software with our clients'
and their vendors' systems for their direct-to-customer initiatives.
We entered into several agreements with Spider as a part of the spin-off,
which are described below. In general, each agreement provides that each party
will indemnify the other party if it violates the agreement. All of our
agreements with Spider were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of the spin-off. Spider
was represented by its own counsel in connection with these negotiations.
Although we generally believe that the terms of these agreements are arms-
length and consistent with fair market values, we cannot assure you that the
prices charged to or by us under these agreements are not higher or lower than
the prices that may be charged to or by unaffiliated third parties for similar
services or goods or that the other terms are the same as those that would be
agreed upon by unaffiliated parties.
We have set forth below a summary description of the material terms of the
agreements involved in the spin-off. You should read the full text of these
agreements, which have been filed with the SEC as exhibits to the registration
statement of which this prospectus is a part.
Software Ownership. We transferred to Spider ownership of the
IntekWebDirect software code and related documentation, copyrights and
intellectual property rights. The source code and related documentation is from
time to time to be delivered to an independent escrow agent for delivery to us
if Spider breaches the agreement, goes out of business or abandons the
software. Abandonment exists if Spider:
. significantly fails to fulfill its maintenance and support obligations
(as explained below) for a period of 30 sequential days;
. is notified by us of a major error in the software that substantially
impairs the operation of the software, the problem continues for more
than one hour after we notify Spider, this occurs 25 days in a calendar
year, and it adversely affects us;
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<PAGE>
. substantially reduces the level of support for the software it develops
by not providing necessary error corrections so as to adversely affect
us; or
. announces it is going to discontinue developing, supporting or
maintaining the software.
If there is an abandonment, we can use the source code to provide direct-
to-customer outsourced services and, if the abandonment is of the third or
fourth type described above or Spider goes out of business, we can use the
source code for any purpose. In addition, we have the right to retain a copy of
the source code and documentation until May 2001 to allow us to make
corrections to the software. We lose this right if a competitor of Spider or
other entity that would jeopardize the confidentiality of the software acquires
control of us. We also have a security interest in current and future versions
of the software and related rights on which we can foreclose if Spider breaches
its agreements with us or fails to pay us royalties for 20 days.
If Spider wishes to sell the software or related rights prior to November
4, 2002, it must first offer them to us. It also cannot, prior to that date,
assign title or grant an exclusive license to the software to a competitor of
ours or voluntarily allow a competitor of ours to control it.
It is also a breach if a competitor involuntarily controls Spider. Spider
has further recently agreed for two years not to significantly engage in the
business of providing live human interaction (via e-mail, fax or telephone) on
behalf of a client and its customers who purchase goods or services of the
client. We will pay Spider $75,000 for this further agreement.
Control for these purposes means the direct or indirect ownership of 45%
or more of the party's outstanding stock or, in our case only, the power to
appoint a majority of our board.
License Arrangements. We have a 20-year worldwide, non-exclusive license
to use and integrate the object and source code of current and future versions
of the software. During that time, we can use the source code to develop
interfaces with hardware or other software and integrate the object code with
our and our clients' systems. Until November 4, 2000, we can generally
sublicense the software to our clients unless Spider wishes to directly license
to them, or those clients previously breached a license with Spider for the
software, or the country where the client is located or will use the software
is not a member of the Berne Convention.
We do not pay Spider a license fee to use the version of the software we
transferred to it or, until November 4, 2002, any new versions. After that
time, we will pay a "most favored nations" license fee for new versions.
In general, Spider owns all modifications to the software made by us or
our sublicensees.
Maintenance and Support Services. Spider will provide us with maintenance
and support, technical support, installation and training services until
November 5, 2002. For maintenance and support services, we pay Spider an amount
to compensate Spider for services it provides to us or to our clients that
exceed those the Spider group provided to us prior to the spin-off. For
technical support services, such as helping us operate telephone and computer
systems, we pay Spider its full employee costs plus 20%. After November 5,
2002, Spider will provide maintenance and support on its usual customer terms
and may elect, at our request, to provide technical support services.
In addition, at our request, Spider will host on its servers until
November 5, 2001, current and future versions of the software for operation by
us and our clients. For that service, we pay Spider what our clients existing
on November 5, 1999, pay us for the service, and for new customers after that
date we pay Spider its out-of-pocket costs for operating the server. After
November 5, 2001, Spider may continue to provide us and our clients with
hosting services at Spider's then current rates.
Spider may provide other maintenance and support services to our clients.
51
<PAGE>
Royalty. Spider agreed to pay us royalties totaling $1.45 million plus
interest of 8% per year on the unpaid amount. The royalty rate equals 4% of
Spider's net revenues from the distribution and licensing of current and future
versions of the software. Spider does not have to pay us a royalty until it has
total net revenues of $5.5 million or receives $7.5 million from the sale of
equity or convertible debt securities, whichever occurs first. In any event,
the $1.45 million plus interest is due on the earlier of November 4, 2004, or
the sale of all or substantially all Spider's assets.
Shared Personnel and Resources. Under various agreements, we have
committed to share some of our personnel and resources with Spider for limited
periods of time. Paul Tartre, our President - Technology Solutions, and his
administrative assistant will spend 40% of their time on Spider matters, for
which we will be paid $124,080 a year. Our officers Timothy Hardin and Patrick
O'Neal will spend 5% and 20%, respectively, of their time on Spider business,
and Spider will reimburse us monthly for those percentages of our costs of
their employment. In addition, we expect that Timothy O'Crowley will remain
chairman of the board of Spider, and he will be a consultant to Spider for
strategic planning and financing advice for which he will be paid $90,000 per
year for two years. In general, other than Paul Tartre, neither we nor Spider
may solicit each others' employees for approximately one year.
We have also agreed to provide certain administrative services to Spider
for $10,417 a month, as well as to sublease 40% of our office space in San
Diego for 40% of our rent and other occupancy costs. Spider also pays us for
equipment and supplies it uses in that office. These agreements generally
terminate between October 2000 and August 2003.
Referrals. We have agreed to refer to Spider those of our clients that
wish to license current or future versions of the software and Spider will
refer to us companies that might wish to use our outsourced communications
center services. These arrangements are for three years and are non-exclusive.
We will pay each other industry-standard commissions on the revenues generated
by any referrals, and Spider will charge our clients standard license fees.
Infringement. In general, we are liable to Spider if we know the software
and documentation we delivered to Spider, or if a modification we made to the
software, infringes the rights of others or is not owned by us. In general,
Spider is liable to us if the software and documentation it develops infringes
the rights of others or is not owned by Spider, or if at any time a client of
ours makes a claim against us involving work done by Spider. The claims of each
party against the other are generally limited to a maximum of $5 million, and
no claim can be made for the first $500,000 of claims. However, this limitation
does not apply to claims for indemnification regarding infringement or
misappropriation or, in Spider's case, claims our clients make against us based
on Spider's work.
Taxes. If in the future our or Spider's tax liability increases pursuant
to Section 482 of the Internal Revenue Code of 1986, the other party will pay
to the party whose liability was increased an amount equal to the reduction in
tax liability payable by the other party. No payment needs to be made until the
tax benefit actually results in a recognized tax savings to the other party on
a specific amount of tax then currently due and payable.
Termination. Spider can terminate the agreements, including the licenses,
and seek damages from us upon notice to us if we breach our obligations and
fail to materially cure such breach within certain time periods. We have the
right to foreclose on our security interest in the software and related rights,
terminate the agreement and seek recovery of damages from Spider upon notice to
Spider if (1) Spider willfully, recklessly or negligently, with the approval or
prior actual knowledge of senior management of Spider, breaches its
confidentiality obligations or (2) materially breaches any other provision of
the agreement with the exception of maintenance, support and hosting services,
and fails to cure such breaches within certain time periods. If Spider
materially breaches its obligations regarding maintenance, support and hosting
services and does not cure the breach after notice, we have the right to
contract with a third party to obtain those services, seek recovery of damages
from Spider and terminate the agreement.
52
<PAGE>
Stock Ownership and Board Representation
In connection with the spin-off of Spider, certain of our executive
officers, directors and principal stockholders received shares of common stock
or preferred stock of Spider as follows:
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Common Preferred Percentage
Name Stock Stock Owned(1)
---- ---------- ---------- ----------
<S> <C> <C> <C>
Timothy O'Crowley.......................... 7,715,328 15.2%
Paul Tartre................................ 3,000,000 5.9
Frank Richares............................. 500,000 841,467 2.6
Patrick O'Neal............................. 700,000 1.4
Venkat Sharma.............................. 388,155 *
Shoba Murali............................... 304,095 *
Raja Ramnarayan............................ 185,250 *
Sunil Gupta................................ 100,000 *
Stephen Hyde............................... 98,650 *
The Beacon Group III -
Focus Value Fund, L.P. .................... 14,298,360 28.2
Conning Capital Partners V, L.P. .......... 10,102,941 19.9
---------- ---------- ----
Total.................................... 12,892,828 25,341,418 75.3%
========== ========== ====
</TABLE>
- ------------------
* Less than one percent
(1) The total shares of common stock and preferred stock outstanding at
November 6, 1999, the date of distribution, was 50,783,371 shares.
In addition, Timothy O'Crowley, Steven Piaker, Harold Pote, Rick Weller
and Eric Wilkinson, who are members of our board, and Patrick O'Neal and Paul
Tartre, two of our executive officers, are members of the board of Spider and
represent seven of the ten members of Spider's board.
Acquisition of Acorn Information Services
Effective October 1, 1999, we acquired all of the capital stock of Acorn
Information Services, Inc., a Delaware corporation based in Connecticut that
provides strategic consulting and sophisticated data analytic services to help
their clients enhance their marketing efforts. Four of the five former Acorn
stockholders became executives of Acorn and us following the acquisition.
Timothy O'Crowley is currently the sole director of Acorn. In connection with
the Acorn transaction, we paid $100,000 of the fee incurred by the Acorn
stockholders for services provided by their investment banker Prospero LLC by
issuing 11,738 shares of our common stock to Prospero. A summary of the
acquisition and the agreements executed in connection with the acquisition is
provided below. We strongly urge you to read the entire agreements, which have
been filed with the SEC as exhibits to the registration statement of which this
prospectus is a part.
Stock Purchase and Contingent Earn-Out Provisions. The purchase price for
all of the outstanding Acorn capital stock was $850,000 cash at closing plus
acquisition costs of $100,000. In addition, we must make certain contingent
payments of cash and our common stock if Acorn meets at least 75% of specified
minimum earnings targets as of November 30, 2000, 2001 or 2002. During this
three year earn-out period, the cash portion of the contingent payments will be
made at the end of each anniversary date of the agreement and the common stock
portion will be issued at the end of the third anniversary date of the
agreement. The former Acorn stockholders will receive an aggregate amount of up
to $1.9 million in cash and 527,778 shares of our common stock.
The contingent earn-out consideration payable to the former Acorn
stockholders who are also employees of Acorn may not be received under certain
circumstances if their employment ends before Acorn meets certain earnings
targets. When Acorn achieves certain earnings targets, however, up to two of
these employees may leave Acorn. In addition, if Acorn sells substantially all
of its assets or stock to a third party,
53
<PAGE>
or if we become insolvent, the former Acorn stockholders have a right of first
refusal to purchase the stock or assets of Acorn.
In connection with the Acorn transaction, we exercised our warrant to
purchase 1,000,000 shares of Spider common stock and delivered these shares to
the former Acorn stockholders. The shares must be returned to us if the earnout
conditions are not met. Each former Acorn stockholder is entitled to retain
four times the number of Spider shares as the number of shares of our common
stock that he or she is entitled to receive for the first year of the earn-out
period. We have the right to repurchase all of the forfeited Spider common
stock for $.013 per share. Further, if an employee stockholder's employment
terminates prior to the expiration of the earn-out period, we will have the
right to repurchase all of that stockholder's forfeited or unforfeited Spider
common stock at $.013 per share.
In addition, we agreed to make up to a total of $10.9 million of
economically justified (in our determination) capital contributions to Acorn
over the earn-out period to fund growth and ongoing business operations of
Acorn and to facilitate Acorn's achievement of the earnings targets. If Acorn
does not meet 100% of its earnings targets, our capital contributions will be
adjusted downward proportionately. If Acorn does not meet 75% of its targets,
we are not required to make any capital contribution. We have the final
determination as to the amount of our capital contributions.
In the event of a change in control of our capital stock during the earn-
out period, payment of the contingent earn-out earned for any annual periods
ending prior to the change in control and for the year in which a change in
control occurs will be accelerated. After the closing of this offering, the
cash and stock portions of the earn-out consideration payable in the first year
of the earn-out period will be paid within 30 days of our determination of
earn-out consideration payable for this period.
Employment Agreements. Each of the former Acorn stockholders who prior to
the transaction were Acorn employees entered into an employment agreement with
us and Acorn to provide services to us and Acorn. The employment agreements are
for an initial term of three years and provide for the assignment to Acorn of
all works and inventions developed on behalf of Acorn. With limited exceptions,
for not less than one year after a former Acorn stockholder's employment is
terminated, he or she cannot work for or provide services to a company that
competes with us or solicit other Acorn employees to leave Acorn's employ. The
employee stockholders (other than Mr. Sharma) will not be entitled to more than
12 months of severance pay upon termination of employment by the employee for
cause or by us without cause. Mr. Sharma will be entitled to 12 months of
severance pay plus, under certain circumstances, up to an additional 12 months
of severance pay upon termination by him for cause or by us without cause.
Registration Rights Agreement. To mitigate the tax liability of the former
Acorn stockholders for their receipt of our common stock at the end of the
three year earn-out period, we agreed to provide the former Acorn stockholders
with (1) a loan equal to 25% of the value of our common stock held by the
former Acorn stockholders, (2) an offer to repurchase 25% of our common stock
held by the former Acorn stockholders, or (3) one demand registration for up to
50% of our stock held by the former Acorn stockholders. The right of the former
Acorn stockholders to demand registration of a portion of their shares arises
only if we elect not to provide a loan or to repurchase shares of our common
stock.
Commercial Agreements
During 1996, we entered into certain transactions with Eden Financial
Group, Inc. or its subsidiaries. Timothy O'Crowley, Patrick O'Neal and Paul
Tartre, executive officers of Intek are stockholders of Eden Financial Group,
Inc. We paid a total of $115,000 for software applications developed by Eden
Financial Group, Inc. in the form of a note payable. The note was paid on
December 15, 1997. We received $80,000 from Eden Financial Group, Inc. in
return for assuming various lease obligations of Eden Financial Group, Inc.
54
<PAGE>
During 1997, we leased an aircraft from Mt. Evans Consulting, LLC, a
company partially-owned by Timothy O'Crowley. Rental payments were based upon
our usage of the aircraft. Amounts paid or accrued by us under the lease during
the year ended December 31, 1997, were $164,000. During 1998, the lease was
terminated.
From January 1998 through May 1999, Mr. Pat O'Crowley, our executive vice
president - corporate development, consulted with us on strategic planning and
operational matters, through his firm, Coalter Group International. In 1999,
Coalter Group International was paid $80,000 for these services.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows certain information with respect to beneficial
ownership of our common stock as of December 31, 1999, by (1) each stockholder
known to us to be the beneficial owner of more than 5% of our common stock, (2)
each of our directors, (3) each of our Named Executive Officers and (4) all
executive officers and directors as a group. The number of shares and
percentages in the table includes the shares issuable as payment-in-kind (PIK)
dividends assuming the closing of this offering on March 15, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC
and represents sole or shared voting or sole or shared investment power with
respect to securities. Unless otherwise indicated below, the person and
entities named in the following table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of common stock subject to options or
warrants that are currently exercisable or exercisable within 60 days of
December 31, 1999, are deemed to be outstanding and to be beneficially owned by
the person holding the options or warrants for the purpose of computing the
percentage ownership of that person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The following table assumes that the underwriter's over-allotment option
to purchase up to shares from us is not exercised.
<TABLE>
<CAPTION>
Percent Owned
-----------------
Number Before After
Name and Address of Beneficial Owners of Shares Offering Offering
- ------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
The Beacon Group III -- Focus Value Fund,
L.P. ...................................... 4,729,015(1) 36.5%
399 Park Avenue
New York, NY 10022
Conning Capital Partners V, L.P. ........... 2,609,927(2) 20.2%
CityPlace II, 9th Floor
185 Asylum Street
Hartford, CT 06103
Timothy O'Crowley........................... 2,066,332(3) 13.1%
Intek Information, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111-3017
Brinson Partners, Inc. ..................... 962,686(4) 7.4%
209 South LaSalle Street
Chicago, IL 60604-1295
Frank Richards.............................. 361,130(5) 2.8%
Paul Tartre................................. 200,000(6) 1.5%
Patrick O'Neal.............................. 325,000(7) 2.5%
Timothy Hardin.............................. 67,500(8) *
Stephen Hyde................................ 25,485 *
Stephen Piaker.............................. 0(9) *
Harold Pote................................. 0(10) *
Rick Weller................................. 0 *
Eric Wilkinson.............................. 0(11) *
All officers and directors as a group, 20
persons(12)................................ 11,347,075(12) 70.8%
</TABLE>
- ------------------
56
<PAGE>
* Less than 1%.
(1) Includes 440,309 shares issuable as a PIK dividend.
(2) Includes 404,044 shares issuable as a PIK dividend.
(3) Includes 537,500 shares subject to options that are exercisable within 60
days from December 31, 1999. Mr. O'Crowley is our Chief Executive
Officer.
(4) Includes 83,015 shares issuable as a PIK dividend. Brinson Partners, Inc.
is the managing member of Brinson Venture Management LLC, the investment
advisor to BVCF III, L.P., which has sole voting and investment power over
BVCF III, L.P.'s shares. The address of BVCF III L.P. is c/o Brinson
Partners, Inc.
(5) Includes 130,061 shares subject to options that are exercisable within 60
days from December 31, 1999 and 30,149 shares issuable as a PIK dividend.
(6) Represents shares subject to options that are exercisable within 60 days
from December 31, 1999.
(7) Includes 145,041 shares subject to options that are exercisable within 60
days from December 31, 1999.
(8) Represents shares subject to options that are exercisable within 60 days
from December 31, 1999.
(9) Does not include 2,982,774 shares held of record by Conning Capital
Partners V, L.P. Mr. Piaker is senior vice president of Conning & Conning.
Conning & Conning is the managing member of Conning Investment Partners V,
LLC, which serves as the general partner of Conning Capital Partners V,
L.P. Mr. Piaker disclaims beneficial ownership of the shares owned by
Conning Capital Partners V, L.P.
(10) Does not include 5,404,589 shares held of record by The Beacon Group III -
Focus Value Fund, L.P. The Beacon Group has voting and investment power
over shares owned of record by The Beacon Group III - Focus Value Fund,
L.P. Mr. Pote is a general partner of The Beacon Group and as such may be
deemed to be a beneficial owner of the shares shown as beneficially owned
by The Beacon Group III - Focus Value Fund, L.P. Mr. Pote disclaims
beneficial ownership of the shares owned by The Beacon Group III - Focus
Value Fund, L.P., and, accordingly, such shares are excluded from the
information in the table with respect to Mr. Pote.
(11) Does not include 5,404,589 shares held of record by The Beacon Group III -
Focus Value Fund, L.P. Mr. Wilkinson is employed by The Beacon Group. Mr.
Wilkinson disclaims beneficial ownership of the shares owned by The Beacon
Group III - Focus Value Fund, L.P.
(12) Includes 853,450 shares subject to options held by executive officers and
directors that are exercisable within 60 days from December 31, 1999.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 100,000,000 shares of common stock and
10,000,000 shares of undesignated preferred stock as of the closing of this
offering. The following description of our capital stock is qualified in its
entirety by our certificate of incorporation and bylaws, which are included as
exhibits to the Registration Statement of which this prospectus is a part, and
by the provisions of applicable Delaware law.
Common Stock
As of December 31, 1999, there were shares of common stock
outstanding, as adjusted to reflect (1) the conversion of all outstanding
shares of preferred stock into common stock, (2) the issuance of 1,504,190
shares of common stock as payment-in-kind dividends to the holders of our
preferred stock assuming the closing of this offering on March 15, 2000 and (3)
the issuance of an additional shares of common stock to the holders of our
Series F preferred stock assuming the sale of shares in this offering at an
initial offering price of $ per share. As of December 31, 1999, we had
approximately 32 stockholders of record.
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common
stock to be issued upon the closing of this offering will be fully paid and
nonassessable.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series, and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state
the actual effect of the issuance of any shares of preferred stock upon the
rights of holders of the common stock until the board of directors determines
the specific rights of the holders of such preferred stock. However, the
effects might include, among other things, restricting dividends on the common
stock, diluting the voting power of the common stock, reducing the market price
of the common stock, or impairing the liquidation rights of the common stock,
without further action by the stockholders. We could issue preferred stock
quickly with terms calculated to delay or prevent a change in control or make
removal of management more difficult. We have no present plans to issue any
shares of preferred stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Delaware law and our certificate of incorporation
and bylaws could make it more difficult or prevent a change in control that a
stockholder might consider favorable by a tender offer, a proxy contest or
otherwise, and to remove incumbent officers and directors. These provisions are
intended to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which prohibits us from engaging in a "business combination" with an
"interested stockholder" for a period of three years following
58
<PAGE>
the date the person became an interested stockholder, unless (with certain
exceptions) the "business combination" or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. A
"business combination" includes a merger, a sale of 10% or more of our assets
or stock, or other transactions resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
the determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. Section 203 does not restrict a transaction by us
with a person who owned stock before this public offering. Section 203 permits
companies to opt out of this provision, but we have elected not to opt out. The
applicability of this provision could prevent or delay a takeover that you
might consider favorable by an interested stockholder in a transaction that the
board of directors has not approved in advance, including takeovers that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Our certificate of incorporation and bylaws, effective upon the closing
date of this offering, contain certain provisions which are intended to deter
hostile takeover attempts. Our certificate of incorporation and bylaws require
that any action to be taken by our stockholders must be taken at a duly called
annual or special meeting of the stockholders and may not be taken by a consent
in writing. In addition, special meetings of our stockholders may be called
only by the board of directors. Our certificate of incorporation and bylaws
also provide that, beginning upon the closing of this offering, our board of
directors will be divided into three classes, with each class serving staggered
three-year terms so that approximately one-third of the directors are elected
each year. Staggering the terms of our directors delays the time it would take
stockholders to replace a majority of the incumbent directors. Certain
amendments of the certificate of incorporation and of the bylaws require the
approval of holders of at least 66 2/3% or 80% of the voting power of all
outstanding stock. In addition, our directors may only be removed with or
without cause by a vote of 80% of the stockholders. Our stockholders must give
notice of nominations or other business to be conducted at a stockholders
meeting at least 120 days before the date of our proxy statement sent to
stockholders for the prior year's annual meeting. These provisions may have the
effect of discouraging takeovers and tactics used in proxy fights or delaying
changes in control or management of the Company.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the personal liability of our
directors to us and our stockholders to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities of our directors
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers and may indemnify our employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws applies to negligent and grossly negligent acts of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other
59
<PAGE>
agent for any liability arising out of his or her actions in their capacity as
an officer, director, employee or other agent, regardless of whether the
certificate of incorporation or bylaws would permit indemnification. The
indemnification provisions in our bylaws and certificate of incorporation are
not exclusive of other rights of indemnification that may be available to our
directors or officers under any agreement or vote of stockholders or
disinterested directors.
In addition to the provisions in our bylaws, we have entered into
agreements to indemnify our directors, executive officers and certain
employees. These agreements, among other things, indemnify our directors,
executive officers and certain employees for judgments, fines, settlement
amounts and certain expenses, including attorneys' fees, incurred by them in
any action or proceeding, including any action by or on behalf of the company,
arising out of the person's services as a director, executive officer or
controller of us, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a derivative
claim or other lawsuit against our directors or officers for breach of their
fiduciary duty, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. In addition, the value of your investment in
our stock may decline to the extent we pay the costs of settlement or damage
awards against our directors and officers under these indemnification
provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
Registration Rights
After this offering, the holders of approximately shares of
outstanding common stock, as converted, and the former stockholders of Acorn
who may receive up to 527,778 shares of our common stock in the future, or
their permitted transferees, are entitled to certain rights to register those
shares under the Securities Act of 1933 at any time after 12 months following
the closing of this offering.
We have entered into an agreement that will be effective upon the closing
of this offering with Beacon, Conning, Brinson, Frank Richards, Timothy
O'Crowley and certain other holders of our preferred stock. Under the
agreement, these stockholders, or their permitted transferees, may require, on
three occasions, and Brinson on one additional occasion, at any time one year
after this offering, that we file a registration statement at our expense under
the Securities Act with respect to the shares of common stock they acquire upon
conversion of their preferred stock, provided that the anticipated amount
offered would be at least $5 million. In addition, these stockholders and their
permitted transferees may, at any time one year after this offering, require
that we register their shares for public resale on Form S-3 or similar short-
form registration, provided that the value of the securities to be registered
is at least $2.5 million.
In addition, the stockholders whose shares are subject to this agreement
have piggyback registration rights. If we propose to register any of our common
stock under the Securities Act, other than under employee benefit plans or for
acquisitions, these stockholders may require us to include all or a portion of
their stock in the registration. However, the managing underwriter, if any, of
the offering has rights to limit the amount of stock to be sold by those
stockholders.
We have also entered into an investor rights agreement with the former
stockholders of Acorn in connection with the acquisition of Acorn. Please see
"Related Party Transactions - Acquisition of Acorn Information Services" for
more information about the terms of this agreement.
60
<PAGE>
All registration expenses incurred in connection with the above
registrations will be borne by us. Each selling stockholder will pay all
underwriting discounts and selling commissions applicable to the sale of that
stockholder's stock plus fees of their counsel in some cases.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Securities Transfer & Trust Company, Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
General
The shares of our common stock sold in this offering, or shares if
the underwriters exercise their over-allotment option in full, will be freely
tradable without restriction under the Securities Act, except for any such
shares which may be acquired by an "affiliate" of ours (an "Affiliate") as that
term is defined in Rule 144 promulgated under the Securities Act, which shares
will remain subject to the resale limitations of Rule 144.
The shares of our common stock that will continue to be held by
existing stockholders after this offering constitute "restricted securities"
within the meaning of Rule 144, and will be eligible for sale in the open
market after this offering, subject to certain contractual lockup provisions
and the applicable requirements of Rule 144, both of which are described below.
We granted registration rights to certain stockholders. See Description of
Capital Stock- "Registration Rights."
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three month period a number of
shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock; and
. the average weekly trading volume in the common stock on the open
market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain post-sale notice
requirements and, in some cases, the availability of current public information
about us.
In the event that any person who is deemed to be an Affiliate purchases
shares of our common stock pursuant to this offering or acquires shares of our
common stock pursuant to one of our employee benefit plans, the shares held by
such person are required under Rule 144 to be sold in brokers' transactions,
subject to the volume limitations described above. Shares properly sold in
reliance upon Rule 144 to persons who are not Affiliates are thereafter freely
tradable without restriction.
Sales of substantial amounts of our common stock in the open market, or
the availability of such shares for sale, could adversely affect the price of
our common stock.
We, our directors and executive officers, and certain stockholders have
agreed that, without the prior written consent of Hambrecht & Quist LLC on
behalf of the underwriters, we will not, during the period ending 180 days
after the date of this prospectus, sell or otherwise dispose of any shares of
our common stock, subject to certain exceptions. See "Underwriting."
An aggregate of 8,068,174 shares of our common stock are reserved for
issuance under our stock option and employee stock purchase plans. We intend to
file a registration statement on Form S-8 covering the issuance of shares of
our common stock pursuant to these plans. Accordingly, the shares issued
pursuant to these stock option plans will be freely tradable, subject to the
restrictions on resale by Affiliates under Rule 144.
61
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. Hambrecht & Quist LLC, Robertson Stephens, Inc., U.S. Bancorp Piper
Jaffray Inc. and Wit Capital Corporation are acting as representatives of the
underwriters.
The underwriting agreement provides for the purchase of a specific number
of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the number of shares of common stock set forth opposite its name
below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Hambrecht & Quist LLC.............................................
Robertson Stephens, Inc. .........................................
U.S. Bancorp Piper Jaffray Inc. ..................................
Wit Capital Corporation...........................................
-----
Total.............................................................
=====
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other
than those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances. We have agreed to indemnify the underwriters against certain
civil liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of such liabilities.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a
concession of $ per share. The underwriters may also allow to dealers, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.
The underwriters have informed us that the underwriters will not allow
discretionary account sales of the shares of common stock offered by this
prospectus.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of
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<PAGE>
additional shares from us to cover over-allotments. If the underwriters
exercise all or part of this option, they will purchase shares covered by the
option at the public offering price that appears on the cover page of this
prospectus, less the underwriting discount. If this option is exercised in
full, the total price to the public will be $ million and the net proceeds
to us will be approximately $ million. The underwriters have severally
agreed that, to the extent the over-allotment option is exercised, they will
each purchase a number of additional shares proportionate to the underwriter's
initial amount reflected in the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us. Such amount is shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
Paid by Us
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share......................................... $ $
Total............................................. $ $
</TABLE>
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $ million.
We have agreed to indemnify each underwriter against all liabilities to
which they may become subject under the federal securities laws or other law
(including reimbursement of expenses) arising out of:
. any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus) or
the omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements not misleading,
except that there is no indemnification for specific information
furnished by the underwriters; and
. the directed share program under which the underwriters have reserved
for sale up to shares for our officers, directors, employees and
associates.
This includes contribution to any payments which may be made by the
underwriters in the event that indemnification is not available.
We, our executive officers and directors, and certain other stockholders
have agreed to a 180-day lock up with respect to shares of common stock
that they beneficially own, including securities that are convertible into
shares of common stock and securities that are exchangeable or exercisable for
shares of common stock. This means that, subject to certain exceptions, for a
period of 180 days following the date of this prospectus, we and such persons
may not offer, sell, pledge or otherwise dispose of securities without
the prior written consent of Hambrecht & Quist LLC.
The underwriters have reserved for sale up to shares for employees,
directors and certain other persons associated with us. These reserved shares
will be sold at the public offering price that appears on the cover of this
prospectus. The number of shares available for sale to the general public in
the offering will be reduced to the extent reserved shares are purchased by
these persons. The underwriters will offer to the general public, on the same
terms as other shares offered by this prospectus, any reserved shares that are
not purchased by these persons.
Prior to this offering, there has been no public market for the common
stock. Consequently the offering price for the common stock will be determined
by negotiations between us and the underwriters and is not necessarily related
to our asset value, net worth or other established criteria of value. The
factors considered in such negotiations, in addition to prevailing market
conditions, will include the history of and prospects for the industry in which
we compete, an assessment of our management, our prospects, our capital
structure, prevailing market conditions, our results of operations in recent
periods and certain other factors as may be deemed relevant.
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<PAGE>
Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution the shares is completed. However, the
underwriters may engage in the following activities in accordance with the
rules:
. Stabilizing transactions. The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
. Over-allotments and syndicate covering transactions. The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this
prospectus. If a short position is created in connection with the
offering, the representatives may engage in syndicate covering
transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
. Penalty bids. If the representatives purchase shares in the open
market in a stabilizing transaction or syndicate covering
transaction, they may reclaim a selling concession from the
underwriters and selling group members who sold those shares as
part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as
to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
One or more members of the underwriting selling group may make copies of
the preliminary prospectus available over the Internet to certain customers
through its or their Web sites. The representatives expect to allocate a
limited number of shares to such member or members of the selling group for
sale to brokerage account holders.
The Wallach Company, a member of the NASD, has advised us in connection
with this offering, for which we paid it $150,000. The Wallach Company also
acted as placement agent in connection with our Series F preferred stock
financing in November and December 1999, for which we paid it $537,375 in cash.
Market Street Partners, an investment partnership owned by the partners of The
Wallach Company, purchased 164,319 shares of our Series F preferred stock for
$349,999 at $2.13 per share.
Due to the fact that one of the representative of the underwriters was
organized within the last three years, we are providing you with the following
information. Wit Capital Corporation, one of the representatives of the
underwriters, was organized and registered as a broker-dealer on September 4,
1997. Since that time, Wit Capital Corporation has been named as lead or co-
manager of, or as a syndicate member in, numerous public offerings of equity
securities. Wit Capital Corporation does not have any material relationship
with us or any of our officers, directors or other controlling persons, except
with respect to its contractual relationship with us pursuant to the
underwriting agreement entered into in connection with this offering.
64
<PAGE>
LEGAL MATTERS
Chrisman, Bynum & Johnson, P.C. of Boulder, Colorado, will pass upon the
validity of the shares of common stock offered by us. Davis Polk & Wardwell of
Menlo Park, California, will pass upon legal matters in connection with this
offering for the underwriters. A limited liability company comprised of
partners of Chrisman, Bynum & Johnson, P.C. will own 13,092 shares of our
common stock upon conversion of the shares of Series F preferred stock
purchased by it.
EXPERTS
The financial statements and schedules of Intek Information, Inc included
in this prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Acorn Information Services, Inc. as of and for
the year ended December 31, 1998 included in this prospectus have been so
included in reliance on the report (which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern as described
in Note 2 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, 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 thereto. Items are omitted in accordance with the rules
and regulations of the SEC. For further information with respect to us and our
common stock offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and, in each instance, if such
contract or document is filed as an exhibit, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being 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 public reference facilities maintained
by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at the North Western Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, NY 10048. Copies of all or any part thereof may
be obtained from such office after payment of fees prescribed by the SEC. The
SEC maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934. We will
fulfill our obligations with respect to such requirements by filing periodic
reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain a Web site
at http://www.intekinfo.com. Our Web site and the information contained therein
or connected thereto shall not be deemed to be incorporated into this
prospectus or the registration statement of which it forms a part.
65
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Financial Statements:
Audited Consolidated Balance Sheets at December 31, 1998 and 1999......... F-3
Audited Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1999.................................... F-4
Audited Consolidated Statements of Stockholders' Equity (Deficit) for Each
of the Three Years in the Period Ended December 31, 1999................. F-5
Audited Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1999.................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Intek Information, Inc.:
We have audited the accompanying consolidated balance sheets of INTEK
INFORMATION, INC. (a Delaware corporation) and subsidiaries at December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Intek
Information, Inc. and subsidiaries at December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Denver, Colorado,
January 13, 2000.
F-2
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 3,752 $ 6,204
Restricted certificates of deposit............ 135 407
Receivables, net of allowances of $411 and
$464, respectively--
Trade......................................... 4,375 5,218
Unbilled...................................... 1,689 1,108
Related party notes receivable................ -- 690
Prepaid expenses and other.................... 229 906
------- -------
Total current assets......................... 10,180 14,533
PROPERTY AND EQUIPMENT, net.................... 5,052 7,982
GOODWILL AND OTHER INTANGIBLES, net............ 3,314 2,808
OTHER ASSETS................................... 98 1,055
------- -------
Total assets................................. $18,644 $26,378
======= =======
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- December 31,
1998 1999 1999
------- ------- -------------
(Unaudited)
(Note 2)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.............................. $ 1,410 $ 1,668
Accrued expenses.............................. 1,109 3,381
Customer deposits............................. 230 237
Deferred revenue.............................. 336 --
Current borrowings............................ 13 1,316
Due to former Acorn stockholders.............. -- 200
Related party notes payable................... -- 198
------- -------
Total current liabilities.................... 3,098 7,000
DEFERRED RENT.................................. 89 245
LONG-TERM BORROWINGS, net of current portion... 7 1,722
------- -------
Total liabilities............................ 3,194 8,967
------- -------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE PREFERRED STOCK SUBJECT TO
MANDATORY REDEMPTION, $.001 par value,
79,000,000 shares authorized (Note 9)......... 38,440 59,408
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value, 170,000,000
shares authorized, 1,868,087, 1,881,444 and
12,775,065 (unaudited pro forma) shares issued
and outstanding............................... 1 1 1
Additional paid-in capital..................... 243 -- 59,408
Unearned compensation.......................... -- (1,266) (1,266)
Accumulated deficit............................ (23,234) (40,732) (40,732)
------- ------- -------
Total stockholders' equity (deficit)......... (22,990) (41,997) $17,411
------- ------- =======
Total liabilities and stockholders' equity
(deficit)................................... $18,644 $26,378
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
REVENUE..................................... $ 9,546 $ 17,664 $ 24,699
DIRECT COST OF SERVICES..................... (7,767) (13,209) (16,986)
--------- --------- ----------
GROSS PROFIT................................ 1,779 4,455 7,713
--------- --------- ----------
OPERATING EXPENSES:
Selling, general and administrative....... 10,464 9,312 15,020
Depreciation and amortization............. 2,941 3,755 3,533
Research and development.................. 458 897 1,079
--------- --------- ----------
Total operating expenses................ 13,863 13,964 19,632
--------- --------- ----------
LOSS FROM OPERATIONS........................ (12,084) (9,509) (11,919)
--------- --------- ----------
OTHER (EXPENSES) INCOME:
Loss from Spider.......................... -- -- (1,055)
Interest income........................... 245 266 134
Interest expense.......................... (30) (17) (150)
Loss on disposal of equipment and other... (26) (270) (20)
--------- --------- ----------
189 (21) (1,091)
--------- --------- ----------
NET LOSS.................................... $ (11,895) $ (9,530) $ (13,010)
========= ========= ==========
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS:
Net loss.................................... $ (11,895) $ (9,530) $ (13,010)
Accretion of mandatorily redeemable
convertible preferred stock................ (90) (469) (864)
Cumulative dividends to preferred
stockholders............................... -- -- (11,361)
Loss on repurchase of Series A preferred
stock...................................... (1,241) -- --
Loss on Series C preferred stock Exchange
Agreement.................................. -- (1,465) --
--------- --------- ----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.. $ (13,226) $ (11,464) $ (25,235)
========= ========= ==========
BASIC AND DILUTED NET LOSS PER SHARE........ $ (7.09) $ (6.14) $ (13.50)
========= ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING--
BASIC AND DILUTED......................... 1,866,585 1,867,941 1,869,803
========= ========= ==========
UNAUDITED PRO FORMA NET LOSS PER SHARE,
assuming conversion of preferred stock and
accrued dividends:
Basic and diluted net loss per share...... $ (1.26)
==========
Weighted average common shares
outstanding--basic and diluted........... 10,364,936
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1996................... 1,857,142 $ 1 $ 589 $ -- $ (1,809) $ (1,219)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (90) -- -- (90)
Loss on repurchase of
Series A preferred
stock................. -- -- (1,241) -- -- (1,241)
Issuance of common
stock as consulting
fee for Series B
preferred stock
offering.............. 10,770 -- 29 -- -- 29
Warrant for common
stock granted in
connection with the
Series C preferred
stock offering........ -- -- 1,496 -- -- 1,496
Net loss............... -- -- -- -- (11,895) (11,895)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1997................... 1,867,912 1 783 -- (13,704) (12,920)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (469) -- -- (469)
Loss on Series C
preferred stock
Exchange Agreement.... -- -- (1,465) -- -- (1,465)
Warrant granted in
connection with Series
C preferred stock
Exchange Agreement.... -- -- 1,235 -- -- 1,235
Deemed contribution
from majority common
stockholder........... -- -- 157 -- -- 157
Exercise of stock
options for cash...... 175 -- 2 -- -- 2
Net loss............... -- -- -- -- (9,530) (9,530)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1998................... 1,868,087 1 243 -- (23,234) (22,990)
Accretion of preferred
stock to liquidation
and redemption value.. -- -- (864) -- -- (864)
Exercise of stock
options for cash...... 1,620 -- 8 -- -- 8
Reduction of redemption
and liquidation
value ................ -- -- 3,098 -- -- 3,098
Beneficial conversion
feature............... -- -- 2,624 -- -- 2,624
Issuance of common
stock in connection
with Acorn
acquisition........... 11,737 -- 100 -- -- 100
Cumulative dividends to
preferred
stockholders.......... -- -- (6,873) -- (4,488) (11,361)
Unearned compensation.. -- -- 1,664 (1,664) -- --
Amortization of
unearned
compensation.......... -- -- -- 398 -- 398
Net loss............... -- -- -- -- (13,010) (13,010)
--------- --- ------- ------- -------- --------
BALANCES, December 31,
1999................... 1,881,444 $ 1 $ -- $(1,266) $(40,732) $(41,997)
========= === ======= ======= ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(11,895) $(9,530) $(13,010)
Adjustments to reconcile net loss to net cash
used in operating activities--
Depreciation and amortization.................. 2,941 3,755 3,533
Provision for bad debts........................ 88 323 269
Loss from Spider............................... -- -- 1,055
Amortization of discount....................... -- -- 20
Loss on disposal of equipment.................. -- 269 --
Stock compensation expense..................... -- -- 398
Changes in assets and liabilities--
Receivables.................................. (1,442) (3,191) 127
Prepaids and other assets.................... (144) (67) (954)
Accounts payable............................. 130 (246) 19
Accrued expenses............................. 865 (654) 2,160
Other........................................ (48) 299 (228)
-------- ------- --------
Net cash used in operating activities............ (9,505) (9,042) (6,611)
-------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (5,550) (1,195) (4,352)
Payments made on behalf of Spider................ -- -- (1,055)
Restricted cash.................................. (125) (10) (272)
Cash paid in purchase of Protocall, net of cash
acquired and refunded........................... (3,315) 37 101
Cash paid in purchase of Acorn, net of cash
acquired........................................ -- -- (637)
Cash advanced to Acorn prior to acquisition...... -- -- (450)
Related party loans.............................. -- -- (690)
Software development costs....................... -- -- (66)
-------- ------- --------
Net cash used in investing activities............ (8,990) (1,168) (7,421)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock........... -- 2 8
Proceeds from issuance of preferred stock, net of
offering costs.................................. 22,839 11,837 14,485
Repurchase of Series A preferred stock........... (1,741) -- --
Net borrowings on revolving line of credit....... 100 (100) --
Borrowings....................................... -- -- 2,513
Repayment of borrowings.......................... (769) (12) (271)
Proceeds from related party borrowings........... 3,000 1,700 --
Repayment of related party borrowings............ (3,140) (1,700) --
Proceeds from contingent grant................... -- -- 400
Deferred offering costs.......................... -- -- (651)
-------- ------- --------
Net cash provided by financing activities........ 20,289 11,727 16,484
-------- ------- --------
Net increase in cash and cash equivalents........ 1,794 1,517 2,452
Cash and cash equivalents, beginning of year..... 441 2,235 3,752
-------- ------- --------
Cash and cash equivalents, end of year........... $ 2,235 $ 3,752 $ 6,204
======== ======= ========
Supplemental disclosures of cash flow
information:
Cash paid for interest........................... $ 29 $ 17 $ 125
======== ======= ========
Property and equipment acquired through
incurrence of capital lease obligations......... $ 32 $ -- $ --
======== ======= ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Organization and Nature of Business
Intek Information, Inc. ("Intek" or the "Company") is a provider of
Strategic Consulting, Technology Solutions, e-Operations and Customer Knowledge
services in connection with e-commerce and other direct-to-customer initiatives
of business enterprises. The Company operates communications centers in
California, Colorado and Kansas, with additional operations in Connecticut and
headquarters in Englewood, Colorado. Intek incorporated as a Colorado
corporation on March 6, 1996 and reincorporated as a Delaware corporation on
August 2, 1996.
In February 1997, Intek acquired, 100% of the common stock of Protocall
New Business Specialists, Inc. ("Protocall"). Protocall, a communications
center service operation, was located in Northern California. As a result of
the Protocall acquisition, the Company expanded its e-Operations, Technology
Solutions and Strategic Consulting services.
In March 1999, Intek formed a wholly-owned subsidiary, Spider
Technologies, Inc. ("Spider"). Spider was formed to pursue the development and
sales of a Web-based technology originally developed by Intek. Effective
October 1, 1999, Intek distributed all of the stock of Spider to its
stockholders.
In October 1999, Intek acquired 100% of the common stock of Acorn
Information Services, Inc. ("Acorn"). Acorn is a data analytics company based
in Connecticut. As a result of the acquisition of Acorn, the Company's services
expanded to include database marketing and analysis services.
Intek's business is subject to significant risks. Intek incurred net
losses of $36,244 for the period from inception (March 6, 1996) through
December 31, 1999, and projects that net losses will continue to be incurred
through 2000 or longer, while management pursues its plan to grow the business
and add clients and contracts with the goal of achieving profitability. Intek's
ability to achieve profitable operations is subject to significant risks and
uncertainties including, but not limited to, Intek's success in marketing its
services and managing its operations and competitive factors. Intek's plans
also include growth through acquisitions of complementary companies. There is
no guarantee that Intek will ever achieve profitable operations, that it will
be successful in identifying and consummating the acquisition of desirable
companies or that if acquired, Intek will successfully assimilate those
businesses into its operations. Intek's operations are also subject to various
forms of regulation.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Intek and
its subsidiaries, all of which are wholly-owned. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
F-7
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, Intek considers all cash
and investments with an original maturity of 90 days or less to be cash
equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject Intek to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts and notes receivable. Intek has no off-balance sheet concentrations of
credit risk. Intek maintains its cash balances in the form of bank demand
deposits and money market accounts with financial institutions that management
believes are creditworthy. Accounts receivable are typically unsecured and are
derived from transactions with and from customers located within the United
States. Intek performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses.
As discussed in Note 11, a significant portion of Intek's revenue is
derived from a limited number of customers. Additionally, those customers
account for a significant portion of billed and unbilled accounts receivable.
Intangible Assets
<TABLE>
<CAPTION>
December 31,
Estimated ---------------
Life 1998 1999
--------- ------- ------
<S> <C> <C> <C>
Customer relationships and intellectual property.... 3 years $ 3,000 $3,950
Goodwill............................................ 5 years 3,548 3,920
------- ------
6,548 7,870
Accumulated amortization............................ (3,234) (5,062)
------- ------
$ 3,314 $2,808
======= ======
</TABLE>
Amortization of goodwill and other intangibles was $1,509, $1,725 and
$1,828 for the years ended December 31, 1997, 1998 and 1999, respectively.
Property and Equipment
All additions, including betterments to existing facilities, are recorded
at cost. Maintenance and repairs are charged to expense as incurred. When
assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts. Any gain or
loss is reflected in other income (expense) in the year of disposition.
Depreciation is computed on the straight-line method based on the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software................................ 1.5--5 years
Furniture and fixtures......................................... 1.5--7 years
</TABLE>
Leasehold improvements are amortized over the shorter of their economic
life or the remaining term of the related lease.
F-8
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Deferred Rent
Intek recognizes rent expense ratably over the life of the lease
regardless of the timing or amount of periodic payments.
Reverse Stock Split
Effective January 14, 2000, Intek declared a 4 for 1 reverse stock split
on Intek's common stock. Common stock amounts and per share amounts have been
adjusted retroactively to give effect to the stock split. The conversion price
for the preferred stock has been adjusted to reflect the 4 for 1 reverse stock
split.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation agreements
using the intrinsic value method under which no compensation is generally
recognized for equity instruments granted to employees with an exercise price
equal to or greater than the fair market value of the underlying stock. Equity
instruments granted to non-employees are recorded at fair value on the date
they become non-forfeitable.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. Since inception, comprehensive loss has been the
same as net loss.
Revenue Recognition
Intek's revenues are derived principally from contracts for direct-to-
customer services and technology design and implementation projects billed at
negotiated rates. Intek recognizes revenue as services are performed for its
clients based on contractual arrangements for hours incurred and transactions
processed. Unbilled accounts receivable represents revenues earned for services
rendered that are typically billed to the customer in the following month.
Intek periodically enters into fixed fee contracts for Strategic
Consulting services that are accounted for under the percentage of completion
method. At December 31, 1998 and 1999, no such contracts were in-progress.
Direct Cost of Services
Direct cost of services includes payroll and benefits of employees for
time incurred for providing services for customers, telephone costs and other
variable costs associated with generating revenue. All other fixed expenses
incurred, including rent expense for customer care centers, are included in
selling, general and administrative expense in the accompanying consolidated
statements of operations. Depreciation of
F-9
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
property and equipment used to provide services to customers and amortization
of goodwill and other intangibles are shown as a separate line item within the
accompanying consolidated statements of operations.
Advertising Cost
Intek expenses advertising costs as incurred. For the years ended December
31, 1997, 1998 and 1999, Intek had advertising expenses of $196, $132 and $456,
respectively.
Advances to Spider
The Company records a valuation allowance and a corresponding charge to
income against the net assets distributed to Spider and receivables from Spider
for shared costs because realization of the advances are principally dependent
on the operating results of Spider. The amount of the charge is equal to the
net loss incurred by Spider subsequent to the spin-off. The Company will
continue to recognize a valuation allowance until the advances are written down
to zero. Net advances to Spider were zero at December 31, 1999. It is
reasonably possible that additional losses related to Spider will be incurred
in an amount equal to shared support costs to be incurred on Spider's behalf.
Asset Impairment
Intek reviews its long-lived assets held and used in operations for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, management estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, the asset is reduced to its
estimated fair value by recognizing an impairment loss.
Capitalized Software Costs
Software development costs for new software products are expensed as
incurred until technological feasibility is established. Software development
costs incurred subsequent to the establishment of technological feasibility and
prior to general release are capitalized. During 1999, Intek capitalized $66 of
software development costs. These costs will be amortized over a three-year
period. Amortization commences when the product is available for general
release to customers. Capitalized software costs are stated at the lower of
cost or net realizable value. There was no amortization expense incurred during
1999 as none of the products which had established technological feasibility
were available for general release to customers.
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred tax assets and liabilities are recorded for the estimated future
tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in the consolidated balance sheets. Deferred
tax assets are also recognized for net operating loss and tax credit
carryovers. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are
reflected as adjustments to tax expense in the period of enactment. The
measurement of deferred tax assets may be reduced by a valuation allowance
based on judgmental assessment of available evidence if deemed more likely than
not that some or all of the deferred tax assets will not be realized.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and
F-10
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
potential common shares outstanding during the period if the effect of the
potential common shares is dilutive. Intek has excluded the weighted average
effect (using the treasury stock method) of common stock issuable upon
conversion of all convertible preferred stock and stock options from the
computation of diluted earnings per share as the effect of all such securities
is anti-dilutive for all periods presented. The shares excluded are as follows:
<TABLE>
<CAPTION>
Convertible
Preferred Stock
Stock Options
----------- -------
<S> <C> <C>
December 31,
1996.................................................. 2,026,666 --
1997.................................................. 13,288,043 --
1998.................................................. 26,202,683 95,840
1999.................................................. 33,962,909 355,755
</TABLE>
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of Intek's planned initial public offering, the
outstanding shares of all Intek's preferred stock will automatically convert
into 10,893,621 shares of common stock as of December 31, 1999, including
1,333,433 shares for the preferred stock dividends accrued (Note 9). The
effects of these transactions have been reflected in unaudited pro forma
stockholders' equity on the balance sheet at December 31, 1999.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding, and
the pro forma effects of the assumed conversion of all Intek's convertible
preferred stock, including preferred stock dividends accrued, into shares of
Intek's common stock as if such conversion occurred on January 1, 1999, or at
the date of original issuance or declaration if later. The resulting pro forma
adjustments include an increase in the weighted average shares used to compute
basic and diluted net loss per share of 8,495,133 shares for the year ended
December 31, 1999, and the elimination of all charges to adjust net loss to net
loss applicable to common stockholders. The pro forma effects of these
transactions are unaudited.
Segment Information
Intek operates in one business segment and does not internally report the
results of operations of the different services it provides to its customers.
Additionally, the different services provided are typically under one agreement
and are not differentiated to the client.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued liabilities approximate fair value due
to the short-term nature of these assets and liabilities. The interest rates on
Intek's variable rate borrowings are adjusted regularly to reflect current
market rates. The majority of the Company's fixed rate borrowings have been
funded within the last fiscal quarter of 1999 or recorded at fair value in
connection with the acquistion of Acorn. Accordingly, the carrying amounts of
Intek's borrowings approximate fair value. Financial instruments also consist
of convertible preferred stock subject to mandatory redemptions, whose fair
value at December 31, 1998 and 1999 approximated their redemption and
liquidation value, except for the Series F preferred stock issued in 1999. The
fair value of the Series F preferred stock is approximately $22 million because
of its beneficial conversion feature.
F-11
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Intek is required to adopt SFAS No. 133,
as amended by SFAS No. 137, in fiscal 2001. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Intek has not entered
into any derivative financial instruments or hedging activities. As a result,
management believes adoption of SFAS No. 133 will not have a material impact on
the financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bullentin ("SAB") No. 101, "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue
recognition in financial statements of public companies. Changes in accounting
policies to apply the guidance of SAB No. 101 must be adopted by recording the
cumulative effect of the change in the fiscal quarter ending March 31, 2000.
Mangagement has not yet determined the effect SAB No. 101 will have on its
accounting policies or the amount of the cumulative effect to be recorded from
adopting SAB No. 101, if any.
(3) Property and Equipment
Property and equipment consisted of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Computer equipment and software........................... $ 3,463 $ 4,672
Furniture and fixtures.................................... 1,352 2,300
Leasehold improvements.................................... 506 1,230
Telephone equipment....................................... 3,016 5,003
------- -------
8,337 13,205
Less-accumulated depreciation............................. (3,285) (5,223)
------- -------
$ 5,052 $ 7,982
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999,
was $1,432, $2,030 and $1,705, respectively.
(4) Acquisitions
Protocall
On February 14, 1997, Intek purchased all of the common stock of Protocall
for 1,863,270 shares of Series B preferred stock valued at $3,244, cash of
$3,239 and acquisition costs of $180. The acquisition was accounted for under
the purchase method of accounting.
The purchase price was allocated to the acquired assets and liabilities as
follows:
<TABLE>
<S> <C>
Current assets...................................................... $1,684
Property and equipment.............................................. 1,604
Goodwill and other intangibles...................................... 6,623
------
Total assets........................................................ 9,911
Current liabilities assumed......................................... (3,248)
------
$6,663
======
</TABLE>
F-12
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Subsequent to closing, Intek received a total of $196 in cash and stock
held in escrow from the former Protocall stockholders as a purchase price
adjustment which has been recorded as a reduction to goodwill and other
intangibles in the accompanying consolidated balance sheets.
The following unaudited pro forma information details the estimated effect
of the Protocall acquisition assuming it had occurred on January 1, 1997:
<TABLE>
<CAPTION>
Intek
Year Ended 1997
December 31, 1997 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 9,546 $ 11,009
Net loss applicable to common stockholders... $(13,226) $(13,520)
Basic and diluted net loss per share......... $ (7.09) $ (7.24)
</TABLE>
The pro forma financial data presented above does not purport to represent
what Intek's results of operations would actually have been if the transaction
in fact had occurred on January 1, 1997, and is not necessarily representative
of Intek's results of operations for any future period.
Acorn
Effective October 1, 1999, Intek purchased all of the common stock of
Acorn. The purchase was accounted for under the purchase method of accounting.
The initial consideration consisted of cash of $550, $200 in short-term
payables, $100 from the issuance of 11,737 shares of Intek's common stock, and
acquisition costs of $100. The purchase agreement also includes a three-year
contingent earn-out of up to $1,900 in cash and up to 527,778 shares of Intek
common stock. The contingent earn-out will be recorded as additional purchase
price consideration (additional goodwill) when and if the annual goals are
achieved. The contingent earn-out is based on Acorn's annual targets of
earnings before interest, taxes, depreciation and amortization and will be
earned as follows:
<TABLE>
<CAPTION>
Contingent Earn-Out
--------------------
Cash Stock
--------- ----------
<S> <C> <C>
Year 1................................................. $ 600 250,000
Year 2................................................. 600 166,667
Year 3................................................. 700 111,111
--------- ----------
Total earn-out......................................... $ 1,900 527,778
========= ==========
</TABLE>
Additionally, Intek transferred 1,000,000 shares of Spider common stock to
the former Acorn stockholders. The former Acorn stockholders are entitled to
retain a proportionate number of Spider shares during year 1 of the earn-out
period. Intek will receive any forfeited Spider shares at the end of year 1 if
the earn-out provision is not fully met.
If Acorn achieves less than 100% but greater than 75% of its performance
targets, the above amounts will be adjusted for not achieving the estimated
targets. If Acorn achieves less than 75% of its performance targets for any
annual measurement period, then no earn-out payment will be made for that
period.
The purchase price allocation is subject to adjustment based upon the
final determination of the fair value of the assets acquired and liabilites
assumed. The contingent earn-out could result in additional goodwill and
because the stock based earn-out will be recorded based upon the fair value of
Intek's stock at the time of issuance, such additional goodwill could be
substantial. Goodwill will be amortized over five years. Any additional
goodwill recorded as a result of the earn-out will be amortized prospectively
over the remaining amortization period.
F-13
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
The initial purchase price of Acorn was allocated to the acquired assets
and liabilities as follows:
<TABLE>
<S> <C>
Cash................................................................. $ 13
Other assets......................................................... 687
Property and equipment............................................... 312
Goodwill and other intangibles....................................... 1,443
-----
Total assets....................................................... 2,455
Current liabilities.................................................. (429)
Amounts advanced by Intek to Acorn................................... (450)
Borrowings assumed................................................... (626)
-----
$ 950
=====
</TABLE>
The following unaudited pro forma information details the estimated
effect of the Acorn acquisition assuming it had occurred on January 1, 1998:
<TABLE>
<CAPTION>
Intek
Year Ended 1998
December 31, 1998 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 17,664 $ 20,476
Net loss applicable to common stockholders... $(11,464) $(11,636)
Basic and diluted net loss per share......... $ (6.14) $ (6.23)
<CAPTION>
Intek
Year Ended 1999
December 31, 1999 Pro Forma
----------------- -----------
(Unaudited)
<S> <C> <C>
Revenue...................................... $ 24,699 $ 26,707
Net loss applicable to common stockholders... $(25,235) $(26,222)
Basic and diluted net loss per share......... $ (13.50) $ (14.02)
</TABLE>
The pro forma financial data presented above does not purport to
represent what Intek's results of operations would actually have been if the
transaction in fact had occurred on January 1, 1998, and are not necessarily
representative of Intek's results of operations for any future period.
(5) Spider Spin-off
Effective October 1, 1999, Intek distributed 100% of the shares of Spider
to its stockholders on a pro-rata basis. In connection with the transaction,
Intek distributed $1 million in cash and technology that is currently under
development. Intek has the right to receive $1,450 in royalty payments plus
accrued interest at 8% over the next five years resulting from the spin-off.
The royalty payments are due by Spider regardless of its future operations.
Additionally, Intek has received a five-year warrant to purchase 1,000,000
shares of Spider's common stock at an exercise price of $0.013 per share.
Intek exercised this warrant during the fourth quarter of 1999 for $13 and the
shares were transferred to the former Acorn stockholders. As a condition of
the spin-off, Intek will be allowed to utilize the Spider technology for three
years without any fee or royalty due to Spider. Thereafter, Intek will pay for
the use of the technology at its most favored nations pricing if Intek chooses
to continue to utilize the Spider software. The realization of the advances to
Spider is principally dependent upon Spider's operating results and its
ability to raise additional capital subsequent to its spin-off. Intek will
continue to recognize Spider's net losses until all advances are reduced to
zero.
F-14
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
During 1999, a valuation allowance of $1,055 was recognized by a charge to
operations reducing the advances to zero. Intek has no funding commitments or
guarantees in favor of Spider beyond the recorded receivable; however, it is
reasonably possible that Intek will recognize additional losses on Spider for
future shared costs.
In connection with the spin-off of Spider, Intek has reduced the mandatory
redemption value of their preferred shares by $0.13 per share. The excess of
the carrying value of the preferred shares over the revised redemption value of
$3,098 has been credited to additional paid-in capital.
(6) Borrowings
Notes payable and capital lease obligations consisted of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- -------
<S> <C> <C>
Equipment loan............................................... $ -- $ 2,297
Revolving credit facilities.................................. -- 225
Related party notes.......................................... -- 198
Contingent grant............................................. -- 400
Capital lease obligations.................................... 20 191
---- -------
Total notes payable and capital lease obligations............ 20 3,311
Less--Unamortized discount on contingent grant............... -- (75)
Less--Current portion........................................ (13) (1,514)
---- -------
$ 7 $ 1,722
==== =======
</TABLE>
Lines-of-Credit
In 1997, Intek had a line-of-credit facility with a bank that provided for
maximum borrowings of $100. The line-of-credit expired in 1998.
During 1999, Intek entered into a revolving credit facility agreement that
provides for maximum borrowings of $5,000 or 80% of eligible receivables, as
defined by the agreement ($3,079 at December 31, 1999). This facility matures
on May 31, 2001 and bears interest at prime plus 1.5% (10.0% at December 31,
1999). Principal and interest are payable monthly.
The borrowings under the line-of-credit are collateralized by receivables
and other assets of Intek. This facility requires Intek to maintain, among
other restrictions, a tangible net worth of $8,000 as defined in the agreement.
As of December 31, 1999, Acorn had an agreement with a bank for a $50
line-of-credit facility. At December 31, 1999, $50 was outstanding under this
line-of-credit. Interest accrues on outstanding borrowings at 12.5% per annum.
Interest is payable monthly and principal is payable upon demand.
As of December 31, 1999, Acorn had an agreement with a bank to provide a
$175 line of credit facility. At December 31, 1999, Acorn had outstanding
borrowings of $175 under this line. This obligation is collateralized by
certain assets of Acorn. Interest accrues at a per annum rate of 1% over the
bank's prime rate (9.5% at December 31, 1999). Principal and interest are
payable monthly.
Related Party Notes Payable
As of December 31, 1999, Acorn had notes totaling $198 to certain former
stockholders and officers of Acorn. The notes bear interest at a rate of 10%
per annum and are payable on demand.
F-15
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Equipment Facility
In September 1999, Intek entered into an equipment facility, which
provides for maximum borrowings of approximately $2,500 to allow for the
purchase of equipment to be used at Intek's communications center in Kansas.
This facility matures on March 5, 2002 and bears interest at 13.9%. Intek paid
$99 upon entering into the agreement as its first principal payment. During
1999, Intek borrowed $2,513 to purchase equipment. The borrowings under the
equipment facility are collateralized by the related equipment acquired.
Contingent Grant
In April of 1999, the Kansas Department of Commerce and Housing provided
Intek $400 as an incentive to open a communications center in Kansas. The grant
was received in the form of a non-interest-bearing note, which will be forgiven
over five years if certain prescribed employment and average salary levels are
maintained. Intek has discounted the note by $95 to reflect its effective
borrowing rate of 9.75%. The loan was used to purchase equipment to be used at
the Kansas location. As this loan is forgiven, Intek will adjust the basis of
the equipment purchased. If the levels of employment and average salaries
prescribed in the agreement are not maintained, the outstanding portion of the
loan, as defined in the agreement, plus penalties are due within thirty days.
The future minimum principal payments on long-term borrowings are as
follows:
<TABLE>
<CAPTION>
Capital
Equipment Lease Contingent
Loan Obligations Grant Other
--------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Year ended December 31,
2000............................. $ 940 $109 $ 80 $423
2001............................. 1,068 84 80 --
2002............................. 289 7 80 --
2003............................. -- 3 80 --
2004............................. -- -- 80 --
------ ---- ---- ----
2,297 203 400 423
Less-payments representing inter-
est............................... -- (12) (75) --
------ ---- ---- ----
$2,297 $191 $325 $423
====== ==== ==== ====
</TABLE>
F-16
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
(7) Income Taxes
Components of the income tax provision applicable to federal and state
income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current benefit:
Federal........................................ $ -- $ -- $ --
State.......................................... -- -- --
------- ------- -------
Total........................................ -- -- --
------- ------- -------
Deferred benefit
Federal........................................ (3,728) (2,888) (1,778)
State.......................................... (601) (457) (455)
------- ------- -------
Total........................................ (4,329) (3,345) (2,233)
------- ------- -------
Total tax benefit............................ (4,329) (3,345) (2,233)
------- ------- -------
Valuation allowance.............................. 4,329 3,345 2,233
------- ------- -------
Net tax benefit.............................. $ -- $ -- $ --
======= ======= =======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory
tax rate (35%) to Intek's effective income tax rates are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected tax benefit........................... $(4,163) $(3,336) $(4,554)
State tax benefit.............................. (421) (320) (455)
Disallowance of meals and entertainment ex-
penses........................................ 30 10 23
Amortization of goodwill....................... 225 276 463
Taxable gain on Spider spin-off................ -- -- 1,710
Losses on Spider............................... -- -- 406
Other.......................................... -- 25 174
Change in valuation allowance.................. 4,329 3,345 2,233
------- ------- -------
Provision for income taxes..................... $ -- $ -- $ --
======= ======= =======
</TABLE>
At December 31, 1999, Intek had approximately $23,000 of net operating
loss carryforwards that begin to expire in 2012.
Intek recognized a taxable gain of $1,710 million upon its spin-off of
Spider. The amount of the gain was determined by an independent valuation of
Spider. It is reasonably possible that the amount of the gain could change in
the foreseeable future. Furthermore, the Tax Reform Act of 1986 contains
provisions that may limit the net operating loss carry forwards available for
use in any given year if certain events occur, including significant changes
in ownership interests.
F-17
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Current deferred tax assets:
Bad debt allowance........................................ $ 156 $ 179
Vacation accrual.......................................... 53 103
Accrued bonus............................................. 79 308
Accrued severance and wages............................... 113 --
Customer deposits, deferred revenue and other............. 215 293
------- -------
616 883
------- -------
Non-current deferred tax assets:
Deferred rent............................................. 34 93
Net operating loss carryforward........................... 7,248 9,313
------- -------
7,282 9,406
------- -------
Total deferred tax assets................................. 7,898 10,289
------- -------
Non-current deferred tax liability:
Depreciation.............................................. (224) (431)
Acquired intangibles...................................... (412) (363)
------- -------
Total deferred tax liabilities............................ (636) (794)
------- -------
Net deferred tax asset.................................... 7,262 9,495
Valuation allowance....................................... (7,262) (9,495)
------- -------
$ -- $ --
======= =======
</TABLE>
Because Intek has incurred losses since its inception, management
determined a valuation allowance was necessary for the entire deferred tax
asset balance. It is reasonably possible that Intek's view of the realizability
of its deferred tax assets could change in the near future based upon the
successful execution of its business plan.
(8) Commitments and Contingencies
Leases
Intek leases office facilities and various equipment under operating
leases that expire through fiscal 2009. The total rental expense for office
facilities and equipment for the years ended December 31, 1997, 1998 and 1999
was $463, $888 and $1,294, respectively.
F-18
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Minimum future cash flow commitments under the above leases are as
follows:
<TABLE>
<S> <C>
Year ended December 31-
2000............................................................... $1,792
2001............................................................... 1,448
2002............................................................... 1,378
2003............................................................... 1,180
2004............................................................... 1,060
Thereafter........................................................... 2,640
------
$9,498
======
</TABLE>
Grant
Intek received a grant from the Kansas Department of Commerce and Housing
in connection with opening a communications center in Fort Scott, Kansas. The
grant was to reimburse Intek for certain costs incurred relating to the opening
of the customer care center, including training and project administration. The
grant is for up to $800, through November 2008. The grant requires Intek to
maintain certain minimum employment and average salary levels as prescribed in
the agreement. The reimbursements have been applied against the eligible costs
incurred in the accompanying statement of operations. Through December 31,
1999, Intek has earned $336 from this grant which has reduced selling, general
and administrative expense. At December 31, 1999, Intek recorded a receivable
for $185 for reimbursements of costs incurred.
Intek has also received a $400 contingent grant from the Kansas Department
of Commerce and Housing in the form of a non-interest bearing loan (Note 6).
Litigation
Intek is periodically involved in litigation arising in the ordinary
course of business. Management is of the opinion that the ultimate resolution
of any such matters will not have a material adverse effect on Intek's
financial position or results of operations.
(9) Convertible Preferred Stock Subject to Mandatory Redemption
In November 1999, Intek amended its Certificate of Incorporation to
increase the number of authorized shares of common and preferred stock to
170,000,000 and 79,000,000, respectively, and to accrue cumulative preferred
stock dividends of .145 preferred share for each share of the Series A, B, C
and D Stock and 0.1 preferred share for each share of the Series E Stock owned
on October 15, 1999. The declaration resulted in 4,676,464 shares (as converted
for Series A Stock) of preferred stock accrued on October 15, 1999. After
October 15, 1999, the cumulative dividend became 6% per annum on the stated
value of the Series A Stock and 8% per annum on the stated value of the Series
B, C, D, E and F Stock through July 31, 2001. This resulted in an additional
657,269 shares (as converted for Series A Stock) of preferred stock accrued
through December 31, 1999.
Preferred stock may be issued in series with such designations,
preferences, rights and limitations as the Board of Directors may deem
appropriate. The Series A, B, C, D, E and F Stock rank on a parity basis with
respect to dividends and rights upon liquidation. Each series of preferred
stock votes together with the common stock on all matters as if converted into
common shares. Other terms of each series of preferred stock, as amended on
November 19, 1999, are described below.
F-19
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Reverse Stock Split
Subsequent to year-end, Intek declared a 4 for 1 reverse stock split on
Intek's common stock. Common stock amounts and per share amounts have been
adjusted retroactively to give effect to the stock split. The conversion price
for the preferred stock has been adjusted to reflect the 4 to 1 reverse spilt
stock.
Conversion of Preferred Stock into Common Stock
Each share of Series A Stock is convertible at the option of the holders
into 50 shares of common stock. Accrued but unpaid dividends on the Series A
Stock may also be converted into common stock at the same effective conversion
ratio. All outstanding Series A Stock, including unpaid dividends,
automatically converts into common stock upon completion of an initial public
offering of common stock for aggregate proceeds of at least $20,000 and a per
share price of $4.44 (three times the conversion price per share).
Each share of Series B, C, D, E and F Stock is initially convertible at
the option of the holders into four shares of common stock (subject to
adjustment for certain events). The Series C, D, E and F conversion ratio and
the conversion ratio for certain Series B stockholders will be adjusted if
Intek issues or sells common stock or equivalents at a price less than their
stated conversion prices then in effect. Accrued but unpaid dividends on Series
B, C, D, E and F Stock may also be converted into common stock at the same
effective conversion ratio. All outstanding Series B, C, D, E and F Stock,
including unpaid dividends, automatically converts into common stock (4 for 1)
upon completion of an initial public offering of common stock for aggregate
proceeds of at least $25,000 and a per share price of at least $12.00, or, if
following any public offering, the aggregate market capitalization of shares
not held by officers, directors, employees and affiliates exceeds $25,000 and a
per share market price of at least $12.00 is maintained for 20 consecutive
trading days.
Mandatory Redemption and Accretion to Liquidation Values
The holders of at least two-thirds of each series of preferred stock,
voting as a separate series, may require Intek to redeem their shares at any
time on or after February 20, 2003, for the redemption values described in each
separate series. Offering costs for each series of preferred stock were
initially offset against the proceeds from each offering.
Periodic charges to net loss applicable to common stockholders are being
recognized to accrete the value of each series of preferred stock to its
liquidation and redemption value as of February 20, 2003.
F-20
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
A summary of Intek's mandatorily redeemable, convertible preferred stock
is presented in the table below:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
-------------- ------------------- ------------------ ----------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996........... 20,000 $1,951 -- $ -- -- $ -- -- $ -- -- $ --
Repurchase of
Series A
preferred
stock.......... (5,000) (500) -- -- -- -- -- -- -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of $319.. -- -- 10,475,898 17,920 -- -- -- -- -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred
stock, as
consideration
for purchase of
Protocall...... -- -- 1,863,270 3,244 -- -- -- -- -- --
Issuance of
Series C
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,606......... -- -- -- -- 2,871,913 3,394 -- -- -- --
Accretion to
liquidation and
redemption
value.......... -- 12 -- 66 -- 12 -- -- -- --
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1997........... 15,000 1,463 12,339,168 21,230 2,871,913 3,406 -- -- -- --
Modification of
terms on the
existing Series
C preferred
stock in
connection with
the Exchange
Agreement...... -- -- -- -- (2,871,913) (3,535) -- -- -- --
Issuance of new
Series C
mandatorily
redeemable,
convertible
preferred stock
in Exchange
Agreement...... -- -- -- -- 6,371,913 5,000 -- -- -- --
Issuance of
Series D
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,423......... -- -- -- -- -- -- 8,841,911 10,602 -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- -- (21,539) (38) -- -- -- -- -- --
Deemed
contribution
from majority
common
stockholder.... -- -- -- -- -- (157) -- -- -- --
Accretion to
liquidation and
redemption
value.......... -- 9 -- 72 -- 140 -- 248 -- --
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1998........... 15,000 1,472 12,317,629 21,264 6,371,913 4,854 8,841,911 10,850 -- --
Issuance of
Series E
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $52... -- -- -- -- -- -- -- -- 2,510,683 3,990
Issuance of
Series F
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $603.. -- -- -- -- -- -- -- -- -- --
Reduction of
redemption and
liquidation
value -- (368) -- (1,472) -- (717) -- (253) -- (288)
Beneficial
conversion
feature -- -- -- -- -- -- -- -- -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- -- (11,488) (20) -- -- -- -- -- --
Accrued
dividends...... -- 1,018 -- 4,301 -- 2,227 -- 3,090 -- 633
Accretion to
liquidation and
redemption
value.......... -- 6 -- 53 -- 35 -- 279 -- 13
------ ------ ---------- ------- ---------- ------ --------- ------- --------- ------
Balances,
December 31,
1999........... 15,000 $2,128 12,306,141 $24,126 6,371,913 $6,399 8,841,911 $13,966 2,510,683 $4,348
====== ====== ========== ======= ========== ====== ========= ======= ========= ======
<CAPTION>
Series F
-----------------
Shares Amount
--------- -------
<S> <C> <C>
Balances,
December 31,
1996........... -- $ --
Repurchase of
Series A
preferred
stock.......... -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of $319.. -- --
Issuance of
Series B
mandatorily
redeemable,
convertible
preferred
stock, as
consideration
for purchase of
Protocall...... -- --
Issuance of
Series C
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,606......... -- --
Accretion to
liquidation and
redemption
value.......... -- --
--------- -------
Balances,
December 31,
1997........... -- --
Modification of
terms on the
existing Series
C preferred
stock in
connection with
the Exchange
Agreement...... -- --
Issuance of new
Series C
mandatorily
redeemable,
convertible
preferred stock
in Exchange
Agreement...... -- --
Issuance of
Series D
mandatorily
redeemable,
convertible
preferred stock
for cash, net
of issuance
costs of
$1,423......... -- --
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- --
Deemed
contribution
from majority
common
stockholder.... -- --
Accretion to
liquidation and
redemption
value.......... -- --
--------- -------
Balances,
December 31,
1998........... -- --
Issuance of
Series E
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $52... -- --
Issuance of
Series F
mandatorily
redeemable
convertible
preferred stock
for cash, net
of issuance
costs of $603.. 5,210,093 10,495
Reduction of
redemption and
liquidation
value -- --
Beneficial
conversion
feature -- (2,624)
Adjustment to
Series B
preferred stock
as
consideration
for purchase of
Protocall...... -- --
Accrued
dividends...... -- 92
Accretion to
liquidation and
redemption
value.......... -- 478
--------- -------
Balances,
December 31,
1999........... 5,210,093 $8,441
========= =======
</TABLE>
F-21
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Series A Stock
In August and November of 1996, Intek issued a total of 20,000 shares of
Series A Convertible Preferred Stock, $.001 par value, and received net
proceeds of $1,951.
The Series A Stock is entitled to a preference in liquidation. The
liquidation or redemption price is $74 per share plus the amount of any
cumulative unpaid dividends (as amended). Effective November 19, 1999, Intek
amended its Certificate of Incorporation to provide for cumulative stock
dividends equal to .145 shares for each share of Series A Stock outstanding on
October 15, 1999. Subsequent to October 15, 1999, the cumulative dividend rate
becomes 6% per annum on the stated value through July 31, 2001. The dividends
resulted in 2,390 shares (477,938 common stock equivalent shares) of preferred
stock accrued on December 31, 1999.
Series B Stock
During 1997, Intek issued 12,339,168 shares of Series B Convertible
Preferred Stock, $.001 par value. Series B Stock issued for cash between
February and August of 1997 (10,475,898 shares at $1.741 per share) provided
net proceeds to Intek of $17,920. The offering costs included 10,770 shares of
common stock issued as a consulting fee that was valued at $29. A portion of
those proceeds was used to repurchase and retire 5,000 shares of Series A Stock
for $1,741, which resulted in a loss to the common stockholders of $1,241. The
consideration for the February 1997 acquisition of Protocall described in Note
4 included 1,863,270 shares of Series B Stock. During 1998 and 1999, Intek
received 21,539 and 11,488 shares of Series B Stock from escrow, as adjustments
to the Protocall acquisition, respectively.
The Series B Stock has a stated value per share of $1.611 (as amended).
The Series B Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.611 for each share of
common stock into which the Series B Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series B Stock had been converted into common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Intek amended its Certificate of
Incorporation to provide for cumulative stock dividends equal to .145 shares
for each share of Series B Stock outstanding on October 15, 1999. Subsequent to
October 15, 1999, the cumulative dividend rate becomes 8% per annum on the
stated value through July 31, 2001. The dividends resulted in 2,019,233 shares
of preferred stock accrued on December 31, 1999.
Series C Stock and Exchange Agreement
In December 1997, Intek issued 2,871,913 shares of Series C Convertible
Preferred Stock, $.001 par value to The Beacon Group III--Focus Value Fund,
L.P. for net proceeds of $4,890, or $1.741 per share. Proceeds were used in
part to repay loans advanced to Intek by Beacon during November and December
1997 in the aggregate amount of $3,000, plus accrued interest of $16. At the
date of the Series C Stock closing, Beacon received a five-year warrant to
purchase up to 875,000 shares of common stock at $6.96 per share. This warrant
was not assigned any value as the exercise price of the warrant was
significantly higher than the fair market value of the common stock on the
grant date. The warrant was subsequently cancelled in connection with the
Exchange Agreement discussed below. Beacon also received a warrant which
adjusts its Series B conversion ratio if Intek issues or sells common stock or
equivalents at a price less than the Series B Stock conversion price
(initially, $1.741 per share). This warrant was valued at $1,496 and has been
included in the offering costs of the Series C Stock. Additional offering costs
of $110 in cash was incurred in connection with this offering.
An Exchange Agreement was executed on May 7, 1998, simultaneous with the
Series D Stock closing (see Series D Stock below). Beacon surrendered both
warrants obtained at the time of the Series C Stock
F-22
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
closing and was issued 3,500,000 shares of additional Series C Stock and a new
warrant. The Exchange Agreement was accounted for at estimated fair value and
resulted in a charge to the common stockholders of $1,465. The exchange lowered
Beacon's effective per share cost of its Series C Stock to $.7847 and reduced
the average cost to Beacon of all shares of Series B and Series C Stock held by
Beacon to $1.36 per share, the same per share price paid by Conning for the
Series D Stock. The new warrant adjusts Beacon's conversion ratio in the Series
B Stock if Intek issues or sells common stock or equivalents at a price less
than the Series D Stock conversion price (initially, $1.36 per share).
The Series C Stock has a stated value per share of $.6547 (as amended).
The Series C Stock is entitled to a preference in liquidation at a liquidation
or redemption price of the greater of (i) $.6547 for each share of common stock
into which the Series C Stock could be converted, plus all accrued and unpaid
dividends, or (ii) the per share amount the holders would have received if all
shares of Series C Stock had been converted into common stock immediately prior
to such liquidation or redemption, plus all accrued and unpaid dividends.
Effective November 19, 1999, Intek amended its Certificate of Incorporation to
provide for cumulative stock dividends equal to .145 shares for each share of
Series C Stock outstanding on October 15, 1999. Subsequent to October 15, 1999,
the cumulative dividend rate becomes 8% per annum on the stated value through
July 31, 2001. The dividends resulted in 1,045,525 shares of preferred stock
accrued on December 31, 1999.
In December 1997, in connection with the Series C Stock offering, Intek's
Chief Executive Officer agreed to place into escrow 50,000 shares of his Intek
common stock. The shares were contingently transferable to the holder of
Intek's Series A Stock as consideration for consenting to certain corporate
transactions related to the Series C Stock financing. The shares were to be
returned to the Chief Executive Officer if, prior to September 18, 1998, Intek
received at least $15,000 in net proceeds from issuance of its common stock or
equivalents at a price per share of at least $8.80. As this event did not
occur, the shares were transferred in September 1998 to the Series A Stock
holder, and Intek reflected the value of the escrowed shares as a contribution
to capital and a cost of the Series C Stock financing of $157.
Series D Stock
On May 7, 1998, Intek issued 8,823,529 shares of Series D Convertible
Preferred Stock to Conning Insurance Capital Limited Partnership for net
proceeds $11,812, or $1.36 per share. In connection therewith, Intek amended
and restated its Certificate of Incorporation and executed an Exchange
Agreement with Beacon. An additional 18,382 Series D shares were issued in
November 1998 for $25, resulting in total shares issued of 8,841,911. Proceeds
were used in part to repay loans advanced to Intek during April 1998 by Beacon
($1,400) and certain officers of Intek (in the aggregate, $300), plus accrued
interest. In addition, Conning and Beacon were each granted warrants to
purchase up to $3,000 of additional Series D Stock (in the aggregate, 4,411,764
shares) at $1.36 per share through April 1999. The value of these warrants at
the date of grant was $1,235 using the Black-Scholes pricing model, assuming
volatility of 65%, risk-free interest rate of 5.4%, no expected dividends and a
life of one year. The value of the warrants has been included in the offering
costs of the Series D Stock. None of the warrants were exercised in 1998 or
1999.
The Series D Stock has a stated value per share of $1.23 (as amended). The
Series D Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.23 for each share of
common stock into which the Series D Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series D Stock had been converted to common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Intek amended its Certificate of
Incorporation
F-23
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
to provide for cumulative stock dividends equal to .145 shares for each share
of Series D Stock outstanding on October 15, 1999. Subsequent to October 15,
1999, the cumulative dividend rate becomes 8% per annum on the stated value
through July 31, 2001. The dividend resulted in 1,450,810 shares of preferred
stock accrued on December 31, 1999.
Series E Stock
On April 16, 1999, Intek issued 2,484,472 shares of Series E Convertible
Preferred Stock, $.001 par value for net proceeds of $3,948, or $1.61 per
share. An additional 26,211 shares of Series E Stock were issued within 180
days of initial closing for $42, resulting in total shares issued of 2,510,683.
The Series E Stock has a stated value per share of $1.48 (as amended). The
Series E Stock is generally entitled to a preference in liquidation at a
liquidation or redemption price of the greater of (i) $1.48 for each share of
common stock into which the Series E Stock could be converted, plus all accrued
and unpaid dividends, or (ii) the per share amount the holders would have
received if all shares of Series E Stock had been converted to common stock
immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends. Effective November 19, 1999, Intek amended its Certificate of
Incorporation to provide for cumulative stock dividends equal to .1 share for
each share of Series E Stock outstanding on October 15, 1999. Subsequent to
October 15, 1999, the cumulative dividend rate becomes 8% per annum on the
stated value through July 31, 2001. The dividends resulted in 297,098 shares of
preferred stock accrued on December 31, 1999.
Series F Stock
In November and December of 1999, Intek issued 5,210,093 shares of Series
F Convertible Preferred Stock, $.001 par value for net proceeds of $10,495, or
$2.13 per share. The net proceeds are to be used for working capital purposes,
a related party loan and to fund acquisitions.
The Series F Stock has an initial stated value per share of $2.13.
Cumulative dividends will accrue at 8% of the stated value per annum. The
dividends resulted in 43,129 shares of preferred stock accrued on December 31,
1999. The Series F Stock is generally entitled to a preference in liquidation
at a liquidation or redemption price of the greater of (i) $2.13 for each share
of common stock into which the Series F Stock could be converted, plus all
accrued and unpaid dividends, or (ii) the per share amount the holders would
have received if all shares of Series F Stock had been converted to common
stock immediately prior to such liquidation or redemption, plus all accrued and
unpaid dividends.
The Series F conversion ratio will be adjusted if Intek issues or sells
common stock or equivalents at a price less than its stated conversion price
then in effect. If the public offering price of common stock issued in Intek's
initial public offering is less than two times the conversion price, the
conversion price is adjusted to 50% of the public offering price. Further, if
an initial public offering is not consummated before July 31, 2000, then the
Series F conversion ratio will be reduced to 75% of the otherwise applicable
conversion price. The minimum 25% beneficial conversion feature of $2,624 has
reduced the Series F preferred stock carrying value and will be accreted
through July 31, 2000. If an initial public offering were to occur prior to
July 31, 2000, an additional charge of approximately $14,000 would be
recognized by Intek. Accrued but unpaid dividends on Series F Stock may also be
converted into common stock at the same effective conversion ratio.
F-24
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
(10) Stock Option Plans
Intek's 1997 Stock Option Plan was approved by the stockholders on
February 3, 1997, as amended, to reserve 1,755,552 shares of common stock for
issuance upon exercise of options granted under this plan.
Intek also adopted the 1998 Stock Option Plan effective May 7, 1998 as
amended, to reserve 1,564,417 common shares for issuance upon exercise of
options granted under this plan.
Generally options have been granted at an exercise price deemed at least
equal to or greater than the fair market value of Intek's common stock at the
date of grant and vest over periods ranging from 36 to 48 months as determined
by the Board of Directors. Options generally have a term of ten years from date
of grant, except for incentive stock options granted to stockholders holding
10% or more of Intek's stock outstanding, in which case the term is five years.
Under the Stock Plans, the Board of Directors has the discretion to set the
exercise price and to accelerate the vesting periods of options.
During 1999, options for 811,000 shares of common stock were granted with
exercise prices below fair market value. Intek will recognize $1,664 as
compensation expense over the vesting period of the options, ranging from three
to four years from the grant date. In 1999, $398 of compensation was
recognized.
The following table summarizes the activity relating to options:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Options:
Options outstanding, at
beginning of period... -- -- 1,312,394 $6.44 1,710,544 $6.07
Granted................ 1,321,887 $ 6.44 483,375 5.56 1,111,000 6.64
Exercised.............. -- -- (175) 8.00 (1,620) 5.05
Terminated............. (9,493) 7.04 (85,050) 9.20 (489,361) 6.44
--------- ------ --------- ----- --------- -----
Options outstanding, at
end of period......... 1,312,394 $ 6.44 1,710,544 $6.07 2,330,563 6.28
--------- ------ --------- ----- --------- -----
Options exercisable, at
end of period......... -- $ -- 670,883 $5.61 1,214,480 $5.96
========= ====== ========= ===== ========= =====
Weighted average fair
value of options
granted during the
period................ $ 0.96 $1.68 $2.72
====== ===== =====
</TABLE>
The total fair value of options granted was computed to be approximately
$1,283, $813 and $3,022 for the years ended December 31, 1997, 1998 and 1999,
respectively. For purposes of the fair value pro forma disclosures, these
amounts will be amortized ratably over the vesting period of the options.
Cumulative compensation cost recognized in pro forma net income or loss with
respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture. Pro
forma stock-based compensation, net of the effect of forfeitures and tax, was
approximately $357, $503 and $1,156 for the years ended December 31, 1997, 1998
and 1999, respectively.
If the fair value method were used to account for employee stock option
grants, Intek's net loss applicable to common stockholders and loss per share
would have been increased to the following pro forma amounts:
F-25
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported............................... $(13,226) $(11,464) $(25,235)
======== ======== ========
Pro forma................................. $(13,583) $(11,967) $(26,391)
======== ======== ========
Net loss per share:
As reported............................... $ (7.09) $ (6.14) $ (13.50)
======== ======== ========
Pro forma................................. $ (7.28) $ (6.41) $ (14.11)
======== ======== ========
</TABLE>
The fair value of each option grant was determined using the minimum value
method, under which no volatility was assumed. The assumptions used to
determine the fair value of each option grant are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rates......................... 6.17% 5.52% 5.91%
Expected dividend yield rates.................... 0.00% 0.00% 0.00%
Expected lives................................... 4 years 4 years 4 years
Expected volatility.............................. 0.001% 0.001% 0.001%
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------- --------------------
Weighted
Average Weighted- Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.71 to $4.08...... 479,702 7.37 years $ 2.72 436,515 $ 2.72
$5.45 to $6.44...... 911,003 9.50 years $ 3.84 172,135 $ 6.25
$6.97 to $9.00...... 822,101 8.26 years $ 4.93 514,639 $ 7.02
$13.92 to $15.60.... 117,757 7.89 years $13.52 91,191 $15.14
</TABLE>
(11) Major Customers
A significant portion of Intek's revenue is derived from a limited number
of customers. To the extent that any significant customer uses less of Intek's
services or terminates its relationship with Intek, Intek's revenues could
decline substantially and seriously harm Intek's business and results of
operations. Additionally, certain of Intek's contracts with its customers,
including its largest customer, are on a month-to-month basis. Intek's sales to
customers in excess of 10% of revenues for the years ended December 31, 1997,
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................................. -- -- $3,486 20% $6,788 27%
Customer B................................. $3,304 35% -- -- $2,930 12%
Customer C................................. -- -- $2,021 12% -- --
Customer D................................. -- -- $1,919 11% -- --
</TABLE>
F-26
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
Intek's accounts receivable balances, billed and unbilled, from customers
in excess of 10% of the accounts receivable balance at December 31, 1997, 1998
and 1999, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A................................. $ 895 27% $1,253 19% $1,867 27%
Customer B................................. $1,409 43% -- -- $ 733 11%
Customer E................................. -- -- $ 653 10% -- --
</TABLE>
(12) Related Party Transactions
Lease
During 1997, Intek leased an aircraft from Mt. Evans Consulting, LLC, a
company owned by the Intek's Chief Executive Officer. Intek had no minimum
commitments under this lease. Rental payments were based on Intek's usage of
the aircraft. Amounts paid or accrued by Intek under this lease agreement
during the year ended December 31, 1997 were $165. During 1998, the lease was
terminated.
Employment Agreements
In conjunction with the purchase of Protocall, Intek entered into
employment agreements with several employees of Protocall. The agreements
provide that one year of salary be paid in the event of involuntary
termination. In December 1997, Intek elected to terminate certain employees
that were employed under the agreements. In accordance with the agreements,
Intek accrued approximately $407 at December 31, 1997 that was charged to
selling, general and administrative expense in the accompanying consolidated
statements of operations.
Related Party Loans
On November 23, 1999, in connection with the Series F Stock issuance,
Intek loaned its Chief Executive Officer $600. The note is full recourse to the
personal assets of the Chief Executive Officer, including his stock in Intek.
The note bears interest at prime plus 1.5% (10.0% at December 31, 1999) and
matures one year from issuance or earlier depending on the successful
registration of Intek's stock with the Securities and Exchange Commission.
In 1999, Intek executed a note with a key employee for $28 bearing
interest at 8% per year. The note is unsecured and matures in November 2003.
Intek has loaned certain key management a total of $62 in 1999 to allow
for a partial payment of taxes and to be used for various other purposes.
Principal and accrued interest are due in full on September 1, 2001. One half
of the loan can be forgiven each year if they are still employed at that time.
The loans bear interest at 7.75%.
Other Transactions
Intek maintains life insurance on the Chief Executive Officer. In the
event of the Chief Executive Officer's death, the first $10,000 of insurance
proceeds are to be applied to repurchase shares
F-27
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share amounts)
from the Chief Executive Officer's estate with the remaining proceeds
benefiting his estate. In addition, Intek maintains a $2,000 life insurance
policy on the Chief Executive Officer in which his estate is the beneficiary.
In January 1998, Intek's Chief Executive Officer granted an option to a
key employee to purchase 62,500 shares of Intek common stock owned by the Chief
Executive Officer for $6.96 per share. The option has a stated life of ten
years and is fully exercisable. No compensation expense has been recognized for
this transaction as the exercise price was greater than the fair market value
on the date of grant.
(13) Subsequent Events
Employee Stock Purchase Plan
Intek has adopted the 2000 Employee Stock Purchase Plan on January 13
1999. The plan will be implemented in eight semiannual offerings of 250,000
shares of stock for an aggregate of 2,000,000 available shares to be sold under
the plan. Employees can withhold up to 10% of their base salary to be used to
purchase shares under the plan. Employees can purchase shares for the lesser of
85% of the closing price at the beginning or ending of the purchase period or a
price set by the Board of Directors if the stock is not publicly traded.
2000 Stock Incentive Plan
Intek has adopted the 2000 Stock Incentive Plan on January 13 1999 to
reserve 2,750,000 shares of common shares for issuance upon exercise of options
granted under this plan.
Warrant
In January 2000, Intek granted a warrant to a major customer to purchase
181,250 shares of common stock at an exercise price of $8.52 per share. The
value of the warrant at the date of grant was approximately $1.1 million. The
value was determined using the Black-Scholes pricing model, assuming volatility
of 65%, a risk free interest rate of 6.3%, no expected dividends and a
contractual life of three years. The warrant vested immediately upon issuance.
F-28
<PAGE>
INDEX TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Financial Information Basis of
Presentation............................................................. P-2
Pro Forma Condensed Balance Sheet Information (unaudited) at December 31,
1999..................................................................... P-3
Pro Forma Condensed Statement of Operations Information (unaudited) for
the year ended December 31, 1999......................................... P-4
Notes to Unaudited Pro Forma Condensed Financial Information.............. P-5
</TABLE>
P-1
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma condensed financial information gives
effect to (a) the spin-off by Intek of Spider, (b) the acquisition of all the
outstanding common stock of Acorn, and (c) the closing of Intek's initial
public offering. The acquisition of Acorn was accounted for using the purchase
method of accounting. The unaudited pro forma condensed financial information
is derived from the historical financial statements of Intek, Spider and Acorn.
The unaudited pro forma condensed balance sheet information reflects the
automatic conversion of all shares of our preferred stock into common stock
upon completion of this offering. The unaudited pro forma condensed balance
sheet information also reflects our receipt of the estimated net proceeds of
$ million from shares of common stock included in this offering at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and expenses of $ million.
The unaudited pro forma condensed statement of operations information
gives effect to the Spider spin-off and the Acorn acquisition as if they had
occurred on January 1, 1999. The purchase accounting adjustments made in
connection with the development of the pro forma financial information are
preliminary and have been made solely for purposes of developing such pro forma
financial information and may not be representative of actual future results.
Because the acquisition of Acorn includes a contingent earn-out, future
adjustments to reflect the acquisition of Acorn may be material.
In connection with the spin-off of Spider, Intek has advanced $1 million
to Spider. The $1 million will be repaid in the form of an unconditional
royalty payment due from Spider to Intek. Further, Spider has agreed to share
certain selling, general and administrative costs with Intek. The ability of
Spider to repay the $1 million advance and the shared costs is principally
dependent upon Spider's future operations. Intek will therefore recognize a
valuation allowance against the amounts due from Spider in an amount equal to
Spider's net loss subsequent to the spin-off. As a result, the reductions in
Intek's selling, general and administrative costs reflected in the unaudited
pro forma condensed statement of operations may not materialize if Spider is
unable to fund its share of the costs.
The unaudited pro forma condensed financial information should be read in
conjunction with the separate historical financial statements of Intek and
Acorn included in this registration statement. You should not rely upon the
unaudited pro forma condensed financial information as an indication of the
results of future operations or financial position that would have been
achieved if the transactions described above had taken place on the dates
indicated.
P-2
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET INFORMATION
(UNAUDITED)
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Intek (1) Adjustments Pro Forma
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets............................ $ 14,533 (6) $ $
Property and equipment, net............... 7,982 --
Goodwill and other intangibles, net....... 2,808 --
Other assets.............................. 1,055 (7)
-------- --- ---
Total assets.......................... $ 26,378 $ $
======== === ===
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities....................... $ 7,000 (7) $ $
Deferred rent............................. 245 --
Long-term borrowings...................... 1,722 --
-------- --- ---
Total liabilities..................... 8,967
-------- --- ---
Convertible preferred stock subject to
mandatory redemption..................... 59,408 (4) --
(5)
Stockholders' Equity (Deficit):
Common stock............................ 1 (5)
Additional paid-in capital.............. -- (6)
(4)
(5)
(7)
Unearned compensation................... (1,266) --
Retained earnings (deficit)............. (40,732) --
-------- --- ---
Total stockholders' equity (deficit).. (41,997)
-------- --- ---
Total liabilities and stockholders'
equity (deficit)..................... $ 26,378 $ $
======== === ===
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
P-3
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Offering Pro Forma
Intek(1) Acorn(2) Adjustments Combined Adjustments Adjusted
--------- -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE................. $ 24,699 $2,008 $ -- $ 26,707 $ -- $
DIRECT COST OF
SERVICES............... (16,986) (978) -- (17,964) --
--------- ------ ------- --------- ------ -----
GROSS PROFIT............ 7,713 1,030 -- 8,743 --
--------- ------ ------- --------- ------ -----
OPERATING EXPENSES:
Selling, general and
administrative........ 15,020 1,313 (3) (1,204) 15,129 --
Depreciation and
amortization.......... 3,533 88 (2) 312 3,933 --
Research and
development........... 1,079 260 (3) (1,061) 278 --
--------- ------ ------- --------- ------ -----
Total operating
expenses.............. 19,632 1,661 (1,953) 19,340
--------- ------ ------- --------- ------ -----
LOSS FROM OPERATIONS.... (11,919) (631) 1,953 (10,597) --
LOSS FROM SPIDER........ (1,055) -- (3) (2,265) (3,320) --
OTHER (EXPENSES)
INCOME................. (36) (44) -- (80) --
--------- ------ ------- --------- ------ -----
NET LOSS................ (13,010) (675) (312) (13,997) --
Accretion of mandatorily
redeemable convertible
preferred stock........ (864) -- -- (864) (8) --
Cummulative dividends to
preferred
stockholders........... (11,361) -- -- (11,361) (8) --
Guaranteed return to
Series F stockholders.. -- -- -- -- (4) --
--------- ------ ------- --------- ------ -----
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS.... $ (25,235) $ (675) $ (312) $(26,222) $ $
========= ====== ======= ========= ====== =====
BASIC AND DILUTED:
Net loss per share..... $ (13.50) $ (13.95) $
========= ========= ====== =====
Weighted average
shares................ 1,869,803 10,257 1,880,060 (8)
========= ====== ========= ====== =====
</TABLE>
See accompanying notes to unaudited pro forma financial information.
P-4
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
(1) Historical Financial Statements
Amounts represent the historical consolidated balance sheet of Intek as
of December 31, 1999 and the historical statement of operations of Intek for
the year ended December 31, 1999.
(2) Acquisition of Acorn
Effective October 1, 1999, Intek purchased all of the common stock of
Acorn. The operations of Acorn have been included in Intek's historical
statement of operations from that date. The unaudited results of operations
for Acorn for the nine months ended September 30, 1999, have been included in
the Acorn column.
The purchase was accounted for under the purchase method of accounting
for initial consideration of cash of $550, $200 payable to the former Acorn
stockholders, $100 from the issuance of 11,737 shares of Intek's common stock,
and acquisition costs of $100. The purchase agreement also includes a three-
year contingent earn-out of up to $1,900 in cash and up to 527,778 shares of
Intek common stock. The contingent earn-out will be recorded as additional
purchase price consideration (additional goodwill) when and if the annual
goals are achieved. The contingent earn-out is based on Acorn's annual targets
of earnings before interest, taxes, depreciation and amortization and could be
earned as follows:
<TABLE>
<CAPTION>
Contingent Earn-
Out
----------------
Cash Stock
------- --------
<S> <C> <C>
Year 1..................................................... $ 600 250,000
Year 2..................................................... 600 166,667
Year 3..................................................... 700 111,111
------- --------
Total earn-out........................................... $ 1,900 527,778
======= ========
</TABLE>
If Acorn achieves less than 100% but greater than 75% of its performance
targets, the above amounts will be reduced for not achieving the estimated
targets. If Acorn achieves less than 75% of its performance targets for any
annual measurement period, then no earn-out payment will be made for that
period.
Additionally, Intek will transfer 1,000,000 shares of Spider to the
former Acorn stockholders if the earn-out conditions are met in Year One.
The initial purchase price of Acorn was allocated to the acquired assets
and liabilities as follows:
<TABLE>
<S> <C>
Initial consideration:
Cash.............................................................. $ 550
Stock............................................................. 100
Advances to Acorn prior to acquisition.............................. 450
Transaction costs................................................... 100
Due to Acorn stockholders........................................... 200
------
Total initial consideration..................................... 1,400
Allocated to:
Property and equipment............................................ (312)
Identifiable intangibles.......................................... (950)
Current working capital deficit................................... 355
------
Goodwill............................................................ $ 493
======
</TABLE>
P-5
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--
(Continued)
Goodwill will be amortized on a straight-line basis over five years. The
customer list and intellectual property acquired, will be amortized on a
straight-line basis over three years. Annual amortization included in the
unaudited pro forma statement of operations information is $415; an increase of
$312 over the amounts included in the historical financial information.
The contingent earn-out will be recorded using the fair value of Intek's
stock when payment becomes probable. Assuming the estimated initial offering
price of $ per share, the additional goodwill from Acorn could approximate
$ million. This would result in an additional $ million in annual
amortization. This amount is presented to illustrate the significance of the
future adjustments to Acorn's purchase price on Intek's earnings. This should
not be viewed as a projection of the earn-out expected to be paid to the former
Acorn shareholders. The ultimate amount of the Acorn earn-out (if any) will
depend upon Acorn's actual future performance and Intek's stock price at the
time the additional shares are distributed to the former Acorn's shareholders.
(3) Spin-off of Spider
Effective October 1, 1999, Intek distributed 100% of the shares of Spider
to its stockholders on a pro rata basis. In connection with the transaction,
Intek agreed to distribute $1,000 in cash and research and development relating
to the technology that is currently under development to Spider. Intek has the
right to receive an unconditional royalty of $1,450 from Spider plus accrued
interest at 8% over the next five years resulting from the spin-off. The
royalty payments are due by Spider regardless of its future operations.
The costs directly attributable to the operations of Spider prior to the
spin-off, including payroll and payroll benefits for employees that became
Spider employees as a result of the spin-off, are shown as a reduction of
Intek's historical research and development costs. These costs were $1,061 for
the nine-month period ended September 30, 1999. Spider is also charged for
certain shared support services for payroll, financial reporting, accounting
and tax, human resources, treasury and insurance and risk management services
under a transition support agreement. These costs would have been $1,204 for
the nine-month period ended September 30, 1999, and are shown as a reduction of
Intek's historical selling, general and administrative costs.
The repayment of the unconditional royalty obligation and Spider's ability
to fund its shared support costs are principally dependent upon the future
success of Spider's operations or its ability to raise capital. Intek will
provide a valuation allowance against any amounts due from Spider because of
this uncertainty. The amount of the valuation allowance to be charged against
income in any period will be equal to the lesser of (1) Spider's loss for the
period or (2) the amount due from Spider. As a result, the reduction in
research and development costs and the shared support costs discussed above
have been shown as a loss of $2,265 from Spider in the unaudited pro forma
statement of operations information.
As a condition of the spin-off, Intek will be allowed to utilize the
Spider technology for three years without any fee or royalty due to Spider.
Thereafter, Intek will pay for the use of the technology at its most favored
nations pricing if Intek chooses to continue to utilize the Spider software. No
amount has been reflected in the unaudited pro forma statement of operations
information for this future royalty because the amount is not reasonably
determinable at this time and it is uncertain whether Intek will continue to
use the Spider technology beyond the three year period.
P-6
<PAGE>
INTEK INFORMATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--
(Continued)
(4) Guaranteed Return to Series F Stockholders
The holders of the Series F stock have been guaranteed a minimum return
of 100%, upon successful completion of the offering. This guaranteed return
has been reflected as a $ charge to net income available to common
stockholders and an increase in the Series F preferred stock. Based upon the
assumed initial offering price of $ per share, approximately additional
shares of common stock will need to be issued to the Series F preferred
stockholders to achieve this return.
(5) Conversion of Preferred Stock to Common upon the Completion of the
Offering
Intek's preferred stock will automatically convert to common stock upon
the successful completion of the offering.
(6) Initial Public Offering
Intek plans to issue a minimum of common shares in its initial public
offering. The estimated offering price is $ per share. This will result in
proceeds of $ , net of the 7% underwriters discount.
(7) Offering Costs
Total offering costs, other than the underwriters discount, have been
estimated at $ . Intek has $651 in deferred offering costs included in its
December 31, 1999, historical balance sheet. The remaining $ has been
reflected as a current liability in the accompanying unaudited pro forma
condensed balance sheet information.
(8) Net Loss Per Share
Pro forma net loss per share for the year ended December 31, 1999 assumes
the offering occured on January 1, 1999. Pro forma net loss per share is
computed using the pro forma net loss divided by the weighted average number
of common shares outstanding, including the pro forma effects of the
following:
<TABLE>
<S> <C>
.Shares issued in the initial public offering............. shares
.Conversion of all Intek's convertible preferred stock.... 8,207,418 shares
.Dividends paid in kind on preferred stock................ 287,715 shares
.Additional shares issued to Series F stockholders........ shares
----------------
Total additional shares.................................
================
</TABLE>
The charges to adjust net loss to net loss applicable to common
stockholders have been eliminated.
P-7
<PAGE>
ACORN INFORMATION SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................... A-2
Financial Statements:
Balance Sheet as of December 31, 1998.............................. A-3
Statement of Income for the Year Ended December 31, 1998........... A-4
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1998................................................. A-5
Statement of Cash Flows for the Year Ended December 31, 1998....... A-6
Notes to Financial Statements........................................ A-7--A-11
</TABLE>
A-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Acorn Information Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, changes in stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of Acorn Information Services,
Inc. at December 31, 1998, and the results of its operations and its cash flows
for the year, 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 audit. We conducted our audit 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 audit provides a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's working capital deficiency and limited
availability to capital financing raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 28, 1999, except for
the second and third paragraphs
of Note 10 referencing the
proposed acquisition by
Intek Information, Inc.,
which is as of July 16, 1999
A-2
<PAGE>
ACORN INFORMATION SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................... $ 10,111
Accounts receivable................................................ 681,175
Loan receivable from employees .................................... 5,820
Other assets....................................................... 6,556
----------
Total current assets............................................. 703,662
Capitalized software................................................. 172,000
Fixed assets, net (Note 4)........................................... 244,533
Other assets......................................................... 17,877
----------
$1,138,072
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 107,519
Accrued sales tax.................................................. 43,969
Other accrued expenses............................................. 51,497
Deferred revenue................................................... 150,000
Current portion of capital lease obligations....................... 54,883
Line of credit facility............................................ 119,065
Deferred tax liability............................................. 100,677
Notes payable--related party (Notes 5 & 6)......................... 197,800
----------
Total current liabilities........................................ 825,410
Capital lease obligations.......................................... 59,648
----------
Total liabilities................................................ 885,058
----------
Commitments (Note 9)
Stockholders' equity:
Class A common stock, no par value, 10,000 shares authorized;
1,800 shares issued and outstanding............................... 151,000
Class B common stock, no par value, 10,000 shares authorized;
no shares issued and outstanding.................................. --
Retained earnings.................................................. 102,014
----------
Total stockholders' equity....................................... 253,014
----------
Total liabilities and stockholders' equity......................... $1,138,072
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-3
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenues:
Consulting........................................................ $2,812,226
----------
Costs and expenses:
Cost of revenues.................................................. 876,082
Sales and marketing............................................... 348,765
General and administrative........................................ 955,482
Research and development.......................................... 242,707
----------
2,423,036
----------
Income from operations........................................... 389,190
Interest expense.................................................... 53,051
----------
Income before income taxes....................................... 336,139
Provision for income taxes (Note 8)................................. 91,871
----------
Net income....................................................... $ 244,268
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-4
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common stock Treasury stock Retained Total
----------------- ---------------- earnings stockholders'
Shares Amount Shares Amount (deficit) equity (deficit)
------ --------- ------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998................... 1,800 $ 51,000 -- $ -- $(142,254) $(91,254)
Transfer of stock....... (45) -- 45 -- -- --
Issuance of stock....... 45 100,000 (45) -- -- 100,000
Repurchase of stock..... (45) (100,000) 45 100,000 -- --
Issuance of stock....... 45 100,000 (45) (100,000) -- --
Net income.............. -- -- -- -- 244,268 244,268
----- --------- --- --------- --------- --------
Balance at December 31,
1998................... 1,800 $ 151,000 -- -- $ 102,014 $253,014
===== ========= === ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-5
<PAGE>
ACORN INFORMATION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 244,268
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation.................................................... 89,218
Changes in operating assets and liabilities:
Accounts receivable............................................. (489,659)
Loan receivable from employees.................................. (3,575)
Other assets.................................................... (4,579)
Accounts payable................................................ 18,100
Accrued sales tax............................................... 36,556
Other accrued expenses.......................................... 36,358
Deferred revenue................................................ 150,000
Deferred tax liability.......................................... 91,871
---------
Net cash provided by operating activities........................... 168,558
---------
Cash flows from investing activities:
Purchase of property and equipment................................ (87,719)
Capitalized software.............................................. (172,000)
---------
Net cash used in investing activities............................... (259,719)
---------
Cash flows from financing activities:
Principal payments on capital lease obligations................... (48,145)
Proceeds from line of credit...................................... 320,000
Principal payments on line of credit.............................. (271,435)
Proceeds from notes payable....................................... 276,634
Principal payments of notes payable............................... (276,634)
Issuance of common stock.......................................... 200,000
Repurchase of common stock........................................ (100,000)
---------
Net cash provided by financing activities........................... 100,420
---------
Net increase in cash................................................ 9,259
Cash--beginning of year............................................. 852
---------
Cash--end of year................................................... $ 10,111
=========
Supplemental disclosure of cash flow information:
Income taxes paid................................................. $ 5,720
=========
Interest paid..................................................... $ 31,438
=========
Supplemental disclosure of noncash financing activity:
During 1998, the Company entered into capital lease obligations to
purchase $106,675 of furniture and fixtures and computer
equipment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-6
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Business
Acorn Information Services, Inc. (formerly Acorn Information Systems,
Inc.) ("Acorn" or the "Company") was incorporated in Conneticut in 1994. Acorn
develops and manages database marketing programs and interactive marketing
solutions for Fortune 1000 companies throughout the United States. Acorn has
developed expertise in the following areas: program management; marketing
database design; database operations; and analytical services.
2. Basis of Preparation
For the year ended 1998, the Company had a working capital deficiency and
had net cash outflows for operating and investing activites. The Company has
limited availability to capital financing. The Company has funded its
operations through shareholder loans and available lines of credit. It is
management's intention to continue to fund the Company's operating loss through
additional shareholder loans in order to meet its strategic objectives. The
Company believes that sufficient funding will be available to meet its planned
business objectives, including anticipated cash needs for working capital for a
reasonable period of time. However, there can be no assurance the Company will
be able to obtain sufficient funds to continue operations. As a result of the
foregoing, there exists substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments relating to the recoverability of carrying amount of recorded
assets or the amounts of liabilities that might result from the outcome of this
uncertainty.
3. Summary of Significant Accounting Policies
Revenue Recognition and Deferred Revenue
Revenue is derived from consulting services performed relating to software
development and consulting for customers. Revenue from consulting services is
recognized when the services are provided. Revenue generated from fixed fee
custom development contracts is primarily recognized using the percentage of
completion method. Due to the inherent uncertainties in the estimation process,
it is at least reasonably possible that estimates for cost to complete projects
in progress may be revised. Such revisions are recognized in the period in
which the revisions are determined. Revenue is deferred to the extent that cash
is received or fees are billed prior to satisfying obligations to customers.
Losses on contracts are recognized when determinable.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Assets held under capital
leases are amortized over the shorter of the lease life or the estimated useful
life of the assets. Maintenance and repair costs are expensed as incurred.
Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs for new software products are expensed as
incurred until technological feasibility is established. Software development
costs incurred subsequent to the establishment of technological feasibility and
prior to general release are capitalized. During 1998, the Company capitalized
$172,000 of software development costs. These costs will be amortized over a
three-year period. Amortization commences when the product is available for
general release to customers. Capitalized software costs are stated at the
lower of cost or net realizable value. There was no amortization expense
incurred during 1998 as none of the products which had established
technological feasibility were available for general release to customers.
A-7
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentration of credit risk consist primarily of trade accounts receivable.
The Company sells its services to various companies in the United States across
several industries. The Company performs ongoing credit evaluations of its
customers to ensure reserves for potential credit losses are not warranted.
At December 31, 1998, two of the Company's customers accounted for
approximately 45% and 32% of the Company's accounts receivable and two
customers accounted for approximately 37% and 25% of the Company's revenues for
the year then ended, respectively. No other customer exceeded 10% of revenues.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash, accounts receivable, accounts payable and accrued expenses, capital lease
obligations and line of credit, approximate their fair market values at
December 31, 1998.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses at and during the reporting periods of the
financial statements. Actual results could differ from these estimates.l
4. Fixed Assets
Fixed assets consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Estimated
useful
life
(years)
----------
<S> <C> <C>
Furniture and fixtures................................. $ 45,882 5
Computer equipment..................................... 263,763 3
Leasehold improvements................................. 79,537 Lease life
---------
389,182
Accumulated depreciation............................... (144,649)
---------
$ 244,533
=========
</TABLE>
Depreciation expense for the year ended December 31, 1998 was $89,218.
The balances presented above for furniture and fixtures, computer
equipment and leasehold improvements include assets acquired under capital
leases of $30,206, $138,204 and $35,940, respectively. Accumulated amortization
on assets under capital leases totaled $56,481 as of December 31, 1998.
5. Related Party Transactions
During 1996, the Company issued promissory notes to certain officers and
shareholders of the Company totaling $113,800 (Note 6).
During 1997, the Company issued $84,000 of notes to certain officers and
shareholders of the Company for services rendered.
During 1998, the Company was advanced $276,634 by officers and
shareholders of the Company. Such advances were repaid by the Company during
1998. Interest expense related to these advances totaled $3,375 during 1998.
A-8
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. Debt
Line of Credit Facilities
On March 26, 1996, the Company entered into an agreement with a bank for a
$50,000 line of credit facility (the "Agreement"). At December 31, 1998, the
Company had no outstanding borrowings under the Agreement. This obligation was
guaranteed by certain shareholders of the Company. Under the terms of the
agreements, interest accrues on outstanding borrowings at 12.5% per annum,
interest is payable monthly and principal is payable upon demand. Interest
expense under this credit note totaled $5,174 during 1998.
On November 8, 1997, the Company entered into an agreement with a bank to
provide a $175,000 line of credit facility (the "Agreement"). At December 31,
1998, the Company had outstanding borrowings of $119,065 under the Agreement.
This obligation is guaranteed by certain shareholders of the Company and is
collateralized by all assets of the Company and expires in November 1999.
Interest accrues at a per annum rate of 1% over the bank's prime rate.
Principal and interest are payable monthly. Interest expense under this credit
note totaled $10,579 during 1998.
Notes Payable
During 1997, the Company issued notes totaling $84,000 to certain
shareholders of the Company for services rendered by the shareholders. The
notes bear interest at a rate of 10% per annum and is payable on demand.
Interest expense relating to these notes totaled $8,400 during 1998.
On December 31, 1996, the Company issued $113,800 of promissory notes to
certain officers and shareholders of the Company. The notes are payable on
demand and bear interest at 10% per annum. Interest expense relating to the
notes totaled $11,380 during 1998.
7. Common Stock
Each share of Class A common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. The Class B common
stock is non-voting, except as otherwise provided for in the Company's articles
of incorporation. Common stockholders are entitled to receive dividends, if
any, as may be declared by the board of directors on a share-for-share basis,
regardless of the class of common stock held.
During 1998, certain shareholders of the Company entered into treasury
stock sales and repurchase transactions. These transactions were recorded as
treasury stock and were accounted for under the cost method. There were no
outstanding treasury shares at December 31, 1998.
8. Income Taxes
The provision for income taxes for the year ended December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Current tax expense:
U.S. federal....................................................... $ --
State and local.................................................... 816
-------
Total current........................................................ 816
-------
Deferred tax expense:
U.S. federal....................................................... 74,385
State and local.................................................... 16,670
-------
Total deferred....................................................... 91,055
-------
Total provision...................................................... $91,871
=======
</TABLE>
A-9
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company's net deferred tax assets (liabilities) are comprised of the
following at December 31, 1998:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts payable............................................... $ 61,769
Net operating loss............................................. 45,441
Deferred revenue............................................... 43,492
Research and development credits............................... 16,831
Fixed assets................................................... 6,099
---------
173,632
Deferred tax liability:
Accounts receivables........................................... (274,309)
---------
Net deferred tax liability....................................... $(100,677)
=========
</TABLE>
At December 31, 1998, the Company has federal net operating loss
carryforwards of $112,724 and state net operating loss carryforwards of
$113,474. The federal losses will expire in 2012 through 2018 and the state
losses will expire in 2002 and 2003. Additionally, at December 31, 1998, the
Company has federal research and development credits of $16,831 available to
offset future tax liability. These credits will expire in 2018. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the net operating loss and research and
development credit carryforwards which can be utilized.
9. Commitments
The Company has entered into noncancelable operating leases for office
space, automobiles and computer equipment and capital leases for furniture and
fixtures, computer equipment and leasehold improvements. The Company's future
minimum lease commitments under these leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- --------
<S> <C> <C>
1999..................................................... $182,948 $ 64,457
2000..................................................... 155,457 35,567
2001..................................................... 140,241 18,670
2002..................................................... 134,506 6,598
2003..................................................... 11,209 2,647
-------- --------
Total.................................................... $624,361 127,939
========
Less--Amount representing interest....................... 13,408
--------
Present value of future minimum lease payments........... $114,531
========
</TABLE>
Rent expense under the noncancelable operating leases was approximately
$135,430 for the year ended December 31, 1998.
10. Subsequent Event
During the first quarter of 1999, the Company created a newly formed
Delaware corporation (Acorn Information Services, Inc.) which merged with the
existing Connecticut corporation (Acorn Information Systems, Inc.). In
connection with the merger, the number of authorized shares was reduced from
20,000 (10,000 Class A and 10,000 Class B) to 10,000 (5,000 Class A and 5,000
Class B) and the per share par value was increased from none to $0.01. All
outstanding shares of Acorn Information Systems, Inc. were converted into Acorn
Information Services, Inc. shares at a ratio of one-to-one.
A-10
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In July 1999, the Company signed a letter of intent to enter into a
proposed acquisition by Intek Information, Inc. ("Intek"). In connection with
the proposed acquisition, the Company received a bridge loan in the amount of
$200,000 from Intek. The bridge loan bears interest at a rate of 12% per annum
and will be payable on demand if the acquisition is not successfully completed
or on December 4, 1999. If the acquisition is successfully completed, the
proceeds received by the Company will be reduced by the amount of the bridge
loan.
Also in connection with the proposed acquisition, the Company received
$225,000 from Intek for working capital purposes. If the proposed acquisition
is successfully completed the amount will be forgiven. If the proposed
acquisition is not consummated, the amount will be payable on October 3, 1999.
The loan bears no interest.
A-11
<PAGE>
ACORN INFORMATION SYSTEMS, INC.
BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
-------------
1998 1999
-------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 126 $ 13
Trade receivables, net......................................... 287 658
Prepaid expenses and other..................................... 9 8
----- -------
Total current assets........................................... 422 679
----- -------
PROPERTY AND EQUIPMENT, net..................................... 212 312
OTHER ASSETS.................................................... 18 21
----- -------
Total assets................................................... $ 652 $ 1,012
===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................... $ 174 $ 351
Deferred revenue............................................... -- 55
Current borrowings............................................. 87 759
----- -------
Total current liabilities...................................... 261 1,165
LONG-TERM BORROWINGS, net of current portion.................... -- 340
----- -------
Total liabilities.............................................. 261 1,505
----- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock, no par value, 10,000 shares authorized,
1,800 shares issued and outstanding............................ 51 151
Class B common stock, no par value, 10,000 shares authorized, no
shares issued and outstanding.................................. -- --
Retained earnings (deficit)..................................... 340 (644)
----- -------
Total stockholders' equity (deficit)........................... 391 (493)
----- -------
Total liabilities and stockholders' equity (deficit)........... $ 652 $ 1,012
===== =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these unaudited balance sheets.
A-12
<PAGE>
ACORN INFORMATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-Month
Period Ended
September 30,
--------------
1998 1999
------ ------
<S> <C> <C>
REVENUE........................................................ $2,144 $2,008
DIRECT COST OF SERVICES........................................ (606) (978)
------ ------
GROSS PROFIT................................................... 1,538 1,030
------ ------
OPERATING EXPENSES:
Selling, general and administrative.......................... 889 1,313
Depreciation and amortization................................ 115 88
Research and development..................................... 243 260
------ ------
Total operating expenses................................... 1,247 1,661
------ ------
INCOME (LOSS) FROM OPERATIONS.................................. 291 (631)
OTHER EXPENSES................................................. (29) (44)
------ ------
262 (675)
PROVISION FOR TAXES............................................ 92 --
------ ------
NET INCOME (LOSS).............................................. $ 170 $ (675)
====== ======
</TABLE>
The accompanying notes to financial
statements are an integral part of these unaudited statements.
A-13
<PAGE>
ACORN INFORMATIONSYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-Month
Period Ended
September 30,
--------------
1998 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities............. 253 (164)
------ ------
Cash flows from investing activities:
Purchase of property and equipment.............................. (202) (50)
------ ------
Net cash used in investing activities........................... (202) (50)
------ ------
Cash flows from financing activities:
Proceeds from debt.............................................. 90 284
Repayments of debt and capital leases........................... (16) (67)
------ ------
Net cash provided by financing activities....................... 74 217
------ ------
Net increase in cash and cash equivalents....................... 125 3
Cash and cash equivalents, beginning of period.................. 1 10
------ ------
Cash and cash equivalents, end of period........................ $ 126 $ 13
====== ======
</TABLE>
The accompanying notes to financial statements
are an integral part of these unaudited statements.
A-14
<PAGE>
ACORN INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(1) Organization and Nature of Business
Acorn Information Services, Inc. was incorporated in Connecticut in 1994.
Acorn develops and manages database marketing programs and interactive
marketing solutions for Fortune 1000 companies throughout the United States.
Acorn has developed expertise in the following areas: program management,
marketing database design, database operations and analytical services.
(2) Unaudited Interim Financial Statements
The interim financial statements have been prepared by Acorn pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures relating to the interim periods normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited condensed
financial statements of the interim periods contain all adjustments necessary
to present fairly the financial position of Acorn as of September 30, 1999 and
1998 and the results of operations and cash flows for the periods presented.
All such adjustments are of a normal recurring nature. The results of
operations for the nine-month period ended September 30, 1999 and 1998 are not
necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
(3) Summary of Significant Accounting Policies
Revenue Recognition
Revenue is derived from consulting services performed relating to software
development and consulting for customers. Revenue from consulting services is
recognized when the services are provided. Revenue generated from fixed fee
custom development contracts is primarily recognized using the percentage of
completion method. Due to the inherent uncertainties in the estimation process,
it is at least reasonably possible that estimates for cost to complete projects
in progress may be revised. Such revisions are recognized in the period in
which the revisions are determined. Revenue is deferred to the extent that cash
is received or fees are billed prior to satisfying obligations to customers.
Losses on contracts are recognized when determinable.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Assets held under capital
lease are amortized over the shorter of the lease life or the estimated useful
life of the assets. Maintenance and repair costs are expensed as incurred.
Use of Estimates
The preparation of Acorn's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses at and during the reporting periods of the
financial statements. Actual results could differ from these estimates.
A-15
<PAGE>
[The inside back cover illustrates that Intek helps its clients meet the needs
of their customers. Placed vertically along the left one-third of the page are
logos of our clients. The "Intek circle logo" is in the center of the page.
The right one-third of the page contains a vertical photograph of a group of
people taken from an overhead point of view. White lines run from the left
portion of the page, through the logo, to the people in the photo on the right
side of the page.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Common Stock
------------
PROSPECTUS
------------
Chase H&Q
Robertson Stephens
U.S. Bancorp Piper Jaffray
Wit Capital Corporation
------------
, 2000
------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Through and including , 2000 (the 25th day after commencement of the
offering), all dealers effecting transactions in the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market
application fee are estimates.
<TABLE>
<S> <C>
Registration Fee................................................ $15,180
National Association of Securities Dealers, Inc. Fee............ 5,755
NASDAQ National Market listing fee.............................. 5,000
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Printing and Engraving Expenses................................. *
Blue Sky Fees and Expenses...................................... *
Miscellaneous fees and expenses................................. *
-------
Total......................................................... *
=======
</TABLE>
------------------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, and permits a corporation to grant indemnity to current or former
directors and executive officers, and others acting in similar capacities at
the request of the company. This permitted indemnification may extend beyond
the scope of that provided under Delaware law, including under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Securities Act").
As permitted by the Delaware General Corporation Law, our Amended and
Restated Certificate of Incorporation, which will become effective upon the
closing of this offering, includes a provision that eliminates the personal
liability of our directors 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 us or our stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
under section 174 of the Delaware General Corporation Law (regarding unlawful
dividends and stock purchases) or (iv) for any transaction from which the
director derived an improper personal benefit. Our Amended and Restated
Certificate of Incorporation permits indemnification of current and former
directors and executive officers to the maximum extent allowed by applicable
law.
Our Bylaws provide that, to the full extent allowed by Delaware General
Corporation Law, (i) we will indemnify our directors and officers, provided
that any indemnified officer and director acted in good faith and in a manner
which such officer and director reasonably believed to be in or not opposed to
our best interests, (ii) we may indemnify our other employees and agents, (iii)
we will advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding, subject to certain very limited exceptions;
and (iv) we may purchase and maintain insurance on behalf of any director or
officer against any liability asserted against them in such capacity. The
rights conferred in the Bylaws are not exclusive of indemnification provided by
law, agreement or otherwise.
As permitted by Delaware General Corporation Law, we intend to enter into
indemnification agreements with each of our current directors and officers to
give such directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in our Amended and Restated
Certificate of Incorporation and to provide additional procedural protections.
These agreements provide for
II-1
<PAGE>
indemnification against claims and liabilities arising as a result of their
service as directors or officers of Intek and the advancement of expenses
incurred by them in defending or litigating such claims. We believe that these
agreements, and the indemnification provisions in our Amended and Restated
Certificate of Incorporation and Bylaws, are sufficiently broad to permit
indemnification against claims involving the negligence or gross negligence of,
and violations of the Securities Act by, the covered directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We have also, with approval by our Board of Directors, obtained directors'
and officers' liability insurance for our current officers and directors.
Please refer to Section of the Underwriting Agreement (Exhibit 1.1
hereto), which provides for the indemnification of officers, directors and
controlling persons of Intek against certain liabilities. See also the
undertakings set out in response to Item 17 below.
Please refer to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement
3.4 Form of Amended and Restated Bylaws of the Registrant to be
effective upon the closing of the offering made pursuant to this
Registration Statement
10.26 Form of Indemnification Agreement
</TABLE>
Item 15. Recent Sales of Unregistered Securities.
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2)
of the Securities Act.
All other sales of our securities were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D promulgated under the Securities Act.
These sales were made without general solicitation or advertising. Each
purchaser was a sophisticated investor with access to all relevant information
necessary to evaluate the investment and represented to us that the shares were
being acquired for investment and not for resale.
Since December 1, 1996, we have issued unregistered securities as
described below:
<TABLE>
<C> <S>
February 1997: 10,190,120 shares of Series B preferred stock sold to
three investors for $1.741 per share.
1,863,270 shares of Series B preferred stock issued to
eight shareholders of Protocall as part of the Protocall
acquisition.1
April-May, 1997: 285,778 shares of Series B preferred stock to nine
investors at an average price of $1.74 per share.
December 1997: 2,871,913 shares of Series C preferred stock to Beacon
Group III-Focus Value Fund, L.P. at $1.741 per share.
Series No. 1 warrant issued to Beacon to purchase up to
3,500,000 shares of Series C preferred stock at $1.741
per share for five years./2/
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
Series B anti-dilution warrant issued to Beacon for the
purchase of an indeterminable number of Series B preferred
shares./2/
May 1998: 8,823,529 shares of Series D preferred stock issued to
Conning Capital Limited Partnership V and 18,382 shares
issued to another accredited investor for $1.36 per share
under Regulation D.
Conning and Beacon were each granted a right to purchase up
to $3,000,000 of additional Series D preferred stock at
$1.36 per share through April 1999, which was not
exercised.
Issued to Beacon 3,500,000 shares of Series C preferred
stock and a Series NB-1 warrant to acquire additional
shares of common stock in exchange for the Series No. 1 and
B warrants issued to it in December, 1997.
April 1999: 2,510,691 shares of Series E preferred stock to five
accredited investors for $1.61 per share under Regulation
D.
November 1999: 11,738 shares of common stock issued to Prospero Holdings
LLC in connection with the Acorn acquisition.
5,210,093 shares of Series F preferred stock to 7
accredited investors at $2.13 per share under Regulation D.
January 2000: Issued a warrant to purchase 181,250 shares of our common
stock to Sony Electronics, Inc.
</TABLE>
- ------------------
/1/During 1999 and 1998, 11,488 and 21,539 shares of Series B preferred stock
were returned to us as adjustments for the price paid for Protocall in 1997.
/2/Beacon surrendered both warrants at the time of the Series D preferred
stock closing.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation dated November 22,
1999
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement
3.3 Restated Bylaws of the Registrant
3.4* Form of Amended and Restated Bylaws of the Registrant to be
effective upon the closing of the offering made pursuant to this
Registration Statement
4.1* Form of the Registrant's Common Stock Certificate
4.2* Amended and Restated Shareholders' and Voting Agreement dated as of
January , 2000
4.3+ Registration Rights Agreement between the Registrant, the former
Acorn shareholders and Prospero L.L.C. dated October 30, 1999
4.3.1+* Amendment No. 2 Registration Rights Agreement between the
Registrant, the former Acorn shareholders and Prospero L.L.C. dated
January , 2000
4.4 Series A Purchase Agreement between the Registrant and Resource
Bancshares Corporation dated August 2, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
4.5 Series B Purchase Agreement between the Registrant and The Beacon
Group III-Focus Value Fund, L.P., Squam Lake Investors II, L.P. and
Bain & Company dated as of February 3, 1997
4.6 Series C Purchase Agreement between the Registrant and The Beacon
Group III-Focus Value Fund, L.P. dated December 22, 1997
4.7 Series D Purchase Agreement by and among the Registrant, Conning
Capital Limited Partnership V, The Beacon Group III-Focus Value
Fund, L.P. and Certain Other Investors dated as of
May 7, 1998
4.8 Series E Preferred Stock Purchase Agreement by and among the
Registrant and U.S. Information Technology Financing, L.P.,
Encompass Group, Inc., Trans Cosmos USA, Inc. and Certain Other
Parties dated as of April 16, 1999
4.9 Series F Preferred Stock Purchase Agreement by and among the
Registrant and BVCF IV, L.P. and Certain Other Parties dated as of
November 19, 1999
5.1* Opinion of Chrisman, Bynum & Johnson, P.C.
10.1 1997 Restated Stock Option Plan
10.2 1998 Restated Stock Option Plan
10.3* 2000 Stock Incentive Plan
10.4 2000 Employee Stock Purchase Plan
10.5* Contribution Agreement dated October 27, 1999, between the
Registrant and Spider Technologies, Inc.
10.6 Distribution Plan between the Registrant and Spider Technologies,
Inc. dated November 5, 1999
10.7.1 Promissory Note dated October 1, 1999, between the Registrant and
Timothy C. O'Crowley
10.7.2* Promissory Note Dated October 1, 1999 between the Registrant and
Franklin D. Richards
10.7.3 Promissory note and pledge agreement of Timothy C. O'Crowley dated
November 23, 1999
10.8 Sublease and Resource Sharing Agreement between the Registrant and
Spider Technologies, Inc. effective October 1, 1999
10.9* Amended and Restated Software Assignment and Grant-Back License,
Maintenance and Support Agreement between the Registrant and Spider
Technologies, Inc. effective November 4, 1999
10.9.1 Intellectual Property Security Agreement between the Registrant and
Spider Technologies, Inc. dated November 5, 1999
10.10 Transition Support Agreement between the Registrant and Spider
Technologies, Inc. dated November 4, 1999
10.11 Separation Agreement between the Registrant and Spider Technologies,
Inc. effective October 1, 1999
10.12 Tax Separation Agreement between the Registrant and Spider
Technologies, Inc. effective
October 1, 1999
10.13* Consulting Agreement between Spider Technologies, Inc. and Timothy
O'Crowley
10.14* Second Restated and Amended Management Employment Agreement of
Timothy O'Crowley
10.15* Second Amended and Restated Employment Agreement of Franklin D.
Richards
10.16 Building Lease between the Registrant and the City of Fort Scott,
Kansas dated March 8, 1999 (Fort Scott)
10.16.1 Addendum No. 1 to Building Lease between Registrant and the City of
Fort Scott, Kansas dated March 8, 1999 (Fort Scott)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.17 Lease between the Registrant and M&S California Fund, L.P. dated
June 17, 1997 (San Diego)
10.17.1 First Amendment to Office Building Lease between the Registrant and
M&S California Fund, L.P. dated 10.17.2
10.18 Office Lease between the Registrant and Westmark Terrace Tower II,
Inc. dated June 9, 1999 (DTC)
10.18.1 First Amendment to Lease between the Registrant and Westmark Terrace
Tower II dated June 1, 1999 (DTC)
10.19* Lease of Office Space between the Registrant and Brookfield Republic
Inc. dated November 15, 1996 (Republic Plaza)
10.19.1* First Amendment and Lease of Additional Office Space between the
Registrant and Brookfield Republic Inc. dated October 17, 1997
(Republic Plaza)
10.20 Office Lease between the Registrant and The Equitable Life Assurance
Society dated March 5, 1997 (Hayward)
10.20.1 Commencement of Term Agreement between the Registrant and The
Equitable Life Assurance Society dated May 2, 1997 (Hayward)
10.20.2 Estoppel Certificate of the Registrant to ATC Partners LLC dated
September 24, 1998 regarding Office Lease with The Equitable Life
Assurance Society (Hayward)
10.21 Industrial/ Commercial Multi-Tenant Lease between the Registrant and
Livermore Airway Business Park dated January 14, 1999 (Livermore)
10.22 Industrial/ Commercial Multi-Tenant Lease between the Registrant and
Livermore Airway Business Park dated January 30, 1999 (Livermore)
10.23 Commercial Lease between Acorn Information Services, Inc. and Lot 4
LLC dated January 5, 1998 (Shelton)
10.23.1 First Amendment of Lease between Acorn Information Services, Inc.
and Lot 4 LLC dated April 20, 1998 (Shelton)
10.24* Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated June 10, 1999
10.25* Master Loan and Security Agreement between the Registrant and
Charter Financial, Inc. dated August 26, 1999
10.26 Agreement and Plan of Reorganization between the Registrant and
Protocall New Business Specialists, Inc. dated February 3, 1997
10.27 Share Purchase Agreement between Registrant, Acorn Information
Services, Inc. and the Shareholders of Acorn Information Services,
Inc. dated October 30, 1999
10.28+* Master Service Agreement between the Registrant and Sony
Electronics, Inc. dated May 1, 1997
10.28.1+* Addendum A to Master Service Agreement between the Registrant and
Sony Electronics, Inc. dated April 1, 1999
10.29 Form of Indemnification Agreement
10.30 Kansas Economic Opportunity Initiatives Fund Loan Agreement and
Promissory Note
10.31 Agreement Among Intek Information, Inc, Fort Scott Community College
and the Kansas
Department of Commerce and Housing dated March 15, 1999
21.1 Subsidiaries of the Registrant
23.1* Consent of Chrisman, Bynum & Johnson (included in Exhibit 5.1)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
23.2 Consent of Arthur Andersen LLP
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see Page II-5 of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------
+Confidential treatment requested as to certain portions of this exhibit.
* To be supplied by amendment.
Item 17. Undertakings.
We hereby undertake 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 our directors, officers and controlling persons
pursuant to the provisions described under Item 14 above, or otherwise, we have
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 us 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, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We hereby undertake 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, State of
Colorado, on the 14th day of January 2000.
INTEK INFORMATION, INC.
By: /s/TIMOTHY C. O'CROWLEY
Timothy C. O'Crowley
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below constitutes and
appoints Timothy C. O'Crowley, G. Daniel Adams and Steven Q. Hansen, and each
of them individually, as his true and lawful attorneys-in-fact and agents, with
full powers of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, (including post-effective amendments to this
registration statement), and any Rule 462(b) registration statement 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, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully 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 either of them, or their of his substitute or substitutes, may
lawfully do or cause to be done by virtue therof.
Name Title Date
/s/ TIMOTHY C. O'CROWLEY Chairman of the January 14,
- ------------------------------------- Board, President, 2000
Timothy C. O'Crowley Chief Executive
Officer and
Director (Principal
Executive Officer)
/s/ STEVEN Q. HANSEN Chief Financial January 14,
- ------------------------------------- Officer (Principal 2000
Steven Q. Hansen Financial and
Accounting Officer)
/s/ STEPHEN S.S. HYDE Director January 11,
- ------------------------------------- 2000
Stephen S.S. Hyde
/s/ STEVEN F. PIAKER Director January 13,
- ------------------------------------- 2000
Steven F. Piaker
II-7
<PAGE>
/s/ HAROLD W. POTE Director January 11,
- ------------------------------------- 2000
Harold W. Pote
/s/ RICK L. WELLER Director January 13,
- ------------------------------------- 2000
Rick L. Weller
/s/ ERIC R. WILKINSON Director January 13,
- ------------------------------------- 2000
Eric R. Wilkinson
II-8
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTEK INFORMATION, INC.
Intek Information, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Intek Information, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on June 4, 1996, an
Amended and Restated Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on February 14, 1997, an
Amendment thereto was filed on December 18, 1997, an Amended and Restated
Certificate of Incorporation was filed on December 22, 1997, an Amended and
Restated Certificate of Incorporation was filed on May 7, 1998, an Amendment
thereto was filed on June 23, 1998, an Amended and Restated Certificate of
Incorporation was filed on April 16, 1999 and an Amended and Restated
Certificate of Incorporation was filed on November 3, 1999.
SECOND: This Amended and Restated Certificate of Incorporation has
been duly adopted by written consent pursuant to Sections 228 and 245 of the
General Corporation Law of the State of Delaware. The Corporation certifies that
amendments effected by this Amended and Restated Certificate of Incorporation
have been adopted in accordance with Section 242 of the General Corporation Law
of the State of Delaware.
THIRD: The text of the Corporation's Certificate of Incorporation
as heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE I
The name of the Corporation is Intek Information, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is located at 15 E. North Street, City of Dover, County of Kent,
Delaware 19901 and the name of its registered agent at such address is
Incorporating Services, Ltd.
ARTICLE III
The purpose of the Corporation 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").
---
1
<PAGE>
ARTICLE IV
1. Authorized Capital. The total number of shares of all classes of
------------------
capital stock which the Corporation has authority to issue is two hundred forty-
nine million (249,000,000) shares, consisting of (i) one hundred seventy million
(170,000,000) shares of Common Stock, par value $.0001 per share (the "Common
------
Stock") and (ii) seventy-nine million (79,000,000) shares of Preferred Stock,
- -----
par value $.001 per share (the "Preferred Stock"). Preferred Stock that is not
---------------
designated hereunder as Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Series F Preferred shall be
"blank check" Preferred Stock and, as such, subject to the provisions of this
Certificate and the GCL may be designated by the Corporation's Board of
Directors to have such voting powers, full or limited, or no voting powers and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as the
Corporation's Board of Directors shall deem appropriate.
2. Terms of the Common Stock. Subject to the powers, preferences and
-------------------------
rights of any Preferred Stock, including any series thereof, having any
preference or priority over, or rights superior to, the Common Stock and, except
as otherwise provided by law, the holders of the Common Stock shall have and
possess all powers and voting and other rights pertaining to the stock of this
Corporation and each share of Common Stock shall be entitled to one vote.
Except as otherwise provided herein or as required by law, the Preferred Stock
and the Common Stock shall vote together on an as-converted basis as one class.
3. Terms of the Preferred Stock.
----------------------------
3.1 Series A Preferred.
------------------
3.1.1. Designation; Rank. Twenty-Six Thousand (26,000) shares
-----------------
of Preferred Stock shall be designated Series A Preferred Stock ("Series A
--------
Preferred"), with the rights and preferences set forth below. As contemplated
- ---------
by Sections 3.2.1, 3.3.1, 3.4.1, 3.5.1, and 3.6.1, the Series A Preferred shall
be Series B Parity Securities, Series C Parity Securities, Series D Parity
Securities, Series E Parity Securities and Series F Parity Securities, and as
such, shall be on a parity with the Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Series F Preferred with respect to
dividend rights and rights upon liquidation, winding-up and dissolution.
3.1.2. Voting Rights. The holder of each share of Series A
-------------
Preferred shall be entitled to the number of votes equal to the number of shares
of Common Stock into which each share of Series A Preferred could be converted
and, except as otherwise required by law or provided herein, shall have voting
rights and powers equal to the voting rights and powers of the Common Stock.
Except as provided herein, or as provided by law, the Series A Preferred shall
vote together with the Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred and Series F Preferred and the Common Stock on all
matters.
3.1.3. Dividends.
---------
(a) General Obligation. When, as and if, declared by the
------------------
Corporation's Board of Directors or as otherwise provided in this Section
3.1.2, as follows, and
2
<PAGE>
to the extent permitted under the General Corporation Law of Delaware, the
Corporation shall pay preferential dividends to the holders of Series A
Preferred as provided in this Section 3.1.3(a). Dividends on each share of
Series A Preferred shall accrue on a daily basis as provided in Section 3.1.3(b)
below, commencing on the applicable date provided in Section 3.1.3(b) below, and
continuing until the first to occur of (i) the date on which the applicable
Liquidation Value of such Series A Preferred (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption of such share by the
Corporation, (ii) the date on which such Series A Preferred is converted into
shares of Common Stock hereunder or (iii) the date on which such Series A
Preferred is otherwise acquired by the Corporation. Such dividends shall accrue
as provided in this Section 3.1.3(a) whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends.
(b) Dividend Rate. When and as declared by the Corporation's Board
-------------
of Directors out of funds legally available therefor, the Corporation shall pay
dividends to the holders of the Series A Preferred as follows:
(i) for all periods prior to and including October 15, 1999,
dividends shall accrue and shall be payable solely by issuance by the
Corporation to the holders of the Series A Preferred of additional shares of
Series A Preferred equal to one hundred forty-five thousandths (.145) of a share
of Series A Preferred for each one share of Series A Preferred actually issued
and outstanding on October 15, 1999 which dividend shall be cumulative (whether
or not earned or declared);
(ii) for all periods after October 15, 1999 through and including the
last day of July, 2001, dividends shall accrue and shall be payable solely by
issuance by the Corporation to the holders of the Series A Preferred of
additional shares of Series A Preferred with the number of shares per share of
Series A Preferred being equal to (i) the dollar amount of the cash dividend
which would have accrued on 1.145 shares of Series A Preferred from October 16,
1999 to the record date for such dividend if a cash dividend had accrued during
that period at a rate of six percent (6%) [compounded annually with the first
compounding occurring on October 16, 2000] of the Series A Original Purchase
Price divided by (ii) the Series A Original Purchase Price as of the record date
for such dividend, which dividend shall be cumulative (whether or not earned or
declared); and
(iii) commencing on and including August 1, 2001, the foregoing
dividends shall not further accrue (but if unpaid shall remain accrued), and in
lieu of any further accrual, the Corporation shall accrue and, when and as
declared by the Corporation's Board of Directors out of funds legally available
therefor, the Corporation shall pay dividends to the holders of the Series A
Preferred at an annual rate per share of Series A Preferred of (a) 8% compounded
annually of (b) (X) one plus the number of shares of Series A Preferred which
would be issuable on August 1, 2001 pursuant to clauses (i) and (ii) in respect
of a share of Series A Preferred multiplied by (Y) the Series A Original
Purchase Price, and such dividends shall accrue commencing on and including
August 1, 2001 and shall be cumulative (whether or not earned or declared). All
dividends first accruing on or after August 1, 2001 as specified in this clause
(iii) shall be payable in cash out of funds legally available therefor;
provided, however, that at the election (a "Series A PIK Election") of the
- -------- ------- ---------------------
holders as of the record date for
3
<PAGE>
such dividend of a majority of the outstanding shares of Series A Preferred, in
lieu of payment thereof in cash, the amount of such dividends may be paid, in
whole or in part, by issuance by the Corporation to the holders of the Series A
Preferred, of additional shares of Series A Preferred, with the number of shares
being equal to (i) the dollar amount of the dividend which the holder has
elected to receive in the form of additional shares of Series A Preferred,
divided by (ii) the Series A Original Purchase Price as of the record date for
such dividend. If the Series A PIK Election is not for the entire amount of the
dividend, each holder of Series A Preferred shall receive the same proportion of
cash and additional shares of Series A Preferred for each share of Series A
Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series A PIK Election" the
shares of Series A Preferred received or receivable pursuant to clauses (i),
(ii) or (iii) are deemed received or receivable pursuant to a "Series A PIK
Election."
All additional shares of Series A Preferred issued upon a Series A PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series A PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series A Preferred being the Series A Original Purchase Price as of the
record date for such dividend. Any dividend (or portion thereof) shall be deemed
fully paid to the extent a Series A PIK Election is made with respect to such
dividend (or portion thereof). The Series A Original Purchase Price is subject
to adjustment for any Stock Adjustments as defined below. The Series A Original
Purchase Price is Seventy-Four Dollars ($74.00) per share of Series A Preferred.
(c) Dividend Payment and Dividend Reference Dates. Accrued dividends
---------------------------------------------
on each share of Series A Preferred from the date of issuance shall be due and
payable on the first Dividend Reference Date (as defined in this Section
3.1.3(c)). To the extent not paid on March 31, June 30, September 30 and
December 31 of each year (the "Dividend Reference Dates"), all dividends which
------------------------
have accrued as provided in this Section 3 on each share of Series A Preferred
outstanding on each such Dividend Reference Date shall be accumulated and shall
remain accumulated dividends with respect to such share until paid in full to
the holder thereof. All accrued but unpaid dividends on the Series A Preferred
shall be paid pursuant to a liquidation, dissolution or winding up as provided
in Section 3.1.4. All accrued but unpaid dividends in respect of a particular
share of Series A Preferred shall be paid upon conversion of that share pursuant
to Section 3.1.5.(a) or 3.1.6(a). All accrued but unpaid dividends in respect
of a particular share of Series A Preferred shall be paid upon a redemption
pursuant to Section 3.1.6(c) as a component of the Series A Redemption Price as
provided herein.
(d) Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to any of the Series A Preferred, such
payment shall be distributed pro rata among the holders of such Series A
Preferred based upon the number of shares held by each such holder.
4
<PAGE>
(e) Dividends on Common. No dividend or distribution whatsoever
-------------------
may be declared or paid on any shares of Common Stock or any other shares of
capital stock of the Corporation ranking junior to the Series A Preferred with
respect to dividends and distributions, unless (i) all dividends on the
outstanding shares of Series A Preferred accrued to the times of declaration and
payment shall have been paid and (ii) at the same time the same dividend or
distribution per share on an as converted to common basis is declared and paid
on all outstanding shares of Series A Preferred and any shares of Series A
Preferred issuable upon payment of any accrued but unpaid Series A PIK Election.
Each share of Series A Preferred shall be deemed converted into Common Stock as
provided in Section 3.1.5 below for purposes of determining the dividend or
distribution payable on shares of Series A Preferred under clause (ii) of the
preceding sentence of this Section 3.1.3(e). Solely for purposes of this Section
3.1.3(e), the term "distribution" means any transfer of cash, rights or property
without consideration, whether by way of dividend or otherwise (except a
dividend in shares of Common Stock of the Corporation which results in an
adjustment under Section 3.1.5(d)(i)) including, but not limited to, securities
of other persons, evidences of indebtedness issued by the Corporation or other
persons and assets, but does not include (i) any repurchase of shares from a
terminated employee of or consultant to the Corporation in accordance with the
terms of the agreement applicable to such employee or consultant providing for
such repurchase, (ii) any repurchase of shares funded solely with the proceeds
of life insurance pursuant to the provisions of the Shareholders' Agreement or
any repurchase of shares funded solely with the proceeds of life insurance
approved by the Corporation's Board of Directors, (iii) any distribution which
is part of a voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, (iv) a payment of dissenter's rights or in respect of
fractional shares and (v) cashless exercises of stock options.
(f) Reservation for PIK Election. The Corporation shall at all
----------------------------
times reserve and keep available for issuance upon a Series A PIK Election, free
from any preemptive rights, such number of its authorized but unissued shares of
Series A Preferred as will from time to time be necessary to permit the maximum
then available Series A PIK Election, and shall take all action required to
increase the authorized number of shares of Series A Preferred if necessary to
permit the maximum then available Series A PIK Election.
3.1.4. Rights on Liquidation, Dissolution and Winding Up.
--------------------------------------------------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series A Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series A Junior Securities, an amount equal to the Series A Liquidation
Value with respect to each outstanding share of Series A Preferred. "Series A
--------
Junior Securities" means all classes of Common Stock of the Corporation, as they
- -----------------
exist on the date hereof or as such stock may be constituted from time to time
and each other class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock do not expressly provide that it ranks senior to or on
parity with, the Series A Preferred as to dividend rights and rights on
liquidation, winding-up and dissolution. "Series A Parity Securities" means
--------------------------
each class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock expressly provide that it will rank on a parity with the
Series
5
<PAGE>
A Preferred as to dividend rights and rights on liquidation, winding-up and
dissolution. Without limiting the generality of the foregoing, the Series B
Preferred, the Series C Preferred, the Series D Preferred, the Series E
Preferred and the Series F Preferred shall be deemed to be Series A Parity
Securities. "Series A Liquidation Value" means the greater of (i) $74.00 for
--------------------------
each share of Series A Preferred, plus all accrued but unpaid dividends on the
Series A Preferred or (ii) the per share amount that the holders of the Series A
Preferred would have received upon liquidation if all shares of Series A
Preferred had been converted to Common Stock at the Series A Conversion Price
then in effect, plus all accrued but unpaid dividends on the Series A Preferred.
(b) Unless waived by the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series A Preferred, the sale,
lease or exchange (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Corporation or the
merger or consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation (other than a consolidation or merger in which the Corporation is
the continuing entity and which does not result in any change in the Common
Stock) or an exchange or sale of 90% or more of the capital stock of the
Corporation to accomplish an acquisition of the Corporation in a single or
related transaction shall be deemed to be a liquidation for the purposes of this
Section 3.1.4.
(c) After the payment to the holders of the Series A Preferred of
the full amounts provided for in this Section 3.1.4, the holders of Series A
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series A Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.1.4(a) above, no such distribution shall be made
on account of any Series A Parity Securities unless proportionate amounts are
distributed to the holders of Series A Preferred, ratably, in proportion to the
full amounts for which holders of Series A Preferred and all such Series A
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
(e) For purposes of this Section 3.1.4 and Section 3.1.6(c)(i),
the Series A Liquidation Value shall be appropriately adjusted for any Stock
Adjustment, other than a Series A PIK Election, as defined below.
3.1.5. Conversion by Holder. The holders of Series A Preferred
--------------------
shall have conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred shall be
----------------
convertible, at the option of the holder thereof, at any time after issuance, at
the office of the Corporation or any transfer agent for the Series A Preferred,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series A Original Purchase Price, by the Series A
Conversion Price in effect at the time of conversion. The Series A Conversion
Price shall be thirty seven cents ($.37) and shall be subject to adjustment as
hereinafter provided.
6
<PAGE>
(b) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series A Preferred, and
shall give written notice to the Corporation at such office that he elects to
convert the same. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series A Preferred to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(c) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series A Preferred. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then applicable Series A
Conversion Price .
(d) Adjustment of Conversion Price for Stock Splits, etc. The
-----------------------------------------------------
Series A Conversion Price, for each share of Series A Preferred, whether or not
issued, shall be subject to adjustment from time to time as follows:
(i) Splits. If the number of shares of Common Stock
------
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then on the date such payment is made or such change is effective,
the Series A Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of any share of Series
A Preferred shall be increased in proportion to such increase of outstanding
shares.
(ii) Combinations; Reclassifications. If (A) the number of
-------------------------------
shares of Common Stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Common Stock or (B) the
shares of Common Stock outstanding are reclassified at any time after the date
hereof, then on the effective date of such combination or reclassification, as
the case may be, the Series A Conversion Price shall be appropriately increased
or adjusted so that the number of shares of Common Stock issuable upon
conversion of any share of Series A Preferred shall be decreased or adjusted in
proportion to such decrease or reclassification, as the case may be, of
outstanding shares.
(iii) Reorganizations and Similar Transactions. If the
----------------------------------------
Corporation shall be a party to any transaction including without limitation, a
merger, consolidation, sale of all or substantially all of the Corporation's
assets or a reorganization, reclassification or recapitalization of the capital
stock of the Corporation (each of the foregoing being referred to as a
"Transaction") but excluding (i) any Transaction for which provision for
- ------------
adjustment is otherwise made in this Section 3.1.5 and (ii) any Transaction that
is deemed to be a liquidation for the purposes of Section 3.1.4, in each case,
as a result of which shares of Common Stock are converted into the right to
receive stock, securities or other property
7
<PAGE>
(including cash or any combination thereof), each share of Series A Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred would
have been entitled upon such Transaction; and, in any such case, appropriate
adjustment (as determined by the Corporation's Board of Directors) shall be made
in the application of the provisions set forth in this Section 3.1.5 with
respect to the rights and interest thereafter of the holders of the Series A
Preferred, to the end that the provisions set forth in this Section 3.1.5 shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series A Preferred. Except as provided in the Shareholders' Agreement, the
Corporation shall not effect any Transaction (other than a consolidation or
merger in which the Corporation is the continuing corporation) unless prior to
or simultaneously with the consummation thereof the Corporation, or the
successor corporation or purchaser, as the case may be, shall provide in its
charter document that each share of Series A Preferred shall be converted into
such shares of stock, securities or property as, in accordance with the
foregoing provisions, each such holder is entitled to receive. The provisions of
this Section 3.1.5(d)(iii) shall similarly apply to successive Transactions.
(iv) Stock Adjustment. The events described in Sections 3.1.5(d)(i),
----------------
3.1.5(d)(ii) and 3.1.5(d)(iii) are each referred to herein as a "Stock
-----
Adjustment." A Series A PIK Election is not a Stock Adjustment and any "Series
- ----------
F Additional Adjustment" as defined in Section 3.6.7(c)(v) hereof is not a Stock
Adjustment. (e) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.1.5 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series A Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series A Preferred.
(f) All calculations under this Section 3.1.5 shall be made
to the nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10)
of a share, as the case may be. Upon conversion of the Series A Preferred
pursuant to this Section 3.1.5, the Corporation may pay cash based on the Series
A Conversion Price in lieu of issuing fractional shares.
3.1.6. Conversion or Redemption by the Corporation.
-------------------------------------------
(a) Series A Qualified IPO. All of the outstanding Series
----------------------
A Preferred shall automatically convert into Common Stock upon the completion by
the Corporation of a Series A Qualified IPO. Any such mandatory conversion shall
only be effected at the time of and subject to the closing of the sale of such
shares pursuant to such Series A Qualified IPO and following written notice of
such mandatory conversion delivered to all holders of the Series A Preferred at
least seven days prior to such closing.
"Series A Qualified IPO" means any firmly underwritten
----------------------
public offering by the Corporation of the Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended as then in
effect, or any comparable statement under any similar federal statute then in
force, in which (i) the aggregate price paid by the public for the shares shall
be at least $20,000,000 and (ii) the price per share paid by the public for such
8
<PAGE>
shares shall be at least three (3) times the Series A Conversion Price (as
adjusted for Stock Adjustments other than a Series A PIK Election).
(b) Election of a Majority of Series A Preferred. Upon the
--------------------------------------------
election of holders of at least 51% of the Series A Preferred outstanding,
either by vote at a duly called shareholders meeting or by written consent, all
of the outstanding Series A Preferred shall automatically convert into Common
Stock.
(c) Redemption of Series A Preferred at Holder's Option.
---------------------------------------------------
(i) The Corporation may not require the redemption of any
shares of Series A Preferred. The holder or holders of at least 66-2/3% of the
outstanding shares of Series A Preferred may, at their option, at any time, or
from time to time, from and after February 20, 2003, upon notice given to the
Corporation by the holder or holders of at least 66-2/3% of the outstanding
shares of Series A Preferred (a "Series A Redemption Notice") require the
--------------------------
Corporation to redeem, out of funds legally available therefor, any or all
outstanding shares of Series A Preferred (including shares not held by such
holder or holders). The redemption price per share of Series A Preferred (the
"Series A Redemption Price") payable pursuant to this Section 3.1.6(c) shall be
- --------------------------
the Series A Liquidation Value of such share as of the Series A Redemption Date
(hereinafter defined). Unless waived by the Corporation, a Series A Redemption
Notice is irrevocable with respect to the holders giving such notice.
(ii) Promptly upon the determination of the Series A
Redemption Price, the Corporation shall (A) give notice of the Series A
Redemption Price to the holders requesting redemption and to holders of Series A
Preferred required to accept redemption pursuant to Section 3.1.6(c)(i), if any,
stating the redemption date (the "Series A Redemption Date"), which Series A
------------------------
Redemption Date shall be no less than twenty (20) days and no more than forty
(40) days following the date of the Series A Redemption Notice and (B) give
notice to each holder of Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred and Series F Preferred stating the Series A
Redemption Date. On the Series A Redemption Date, the Corporation shall, unless
such shares of Series A Preferred have been previously surrendered for
conversion pursuant to Section 3.1.5, redeem the shares of Series A Preferred
set forth in the Series A Redemption Notice at a price per share equal to the
Series A Redemption Price, upon submission of certificates of the Series A
Preferred in accordance with Section 3.1.6(c)(iii) hereof.
(iii) Except as provided in Section 3.1.6(c)(iv), on or after
the Series A Redemption Date, a holder of Series A Preferred requesting
redemption of or otherwise required to redeem Series A Preferred set forth in
the Series A Redemption Notice shall surrender to the Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated by the Corporation, and thereupon the Series A Redemption Price
of such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. If all the shares of Series A Preferred evidenced
by a certificate are not redeemed, the Corporation shall on the Series A
Redemption Date deliver to the owner a new certificate in the name of the owner
for the unredeemed shares.
9
<PAGE>
(iv) From and after the Series A Redemption Date, unless
there shall have been a default in payment of the Series A Redemption Price, all
rights of the holder requesting or required to accept redemption of the shares
of Series A Preferred for which redemption has been requested (except the right
to receive the Series A Redemption Price without interest upon surrender of
their certificate or certificates) shall cease, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to clauses (v) and (vi) of
paragraph 3.1.6(c), if the funds of the Corporation legally available for
redemption of shares of Series A Preferred on the Series A Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred to be
redeemed on such date, (A) those funds that are legally available shall be used
to redeem the maximum possible number of shares ratably among the holders of
such shares, (B) the shares of Series A Preferred not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein,
until any subsequent redemption, and (C) at any time thereafter when additional
funds of the Corporation are legally available for redemption of shares of
Series A Preferred such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obliged to redeem but which it has
not redeemed.
(v) If and to the extent, not later than five (5) days
prior to the Series A Redemption Date, the Corporation receives a Series B
Redemption Notice pursuant to Section 3.2.6, a Series C Redemption Notice
pursuant to Section 3.3.6, a Series D Redemption Notice pursuant to Section
3.4.6, or a Series E Redemption Notice pursuant to Section 3.5.6, or a Series F
Redemption Notice pursuant to Section 3.6.6, the Series B Redemption Date (as
defined in Section 3.2.6), the Series C Redemption Date (as defined in Section
3.3.6), the Series D Redemption Date (as defined in Section 3.4.6), the Series E
Redemption Date (as defined in Section 3.5.6), or the Series F Redemption Date
(as defined in Section 3.6.6) as the case may be, notwithstanding any contrary
provision in Section 3.2.6, Section 3.3.6, 3.4.6, 3.5.6 or 3.6.6, shall be the
same as the Series A Redemption Date (such date being the "Redemption Date")
---------------
with respect to the shares of Series B Preferred designated for redemption in
such Series B Redemption Notice, shares of Series C Preferred designated for
redemption in such Series C Redemption Notice, shares of Series D Preferred
designated for redemption in such Series D Redemption Notice, shares of Series E
Preferred designated for redemption in such Series E Redemption Notice and
shares of Series F Preferred designated for redemption in such Series F
Redemption Notice.
(vi) Redemptions of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred that occur, or would occur but for the absence of funds legally
available therefor, on the same date shall be made, ratably in proportion to the
amounts that the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred to be
redeemed on such Redemption Date are entitled to receive in respect of such
redemption.
3.1.7. No Impairment. The Corporation shall not by amendment to
-------------
this Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, except as has been approved by the holders of at least
51% of the then outstanding Series A Preferred voting as a class on an as-
converted basis either at a duly called shareholders meeting or by written
consent, avoid or seek to avoid the observance or performance of any of the
terms to be observed or
10
<PAGE>
performed hereunder by the Corporation, but shall at all times in good faith
assist in the carrying out of all of the provisions of Sections 3.1.5 and 3.1.6
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of Series A Preferred against
impairment.
3.1.8. Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Liquidation Value, Series A
Conversion Price or Series A Redemption Price pursuant to Section 3.1.4, Section
3.1.5 or Section 3.1.6, the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of affected Series A Preferred a certificate, which
shall be certified by the Corporation's accountants if required by such holder,
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
written request at any time of any holder of Series A Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (a) such
adjustments or readjustments, (b) the Series A Liquidation Value, Series A
Conversion Price or Series A Redemption Price in effect, and (c) the number of
shares of Common Stock and the amount, if any, of other property that at the
time would be received upon the conversion of the Series A Preferred.
3.1.9. Notice of Record Date. In the event of any taking by the
---------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, the Corporation shall mail to each holder of
Series A Preferred, at least ten (10) days prior to the record date, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution and such notice may be waived with respect to all
of the outstanding Series A Preferred by holders of the majority of the
outstanding Series A Preferred.
3.1.10. Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, free from any preemptive rights, solely for
the purpose of effecting the conversion of the shares of Series A Preferred such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A Preferred; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the then outstanding shares of Series
A Preferred, the Corporation shall take such corporate action as may in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
3.1.11. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series A Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the holders
of its Common Stock as a class, of Common Stock Equivalents, or rights or
warrants to subscribe for or purchase shares of its Common Stock or of any other
subscription rights or warrants;
11
<PAGE>
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or merger
of the Corporation into or with any other person, the sale or transfer of a
substantial portion of its capital stock, business or assets to another person,
or any other similar business combination or transaction; or
(e) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of
the Series A Preferred and to each of the holders of shares of Series A
Preferred at their last addresses as shown on the books of the Corporation, at
least 15 days before the date hereinafter specified (or the earlier of the dates
hereinafter specified, in the event that more than one date is specified), a
notice describing such event and stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (ii) the date on which any such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
(including cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up. Any notice
required to be given hereunder to the holders of shares of Series A Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation, and such notice may be waived with respect to all of the
outstanding Series A Preferred by the holders of a majority of the outstanding
Series A Preferred.
3.1.12. Amendments and Changes. As long as any of the Series A
----------------------
Preferred shall be issued and outstanding, the Corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the total number of shares of Series A
Preferred then outstanding:
(a) increase or decrease (except as set forth in Section 3.1.3)
the number of authorized shares of Series A Preferred;
(b) create any new class or series of shares having rights
senior to the rights of the Series A Preferred;
(c) materially or adversely alter or change the preferences,
rights, privileges, powers, or the restrictions provided herein for the benefit
of the Series A Preferred;
(d) amend this Section 3.1.12.
3.1.13. No Reissuance of Series A Preferred. No share or shares of
-----------------------------------
Series A Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or
12
<PAGE>
otherwise shall be reissued, and with no further corporate or stockholder action
all such shares shall be canceled, retired and eliminated from the shares that
the Corporation shall be authorized to issue.
3.2. Series B Preferred.
------------------
3.2.1. Designation; Rank. This series of Preferred Stock shall be
-----------------
designated the "Series B Convertible Preferred Stock" with a par value of $.001
per share (the "Series B Preferred"). The Series B Preferred shall rank, with
------------------
respect to dividend rights and rights on liquidation, winding-up and
dissolution, (i) senior to all classes of Common Stock of the Corporation, as
they exist on the date hereof or as such stock may be constituted from time to
time and to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Corporation's Board of Directors
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series B Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series B Junior Securities"), (ii) on a parity with each
--------------------------
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock expressly provide that it will rank on a parity with the
Series B Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively, the "Series B Parity Securities"), and (iii)
--------------------------
junior to each other class of capital stock or series of preferred stock issued
by the Corporation or established by the Corporation's Board of Directors to the
extent the terms of such stock expressly provide that it will rank senior to the
Series B Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively, the "Series B Senior Securities"). Without
--------------------------
limiting the generality of the foregoing, the Series A Preferred, the Series C
Preferred, the Series D Preferred, the Series E Preferred and the Series F
Preferred shall be deemed to be Series B Parity Securities. For all purposes of
this Certificate of Incorporation (other than Section 3.2.7) including, without
limitation, for purposes of determining the rights of such holder to participate
in dividends and other distributions by the Corporation or to vote on all
matters presented generally to the shareholders of the Corporation, the shares
of Common Stock into which shares of Series B Preferred held by a holder of the
Series NB Warrant are convertible shall include all of the shares of Common
Stock for which the Series NB Warrant is then exercisable.
3.2.2. Authorized Number. The authorized number of shares
-----------------
constituting the Series B Preferred shall be twenty two million (22,000,000).
3.2.3. Dividends.
---------
(a) Dividends shall accrue from day to day and shall be payable
when and as declared by the Corporation's Board of Directors or as otherwise
provided in this Section 3.2.3. as follows, out of funds legally available
therefor:
(i) for all periods prior to and including October 15, 1999,
dividends shall accrue and shall be payable solely by issuance by the
Corporation to the holders of the Series B Preferred of additional shares of
Series B Preferred equal to one hundred forty-five thousandths (.145) of a share
of Series B Preferred for each one share of Series B Preferred
13
<PAGE>
actually issued and outstanding on October 15, 1999 which dividend shall be
cumulative (whether or not earned or declared);
(ii) for all periods after October 15, 1999 through and
including the last day of July, 2001, dividends shall accrue and shall be
payable solely by issuance by the Corporation to the holders of the Series B
Preferred of additional shares per share of Series B Preferred with the number
of shares per share of Series B Preferred being equal to (i) the dollar amount
of the cash dividend which would have accrued on 1.145 shares of Series B
Preferred from October 16, 1999 to the record date for such dividend if a cash
dividend had accrued during that period at a rate of eight percent (8%)
compounded annually with the first compounding occurring on October 16, 2000 of
the Series B Stated Value divided by (ii) the Series B Stated Value as of the
record date for such dividend which dividend shall be cumulative (whether or not
earned or declared); and
(iii) commencing on and including August 1, 2001, the foregoing
dividends shall not further accrue (but if unpaid shall remain accrued), and in
lieu of any further accrual, the Corporation shall accrue and, when and as
declared by the Corporation's Board of Directors out of funds legally available
therefor, the Corporation shall pay dividends to the holders of the Series B
Preferred at an annual rate per share of Series B Preferred of (a) 8% compounded
annually of (b) (X) one plus the number of shares of Series B Preferred which
would be issuable on August 1, 2001 pursuant to clauses (i) and (ii) in respect
of a share of Series B Preferred multiplied by (Y) the Series B Stated Value,
and such dividends shall accrue commencing on and including August 1, 2001 and
shall be cumulative (whether or not earned or declared). All dividends first
accruing on or after August 1, 2001 as specified in clause (iii) shall be
payable in cash out of funds legally available therefor; provided, however, that
-------- -------
at the election (a "Series B PIK Election") of the holders as of the record date
---------------------
date for such dividend of a majority of the outstanding shares of Series B
Preferred, in lieu of payment thereof in cash, the amount of such dividends may
be paid, in whole or in part, by issuance by the Corporation to the holders of
the Series B Preferred, of additional shares of Series B Preferred, with the
number of shares being equal to (i) the dollar amount of the dividend which the
holder has elected to receive in the form of additional shares of Series B
Preferred, divided by (ii) the Series B Stated Value as of the record date for
such dividend. If the Series B PIK Election is not for the entire amount of the
dividend, each holder of Series B Preferred shall receive the same proportion of
cash and additional shares of Series B Preferred for each share of Series B
Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series B PIK Election" the
shares of Series B Preferred received or receivable pursuant to clauses (i),
(ii) or (iii) are deemed received or receivable pursuant to a "Series B PIK
Election."
All additional shares of Series B Preferred issued upon a Series B PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series B PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series B Preferred being the Series B Stated Value as of the record
date for such dividend. Any dividend (or portion thereof) shall be deemed
14
<PAGE>
fully paid to the extent a Series B PIK Election is made with respect to such
dividend (or portion thereof).
(b) No full dividends may be declared or paid or funds set apart for
the payment of dividends on any Series B Parity Securities (except dividends on
Series B Parity Securities paid in shares of Series B Junior Securities) for any
period unless full cumulative dividends to be paid hereunder prior to the date
thereof shall have been paid on the Series B Preferred. If dividends are not so
paid, the Series B Preferred, if and to the extent a Series B PIK Election has
not been made with respect to such dividends, shall share dividends pro rata
with the Series B Parity Securities according to the amount of dividends due and
payable with respect to each. No dividends may be paid or set aside for such
payment on Series B Junior Securities (except dividends on Series B Junior
Securities paid in additional shares of Series B Junior Securities), and no
Series B Parity Securities or Series B Junior Securities may be repurchased,
redeemed or otherwise retired nor may funds be set aside for payment with
respect thereto, nor shall the Corporation permit any corporation or entity
directly or indirectly controlled by the Corporation to purchase any shares of
Series B Parity Securities or Series B Junior Securities, (except in each case
for (a) cashless exercises of stock options (whether effected by surrendering
stock options or outstanding shares of Stock), (b) repurchases by the
Corporation of Series B Parity Securities or Series B Junior Securities wholly
funded by life insurance proceeds, or (c) a payment in respect of fractional
shares) if full cumulative dividends to be paid hereunder prior to the date
thereof have not been paid on the Series B Preferred.
(c) If, in any year, any cash or other distributions are declared by
the Corporation's Board of Directors to be paid on Common Stock (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff), other than dividends or
distributions of shares of Common Stock that are referred to in clause (i) of
Section 3.2.7(c), then an additional dividend shall be paid at the same time to
the holders of the Series B Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common Stock multiplied by (y) the number
of shares of Common Stock into which each share of Series B Preferred (including
any issuable upon the payment of any accrued but unpaid Series B PIK Election)
is then convertible. Dividends payable to the holders of the Series B Preferred
pursuant to this Section 3.2.3(c) shall be paid in the same form as paid to
holders of Common Stock. Solely for purposes of this Section 3.2.3(c), the term
"distribution" means any transfer of cash or property without consideration,
whether by way of dividend or otherwise (except a dividend in shares of Common
Stock of the Corporation) including, but not limited to, securities of other
persons, evidences of indebtedness issued by the Corporation or other persons
and assets, but does not include (i) any repurchase of shares from a terminated
employee of or consultant to the Corporation in accordance with the terms of the
agreement applicable to such employee or consultant providing for such
repurchase, (ii) any repurchase of shares wholly funded with the proceeds of
life insurance covering certain executives of the Corporation as provided in the
Shareholders' Agreement or approved by the Corporation's Board of Directors,
(iii) any distribution that is part of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and (iv) a payment of dissenter's
rights or in respect of fractional shares.
(d) The Corporation shall at all times reserve and keep available for
issuance upon a Series B PIK Election, free from any preemptive rights, such
number of its
15
<PAGE>
authorized but unissued shares of Series B Preferred as will from time to time
be necessary to permit the maximum then available Series B PIK Election, and
shall take all action required to increase the authorized number of shares of
Series B Preferred if necessary to permit the maximum then available Series B
PIK Election.
(e) All accrued but unpaid dividends on Series B Preferred shall be
paid pursuant to a liquidation, dissolution or winding up as provided in Section
3.2.4 as a component of the Series B Liquidation Value. All accrued but unpaid
dividends in respect of a particular share of Series B Preferred shall be paid
upon conversion of that share pursuant to Section 3.2.7. All accrued but unpaid
dividends in respect of a particular share of Series B Preferred shall be paid
upon a redemption pursuant to Section 3.2.6 as a component of the Series B
Redemption Price.
3.2.4. Liquidation.
-----------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series B Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series B Junior Securities, an amount equal to the Series B Liquidation
Value with respect to each outstanding share of Series B Preferred.
(b) Unless waived by the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series B Preferred, the sale,
lease or exchange (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Corporation or the
merger or consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation (other than a consolidation or merger in which the Corporation is
the continuing entity and which does not result in any change in the Common
Stock) or an exchange or sale of 90% or more of the capital stock of the
Corporation to accomplish an acquisition of the Corporation in a single or
related transaction shall be deemed to be a liquidation for the purposes of this
Section 3.2.4.
(c) After the payment to the holders of the Series B Preferred of
the full amounts provided for in this Section 3.2.4, the holders of Series B
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series B Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.2.4(a) above, no such distribution shall be made
on account of any Series B Parity Securities unless proportionate amounts are
distributed to the holders of Series B Preferred, ratably, in proportion to the
full amounts for which holders of Series B Preferred and all such Series B
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
3.2.5. Voting Rights. The holder of each share of Series B Preferred
-------------
shall be entitled to vote on all matters and shall be entitled to the number of
votes equal to the largest number of full shares of Common Stock into which such
shares of Series B Preferred
16
<PAGE>
could be converted and for which any Series NB Warrant held by a holder of such
Series B Preferred may be exercised, pursuant to the provisions of Section 3.2.7
hereof, at the record date for the determination of shareholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken or any written consent of shareholders is solicited. Except as
otherwise expressly provided herein or the Shareholders' Agreement or as
required by law, the holders of shares of Series B Preferred, Series A
Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F
Preferred and Common Stock shall vote together as a single class on all matters
and not as separate classes. Notwithstanding any provision of this Certificate
of Incorporation to the contrary, references to shares of Series B Preferred on
an "as-converted basis" shall, in each instance, take into account shares of
Common Stock that would be issued upon the exercise of Series NB Warrants held
by holders of shares of Series B Preferred.
3.2.6. Redemption.
----------
(a) The Corporation may not require the redemption of any shares of
Series B Preferred. The holder or holders of at least 66-2/3% of the
outstanding shares of Series B Preferred may, at their option, at any time, or
from time to time, from and after February 20, 2003, upon notice given to the
Corporation by the holder or holders of at least 66-2/3% of the outstanding
shares of Series B Preferred (a "Series B Redemption Notice") require the
--------------------------
Corporation to redeem, out of funds legally available therefor, any or all
outstanding shares of Series B Preferred (including shares not held by such
holder or holders) and the Series NB Warrant. The redemption price per share of
Series B Preferred (the "Series B Redemption Price") payable pursuant to this
-------------------------
Section 3.2.6 shall be the Series B Liquidation Value of such share as of the
Series B Redemption Date (hereinafter defined). For the purpose of determining
the "per share amount" in the definition of Series B Liquidation Value, the
value of each share of Common Stock shall equal the Fair Market Value. Unless
waived by the Corporation, a Series B Redemption Notice is irrevocable with
respect to the holders giving such notice.
(b) Promptly upon the determination of the Series B Redemption
Price, the Corporation shall (i) give notice of the Series B Redemption Price to
the holders requesting redemption and to holders of Series B Preferred required
to accept redemption pursuant to Section 3.2.6(a), if any, stating the
redemption date (the "Series B Redemption Date"), which Series B Redemption Date
------------------------
shall be no less than twenty (20) days and no more than forty (40) days
following the date of the Series B Redemption Notice, and (ii) give notice to
each holder of Series A Preferred, Series C Preferred, Series D Preferred,
Series E Preferred and Series F Preferred stating the Series B Redemption Date.
On the Series B Redemption Date, the Corporation shall, unless such shares of
Series B Preferred have been previously surrendered for conversion pursuant to
Section 3.2.7, redeem the shares of Series B Preferred and the Series NB Warrant
as set forth in the Series B Redemption Notice at a price per share equal to the
Series B Redemption Price, upon submission of certificates of the Series B
Preferred in accordance with Section 3.2.6(c) hereof.
(c) Except as provided in Section 3.2.6(d), on or after the Series
B Redemption Date, a holder of Series B Preferred requesting redemption of or
otherwise required to redeem Series B Preferred set forth in the Series B
Redemption Notice shall surrender to the Corporation the certificate or
certificates representing such shares and the related Series NB
17
<PAGE>
Warrant, in the manner and at the place designated by the Corporation, and
thereupon the Series B Redemption Price of such securities shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. If all
the shares of Series B Preferred evidenced by a certificate or all of the Series
NB Warrant are not redeemed, the Corporation shall on the Series B Redemption
Date deliver to the owner a new certificate and/or warrant in the name of the
owner for the unredeemed shares.
(d) From and after the Series B Redemption Date, unless there shall
have been a default in payment of the Series B Redemption Price, all rights of
the holder requesting or required to accept redemption of the shares of Series B
Preferred for which redemption has been requested (except the right to receive
the Series B Redemption Price without interest upon surrender of their
certificate or certificates) shall cease, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. Subject to paragraphs 3.2.6(e) and 3.2.6(f), if the
funds of the Corporation legally available for redemption of shares of Series B
Preferred on the Series B Redemption Date are insufficient to redeem the total
number of shares of Series B Preferred to be redeemed on such date, (i) those
funds that are legally available shall be used to redeem the maximum possible
number of shares ratably among the holders of such shares, (ii) the shares of
Series B Preferred not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, until any subsequent redemption, and
(iii) at any time thereafter when additional funds of the Corporation are
legally available for redemption of shares of Series B Preferred such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem but which it has not redeemed.
(e) If and to the extent, not later than five (5) days prior to the
Series B Redemption Date, the Corporation receives a Series A Redemption Notice
pursuant to Section 3.1.6(c), a Series C Redemption Notice pursuant to Section
3.3.6(a), a Series D Redemption Notice pursuant to Section 3.4.6(a), a Series E
Redemption Notice pursuant to Section 3.5.6(a), or a Series F Redemption Notice
pursuant to Section 3.6.6(a), the Series A Redemption Date (as defined in
Section 3.1.6(c)), the Series C Redemption Date (as defined in Section
3.3.6(b)), the Series D Redemption Date (as defined in Section 3.4.6(b)), the
Series E Redemption Date (as defined in Section 3.5.6(b)), or the Series F
Redemption Date (as defined in Section 3.6.6(b)), notwithstanding any contrary
provision in Section 3.1.6(c), Section 3.3.6(b), Section 3.4.6(b), Section
3.5.6(b) or Section 3.6.6(b), shall be the same as the Series B Redemption Date
(such date being the "Redemption Date") with respect to the shares of Series A
---------------
Preferred designated for redemption in such Series A Redemption Notice, shares
of Series C Preferred designated for redemption in such Series C Redemption
Notice, shares of Series D Preferred designated for redemption in said Series D
Redemption Notice, shares of Series E Preferred designated for redemption in
said Series E Redemption Notice and shares of Series F Preferred designated for
redemption in said Series F Redemption Notice.
(f) Redemptions of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred that
occur, or would occur but for the absence of funds legally available therefor,
on the same date shall be made, ratably in proportion to the amounts that the
holders of the Series A Preferred, Series B
18
<PAGE>
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred to be redeemed on such Redemption Date are entitled to receive in
respect of such redemption.
3.2.7. Conversion. (a) Upon the earlier of (i) the consummation
----------
of a Qualified IPO or (ii) for each of at least 20 consecutive trading days
after an initial public offering of the Common Stock the aggregate market
capitalization of the Free Common Stock is at least $25 million and the Common
Stock has a Current Market Price of at least $3.00 per share (subject to
adjustment for stock splits and combinations, recapitalizations and stock
dividends of the Common Stock), each share of Series B Preferred shall
automatically be converted into a number of shares of Common Stock at the then
effective Series B Conversion Ratio. In addition, (x) at the option of the
holder of any Series B Preferred, such holder shall have the right, at any time
and from time to time prior to or after the consummation of an initial public
offering of the Common Stock, by written notice to the Corporation, to convert
any and all shares of Series B Preferred owned by such holder at such time into
a number of shares of Common Stock, at the then effective Series B Conversion
Ratio, and (y) upon the election of holders of at least 51% of the then
outstanding Series B Preferred and Series C Preferred voting as a class on an as
converted basis either at a duly called shareholders meeting or by written
consent, all of the outstanding Series B Preferred and Series C Preferred shall
automatically convert into Common Stock at the then applicable conversion ratio
for such stock.
(b) The Corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series B Preferred, free from any
preemptive rights, such number of its authorized but unissued shares of Common
Stock as will from time to time be necessary to permit the conversion of all
outstanding shares of Series B Preferred into shares of Common Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all outstanding shares of Series
B Preferred.
(c) The Series B Conversion Ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or from time to
time after the Series B Issue Date (A) pay a dividend, or make a distribution,
on the outstanding shares of Common Stock in shares of Common Stock, (B)
subdivide the outstanding shares of Common Stock, (C) combine the outstanding
shares of Common Stock into a smaller number of shares or (D) issue by
reclassification of the shares of Common Stock any shares of capital stock of
the Corporation, then, and in each such case, the Series B Conversion Ratio in
effect immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of Series B
Preferred thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the Corporation that
such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such shares of Series B
Preferred been surrendered for conversion immediately prior to the happening of
such event or the record date therefor, whichever is earlier. An adjustment made
pursuant to this clause (i) shall become
19
<PAGE>
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of holders
of shares of Common Stock entitled to receive such dividend or distribution, or
(y) in the case of such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action becomes effective.
No adjustment shall be made pursuant to this clause (i) in connection with any
transaction to which Section 3.2.7(g) applies.
(ii) The Series B Conversion Ratio shall not be adjusted for
any "Series F Additional Adjustment" as defined in Section 3.6.7(c)(v) hereof.
(d) The issuance of certificates for shares of Common Stock
upon conversion of the Series B Preferred shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series B Preferred which is being
converted.
(e) The Corporation will at no time close its transfer books
against the transfer of any Series B Preferred, or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Series B Preferred, in
any manner which interferes with the timely conversion of such Series B
Preferred, except as may otherwise be required to comply with applicable
securities laws.
(f) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.2.7 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series B Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series B Preferred.
(g) If the Corporation shall be a party to any Transaction
(but excluding (i) any Transaction for which provision for adjustment is
otherwise made in this Section 3.2.7 and (ii) any Transaction that is deemed to
be a liquidation for the purposes of Section 3.2.4), in each case, as a result
of which shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series B Preferred shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series B Preferred would have been entitled upon such Transaction; and, in any
such case, appropriate adjustment (as determined by the
20
<PAGE>
Corporation's Board of Directors) shall be made in the application of the
provisions set forth in this Section 3.2.7 with respect to the rights and
interest thereafter of the holders of the Series B Preferred, to the end that
the provisions set forth in this Section 3.2.7 shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series B Preferred.
Except as provided in the Shareholders' Agreement, the Corporation shall not
effect any Transaction (other than a consolidation or merger in which the
Corporation is the continuing corporation) unless prior to or simultaneously
with the consummation thereof the Corporation, or the successor corporation or
purchaser, as the case may be, shall provide in its charter document that each
share of Series B Preferred shall be converted into such shares of stock,
securities or property as, in accordance with the foregoing provisions, each
such holder is entitled to receive. The provisions of this Section 3.2.7(g)
shall similarly apply to successive Transactions.
(h) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
except as has been approved by the holders of at least 51% of the then
outstanding Series B Preferred and Series C preferred voting as a class on an
as-converted basis either at a duly called shareholders meeting or by written
consent, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 3.2.7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred against impairment.
(i) All calculations under this Section 3.2.7 shall be made to the
nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be. Upon conversion of the Series B Preferred pursuant
to this Section 3.2.7, the Corporation may pay cash based on the Series B
Conversion Price in lieu of issuing fractional shares.
3.2.8. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series B Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the holders of
its Common Stock as a class, of Common Stock Equivalents, or rights or warrants
to subscribe for or purchase shares of its Common Stock or of any other
subscription rights or warrants;
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or merger of
the Corporation into or with any other person, the sale or transfer of a
substantial portion of its capital stock, business or assets to another person,
or any other similar business combination or transaction; or
21
<PAGE>
(e) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of the Series
B Preferred and to each of the holders of shares of Series B Preferred at their
last addresses as shown on the books of the Corporation, at least 15 days before
the date hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one date is specified), a notice
describing such event and stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which any such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
(including cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up. Any notice
required to be given hereunder to the holders of shares of Series B Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation, and such notice may be waived with respect to all of the
outstanding Series B Preferred by the holders of a majority of the outstanding
Series B Preferred.
3.2.9. Certain Remedies. Any registered holder of Series B
----------------
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series B Preferred with any and all remedies available at law
or in equity.
3.2.10. Protective Provisions. So long as any shares of Series B
---------------------
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holder or
holders of at least 50.1% of the then outstanding shares of Series B Preferred:
(a) alter or change the rights, preference or privileges of the
shares of Series B Preferred or otherwise amend the Certificate of
Incorporation, in either case, whether by merger, consolidation or otherwise, so
as to affect adversely the shares of Series B Preferred;
(b) increase the authorized number of shares of Series B Preferred
except solely to pay, or reserve for payment, upon a Series B PIK Election;
(c) except as provided by the Shareholders' Agreement or upon a
Series B PIK Election, authorize the issuance of, issue, or sell any additional
shares of Series B Preferred; or
(d) except for Excluded Securities defined in clauses (iii), (iv),
(vi) or (vii) of the definition of Excluded Securities, create or designate, or
authorize the issuance of, any new class or series of stock (i) which are Series
B Senior Securities or Series B Parity Securities, (ii) having rights similar to
any rights of the Series B Preferred under Section 3.2.5 hereof or (iii)
convertible into any class or series of stock described in clause (i) of this
paragraph (d).
22
<PAGE>
3.2.11. Reports as to Adjustments. Upon any adjustment of the
-------------------------
Series B Conversion Ratio then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.2.7, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series B
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation, with
the original being delivered to the transfer agent for the Series B Preferred,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Series B
Conversion Ratio then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion granted pursuant to
Section 3.2.7, and shall set forth in reasonable detail the method of
calculation of each and a brief statement of the facts requiring such
adjustment.
3.2.12. No Reissuance of Series B Preferred. No share or shares of
-----------------------------------
Series B Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and without further
corporate or stockholder action all such shares shall be canceled, retired and
eliminated from the shares that the Corporation shall be authorized to issue.
3.2.13. Definitions. In addition to any other terms defined herein,
-----------
the following terms shall have the meanings indicated for purposes of this
Section 3.2, Section 3.3 and Section 3.4:
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are required to be closed for
business.
"Common Stock Equivalent" means securities convertible into, or
exchangeable or exercisable for, shares of Common Stock.
"Current Market Price" means, in respect of any share of Common Stock on
any date herein specified, (i) if the shares of Common Stock are publicly
traded, the average of the daily closing prices of the Common Stock for the
twenty consecutive trading days ending on such date or (ii) if the shares of
Common Stock are not publicly traded, the Fair Market Value per share of Common
Stock as of such date.
"Exchange Agreement" means the Exchange Agreement dated May 7, 1998 between
the Company and Beacon, without amendment.
"Excluded Securities" means (i) options issued by the Corporation pursuant
to any stock option, employee stock purchase or similar plan (and any shares of
Common Stock issuable thereunder) approved by the Corporation's Board of
Directors, (ii) shares of Common Stock issuable upon conversion, exchange or
exercise of any Common Stock Equivalent outstanding as of the Series B Issue
Date and the warrants listed in the following clause (iv), (iii) securities
issued pursuant to a Series A PIK Election, Series B PIK Election, Series C PIK
Election, Series D PIK Election, Series E PIK Election or Series F PIK Election
and upon conversion of such securities, (iv) Series NB Warrants and upon
exercise of such securities, (v)
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any shares of Common Stock issuable upon conversion, exchange or exercise of any
Common Stock Equivalents that are Series B Preferred outstanding on the date
hereof, Series C Preferred outstanding on the date hereof, Series D Preferred
outstanding on the date hereof, Series E Preferred outstanding on the date
hereof (the Series E Preferred Stock Purchase Agreement by and among the
Corporation, Trans Cosmos USA, Inc. and certain other parties dated as of April
16, 1999 is referred to as the "TCI Purchase Agreement"), (vi) any Series B
----------------------
B Preferred and Series C Preferred issued pursuant to the Exchange Agreement,
and securities issued upon conversion of such securities issued pursuant to the
Exchange Agreement and (vii) up to 6,103,287 shares of Series F Preferred issued
pursuant to the Series F Preferred Stock Purchase Agreement between the
Corporation and BVCF IV, L.P. dated as of November 19, 1999 (the
"Brinson Purchase Agreement") including issuances of such stock by the addition
--------------------------
or substitution of parties thereto, and any securities issued or deemed issued
and any adjustments made or deemed made as a results of any of the Series F
Additional Adjustments, and any shares of Common Stock issuable upon conversion,
exchange or exercise of any Common Stock Equivalents that are such Series F
Preferred.
"Fair Market Value" of the Common Stock or any other property means
the fair market value of such Common Stock or other property as determined
(unless expressly otherwise provided herein) by mutual agreement between the
Corporation and the holders of not less than 50% of the Series B Preferred,
Series C Preferred and Series D Preferred, each treated as a separate class on
an as-converted basis, or, if the parties are unable to agree, as determined
based upon what a seller under no compulsion to sell would receive from a
willing buyer and without discount for illiquidity, minority interest or the
non-public status of the Corporation and without a control premium, by a
nationally recognized independent investment banking firm selected by mutual
agreement between the Corporation and the holders of not less than 50% of the
Series B Preferred (including in such as converted amount Common Stock issuable
on the exercise of the Series NB Warrant), Series C Preferred and Series D
Preferred, each treated as a separate class on an as-converted basis.
"Free Common Stock" means Common Stock beneficially owned by Persons
other than officers, directors, employees or affiliates of the Corporation.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company
or other business entity, trust, unincorporated organization or government or
any agency or political subdivisions thereof.
"Qualified IPO" means a bona fide, firm commitment, underwritten
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended, (i) resulting in at least
$25,000,000 of net proceeds to the Corporation after deducting underwriting
discounts and commissions and offering expenses, and (ii) reflecting a per share
offering price for each share of Common Stock sold in such offering of at least
$3.00 per share (subject to adjustment for stock splits and combinations,
recapitalizations and stock dividends of the Common Stock).
"Series B Conversion Ratio," determined as of any date, shall equal
the number of shares of Common Stock into which one share of Series B Preferred
is convertible pursuant to
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Section 3.2.7. The Series B Conversion Ratio shall initially equal one and shall
be subject to adjustment as provided in paragraph (c) of Section 3.2.7.
"Series B Conversion Price" means, at any date, the Series B Stated
Value multiplied by the inverse of the Series B Conversion Ratio then in effect.
"Series B Issue Date" means the first date on which shares of Series B
Preferred are issued.
"Series B Liquidation Value" means the greater of (i) $1.611 (as
adjusted for stock splits, reverse splits, stock dividends other than a Series B
PIK Election and stock combinations, in each case of the Series B Preferred),
for each share of Series B Preferred, plus all accrued but unpaid dividends on
the Series B Preferred or (ii) the per share amount that the holders of the
Series B Preferred would have received upon liquidation if all shares of Series
B Preferred had been converted to Common Stock at the Series B Conversion Ratio
then in effect and all Series NB Warrants related thereto had been exercised for
Common Stock immediately prior to such liquidation, plus all accrued but unpaid
dividends on the Series B Preferred.
"Series B Stated Value" means $1.611 per share (as adjusted for stock
splits, reverse splits, stock dividends (other than Series B PIK Election) and
stock combinations of the Series B Preferred and Sections 3.2.3(a) (other than
in respect of a Series B PIK Election) and 3.2.7(g)).
"Series NB Warrant" means a Series NB Warrant (including Warrant NB-1)
of the Corporation, as amended and restated as of November 19, 1999, to purchase
shares of Common Stock.
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
3.3. Series C Preferred.
------------------
3.3.1. Designation; Rank. This series of Preferred Stock shall be
-----------------
designated the "Series C Convertible Preferred Stock" with a par value of $.001
per share (the "Series C Preferred"). The Series C Preferred shall rank, with
------------------
respect to dividend rights and rights on liquidation, winding-up and
dissolution, (i) senior to all classes of Common Stock of the Corporation, as
they exist on the date hereof or as such stock may be constituted from time to
time and to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Corporation's Board of Directors
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series C Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series C Junior Securities"), (ii) on a parity with each
--------------------------
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock expressly provide that it will rank on a parity with the
Series C Preferred as to dividend rights and rights on liquidation,
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<PAGE>
winding-up and dissolution (collectively, the "Series C Parity Securities"), and
--------------------------
(iii) junior to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Corporation's Board of Directors
to the extent the terms of such stock expressly provide that it will rank senior
to the Series C Preferred as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively, the "Series C Senior Securities").
--------------------------
Without limiting the generality of the foregoing, the Series A Preferred, Series
B Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall
be deemed to be Series C Parity Securities.
3.3.2. Authorized Number. The authorized number of shares
-----------------
constituting the Series C Preferred shall be eleven million five hundred
thousand (11,500,000) shares.
3.3.3. Dividends.
---------
(a) Dividends shall accrue from day to day and shall be
payable when and as declared by the Corporation's Board of Directors or as
otherwise provided in this Section 3.3.3. as follows, out of funds legally
available therefor:
(i) for all periods prior to and including October 15,
1999, dividends shall accrue and shall be payable solely by issuance by the
Corporation to the holders of the Series C Preferred of additional shares of
Series C Preferred equal to one hundred forty-five thousandths (.145) of a share
of Series C Preferred for each one share of Series C Preferred actually issued
and outstanding on October 15, 1999 which dividend shall be cumulative (whether
or not earned or declared;
(ii) for all periods after October 15, 1999 through and
including the last day of July, 2001, dividends shall accrue and shall be
payable solely by issuance by the Corporation to the holders of the Series C
Preferred of additional shares of Series C Preferred with the number of shares
per share of Series C Preferred being equal to (i) the dollar amount of the cash
dividend which would have accrued on 1.145 shares of Series C Preferred from
October 16, 1999 to the record date for such dividend if a cash dividend had
accrued during that period at a rate of eight percent (8%) compounded annually
with the first compounding occurring on October 16, 2000 of the Series C Stated
Value divided by (ii) the Series C Stated Value as of the record date for such
dividend which dividend shall be cumulative (whether or not earned or declared);
and
(iii) commencing on and including August 1, 2001, the
foregoing dividends shall not further accrue (but if unpaid shall remain
accrued), and in lieu of any further accrual, the Corporation shall accrue and,
when and as declared by the Corporation's Board of Directors out of funds
legally available therefor, the Corporation shall pay dividends to the holders
of the Series C Preferred at an annual rate per share of Series C Preferred of
(a) 8% compounded annually of (b) (X) one plus the number of shares of Series C
Preferred which would be issuable on August 1, 2001, pursuant to clauses (i) and
(ii) in respect of a share of Series C Preferred multiplied by (Y) the Series C
Stated Value, and such dividends shall accrue commencing on and including August
1, 2001 and shall be cumulative (whether or not earned or declared). All
dividends first accruing on or after August 1, 2001 as specified in clause (iii)
shall be payable in cash out of funds legally available therefor; provided,
--------
however, that at the election
- -------
26
<PAGE>
(a "Series C PIK Election") of the holders as of the record date for such
---------------------
dividend of a majority of the outstanding shares of Series C Preferred, in lieu
of payment thereof in cash, the amount of such dividends may be paid, in whole
or in part, by issuance by the Corporation to the holders of the Series C
Preferred, of additional shares of Series C Preferred, with the number of shares
being equal to (i) the dollar amount of the dividend which the holder has
elected to receive in the form of additional shares of Series C Preferred,
divided by (ii) the Series C Stated Value as of the record date for such
dividend. If the Series C PIK Election is not for the entire amount of the
dividend, each holder of Series C Preferred shall receive the same proportion of
cash and additional shares of Series C Preferred for each share of Series C
Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series C PIK Election" the
Shares of Series C Preferred received or receivable pursuant to clauses (i),
(ii) or (iii) are deemed received or receivable pursuant to a "Series C PIK
Election."
All additional shares of Series C Preferred issued upon a Series C PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series C PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series C Preferred being the Series C Stated Value as of the record
date for such dividend. Any dividend (or portion thereof) shall be deemed fully
paid to the extent a Series C PIK Election is made with respect to such dividend
(or portion thereof).
(b) No full dividends may be declared or paid or funds set apart for
the payment of dividends on any Series C Parity Securities (except dividends on
Series C Parity Securities paid in shares of Series C Junior Securities) for any
period unless full cumulative dividends to be paid hereunder prior to the date
thereof shall have been paid on the Series C Preferred. If dividends are not so
paid, the Series C Preferred, if and to the extent a Series C PIK Election has
not been made with respect to such dividends, shall share dividends pro rata
with the Series C Parity Securities according to the amount of dividends due and
payable with respect to each. No dividends may be paid or set aside for such
payment on Series C Junior Securities (except dividends on Series C Junior
Securities paid in additional shares of Series C Junior Securities), and no
Series C Parity Securities or Series C Junior Securities may be repurchased,
redeemed or otherwise retired nor may funds be set aside for payment with
respect thereto, nor shall the Corporation permit any corporation or entity
directly or indirectly controlled by the Corporation to purchase any shares of
Series C Parity Securities or Series C Junior Securities, (except in each case
for (a) cashless exercises of stock options (whether effected by surrendering
stock options or outstanding shares of Stock), (b) repurchases by the
Corporation of Series C Parity Securities or Series C Junior Securities funded
solely by life insurance proceeds, or (c) a payment in respect of fractional
shares) if full cumulative dividends to be paid hereunder prior to the date
thereof have not been paid on the Series C Preferred.
(c) If, in any year, any cash or other distributions are declared by
the Corporation's Board of Directors to be paid on Common Stock (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for
27
<PAGE>
securities of the Corporation or any of its Subsidiaries by way of dividend or
spinoff), other than dividends or distributions of shares of Common Stock that
are referred to in clause (i) of Section 3.3.7(c), then an additional dividend
shall be paid at the same time to the holders of the Series C Preferred at the
rate per share equal to the product of (x) such per share dividend on the Common
Stock multiplied by (y) the number of shares of Common Stock into which each
share of Series C Preferred (including any issuable upon the payment of any
accrued but unpaid Series C PIK Election) is then convertible. Dividends payable
to the holders of the Series C Preferred pursuant to this Section 3.3.3(c) shall
be paid in the same form as paid to holders of Common Stock. Solely for purposes
of this Section 3.3.3(c), the term "distribution" means any transfer of cash or
property without consideration, whether by way of dividend or otherwise (except
a dividend in shares of Common Stock of the Corporation) including, but not
limited to, securities of other persons, evidences of indebtedness issued by the
Corporation or other persons and assets, but does not include (i) any repurchase
of shares from a terminated employee of or consultant to the Corporation in
accordance with the terms of the agreement applicable to such employee or
consultant providing for such repurchase, (ii) any repurchase of shares funded
solely with the proceeds of life insurance covering certain executives of the
Corporation as provided in the Shareholders' Agreement or approved by the
Corporation's Board of Directors, (iii) any distribution that is part of a
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and (iv) a payment of dissenter's rights or in respect of fractional
shares.
(d) The Corporation shall at all times reserve and keep available for
issuance upon a Series C PIK Election, free from any preemptive rights, such
number of its authorized but unissued shares of Series C Preferred as will from
time to time be necessary to permit the maximum then available Series C PIK
Election, and shall take all action required to increase the authorized number
of shares of Series C Preferred if necessary to permit the maximum then
available Series C PIK Election.
(e) All accrued but unpaid dividends on Series C Preferred shall be
paid pursuant to a liquidation, dissolution or winding up as provided in Section
3.3.4 as a component of the Series C Liquidation Value. All accrued but unpaid
dividends in respect of a particular share of Series C Preferred shall be paid
upon conversion of that share pursuant to Section 3.3.7. All accrued but unpaid
dividends in respect of a particular share of Series C Preferred shall be paid
upon a redemption pursuant to Section 3.3.6 as a component of the Series C
Redemption Price.
3.3.4. Liquidation.
-----------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series C Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series C Junior Securities, an amount equal to the Series C Liquidation
Value with respect to each outstanding share of Series C Preferred.
(b) Unless waived by the affirmative vote of the holders of at
least a majority of the then outstanding shares of Series C Preferred, the sale,
lease or exchange (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Corporation or the
merger or consolidation of the Corporation into or with any other
28
<PAGE>
corporation or the merger or consolidation of any other corporation into or with
the Corporation (other than a consolidation or merger in which the Corporation
is the continuing entity and which does not result in any change in the Common
Stock) or an exchange or sale of 90% or more of the capital stock of the
Corporation to accomplish an acquisition of the Corporation in a single or
related transaction shall be deemed to be a liquidation for the purposes of this
Section 3.3.4.
(c) After the payment to the holders of the Series C Preferred of
the full amounts provided for in this Section 3.3.4, the holders of Series C
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series C Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.3.4(a) above, no such distribution shall be made
on account of any Series C Parity Securities unless proportionate amounts are
distributed to the holders of Series C Preferred, ratably, in proportion to the
full amounts for which holders of Series C Preferred and all such Series C
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
3.3.5. Voting Rights. The holder of each share of Series C Preferred
-------------
shall be entitled to vote on all matters and shall be entitled to the number of
votes equal to the largest number of full shares of Common Stock into which such
shares of Series C Preferred could be converted, pursuant to the provisions of
Section 3.3.7 hereof, at the record date for the determination of shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or the Shareholders' Agreement or
as required by law, the holders of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred and Common Stock shall vote together as a single class on all
matters and not as separate classes.
3.3.6. Redemption.
----------
(a) The Corporation may not require the redemption of any shares of
Series C Preferred. The holder or holders of at least 66-2/3% of the
outstanding shares of Series C Preferred may, at their option, at any time, or
from time to time, from and after February 20, 2003, upon notice given to the
Corporation by the holder or holders of at least 66-2/3% of the outstanding
shares of Series C Preferred (a "Series C Redemption Notice") require the
--------------------------
Corporation to redeem, out of funds legally available therefor, any or all
outstanding shares of Series C Preferred (including shares not held by such
holder or holders). The redemption price per share of Series C Preferred (the
"Series C Redemption Price") payable pursuant to this Section 3.3.6 shall be the
-------------------------
Series C Liquidation Value of such share as of the Series C Redemption Date
(hereinafter defined). For the purposes of determining the "per share amount"
in the definition of the Series C Liquidation Value, the value of each share of
Common Stock shall equal the Fair Market Value. Unless waived by the
Corporation, a Series C Redemption Notice is irrevocable with respect to the
holders giving such notice.
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<PAGE>
(b) Promptly upon the determination of the Series C Redemption Price,
the Corporation shall (i) give notice of the Series C Redemption Price to the
holders requesting redemption and to holders of Series C Preferred required to
accept redemption pursuant to Section 3.3.6(a), if any, stating the redemption
date (the "Series C Redemption Date"), which Series C Redemption Date shall be
------------------------
no less than twenty (20) days and no more than forty (40) days following the
date of the Series C Redemption Notice, and (ii) give notice to each holder of
Series A Preferred, Series B Preferred, Series D Preferred, Series E Preferred
and Series F Preferred stating the Series C Redemption Date. On the Series C
Redemption Date, the Corporation shall, unless such shares of Series C Preferred
have been previously surrendered for conversion pursuant to Section 3.3.7,
redeem the shares of Series C Preferred set forth in the Series C Redemption
Notice at a price per share equal to the Series C Redemption Price, upon
submission of certificates of the Series C Preferred in accordance with Section
3.3.6(c) hereof.
(c) Except as provided in Section 3.3.6(d), on or after the Series C
Redemption Date, a holder of Series C Preferred requesting redemption of or
otherwise required to redeem Series C Preferred set forth in the Series C
Redemption Notice shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
by the Corporation, and thereupon the Series C Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. If all the shares of Series C Preferred
evidenced by a certificate are not redeemed, the Corporation shall on the Series
C Redemption Date deliver to the owner a new certificate in the name of the
owner for the unredeemed shares.
(d) From and after the Series C Redemption Date, unless there shall
have been a default in payment of the Series C Redemption Price, all rights of
the holder requesting or required to accept redemption of the shares of Series C
Preferred for which redemption has been requested (except the right to receive
the Series C Redemption Price without interest upon surrender of their
certificate or certificates) shall cease, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. Subject to paragraphs 3.3.6(e) and 3.3.6(f), if the
funds of the Corporation legally available for redemption of shares of Series C
Preferred on the Series C Redemption Date are insufficient to redeem the total
number of shares of Series C Preferred to be redeemed on such date, (i) those
funds that are legally available shall be used to redeem the maximum possible
number of shares ratably among the holders of such shares, (ii) the shares of
Series C Preferred not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, until any subsequent redemption, and
(iii) at any time thereafter when additional funds of the Corporation are
legally available for redemption of shares of Series C Preferred such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem but which it has not redeemed.
(e) If and to the extent, not later than five (5) days prior to the
Series C Redemption Date, the Corporation receives a Series A Redemption Notice
pursuant to Section 3.1.6(c), a Series B Redemption Notice pursuant to Section
3.2.6(a), a Series D Redemption Notice pursuant to Section 3.4.6(a), a Series E
Redemption Notice pursuant to Section 3.5.6(a), or a Series F Redemption Notice
pursuant to Section 3.6.6(a), the Series A Redemption Date (as defined in
Section 3.1.6(c)), the Series B Redemption Date (as defined in Section
3.2.6(b)), the
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Series D Redemption Date (as defined in Section 3.4.6(b)), the Series E
Redemption Date (as defined in Section 3.5.6(b)) or the Series F Redemption Date
(as defined in Section 3.6.6(b), notwithstanding any contrary provision in
Section 3.1.6(c), Section 3.2.6(b), Section 3.4.6(b), Section 3.5.6(b) or
Section 3.6.6(b), shall be the same as the Series C Redemption Date (such date
being the "Redemption Date") with respect to the shares of Series A Preferred
---------------
designated for redemption in such Series A Redemption Notice and shares of
Series B Preferred designated for redemption in such Series B Redemption Notice
and shares of Series D Preferred designated for redemption in such Series D
Redemption Notice and shares of Series E Preferred designated for redemption in
such Series E Redemption Notice and shares of Series F Preferred designated for
redemption in such Series F Redemption Notice.
(f) Redemptions of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred that
occur, or would occur but for the absence of funds legally available therefor,
on the same date shall be made, ratably in proportion to the amounts that the
holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Series F Preferred to be redeemed on
such Redemption Date are entitled to receive in respect of such redemption.
3.3.7. Conversion. (a) Upon the earlier of (i) the consummation of a
----------
Qualified IPO or (ii) for each of at least 20 consecutive trading days after an
initial public offering of the Common Stock the aggregate market capitalization
of the Free Common Stock is at least $25 million and the Common Stock has a
Current Market Price of at least $3.00 per share (subject to adjustment for
stock splits and combinations, recapitalizations and stock dividends of the
Common Stock), each share of Series C Preferred shall automatically be converted
into a number of shares of Common Stock at the then effective Series C
Conversion Ratio. In addition, (x) at the option of the holder of any Series C
Preferred, such holder shall have the right, at any time and from time to time
prior to or after the consummation of an initial public offering of the Common
Stock, by written notice to the Corporation, to convert any and all shares of
Series C Preferred owned by such holder at such time into a number of shares of
Common Stock, at the then effective Series C Conversion Ratio, and (y) upon the
election of holders of at least 51% of the then outstanding Series B Preferred
and Series C Preferred voting as a class on an as-converted basis either at a
duly called shareholders meeting or by written consent, all of the outstanding
Series B Preferred and Series C Preferred shall automatically convert into
Common Stock at the then applicable conversion ratio for such stock.
(b) The Corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series C Preferred, free from any
preemptive rights, such number of its authorized but unissued shares of Common
Stock as will from time to time be necessary to permit the conversion of all
outstanding shares of Series C Preferred into shares of Common Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all outstanding shares of Series
C Preferred.
(c) The Series C Conversion Ratio shall be subject to adjustment
from time to time as follows:
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(i) In case the Corporation shall at any time or from time to time
after the Series C Issue Date (A) pay a dividend, or make a distribution, on the
outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the
outstanding shares of Common Stock, (C) combine the outstanding shares of Common
Stock into a smaller number of shares or (D) issue by reclassification of the
shares of Common Stock any shares of capital stock of the Corporation, then, and
in each such case, the Series C Conversion Ratio in effect immediately prior to
such event or the record date therefor, whichever is earlier, shall be adjusted
so that the holder of any shares of Series C Preferred thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common Stock
or other securities of the Corporation that such holder would have owned or have
been entitled to receive after the happening of any of the events described
above, had such shares of Series C Preferred been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(i) in connection with any transaction to which Section 3.3.7(g) applies.
(ii) Except with respect to Excluded Securities, if the Corporation
shall, while there are any shares of Series C Preferred outstanding, issue or
sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a Purchase Price (as defined below) less than the applicable
Series C Conversion Price in effect immediately prior to such issuance or sale,
then in each such case such applicable Series C Conversion Price, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying such applicable Series C Conversion Price by a fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a fully-
diluted basis assuming the conversion of all then presently exercisable options,
warrants, purchase rights or convertible securities whose exercise or conversion
price is less than the applicable Series C Conversion Price then in effect) plus
(b) the number of shares of Common Stock or Common Stock Equivalents which the
aggregate consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock or Common Stock Equivalents so
issued would purchase at the applicable Series C Conversion Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a fully-
diluted basis assuming the exercise or conversion of all then presently
exercisable options, warrants, purchase rights or convertible securities whose
exercise or conversion price is less than the applicable Series C Conversion
Price then in effect), plus (b) the number of such additional shares of Common
Stock or Common Stock Equivalents so issued.
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The provisions of the foregoing paragraph as they may apply
to the Series C Preferred may be waived in any instance (without the necessity
of convening any meeting of stockholders of the Corporation) upon the written
agreement of holders of at least 66 2/3% of the then outstanding shares of
Series C Preferred (voting as a separate class).
(iii)(A) For the purposes of Section 3.3.7(c)(ii), the issuance of
any Common Stock Equivalent shall be deemed an issuance of Common Stock with
respect to adjustments in the applicable Series C Conversion Price if the
Purchase Price which may be received by the Corporation for such Common Stock
shall be less than the applicable Series C Conversion Price in effect at the
time of such issuance. Any obligation, agreement or undertaking to issue Common
Stock Equivalents at any time in the future shall be deemed to be an issuance at
the time such obligation, agreement or undertaking is made or arises. Except as
provided in subparagraph (B) below, no adjustment of the applicable Series C
Conversion Price shall be made under 3.3.7(c)(ii) upon the issuance of any
shares of Common Stock which are issued pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any adjustment shall previously have
been made upon the issuance of any such Common Stock Equivalents as above
provided.
(B) Should the Purchase Price of any such Common Stock
Equivalents be decreased from time to time, then, upon the effectiveness of each
such change, the applicable Series C Conversion Price will be that which would
have been obtained (x) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the actual Purchase Price of such
securities, and (y) had the adjustments made to the applicable Series C
Conversion Price since the date of issuance of such Common Stock Equivalents
been made to such applicable Series C Conversion Price as adjusted pursuant to
clause (A) immediately above. Any adjustment of the applicable Series C
Conversion Price with respect to 3.3.7(c)(ii) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common Stock Equivalent
expires or is canceled without being exercised, or is repurchased by the
Corporation at a price per share at or less than the original purchase price, so
that the applicable Series C Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the applicable Series C Conversion
Price that would have been in effect had the expired or canceled Common Stock
Equivalent not been issued.
(C) The Purchase Price which may be received by the
Corporation shall be determined in each instance as of the date of issuance of
Common Stock Equivalents without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such Common Stock Equivalents.
(iv) For purposes of this Section 3.3.7(c), the aggregate
consideration receivable by the Corporation in connection with the issuance of
shares of Common Stock and/or Common Stock Equivalents shall be deemed to be
equal to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the minimum
aggregate amount, if any, payable upon conversion, exchange or exercise of any
such Common Stock Equivalents. If the consideration received by the Corporation
in connection with the sale or issuance of shares of Common Stock (or Common
33
<PAGE>
Stock Equivalents) consists, in whole or in part, of property other than cash or
its equivalent, the value of such property shall be the Fair Market Value.
(v) The Series C Conversion Ratio shall not be adjusted because
of any "Series F Additional Adjustment" pursuant to Section 3.6.7(c)(v) hereof.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series C Preferred shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Series C Preferred which is being
converted.
(e) The Corporation will at no time close its transfer books against
the transfer of any Series C Preferred, or of any shares of Common Stock issued
or issuable upon the conversion of any shares of Series C Preferred, in any
manner which interferes with the timely conversion of such Series C Preferred,
except as may otherwise be required to comply with applicable securities laws.
(f) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.3.7 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series C Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series C Preferred.
(g) If the Corporation shall be a party to any Transaction (but
excluding (i) any Transaction for which provision for adjustment is otherwise
made in this Section 3.3.7 and (ii) any Transaction that is deemed to be a
liquidation for the purposes of Section 3.3.4), in each case, as a result of
which shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series C Preferred shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series C Preferred would have been entitled upon such Transaction; and, in any
such case, appropriate adjustment (as determined by the Corporation's Board of
Directors) shall be made in the application of the provisions set forth in this
Section 3.3.7 with respect to the rights and interest thereafter of the holders
of the Series C Preferred, to the end that the provisions set forth in this
Section 3.3.7 shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series C Preferred. Except as provided in the
Shareholders' Agreement, the Corporation shall not effect any Transaction (other
than a consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation thereof the
Corporation, or the successor corporation or purchaser, as the case may be,
shall provide in its charter document that each share of Series C Preferred
shall be converted into such shares of stock, securities or property as, in
accordance
34
<PAGE>
with the foregoing provisions, each such holder is entitled to receive. The
provisions of this Section 3.3.7(g) shall similarly apply to successive
Transactions.
(h) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
except as has been approved by the holders of at least 51% of the then
outstanding Series B Preferred and Series C Preferred voting as a class on an
as-converted basis either at a duly called shareholders meeting or by written
consent, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 3.3.7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series C Preferred against impairment.
(i) All calculations under this Section 3.3.7 shall be made to the
nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be. Upon conversion of the Series C Preferred pursuant
to this Section 3.3.7, the Corporation may pay cash based on the Series C
Conversion Price in lieu of issuing fractional shares.
3.3.8. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series C Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the holders of
its Common Stock as a class, of Common Stock Equivalents, or rights or warrants
to subscribe for or purchase shares of its Common Stock or of any other
subscription rights or warrants;
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or merger of
the Corporation into or with any other person, the sale or transfer of a
substantial portion of its capital stock, business or assets to another person,
or any other similar business combination or transaction; or
(e) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of the Series
C Preferred and to each of the holders of shares of Series C Preferred at their
last addresses as shown on the books of the Corporation, at least 15 days before
the date hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one date is specified), a notice
describing such event and stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which any such reclassification,
reorganization,
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<PAGE>
recapitalization, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property (including cash),
if any, deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. Any notice required to be
given hereunder to the holders of shares of Series C Preferred shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation,
and such notice may be waived with respect to all of the outstanding Series C
Preferred by the holders of a majority of the outstanding Series C Preferred.
3.3.9. Certain Remedies. Any registered holder of Series C Preferred
----------------
may proceed to protect and enforce its rights and the rights of any other
holders of Series C Preferred with any and all remedies available at law or in
equity.
3.3.10. Protective Provisions. So long as any shares of Series C
---------------------
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holder or
holders of at least 50.1% of the then outstanding shares of Series C Preferred:
(a) alter or change the rights, preference or privileges of the
shares of Series C Preferred or otherwise amend the Certificate of
Incorporation, in either case, whether by merger, consolidation or otherwise, so
as to affect adversely the shares of Series C Preferred;
(b) increase the authorized number of shares of Series C Preferred
except to pay, or reserve for payment, upon a Series C PIK Election;
(c) except as provided by the Shareholders' Agreement or upon a
Series C PIK Election, authorize the issuance of, issue, or sell any additional
shares of Series C Preferred; or
(d) except for Excluded Securities defined in clauses (iii), (iv),
(vi) or (vii) of the definition of Excluded Securities, create or designate, or
authorize the issuance of, any new class or series of stock (i) which are Series
C Senior Securities or Series C Parity Securities, (ii) having rights similar to
any rights of the Series C Preferred under Section 3.3.5 hereof or (iii)
convertible into any class or series of stock described in clause (i) of this
paragraph (d).
3.3.11. Major Transactions. For so long as the outstanding shares
------------------
of Series B Preferred held by holders of Series NB Warrants and Series C
Preferred represent, collectively on an as-converted basis, 5% of the aggregate
voting power of all of the outstanding voting stock of the Corporation, the
Corporation shall not, and shall not permit any of its Subsidiaries to, directly
or indirectly, take any of the following actions without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least 50.1% of the then outstanding shares of Series B Preferred held by holders
of Series NB Warrants and shares of Series C Preferred voting as a single class
on an as-converted basis:
(a) consolidate or merge with or into any Person or enter into any
similar business combination transaction (including a sale of substantially all
of its assets) or
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<PAGE>
effect any transaction or series of transactions in which more than 33-1/3% of
its voting securities are transferred to another Person, except (i) pursuant to
a Qualified IPO or (ii) any such transaction or series of transactions, as the
case may be, involving only wholly-owned Subsidiaries of the Corporation;
(b) amend or repeal any provision of, or add any provision to, this
Certificate of Incorporation or the Corporation's By-laws;
(c) alter or change through any means the preferences, rights,
privileges or powers of the Series C Preferred so as to adversely affect the
Series C Preferred;
(d) create or designate, authorize the issuance of, or issue or sell any
new series or class of securities (or warrants, options or convertible or
exchangeable securities), or increase the authorized number of, authorize the
issuance of, or issue, any additional shares of Common Stock or Preferred Stock
(or warrants, options, or rights to acquire, or securities convertible into or
exchangeable for, Common Stock or Preferred Stock), except (i) pursuant to a
Qualified IPO, (ii) as consideration for an acquisition approved by the
Corporation's Board of Directors and which securities are valued in the
acquisition of less than $1,000,000, (iii) pursuant to any stock option plan or
employee stock purchase plan duly adopted by the Corporation's Board of
Directors or (iv) Excluded Securities;
(e) increase the number of authorized directors of the Corporation's
Board of Directors above ten, except for an increase to eleven if holders of the
Series F Preferred Stock appoints a director as provided in the Shareholders
Agreement;
(f) voluntarily liquidate, dissolve or wind up;
(g) pay, declare or set aside any sums for the payment of, any
dividends, or make any distributions on, any shares of its capital stock or
other equity securities except as required by the terms of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred;
(h) redeem, purchase or otherwise acquire, any of its capital stock or
other equity securities (including, without limitation, warrants, options and
other rights to acquire any of its capital stock or other equity securities
directly or indirectly) or redeem, purchase or make any payments with respect to
any stock appreciation rights, phantom stock plans or similar rights or plans
relating to the Corporation or its Subsidiaries, except for (w) repurchases
funded solely with the proceeds of life insurance approved by the Corporation's
Board of Directors (x) redemptions or repurchases of Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or
Series F Preferred permitted or required under this Certificate of
Incorporation, (y) cashless exercises of options or warrants or (z) as otherwise
provided in the Shareholders' Agreement;
(i) purchase, acquire or obtain any capital stock or other proprietary
interest, directly or indirectly, in any other entity or all or substantially
all of the business or assets of another Person for consideration (including
assumed liabilities) in excess of $250,000;
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<PAGE>
(j) enter into or commit to enter any joint ventures (other than in
the ordinary course of business) or any partnerships or establish any
non-wholly-owned subsidiaries, in each case, where the contributions or
investments by the Corporation is in excess of $400,000 in cash or assets;
(k) sell, lease, transfer or otherwise dispose of any asset or group
of assets for consideration, in an annual aggregate amount (as to the
Corporation and any and all of its Subsidiaries), in excess of $500,000;
(l) create, incur, assume or suffer to exist any indebtedness of the
Corporation or any of its subsidiaries for borrowed money (which shall include
for purposes hereof capitalized lease obligations and guarantees or other
contingent obligations for indebtedness for borrowed money) in an annual
aggregate net incurred amount (as to the Corporation and all of its
Subsidiaries) in excess of $1,000,000 excluding such indebtedness that exists as
of the Series F Issue Date;
(m) mortgage, encumber, create, incur or suffer to exist, liens on
its assets, in an annual aggregate amount (as to the Corporation and all of its
Subsidiaries) in excess of $1,000,000 excluding liens on assets that exist as of
the Series F Issue Date;
(n) in the case of the Corporation's executive officers, amend,
modify or grant any waiver under any material provision of any employment
agreement or under any non-competition provision or agreement to which the
Corporation is a party or is bound;
(o) create or issue any stock options, warrants or other Common
Stock Equivalents, other than Excluded Securities, or modify, amend or grant any
waiver of any provision of, any stock options, warrants or other Common Stock
Equivalents (other than Excluded Securities described in clause (i) of the
definition of Excluded Securities in Section 3.2.13.), outstanding as of the
date hereof,
(p) agree or otherwise commit to take any actions set forth in the
foregoing subparagraphs (a) through (o).
3.3.12. Reports as to Adjustments. Upon any adjustment of the Series C
-------------------------
Conversion Ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion provisions
set forth in Section 3.3.7, then, and in each such case, the Corporation shall
promptly deliver to the registered holders of the Series C Preferred as shown on
the books of the Corporation a copy of a certificate signed by the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, with the original being delivered
to the transfer agent for the Series C Preferred, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the Series C Conversion Ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion granted pursuant to Section 3.3.7, and shall set
forth in reasonable detail the method of calculation of each and a brief
statement of the facts requiring such adjustment.
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<PAGE>
3.3.13. No Reissuance of Series C Preferred. No share or shares of
-----------------------------------
Series C Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and without further
corporate or stockholder action all such shares shall be canceled, retired and
eliminated from the shares that the Corporation shall be authorized to issue.
3.3.14. Definitions. In addition to any other terms defined herein,
-----------
the following terms shall have the meanings indicated for purposes of this
Section 3.3:
"Purchase Price" means, (i) with respect to the issuance of Common
Stock, the cash purchase price per share and (ii) with respect to the issuance
of Common Stock Equivalents, the cash purchase price, plus the applicable
additional consideration payable upon conversion, exercise or exchange of such
Common Stock Equivalent, per share of Common Stock into or for which such Common
Stock Equivalents are convertible, exercisable or exchangeable. In case (x)
shares of Common Stock and one or more Common Stock Equivalents or (y) two or
more different Common Stock Equivalents, are issued as units or in a single
transaction or a series of related transactions, the portion of the cash
purchase price deemed to be paid for the Common Stock Equivalents shall not be
less than the fair value thereof as determined by mutual agreement among (a) the
Corporation, (b) the holders of not less than 50% of the then outstanding Series
B Preferred held by holders of Series NB Warrants and Series C Preferred voting
together as a class on an as-converted and as-exercised basis, and (c) the
holders of not less than 50% of the then outstanding Series D Preferred, and if
the Corporation and such holders have not agreed on the fair value of such
Common Stock Equivalents prior to the date of such issuance, the fair value of
such Common Stock Equivalents shall be determined by a nationally recognized
investment banking firm selected by (a) the holders of not less than 50% of the
then outstanding Series B Preferred held by holders of Series NB Warrants and
Series C Preferred voting together as a class on an as-converted and as-
exercised basis, and (b) the holders of not less than 50% of the then
outstanding Series D Preferred, subject to the consent of the Corporation, which
shall not be unreasonably withheld.
"Series C Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series C Preferred is
convertible pursuant to Section 3.3.7 and shall be determined by dividing (i)
$1.23 (as adjusted for stock splits, reverse splits, stock dividends (other than
a Series C PIK Election) and stock combinations of the Series C Preferred or
pursuant to Section 3.3.7(g)) by (ii) the Series C Conversion Price. The Series
C Conversion Ratio shall initially equal one and shall be subject to adjustment
as provided in paragraph (c) of Section 3.3.7.
"Series C Conversion Price" means, as of the Series F Issue Date, $1.23,
and, thereafter is subject to adjustment for stock splits, reverse splits, stock
dividends (other than a Series C PIK Election) and stock combinations of the
Series C Preferred and as provided in Section 3.3.7. Notwithstanding the
foregoing, the Series C Conversion Price shall not be less than the par value of
one share of Common Stock.
"Series C Issue Date" means the first date on which shares of Series C
Preferred are issued.
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<PAGE>
"Series C Liquidation Value" means the greater of (i) $.6547 (as adjusted
for stock splits, reverse splits, stock dividends) (other than a Series C PIK
Election) and stock combinations, in each case of the Series C Preferred), for
each share of Series C Preferred plus all accrued but unpaid dividends on the
Series C Preferred or (ii) the per share amount that the holders of Series C
Preferred would have received upon liquidation if all shares of Series C
Preferred had been converted to Common Stock immediately prior to such
liquidation at the Series C Conversion Ratio then in effect, plus all accrued
but unpaid dividends on the Series C Preferred.
"Series C Stated Value" means $.6547 per share (as adjusted for stock
splits, reverse splits, stock dividends (other than a Series C PIK Election),
and stock combinations of the Series C Preferred or pursuant to Sections
3.3.3(a) (other than in respect of a Series C PIK Election) and 3.3.7(g)).
3.3.15. Combined Redemption or Liquidation of Series C Preferred and
------------------------------------------------------------
Series B Preferred. If a holder of Series C Preferred elects to receive the
- ------------------
Series C Liquidation Value described in clause (ii) of the definition of Series
C Liquidation Value in Section 3.3.14, and the holder of Series C Preferred is
to receive the Series C Liquidation Value pursuant to Section 3.3.4 or 3.3.6,
such holder must also elect the Series B Liquidation Value described in clause
(ii) of the definition of Series B Liquidation Value in Section 3.2.13 for 1.509
(one point five zero nine) shares of Series B Preferred (as adjusted for Series
B Preferred and Series C Preferred stock splits, stock dividends, stock
combinations, or Series B or Series C recapitalizations, but not for Series B
PIK Elections or Series C PIK Elections) for each share of Series C Preferred
for which such holder elects to receive the Series C Liquidation Value described
in clause (ii) of the definition of Series C Liquidation Value in Section
3.3.14.
3.4 Series D Preferred.
------------------
3.4.1. Designation; Rank. This series of Preferred Stock shall be
-----------------
designated the "Series D Convertible Preferred Stock" with a par value of $.001
per share (the "Series D Preferred"). The Series D Preferred shall rank, with
------------------
respect to dividend rights and rights on liquidation, winding-up and
dissolution, (i) senior to all classes of Common Stock of the Corporation, as
they exist on the date hereof or as such stock may be constituted from time to
time and to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Corporation's Board of Directors
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series D Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series D Junior Securities"), (ii) on a parity with each
--------------------------
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock expressly provide that it will rank on a parity with the
Series D Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively, the "Series D Parity Securities"), and (iii)
--------------------------
junior to each other class of capital stock or series of preferred stock issued
by the Corporation or established by the Corporation's Board of Directors to the
extent the terms of such stock expressly provide that it will rank senior to the
Series D Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively, the "Series D Senior Securities"). Without
--------------------------
limiting the generality of the foregoing, the Series A Preferred, Series B
Preferred,
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Series C Preferred, Series E Preferred and Series F Preferred shall be deemed to
be Series D Parity Securities.
3.4.2. Authorized Number. The authorized number of shares constituting
-----------------
the Series D Preferred shall be fifteen million, eight hundred thousand shares
(15,800,000).
3.4.3. Dividends.
---------
(a) Dividends shall accrue from day to day and shall be payable when
and as declared by the Corporation's Board of Directors or as otherwise provided
in this Section 3.4.3. as follows, out of funds legally available therefor:
(i) for all periods prior to and including October 15, 1999,
dividends shall accrue and shall be payable solely by issuance by the
Corporation to the holders of the Series D Preferred of additional shares of
Series D Preferred equal to one hundred forty-five thousandths (.145) of a share
of Series D Preferred for each one share of Series D Preferred actually issued
and outstanding on October 15, 1999 which dividend shall be cumulative (whether
or not earned or declared);
(ii) for all periods after October 15, 1999 through and
including the last day of July, 2001, dividends shall accrue and shall be
payable solely by issuance by the Corporation to the holders of the Series D
Preferred of additional shares of Series D Preferred with the number of shares
per share of Series D Preferred being equal to (i) the dollar amount of the cash
dividend which would have accrued on 1.145 shares of Series D Preferred from
October 16, 1999 to the record date for such dividend if a cash dividend had
accrued during that period at a rate of eight percent (8%) compounded annually
with the first compounding occurring on October 16, 2000 of the Series D Stated
Value divided by (ii) the Series D Stated Value as of the record date for such
dividend which dividend shall be cumulative (whether or not earned or declared);
and
(iii) commencing on and including August 1, 2001, the foregoing
dividends shall not further accrue (but if unpaid shall remain accrued), and in
lieu of any further accrual, the Corporation shall accrue and, when and as
declared by the Corporation's Board of Directors out of funds legally available
therefor, the Corporation shall pay dividends to the holders of the Series D
Preferred at an annual rate per share of Series D Preferred of (a) 8% compounded
annually of (b) (X) one plus the number shares of Series D Preferred which would
be issuable on August 1, 2001 pursuant to clauses (i) and (ii) in respect of a
share of Series D Preferred multiplied by (Y) the Series D Stated Value, and
such dividends shall accrue commencing on and including August 1, 2001 and shall
be cumulative (whether or not earned or declared). All dividends first accruing
on or after August 1, 2001 as specified in clause (iii) shall be payable in cash
out of funds legally available therefor; provided, however, that at the election
-------- -------
(a "Series D PIK Election") of the holders as of the record date for such
---------------------
dividend of a majority of the outstanding shares of Series D Preferred, in lieu
of payment thereof in cash, the amount of such dividends may be paid, in whole
or in part, by issuance by the Corporation to the holders of the Series D
Preferred, of additional shares of Series D Preferred, with the number of shares
being equal to (i) the dollar amount of the dividend which the holder has
elected to receive in the form of additional shares of Series D Preferred,
divided by (ii) the Series D Stated Value as of
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the record date for such dividend. If the Series D PIK Election is not for the
entire amount of the dividend, each holder of Series D Preferred shall receive
the same proportion of cash and additional shares of Series D Preferred for each
share of Series D Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series D PIK Election" the
shares of Series D Preferred received or receivable pursuant to clauses (i),
(ii) or (iii) are deemed received or receivable pursuant to a "Series D PIK
Election."
All additional shares of Series D Preferred issued upon a Series D PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series D PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series D Preferred being the Series D Stated Value as of the record
date for such dividend. Any dividend (or portion thereof) shall be deemed fully
paid to the extent a Series D PIK Election is made with respect to such dividend
(or portion thereof).
(b) No full dividends may be declared or paid or funds set apart
for the payment of dividends on any Series D Parity Securities (except dividends
on Series D Parity Securities paid in shares of Series D Junior Securities) for
any period unless full cumulative dividends to be paid hereunder prior to the
date thereof shall have been paid on the Series D Preferred. If dividends are
not so paid, the Series D Preferred, if and to the extent a Series D PIK
Election has not been made with respect to such dividends, shall share dividends
pro rata with the Series D Parity Securities according to the amount of
dividends due and payable with respect to each. No dividends may be paid or set
aside for such payment on Series D Junior Securities (except dividends on Series
D Junior Securities paid in additional shares of Series D Junior Securities),
and no Series D Parity Securities or Series D Junior Securities may be
repurchased, redeemed or otherwise retired nor may funds be set aside for
payment with respect thereto, nor shall the Corporation permit any corporation
or entity directly or indirectly controlled by the Corporation to purchase any
shares of Series D Parity Securities or Series D Junior Securities (except in
each case for (a) cashless exercises of stock options (whether effected by
surrendering stock options or outstanding shares of Stock), (b) repurchases by
the Corporation of Series D Parity Securities or Series D Junior Securities
solely funded by life insurance proceeds, or (c) a payment in respect of
fractional shares) if full cumulative dividends to be paid hereunder prior to
the date thereof have not been paid on the Series D Preferred.
(c) If, in any year, any cash or other distributions are
declared by the Corporation's Board of Directors to be paid on Common Stock
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spinoff), other than dividends or
distributions of shares of Common Stock that are referred to in clause (i) of
Section 3.4.7(c), then an additional dividend shall be paid at the same time to
the holders of the Series D Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common Stock multiplied by (y) the number
of shares of Common Stock into which each share of Series D Preferred (including
any issuable upon the payment of any accrued but unpaid Series D PIK
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Election) is then convertible. Dividends payable to the holders of the Series D
Preferred pursuant to this Section 3.4.3(c) shall be paid in the same form as
paid to holders of Common Stock. Solely for purposes of this Section 3.4.3(c),
the term "distribution" means any transfer of cash or property without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of Common Stock of the Corporation) including, but not limited to,
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons and assets, but does not include (i) any repurchase of shares
from a terminated employee of or consultant to the Corporation in accordance
with the terms of the agreement applicable to such employee or consultant
providing for such repurchase, (ii) any repurchase of shares funded solely with
the proceeds of life insurance covering certain executives of the Corporation as
provided in the Shareholders' Agreement or approved by the Corporation's Board
of Directors, (iii) any distribution that is part of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and (iv) a payment of
dissenter's rights or in respect of fractional shares.
(d) The Corporation shall at all times reserve and keep
available for issuance upon a Series D PIK Election, free from any preemptive
rights, such number of its authorized but unissued shares of Series D Preferred
as will from time to time be necessary to permit the maximum then available
Series D PIK Election, and shall take all action required to increase the
authorized number of shares of Series D Preferred if necessary to permit the
maximum then available Series D PIK Election.
(e) All accrued but unpaid dividends on Series D Preferred
shall be paid pursuant to a liquidation, dissolution or winding up as provided
in Section 3.4.4 as a component of the Series D Liquidation Value. All accrued
but unpaid dividends in respect of a particular share of Series D Preferred
shall be paid upon conversion of that share pursuant to Section 3.4.7. All
accrued but unpaid dividends in respect of a particular share of Series D
Preferred shall be paid upon a redemption pursuant to Section 3.4.6 as a
component of the Series D Redemption Price.
3.4.4. Liquidation.
-----------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series D Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series D Junior Securities, an amount equal to the Series D Liquidation
Value with respect to each outstanding share of Series D Preferred.
(b) Unless waived by the affirmative vote of the holders of
at least a majority of the then outstanding shares of Series D Preferred voting
as a single class on an as converted basis, the sale, lease or exchange (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property and assets of the Corporation or the merger or
consolidation of the Corporation into or with any other corporation or the
merger or consolidation of any other corporation into or with the Corporation
(other than a consolidation or merger in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock) or an
exchange or sale of 90% or more of the capital stock of the Corporation to
accomplish an acquisition of the Corporation in a single or related transaction
shall be deemed to be a liquidation for the purposes of this Section 3.4.4.
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(c) After the payment to the holders of the Series D Preferred of
the full amounts provided for in this Section 3.4.4, the holders of Series D
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series D Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.4.4(a) above, no such distribution shall be made
on account of any Series D Parity Securities unless proportionate amounts are
distributed to the holders of Series D Preferred, ratably, in proportion to the
full amounts for which holders of Series D Preferred and all such Series D
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
3.4.5. Voting Rights. The holder of each share of Series D Preferred
-------------
shall be entitled to vote on all matters and shall be entitled to the number of
votes equal to the largest number of full shares of Common Stock into which such
shares of Series D Preferred could be converted, pursuant to the provisions of
Section 3.4.7 hereof, at the record date for the determination of shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or the Shareholders' Agreement or
as required by law, the holders of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred, and
Series F Preferred and Common Stock shall vote together as a single class on all
matters and not as separate classes.
3.4.6. Redemption.
----------
(a) The Corporation may not require the redemption of any shares of
Series D Preferred. The holder or holders of at least 66-2/3% of the
outstanding shares of Series D Preferred may, at their option, at any time, or
from time to time, from and after February 20, 2003, upon notice given to the
Corporation by the holder or holders of at least 66-2/3% of the outstanding
shares of Series D Preferred (a "Series D Redemption Notice") require the
--------------------------
Corporation to redeem, out of funds legally available therefor, any or all
outstanding shares of Series D Preferred (including shares not held by such
holder or holders). The redemption price per share of Series D Preferred (the
"Series D Redemption Price") payable pursuant to this Section 3.4.6 shall be the
-------------------------
Series D Liquidation Value of such share as of the Series D Redemption Date
(hereinafter defined). For the purpose of determining the "per share amount" in
the definition of Series D Liquidation Value, the value of each share of Common
Stock shall equal the Fair Market Value. Unless waived by the Corporation, a
Series D Redemption Notice is irrevocable with respect to the holders giving
such notice.
(b) Promptly upon the determination of the Series D Redemption
Price, the Corporation shall (i) give notice of the Series D Redemption Price to
the holders requesting redemption and to holders of Series D Preferred required
to accept redemption pursuant to Section 3.4.6(a), if any, stating the
redemption date (the "Series D Redemption Date"), which Series D Redemption Date
------------------------
shall be no less than twenty (20) days and no more than forty (40) days
following the date of the Series D Redemption Notice, and (ii) give notice to
each holder of Series A Preferred, Series B Preferred, Series C Preferred,
Series E Preferred
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and Series F Preferred stating the Series D Redemption Date. On the Series D
Redemption Date, the Corporation shall, unless such shares of Series D Preferred
have been previously surrendered for conversion pursuant to Section 3.4.7,
redeem the shares of Series D Preferred set forth in the Series D Redemption
Notice at a price per share equal to the Series D Redemption Price, upon
submission of certificates of the Series D Preferred in accordance with Section
3.4.6(c) hereof.
(c) Except as provided in Section 3.4.6(d), on or after the Series D
Redemption Date, a holder of Series D Preferred requesting redemption of or
otherwise required to redeem Series D Preferred set forth in the Series D
Redemption Notice shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
by the Corporation, and thereupon the Series D Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. If all the shares of Series D Preferred
evidenced by a certificate are not redeemed, the Corporation shall on the Series
D Redemption Date deliver to the owner a new certificate in the name of the
owner for the unredeemed shares.
(d) From and after the Series D Redemption Date, unless there shall
have been a default in payment of the Series D Redemption Price, all rights of
the holder requesting or required to accept redemption of the shares of Series D
Preferred for which redemption has been requested (except the right to receive
the Series D Redemption Price without interest upon surrender of their
certificate or certificates) shall cease, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. Subject to paragraphs 3.4.6(e) and 3.4.6(f), if the
funds of the Corporation legally available for redemption of shares of Series D
Preferred on the Series D Redemption Date are insufficient to redeem the total
number of shares of Series D Preferred to be redeemed on such date, (i) those
funds that are legally available shall be used to redeem the maximum possible
number of shares ratably among the holders of such shares, (ii) the shares of
Series D Preferred not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, until any subsequent redemption, and
(iii) at any time thereafter when additional funds of the Corporation are
legally available for redemption of shares of Series D Preferred such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem but which it has not redeemed.
(e) If and to the extent, not later than five (5) days prior to the
Series D Redemption Date, the Corporation receives a Series A Redemption Notice
pursuant to Section 3.1.6(c), a Series B Redemption Notice pursuant to Section
3.2.6(a), a Series C Redemption Notice pursuant to Section 3.3.6(a), a Series E
Redemption Notice pursuant to Section 3.5.6(a), or a Series F Redemption Notice
pursuant to Section 3.6.6(a), the Series A Redemption Date (as defined in
Section 3.1.6(c)), the Series B Redemption Date (as defined in Section
3.2.6(b)), the Series C Redemption Date (as defined in Section 3.3.6(b)), the
Series E Redemption Date (as defined in Section 3.5.6(b)) or the Series F
Redemption Date (as defined in Section 3.6.6(b)), notwithstanding any contrary
provision in Section 3.1.6(c), Section 3.2.6(b), Section 3.3.6(b), Section
3.5.6(b) or Section 3.6.6(b), shall be the same as the Series D Redemption Date
(such date being the "Redemption Date") with respect to the shares of Series A
---------------
Preferred designated for redemption in such Series A Redemption Notice, shares
of Series B Preferred designated for redemption in such Series B Redemption
Notice, shares of Series C Preferred designated for
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<PAGE>
redemption in such Series C Redemption Notice, shares of Series E Preferred
designated for redemption in such Series E Redemption Notice and shares of
Series F Preferred designated for redemption in such Series F Redemption Notice.
(f) Redemptions of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred that
occur, or would occur but for the absence of funds legally available therefor,
on the same date shall be made, ratably in proportion to the amounts that the
holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Series F Preferred to be redeemed on
such Redemption Date are entitled to receive in respect of such redemption.
3.4.7. Conversion. (a) Upon the earlier of (i) the consummation of a
----------
Qualified IPO or (ii) for each of at least 20 consecutive trading days after an
initial public offering of the Common Stock the aggregate market capitalization
of the Free Common Stock is at least $25 million and the Common Stock has a
Current Market Price of at least $3.00 per share (subject to adjustment for
stock splits and combinations, recapitalizations and stock dividends of the
Common Stock), each share of Series D Preferred shall automatically be converted
into a number of shares of Common Stock at the then effective Series D
Conversion Ratio. In addition, (x) at the option of the holder of any Series D
Preferred, such holder shall have the right, at any time and from time to time
prior to or after the consummation of an initial public offering of the Common
Stock, by written notice to the Corporation, to convert any and all shares of
Series D Preferred owned by such holder at such time into a number of shares of
Common Stock, at the then effective Series D Conversion Ratio, and (y) upon the
election of holders of at least 51% of the then outstanding Series D Preferred
either at a duly called shareholders meeting or by written consent, all of the
outstanding Series D Preferred shall automatically convert into Common Stock at
the then applicable conversion ratio for such stock.
(b) The Corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series D Preferred, free from any
preemptive rights, such number of its authorized but unissued shares of Common
Stock as will from time to time be necessary to permit the conversion of all
outstanding shares of Series D Preferred into shares of Common Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all outstanding shares of Series
D Preferred.
(c) The Series D Conversion Ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or from time to
time after the Series D Issue Date (A) pay a dividend, or make a distribution,
on the outstanding shares of Common Stock in shares of Common Stock, (B)
subdivide the outstanding shares of Common Stock, (C) combine the outstanding
shares of Common Stock into a smaller number of shares or (D) issue by
reclassification of the shares of Common Stock any shares of capital stock of
the Corporation, then, and in each such case, the Series D Conversion Ratio in
effect immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of Series D
Preferred thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
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<PAGE>
Corporation that such holder would have owned or have been entitled to receive
after the happening of any of the events described above, had such shares of
Series D Preferred been surrendered for conversion immediately prior to the
happening of such event or the record date therefor, whichever is earlier. An
adjustment made pursuant to this clause (i) shall become effective (x) in the
case of any such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (y) in the case of
such subdivision, reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective. No adjustment shall
be made pursuant to this clause (i) in connection with any transaction to which
Section 3.4.7(g) applies.
(ii) Except with respect to Excluded Securities, if the
Corporation shall, while there are any shares of Series D Preferred outstanding,
issue or sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a Purchase Price (as defined in Section 3.4) less than the
applicable Series D Conversion Price in effect immediately prior to such
issuance or sale, then in each such case such applicable Series D Conversion
Price, except as hereinafter provided, shall be lowered so as to be equal to an
amount determined by multiplying such applicable Series D Conversion Price by a
fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a fully-
diluted basis assuming the conversion of all then presently exercisable options,
warrants, purchase rights or convertible securities whose exercise or conversion
price is less than the applicable Series D Conversion Price then in effect),
plus (b) the number of shares of Common Stock or Common Stock Equivalents which
the aggregate consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock or Common Stock Equivalents so
issued would purchase at the applicable Series D Conversion Price in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock or Common Stock Equivalents (calculated on a fully-
diluted basis assuming the exercise or conversion of all then presently
exercisable options, warrants, purchase rights or convertible securities whose
exercise or conversion price is less than the applicable Conversion Price then
in effect), plus (b) the number of such additional shares of Common Stock or
Common Stock Equivalents so issued.
The provisions of the foregoing paragraph as they may apply
to the Series D Preferred may be waived in any instance (without the necessity
of convening any meeting of stockholders of the Corporation) upon the written
agreement of holders of at least 66 2/3% of the then outstanding shares of
Series D Preferred (voting as a separate class).
(iii)(A) For the purposes of Section 3.4.7(c)(ii), the issuance
of any Common Stock Equivalent shall be deemed an issuance of Common Stock with
respect to adjustments in the applicable Series D Conversion Price if the
Purchase Price (as hereinafter
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<PAGE>
determined) which may be received by the Corporation for such Common Stock shall
be less than the applicable Series D Conversion Price in effect at the time of
such issuance. Any obligation, agreement or undertaking to issue Common Stock
Equivalents at any time in the future shall be deemed to be an issuance at the
time such obligation, agreement or undertaking is made or arises. Except as
provided in subparagraph B below, no adjustment of the applicable Series D
Conversion Price shall be made under 3.4.7(c)(ii) upon the issuance of any
shares of Common Stock which are issued pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any adjustment shall previously have
been made upon the issuance of any such Common Stock Equivalents as above
provided.
(B) Should the Purchase Price of any such Common Stock
Equivalents be decreased from time to time, then, upon the effectiveness of each
such change, the applicable Series D Conversion Price will be that which would
have been obtained (x) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the actual Purchase Price of such
securities, and (y) had the adjustments made to the applicable Series D
Conversion Price since the date of issuance of such Common Stock Equivalents
been made to such applicable Series D Conversion Price as adjusted pursuant to
clause (A) immediately above. Any adjustment of the applicable Series D
Conversion Price with respect to 3.4.7(c)(ii) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common Stock Equivalent
expires or is canceled without being exercised, or is repurchased by the
Corporation at a price per share at or less than the original purchase price, so
that the applicable Series D Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the applicable Conversion Price
that would have been in effect had the expired or canceled Common Stock
Equivalent not been issued.
(C) The Purchase Price which may be received by the
Corporation shall be determined in each instance as of the date of issuance of
Common Stock Equivalents without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such Common Stock Equivalents.
(iv) For purposes of this Section 3.4.7(c), the aggregate
consideration receivable by the Corporation in connection with the issuance of
shares of Common Stock and/or Common Stock Equivalents shall be deemed to be
equal to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the minimum
aggregate amount, if any, payable upon conversion, exchange or exercise of any
such Common Stock Equivalents. If the consideration received by the Corporation
in connection with the sale or issuance of shares of Common Stock (or Common
Stock Equivalents) consists, in whole or in part, of property other than cash or
its equivalent, the value of such property shall be the Fair Market Value.
(v) The Series D Conversion Ratio shall not be adjusted because
of any "Series F Additional Adjustment" pursuant to Section 3.6.7(c)(v) hereof.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series D Preferred shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax
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<PAGE>
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series D Preferred which is being converted.
(e) The Corporation will at no time close its transfer books against
the transfer of any Series D Preferred, or of any shares of Common Stock issued
or issuable upon the conversion of any shares of Series D Preferred, in any
manner which interferes with the timely conversion of such Series D Preferred,
except as may otherwise be required to comply with applicable securities laws.
(f) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.4.7 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series D Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series D Preferred.
(g) If the Corporation shall be a party to any Transaction (but
excluding (i) any Transaction for which provision for adjustment is otherwise
made in this Section 3.4.7 and (ii) any Transaction that is deemed to be a
liquidation for the purposes of Section 3.4.4), in each case, as a result of
which shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series D Preferred shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series D Preferred would have been entitled upon such Transaction; and, in any
such case, appropriate adjustment (as determined by the Corporation's Board of
Directors) shall be made in the application of the provisions set forth in this
Section 3.4.7 with respect to the rights and interest thereafter of the holders
of the Series D Preferred, to the end that the provisions set forth in this
Section 3.4.7 shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series D Preferred. Except as provided in the
Shareholders' Agreement, the Corporation shall not effect any Transaction (other
than a consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation thereof the
Corporation, or the successor corporation or purchaser, as the case may be,
shall provide in its charter document that each share of Series D Preferred
shall be converted into such shares of stock, securities or property as, in
accordance with the foregoing provisions, each such holder is entitled to
receive. The provisions of this Section 3.4.7(g) shall similarly apply to
successive Transactions.
(h) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
except as has been approved by the holders of at least 51% of the then
outstanding Series D Preferred voting as a class on an as-converted basis either
at a duly called shareholders meeting or by written consent, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all
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the provisions of this Section 3.4.7 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series D Preferred against impairment.
(i) All calculations under this Section 3.4.7 shall be made to the
nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be. Upon conversion of the Series D Preferred pursuant
to this Section 3.4.7, the Corporation may pay cash based on the Series D
Conversion Price in lieu of issuing fractional shares.
3.4.8. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series D Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the holders of
its Common Stock as a class, of Common Stock Equivalents, or rights or warrants
to subscribe for or purchase shares of its Common Stock or of any other
subscription rights or warrants;
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or merger of
the Corporation into or with any other person, the sale or transfer of a
substantial portion of its capital stock, business or assets to another person,
or any other similar business combination or transaction; or
(e) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of the Series
D Preferred and to each of the holders of shares of Series D Preferred at their
last addresses as shown on the books of the Corporation, at least 15 days before
the date hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one date is specified), a notice
describing such event and stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which any such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
(including cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up. Any notice
required to be given hereunder to the holders of shares of Series D Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation, and such notice may be waived with respect to all of the
outstanding Series D Preferred by the holders of a majority of the outstanding
Series D Preferred.
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3.4.9. Certain Remedies. Any registered holder of Series D Preferred
----------------
may proceed to protect and enforce its rights and the rights of any other
holders of Series D Preferred with any and all remedies available at law or in
equity.
3.4.10. Protective Provisions. So long as any shares of Series D
---------------------
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holder or
holders of at least 50.1% of the then outstanding shares of Series D Preferred:
(a) alter or change the rights, preference or privileges of the
shares of Series D Preferred or otherwise amend the Certificate of
Incorporation, in either case, whether by merger, consolidation or otherwise, so
as to affect adversely the shares of Series D Preferred;
(b) increase the authorized number of shares of Series D Preferred
except to pay, or reserve for payment, upon a Series D PIK Election;
(c) except as provided by the Shareholders' Agreement or upon a
Series D PIK Election, authorize the issuance of, issue, or sell any additional
shares of Series D Preferred; or
(d) except for Excluded Securities defined in clauses (iii), (iv),
(vi) or (vii) of the definition of Excluded Securities, create or designate, or
authorize the issuance of, any new class or series of stock (i) which are Series
D Senior Securities or Series D Parity Securities, (ii) having rights similar to
any rights of the Series D Preferred under Section 3.4.5 hereof or (iii)
convertible into any class or series of stock described in clause (i) of this
paragraph (d).
3.4.11. Major Transactions. For so long as the outstanding shares
------------------
of Series D Preferred represent, on an as-converted basis, 5% of the aggregate
voting power of all of the outstanding voting stock of the Corporation, the
Corporation shall not, and shall not permit any of its Subsidiaries to, directly
or indirectly, take any of the following actions without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least 50.1% of the then outstanding shares of Series D Preferred:
(a) consolidate or merge with or into any Person or enter into any
similar business combination transaction (including a sale of substantially all
of its assets) or effect any transaction or series of transactions in which more
than 33-1/3% of its voting securities are transferred to another Person, except
(i) pursuant to a Qualified IPO or (ii) any such transaction or series of
transactions, as the case may be, involving only wholly-owned Subsidiaries of
the Corporation;
(b) amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation or the Corporation's By-laws;
(c) alter or change through any means the preferences, rights,
privileges or powers of the Series D Preferred so as to adversely affect the
Series D Preferred;
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<PAGE>
(d) create or designate, authorize the issuance of, or issue or sell
any new series or class of securities (or warrants, options or convertible or
exchangeable securities), or increase the authorized number of, authorize the
issuance of, or issue, any additional shares of Common Stock or Preferred Stock
(or warrants, options, or rights to acquire, or securities convertible into or
exchangeable for, Common Stock or Preferred Stock), except (i) pursuant to a
Qualified IPO, (ii) as consideration for an acquisition approved by the
Corporation's Board of Directors and which securities are valued in the
acquisition of less than $1,000,000, (iii) pursuant to any stock option plan or
employee stock purchase plan duly adopted by the Corporation's Board of
Directors or (iv) Excluded Securities;
(e) increase the number of authorized directors of the Corporation's
Board of Directors above ten, except for an increase to eleven if holders of the
Series F Preferred Stock appoints a Director as provided in the Shareholder's
Agreement;
(f) voluntarily liquidate, dissolve or wind up;
(g) pay, declare or set aside any sums for the payment of, any
dividends, or make any distributions on, any shares of its capital stock or
other equity securities except as required by the terms of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred;
(h) redeem, purchase or otherwise acquire, any of its capital stock
or other equity securities (including, without limitation, warrants, options and
other rights to acquire any of its capital stock or other equity securities
directly or indirectly) or redeem, purchase or make any payments with respect to
any stock appreciation rights, phantom stock plans or similar rights or plans
relating to the Corporation or its Subsidiaries, except for (w) repurchases
funded solely with the proceeds of life insurance approved by the Corporation's
Board of Directors, (x) redemptions or repurchases of Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or
Series F Preferred permitted or required under this Certificate of
Incorporation, (y) cashless exercises of options or warrants or (z) as otherwise
provided in the Shareholders' Agreement;
(i) purchase, acquire or obtain any capital stock or other
proprietary interest, directly or indirectly, in any other entity or all or
substantially all of the business or assets of another Person for consideration
(including assumed liabilities) in excess of $250,000;
(j) enter into or commit to enter any joint ventures (other than in
the ordinary course of business) or any partnerships or establish any
non-wholly-owned subsidiaries, in each case, where the contributions or
investments by the Corporation is in excess of $400,000 in cash or assets;
(k) sell, lease, transfer or otherwise dispose of any asset or group
of assets for consideration, in an annual aggregate amount (as to the
Corporation and any and all of its Subsidiaries), in excess of $500,000;
(l) create, incur, assume or suffer to exist any indebtedness of the
Corporation or any of its subsidiaries for borrowed money (which shall include
for purposes hereof capitalized lease obligations and guarantees or other
contingent obligations for
52
<PAGE>
indebtedness for borrowed money) in an annual aggregate net incurred amount (as
to the Corporation and all of its Subsidiaries) in excess of $1,000,000
excluding such indebtedness that exists as of the Series F Issue Date;
(m) mortgage, encumber, create, incur or suffer to exist, liens on
its assets, in an annual aggregate amount (as to the Corporation and all of its
Subsidiaries) in excess of $1,000,000 excluding liens on assets that exist as of
the Series F Issue Date;
(n) in the case of the Corporation's executive officers, amend,
modify or grant any waiver under any material provision of any employment
agreement or under any non-competition provision or agreement to which the
Corporation is a party or is bound;
(o) create or issue any stock options, warrants or other Common
Stock Equivalents, other than Excluded Securities, or modify, amend or grant any
waiver of any provision of, any stock options, warrants or other Common Stock
Equivalents, other than Excluded Securities described in clause (i) of the
definition of Excluded Securities in Section 3.2.13, outstanding as of the date
hereof,
(p) agree or otherwise commit to take any actions set forth in the
foregoing subparagraphs (a) through (o).
3.4.12. Reports as to Adjustments. Upon any adjustment of the
-------------------------
Series D Conversion Ratio then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.4.7, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series D
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation, with
the original being delivered to the transfer agent for the Series D Preferred,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Series D
Conversion Ratio then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion granted pursuant to
Section 3.4.7, and shall set forth in reasonable detail the method of
calculation of each and a brief statement of the facts requiring such
adjustment.
3.4.13. No Reissuance of Series D Preferred. No share or shares of
-----------------------------------
Series D Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and without further
corporate or stockholder action all such shares shall be canceled, retired and
eliminated from the shares that the Corporation shall be authorized to issue.
3.4.14. Definitions. In addition to any other terms defined herein,
-----------
the following terms shall have the meanings indicated for purposes of this
Section 3.4:
"Purchase Price" has the meaning given that term in Section 3.3.14.
"Series D Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series D Preferred is
convertible pursuant to
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Section 3.4.7 and shall be determined by dividing (i) $1.23 (as adjusted for
stock splits, reverse splits, stock dividends (other than a Series D PIK
Election) and stock combinations of the Series D Preferred or pursuant to
Section 3.4.7(g)) by (ii) the Series D Conversion Price. The Series D Conversion
Ratio shall initially equal one and shall be subject to adjustment as provided
in paragraph (c) of Section 3.4.7.
"Series D Conversion Price" means, as of the Series F Issue Date, $1.23
and, thereafter is subject to adjustment for stock splits, reverse splits, stock
dividends (other than a Series D PIK Election) and stock combinations of the
Series D Preferred and as provided in Section 3.4.7. Notwithstanding the
foregoing, the Series D Conversion Price shall not be less than the par value of
one share of Common Stock.
"Series D Issue Date"means the first date on which shares of Series D
Preferred are issued.
"Series D Liquidation Value" means the greater of (i) $1.23 (as adjusted
for stock splits, reverse splits, stock dividends (other than a Series D PIK
Election) and stock combinations, in each case of the Series D Preferred), for
each share of Series D Preferred plus all accrued but unpaid dividends on the
Series D Preferred or (ii) the per share amount that the holders of the Series D
Preferred would have received upon liquidation if all shares of Series D
Preferred had been converted to Common Stock immediately prior to such
liquidation at the Series D Conversion Price then in effect, plus all accrued
but unpaid dividends on the Series D Preferred.
"Series D Stated Value" means $1.23 per share (as adjusted for stock
splits, reverse splits, stock dividends (other than a Series D PIK Election),
and stock combinations of the Series D Preferred or pursuant to Sections
3.4.3(a) (other than in respect of a Series D PIK Election) and 3.4.7(g)).
3.5 Series E Preferred.
------------------
3.5.1. Designation; Rank. This series of Preferred Stock shall be
-----------------
designated the "Series E Convertible Preferred Stock" with a par value of $.001
per share (the "Series E Preferred"). The Series E Preferred shall rank, with
------------------
respect to dividend rights and rights on liquidation, winding-up and
dissolution, (i) senior to all classes of Common Stock of the Corporation, as
they exist on the date hereof or as such stock may be constituted from time to
time and to each other class of capital stock or series of preferred stock
issued by the Corporation or established by the Corporation's Board of Directors
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on parity with, the Series E Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, together with
the Common Stock, the "Series E Junior Securities"), (ii) on a parity with each
--------------------------
other class of capital stock or series of preferred stock issued by the
Corporation or established by the Corporation's Board of Directors to the extent
the terms of such stock expressly provide that it will rank on a parity with the
Series E Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively, the "Series E Parity Securities"), and (iii)
--------------------------
junior to each other class of capital stock or series of preferred stock issued
by the Corporation or established by the Corporation's Board of Directors to the
extent the terms of such stock expressly provide
54
<PAGE>
that it will rank senior to the Series E Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, the
"Series E Senior Securities"). Without limiting the generality of the foregoing,
--------------------------
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series F Preferred shall be deemed to be Series E Parity
Securities.
3.5.2. Authorized Number. The authorized number of shares constituting
-----------------
the Series E Preferred shall be eight million three hundred thousand
(8,300,000).
3.5.3. Dividends.
---------
(a) Dividends shall accrue from day to day and shall be payable when
and as declared by the Corporation's Board of Directors or as otherwise provided
in this Section 3.5.3. as follows, out of funds legally available therefor:
(i) for all periods prior to and including October 15, 1999,
dividends shall accrue and shall be payable solely by issuance by the
Corporation to the holders of the Series E Preferred of additional shares of
Series E Preferred equal to one tenth (.10) of a share of Series E Preferred for
each one share of Series E Preferred actually issued and outstanding on October
15, 1999 which dividend shall be cumulative (whether or not earned or declared);
(ii) for all periods after October 15, 1999 through and
including the last day of July, 2001, dividends shall accrue and shall be
payable solely by issuance by the Corporation to the holders of the Series E
Preferred of additional shares of Series E Preferred with the number of shares
per share of Series E Preferred being equal to (i) the dollar amount of the cash
dividend which would have accrued on 1.100 shares of Series E Preferred from
October 16, 1999, to the record date for such dividend if a cash dividend had
accrued during that period at a rate of eight percent (8%) compounded annually
with the first compounding occurring on October 16, 2000 of the Series E Stated
Value divided by (ii) the Series E Stated Value as of the record date for such
dividend which dividend shall be cumulative (whether or not earned or declared);
and
(iii) commencing on and including August 1, 2001, the foregoing
dividends shall not further accrue (but if unpaid shall remain accrued), and in
lieu of any further accrual, the Corporation shall accrue and, when and as
declared by the Corporation's Board of Directors out of funds legally available
therefor, the Corporation shall pay dividends to the holders of the Series E
Preferred at an annual rate per share of Series E Preferred of (a) 8% compounded
annually of (b) (X) one plus the number shares of Series E which would be
issuable on August 1, 2001 pursuant to clauses (i) and (ii) in respect of a
share of Series E Preferred multiplied by (Y) the Series E Stated Value, and
such dividends shall accrue commencing on and including August 1, 2001 and shall
be cumulative (whether or not earned or declared). All dividends first accruing
on or after August 1, 2001 as specified in clause (iii) shall be payable in cash
out of funds legally available therefor; provided, however, that at the election
-------- -------
(a "Series E PIK Election") of the holders as of the record date for such
---------------------
dividend of a majority of the outstanding shares of Series E Preferred, in lieu
of payment thereof in cash, the amount of such dividends may be paid, in whole
or in part, by issuance by the Corporation to the holders of the Series E
Preferred, of additional shares of Series E Preferred, with the number of shares
being
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<PAGE>
equal to (i) the dollar amount of the dividend which the holder has elected to
receive in the form of additional shares of Series E Preferred, divided by (ii)
the Series E Stated Value as of the record date for such dividend. If the Series
E PIK Election is not for the entire amount of the dividend, each holder of
Series E Preferred shall receive the same proportion of cash and additional
shares of Series E Preferred for each share of Series E Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series E PIK Election" the
shares of Series E Preferred received or receivable pursuant to clauses (i),
(ii) or (iii) are deemed received or receivable pursuant to a "Series E PIK
Election."
All additional shares of Series E Preferred issued upon a Series E PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series E PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series E Preferred being the Series E Stated Value as of the record
date for such dividend. Any dividend (or portion thereof) shall be deemed fully
paid to the extent a Series E PIK Election is made with respect to such dividend
(or portion thereof).
(b) No full dividends may be declared or paid or funds set apart
for the payment of dividends on any Series E Parity Securities (except dividends
on Series E Parity Securities paid in shares of Series E Junior Securities) for
any period unless full cumulative dividends to be paid hereunder prior to the
date thereof shall have been paid on the Series E Preferred. If dividends are
not so paid, the Series E Preferred, if and to the extent a Series E PIK
Election has not been made with respect to such dividends, shall share dividends
pro rata with the Series E Parity Securities according to the amount of
dividends due and payable with respect to each. No dividends may be paid or set
aside for such payment on Series E Junior Securities (except dividends on Series
E Junior Securities paid in additional shares of Series E Junior Securities),
and no Series E Parity Securities or Series E Junior Securities may be
repurchased, redeemed or otherwise retired nor may funds be set aside for
payment with respect thereto, nor shall the Corporation permit any corporation
or entity directly or indirectly controlled by the Corporation to purchase any
shares of Series E Parity Securities or Series E Junior Securities (except in
each case for (a) cashless exercises of stock options (whether effected by
surrendering stock options or outstanding shares of Stock), (b) repurchases by
the Corporation of Series E Parity Securities or Series E Junior Securities
solely funded by life insurance proceeds, or (c) a payment in respect of
fractional shares) if full cumulative dividends to be paid hereunder prior to
the date thereof have not been paid on the Series E Preferred.
(c) If, in any year, any cash or other distributions are
declared by the Corporation's Board of Directors to be paid on Common Stock
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spinoff), other than dividends or
distributions of shares of Common Stock that are referred to in clause (i) of
Section 3.5.7(c), then an additional dividend shall be paid at the same time to
the holders of the Series E Preferred at the rate per share equal to the product
of (x) such per share dividend on the Common
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<PAGE>
Stock multiplied by (y) the number of shares of Common Stock into which each
share of Series E Preferred (including any issuable upon the payment of any
accrued but unpaid Series E PIK Election) is then convertible. Dividends payable
to the holders of the Series E Preferred pursuant to this Section 3.5.3(c) shall
be paid in the same form as paid to holders of Common Stock. Solely for purposes
of this Section 3.5.3(c), the term "distribution" means any transfer of cash or
property without consideration, whether by way of dividend or otherwise (except
a dividend in shares of Common Stock of the Corporation) including, but not
limited to, securities of other persons, evidences of indebtedness issued by the
Corporation or other persons and assets, but does not include (i) any repurchase
of shares from a terminated employee of or consultant to the Corporation in
accordance with the terms of the agreement applicable to such employee or
consultant providing for such repurchase, (ii) any repurchase of shares funded
solely with the proceeds of life insurance covering certain executives of the
Corporation as provided in the Shareholders' Agreement or approved by the
Corporation's Board of Directors, (iii) any distribution that is part of a
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and (iv) a payment of dissenter's rights or in respect of fractional
shares.
(d) The Corporation shall at all times reserve and keep available for
issuance upon a Series E PIK Election, free from any preemptive rights, such
number of its authorized but unissued shares of Series E Preferred as will from
time to time be necessary to permit the maximum then available Series E PIK
Election, and shall take all action required to increase the authorized number
of shares of Series E Preferred if necessary to permit the maximum then
available Series E PIK Election.
(e) All accrued but unpaid dividends on Series E Preferred shall be
paid pursuant to a liquidation, dissolution or winding up as provided in Section
3.5.4 as a component of the Series E Liquidation Value. All accrued but unpaid
dividends in respect of a particular share of Series E Preferred shall be paid
upon conversion of that share pursuant to Section 3.5.7. All accrued but unpaid
dividends in respect of a particular share of Series E Preferred shall be paid
upon a redemption pursuant to Section 3.5.6 as a component of the Series E
Redemption Price.
3.5.4. Liquidation.
-----------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series E Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series E Junior Securities, an amount equal to the Series E Liquidation
Value with respect to each outstanding share of Series E Preferred.
(b) Unless both (i) waived by the affirmative vote of the holders of
at least a majority of the then outstanding shares of Series B Preferred, Series
C Preferred, Series D Preferred, Series E Preferred and Series F Preferred
voting as a single class on an as converted basis, and (ii) waived by the Series
B Preferred under Section 3.2.3(b), Series C Preferred under Section 3.3.3(b)
and Series D Preferred under Section 3.4.3(b), the sale, lease or exchange (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property and assets of the Corporation or the merger or
consolidation of the Corporation into or with any other corporation or the
merger or consolidation of any other corporation into or with the Corporation
57
<PAGE>
(other than a consolidation or merger in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock) or an
exchange or sale of 90% or more of the capital stock of the Corporation to
accomplish an acquisition of the Corporation in a single or related transaction
shall be deemed to be a liquidation for the purposes of this Section 3.5.4.
(c) After the payment to the holders of the Series E Preferred of the
full amounts provided for in this Section 3.5.4, the holders of Series E
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series E Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.5.4(a) above, no such distribution shall be made
on account of any Series E Parity Securities unless proportionate amounts are
distributed to the holders of Series E Preferred, ratably, in proportion to the
full amounts for which holders of Series E Preferred and all such Series E
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
3.5.5. Voting Rights. The holder of each share of Series E Preferred
-------------
shall be entitled to vote on all matters and shall be entitled to the number of
votes equal to the largest number of full shares of Common Stock into which such
shares of Series E Preferred could be converted, pursuant to the provisions of
Section 3.5.7 hereof, at the record date for the determination of shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or the Shareholders' Agreement or
as required by law, the holders of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred and Common Stock shall vote together as a single class on all
matters and not as separate classes.
3.5.6. Redemption.
----------
(a) The Corporation may not require the redemption of any shares of
Series E Preferred. The holder or holders of at least 66-2/3% of the
outstanding shares of Series E Preferred may, at their option, at any time, or
from time to time, from and after February 20, 2003, upon notice given to the
Corporation by the holder or holders of at least 66-2/3% of the outstanding
shares of Series E Preferred (a "Series E Redemption Notice") require the
--------------------------
Corporation to redeem, out of funds legally available therefor, any or all
outstanding shares of Series E Preferred (including shares not held by such
holder or holders). The redemption price per share of Series E Preferred (the
"Series E Redemption Price") payable pursuant to this Section 3.5.6 shall be the
-------------------------
Series E Liquidation Value of such share as of the Series E Redemption Date
(hereinafter defined). For the purpose of determining the "per share amount" in
the definition of Series E Liquidation Value, the value of each share of Common
Stock shall equal the Fair Market Value. Unless waived by the Corporation, a
Series E Redemption Notice is irrevocable with respect to the holders giving
such notice.
(b) Promptly upon the determination of the Series E Redemption Price,
the Corporation shall (i) give notice of the Series E Redemption Price to the
holders
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<PAGE>
requesting redemption and to holders of Series E Preferred required to accept
redemption pursuant to Section 3.5.6(a), if any, stating the redemption date
(the "Series E Redemption Date"), which Series E Redemption Date shall be no
------------------------
less than twenty (20) days and no more than forty (40) days following the date
of the Series E Redemption Notice, and (ii) give notice to each holder of Series
A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and
Series F Preferred stating the Series E Redemption Date. On the Series E
Redemption Date, the Corporation shall, unless such shares of Series E Preferred
have been previously surrendered for conversion pursuant to Section 3.5.7,
redeem the shares of Series E Preferred set forth in the Series E Redemption
Notice at a price per share equal to the Series E Redemption Price, upon
submission of certificates of the Series E Preferred in accordance with Section
3.5.6(c) hereof.
(c) Except as provided in Section 3.5.6(d), on or after the Series E
Redemption Date, a holder of Series E Preferred requesting redemption of or
otherwise required to redeem Series E Preferred set forth in the Series E
Redemption Notice shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
by the Corporation, and thereupon the Series E Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. If all the shares of Series E Preferred
evidenced by a certificate are not redeemed, the Corporation shall on the Series
E Redemption Date deliver to the owner a new certificate in the name of the
owner for the unredeemed shares.
(d) From and after the Series E Redemption Date, unless there shall have
been a default in payment of the Series E Redemption Price, all rights of the
holder requesting or required to accept redemption of the shares of Series E
Preferred for which redemption has been requested (except the right to receive
the Series E Redemption Price without interest upon surrender of their
certificate or certificates) shall cease, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. Subject to paragraphs 3.5.6(e) and 3.5.6(f), if the
funds of the Corporation legally available for redemption of shares of Series E
Preferred on the Series E Redemption Date are insufficient to redeem the total
number of shares of Series E Preferred to be redeemed on such date, (i) those
funds that are legally available shall be used to redeem the maximum possible
number of shares ratably among the holders of such shares, (ii) the shares of
Series E Preferred not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein, until any subsequent redemption, and
(iii) at any time thereafter when additional funds of the Corporation are
legally available for redemption of shares of Series E Preferred such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem but which it has not redeemed.
(e) If and to the extent, not later than five (5) days prior to the
Series E Redemption Date, the Corporation receives a Series A Redemption Notice
pursuant to Section 3.1.6(c), a Series B Redemption Notice pursuant to Section
3.2.6(a), a Series C Redemption Notice pursuant to Section 3.3.6(a) a Series D
Redemption Notice pursuant to Section 3.4.6(a), or a Series F Redemption Notice
pursuant to Section 3.6.6(a), the Series A Redemption Date (as defined in
Section 3.1.6(c)), the Series B Redemption Date (as defined in Section
3.2.6(b)), the Series C Redemption Date (as defined in Section 3.3.6(b)), the
Series D Redemption Date (as defined in Section 3.4.6(b)) or the Series F
Redemption Date (as defined in Section 3.6.6(b)),
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notwithstanding any contrary provision in Section 3.1.6(c), Section 3.2.6(b),
Section 3.3.6(b), Section 3.4.6(b) or Section 3.6.6(b), shall be the same as the
Series E Redemption Date (such date being the "Redemption Date") with respect to
---------------
the shares of Series A Preferred designated for redemption in such Series A
Redemption Notice, shares of Series B Preferred designated for redemption in
such Series B Redemption Notice, shares of Series C Preferred designated for
redemption in such Series C Redemption Notice, shares of Series D Preferred
designated for redemption in such Series D Redemption Notice and shares of
Series F Preferred designated for redemption in such Series F Redemption Notice.
(f) Redemptions of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred that
occur, or would occur but for the absence of funds legally available therefor,
on the same date shall be made, ratably in proportion to the amounts that the
holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Series F Preferred to be redeemed on
such Redemption Date are entitled to receive in respect of such redemption.
3.5.7. Conversion. (a) Upon the earlier of (i) the consummation
----------
of a Qualified IPO or (ii) for each of at least 20 consecutive trading days
after an initial public offering of the Common Stock the aggregate market
capitalization of the Free Common Stock is at least $25 million and the Common
Stock has a Current Market Price of at least $3.00 per share (subject to
adjustment for stock splits and combinations, recapitalizations and stock
dividends of the Common Stock), each share of Series E Preferred shall
automatically be converted into a number of shares of Common Stock at the then
effective Series E Conversion Ratio. In addition, (x) at the option of the
holder of any Series E Preferred, such holder shall have the right, at any time
and from time to time prior to or after the consummation of an initial public
offering of the Common Stock, by written notice to the Corporation, to convert
any and all shares of Series E Preferred owned by such holder at such time into
a number of shares of Common Stock, at the then effective Series E Conversion
Ratio, and (y) upon the election of holders of at least 51% of the then
outstanding Series E Preferred either at a duly called shareholders meeting or
by written consent, all of the outstanding Series E Preferred shall
automatically convert into Common Stock at the then applicable conversion ratio
for such stock.
(b) The Corporation shall at all times reserve and keep available
for issuance upon the conversion of the Series E Preferred, free from any
preemptive rights, such number of its authorized but unissued shares of Common
Stock as will from time to time be necessary to permit the conversion of all
outstanding shares of Series E Preferred into shares of Common Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all outstanding shares of Series
E Preferred.
(c) The Series E Conversion Ratio shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or from time to
time after the Series E Issue Date (A) pay a dividend, or make a distribution,
on the outstanding shares of Common Stock in shares of Common Stock, (B)
subdivide the outstanding shares of Common Stock, (C) combine the outstanding
shares of Common Stock into a smaller number of
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shares or (D) issue by reclassification of the shares of Common Stock any shares
of capital stock of the Corporation, then, and in each such case, the Series E
Conversion Ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series E Preferred thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Corporation that such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
shares of Series E Preferred been surrendered for conversion immediately prior
to the happening of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this clause (i) shall become effective
(x) in the case of any such dividend or distribution, immediately after the
close of business on the record date for the determination of holders of shares
of Common Stock entitled to receive such dividend or distribution, or (y) in the
case of such subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes effective. No
adjustment shall be made pursuant to this clause (i) in connection with any
transaction to which Section 3.5.7(g) applies.
(ii) Except with respect to Excluded Securities, if the
Corporation shall, while there are any shares of Series E Preferred outstanding,
issue or sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a Purchase Price (as defined in Section 3.5) less than the
applicable Series E Conversion Price in effect immediately prior to such
issuance or sale, then in each such case such applicable Series E Conversion
Price, except as hereinafter provided, shall be lowered so as to be equal to an
amount determined by multiplying such applicable Series E Conversion Price by a
fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the conversion of all then presently exercisable
options, warrants, purchase rights or convertible securities whose exercise or
conversion price is less than the applicable Series E Conversion Price then in
effect), plus (b) the number of shares of Common Stock or Common Stock
Equivalents which the aggregate consideration, if any, received by the
Corporation for the total number of such additional shares of Common Stock or
Common Stock Equivalents so issued would purchase at the applicable Series E
Conversion Price in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then presently
exercisable options, warrants, purchase rights or convertible securities whose
exercise or conversion price is less than the applicable Conversion Price then
in effect), plus (b) the number of such additional shares of Common Stock or
Common Stock Equivalents so issued.
The provisions of the foregoing paragraph as they may
apply to the Series E Preferred may be waived in any instance (without the
necessity of convening any meeting of stockholders of the Corporation) upon the
written agreement of
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holders of at least 66 2/3% of the then outstanding shares of Series E Preferred
(voting as a separate class).
(iii)(A) For the purposes of Section 3.5.7(c)(ii), the
issuance of any Common Stock Equivalent shall be deemed an issuance of Common
Stock with respect to adjustments in the applicable Series E Conversion Price if
the Purchase Price (as hereinafter determined) which may be received by the
Corporation for such Common Stock shall be less than the applicable Series E
Conversion Price in effect at the time of such issuance. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. Except as provided in subparagraph B below, no
adjustment of the applicable Series E Conversion Price shall be made under
3.5.7(c)(ii) upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise, conversion or exchange of any Common Stock Equivalents
if any adjustment shall previously have been made upon the issuance of any such
Common Stock Equivalents as above provided.
(B) Should the Purchase Price of any such Common Stock
Equivalents be decreased from time to time, then, upon the effectiveness of each
such change, the applicable Series E Conversion Price will be that which would
have been obtained (x) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the actual Purchase Price of such
securities, and (y) had the adjustments made to the applicable Series E
Conversion Price since the date of issuance of such Common Stock Equivalents
been made to such applicable Series E Conversion Price as adjusted pursuant to
clause (A) immediately above. Any adjustment of the applicable Series E
Conversion Price with respect to 3.5.7(c)(ii) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common Stock Equivalent
expires or is canceled without being exercised, or is repurchased by the
Corporation at a price per share at or less than the original purchase price, so
that the applicable Series E Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the applicable Conversion Price
that would have been in effect had the expired or canceled Common Stock
Equivalent not been issued.
(C) The Purchase Price which may be received by the
Corporation shall be determined in each instance as of the date of issuance of
Common Stock Equivalents without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such Common Stock Equivalents.
(iv) For purposes of this Section 3.5.7(c), the aggregate
consideration receivable by the Corporation in connection with the issuance of
shares of Common Stock and/or Common Stock Equivalents shall be deemed to be
equal to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the minimum
aggregate amount, if any, payable upon conversion, exchange or exercise of any
such Common Stock Equivalents. If the consideration received by the Corporation
in connection with the sale or issuance of shares of Common Stock (or Common
Stock Equivalents) consists, in whole or in part, of property other than cash or
its equivalent, the value of such property shall be the Fair Market Value.
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(v) The Series E Conversion Ratio shall not be adjusted
because of any "Series F Additional Adjustment" pursuant to Section 3.6.7(c)(v)
hereof.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series E Preferred shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Series E Preferred which is being
converted.
(e) The Corporation will at no time close its transfer books
against the transfer of any Series E Preferred, or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Series E Preferred, in
any manner which interferes with the timely conversion of such Series E
Preferred, except as may otherwise be required to comply with applicable
securities laws.
(f) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.5.7 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series E Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series E Preferred.
(g) If the Corporation shall be a party to any Transaction (but
excluding (i) any Transaction for which provision for adjustment is otherwise
made in this Section 3.5.7 and (ii) any Transaction that is deemed to be a
liquidation for the purposes of Section 3.5.4), in each case, as a result of
which shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series E Preferred shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series E Preferred would have been entitled upon such Transaction; and, in any
such case, appropriate adjustment (as determined by the Corporation's Board of
Directors) shall be made in the application of the provisions set forth in this
Section 3.5.7 with respect to the rights and interest thereafter of the holders
of the Series E Preferred, to the end that the provisions set forth in this
Section 3.5.7 shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series E Preferred. Except as provided in the
Shareholders' Agreement, the Corporation shall not effect any Transaction (other
than a consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation thereof the
Corporation, or the successor corporation or purchaser, as the case may be,
shall provide in its charter document that each share of Series E Preferred
shall be converted into such shares of stock, securities or property as, in
accordance with the foregoing provisions, each such holder is entitled to
receive. The provisions of this Section 3.5.7(g) shall similarly apply to
successive Transactions.
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(h) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
except as has been approved by the holders of at least 51% of the then
outstanding Series E Preferred voting as a class on an as-converted basis either
at a duly called shareholders meeting or by written consent, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3.5.7 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series E Preferred against
impairment.
(i) All calculations under this Section 3.5.7 shall be made to
the nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be. Upon conversion of the Series E Preferred pursuant to
this Section 3.5.7, the Corporation may pay cash based on the Series E
Conversion Price in lieu of issuing fractional shares.
3.5.8. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series E Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the
holders of its Common Stock as a class, of Common Stock Equivalents, or rights
or warrants to subscribe for or purchase shares of its Common Stock or of any
other subscription rights or warrants;
(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or
merger of the Corporation into or with any other person, the sale or transfer of
a substantial portion of its capital stock, business or assets to another
person, or any other similar business combination or transaction; or
(e) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of the Series
E Preferred and to each of the holders of shares of Series E Preferred at their
last addresses as shown on the books of the Corporation, at least 15 days before
the date hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one date is specified), a notice
describing such event and stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which any such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
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<PAGE>
(including cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up. Any notice
required to be given hereunder to the holders of shares of Series E Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation, and such notice may be waived with respect to all of the
outstanding Series E Preferred by the holders of a majority of the outstanding
Series E Preferred.
3.5.9. Certain Remedies. Any registered holder of Series E
----------------
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series E Preferred with any and all remedies available at law
or in equity.
3.5.10. Protective Provisions. So long as any shares of Series E
---------------------
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holder or
holders of at least 50.1% of the then outstanding shares of Series E Preferred:
(a) alter or change the rights, preference or privileges of
the shares of Series E Preferred or otherwise amend the Certificate of
Incorporation, in either case, whether by merger, consolidation or otherwise, so
as to affect adversely the shares of Series E Preferred (provided, however, that
the approval of the holders of Series E Preferred shall not be required for any
alteration or change of the rights of such holders upon liquidation as set forth
in Section 3.5.4 or redemption as set forth in Section 3.5.6 (including changes
to the definition of Series E Liquidation Value) so long as similar changes are
made to the terms of the Series B Preferred, Series C Preferred and Series D
Preferred);
(b) increase the authorized number of shares of Series E
Preferred except to pay, or reserve for payment, upon a Series E PIK Election;
or
(c) except as provided by the TCI Purchase Agreement or the
Shareholders' Agreement or upon a Series E PIK Election, authorize the issuance
of, issue, or sell any additional shares of Series E Preferred.
3.5.11. Reports as to Adjustments. Upon any adjustment of the
-------------------------
Series E Conversion Ratio then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.5.7, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series E
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation, with
the original being delivered to the transfer agent for the Series E Preferred,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Series E
Conversion Ratio then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion granted pursuant to
Section 3.5.7, and shall set forth in reasonable detail the method of
calculation of each and a brief statement of the facts requiring such
adjustment.
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3.5.12. No Reissuance of Series E Preferred. No share or shares
-----------------------------------
of Series E Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and without further
corporate or stockholder action all such shares shall be canceled, retired and
eliminated from the shares that the Corporation shall be authorized to issue.
3.5.13. Definitions. In addition to any other terms defined
-----------
herein, the following terms shall have the meanings indicated for purposes of
this Section 3.5:
"Purchase Price" has the meaning given that term in Section 3.3.14.
"Series E Conversion Ratio," determined as of any date, shall equal
the number of shares of Common Stock into which one share of Series E Preferred
is convertible pursuant to Section 3.5.7 and shall be determined by dividing (i)
$1.48 (as adjusted for stock splits, reverse splits, stock dividends (other than
a Series E PIK Election) and stock combinations of the Series E Preferred or
pursuant to Section 3.5.7(g)) by (ii) the Series E Conversion Price. The Series
E Conversion Ratio shall initially equal one and shall be subject to adjustment
as provided in paragraph (c) of Section 3.5.7.
"Series E Conversion Price" means, as of the Series F Issue Date,
$1.48 and, thereafter is subject to adjustment for stock splits, reverse splits,
stock dividends (other than a Series E PIK Election) and stock combinations of
the Series E Preferred and as provided in Section 3.5.7. Notwithstanding the
foregoing, the Series E Conversion Price shall not be less than the par value of
one share of Common Stock.
"Series E Issue Date" means the first date on which shares of Series E
Preferred are issued.
"Series E Liquidation Value" means the greater of (i) $1.48 (as
adjusted for stock splits, reverse splits, stock dividends (other than a Series
E PIK Election) and stock combinations, in each case of the Series E Preferred),
for each share of Series E Preferred plus all accrued but unpaid dividends on
the Series E Preferred or (ii) the per share amount that the holders of the
Series E Preferred would have received upon liquidation if all shares of Series
E Preferred had been converted to Common Stock immediately prior to such
liquidation at the Series E Conversion Price then in effect, plus all accrued
but unpaid dividends on the Series E Preferred.
"Series E Stated Value" means $1.48 per share (as adjusted for stock
splits, reverse splits, stock dividends (other than a Series E PIK Election) and
stock combinations of the Series E Preferred or pursuant to Sections 3.5.3(a)
(other than in respect of a Series E PIK Election) and 3.5.7(g)).
3.6 Series F Preferred.
------------------
3.6.1. Designation; Rank. This series of Preferred Stock shall
-----------------
be designated the "Series F Convertible Preferred Stock" with a par value of
$.001 per share (the "Series F Preferred"). The Series F Preferred shall rank,
------------------
with respect to dividend rights and rights on liquidation, winding-up and
dissolution, (i) senior to all classes of Common Stock of
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the Corporation, as they exist on the date hereof or as such stock may be
constituted from time to time and to each other class of capital stock or series
of preferred stock issued by the Corporation or established by the Corporation's
Board of Directors to the extent the terms of such stock do not expressly
provide that it ranks senior to or on parity with, the Series F Preferred as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively, together with the Common Stock, the "Series F Junior
---------------
Securities"), (ii) on a parity with each other class of capital stock or series
- ----------
of preferred stock issued by the Corporation or established by the Corporation's
Board of Directors to the extent the terms of such stock expressly provide that
it will rank on a parity with the Series F Preferred as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively, the "Series F
--------
Parity Securities"), and (iii) junior to each other class of capital stock or
- -----------------
series of preferred stock issued by the Corporation or established by the
Corporation's Board of Directors to the extent the terms of such stock expressly
provide that it will rank senior to the Series F Preferred as to dividend rights
and rights on liquidation, winding-up and dissolution (collectively, the "Series
------
F Senior Securities"). Without limiting the generality of the foregoing, the
- -------------------
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred shall be deemed to be Series F Parity Securities.
3.6.2. Authorized Number. The authorized number of shares
-----------------
constituting the Series F Preferred shall be nine million one hundred sixty
thousand (9,160,000).
3.6.3. Dividends.
---------
(a) Dividends shall accrue from day to day and shall be
payable when and as declared by the Corporation's Board of Directors or as
otherwise provided for in this Section 3.6.3. as follows, out of funds legally
available therefor:
(i) for all periods after the Series F Issue Date through
and including the last day of July, 2001, dividends shall accrue and shall be
payable solely by issuance by the Corporation to the holders of the Series F
Preferred of additional shares of Series F Preferred with the number of shares
per share of Series F Preferred being equal to (i) the dollar amount of the cash
dividend which would have accrued on one share of Series F Preferred from the
Series F Issue Date, to the record date for such dividend if a cash dividend had
accrued during that period at a rate of eight percent (8%) compounded annually
with the first compounding occurring on October 16, 2000 of the Series F Stated
Value divided by (ii) the Series F Stated Value as of the record date for such
dividend which dividend shall be cumulative (whether or not earned or declared);
and
(ii) commencing on and including August 1, 2001, the
foregoing dividends shall not further accrue (but if unpaid shall remain
accrued), and in lieu of any further accrual, the Corporation shall accrue and,
when and as declared by the Corporation's Board of Directors out of funds
legally available therefor, the Corporation shall pay dividends to the holders
of the Series F Preferred at an annual rate per share of Series F Preferred of
(a) 8%compounded annually of (b) (X) one plus the number shares of Series F
which would be issuable on August 1, 2001 pursuant to clause (i) in respect of
a share of Series F Preferred multiplied by (Y) the Series F Stated Value, and
such dividends shall accrue commencing on and including August 1, 2001 and shall
be cumulative (whether or not earned or declared). All dividends first accruing
on or after August 1, 2001 as specified in clause (ii) shall be payable in cash
out of
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funds legally available therefor; provided, however, that at the election (a
-------- -------
"Series F PIK Election") of the holders as of the record date for such dividend
---------------------
of a majority of the outstanding shares of Series F Preferred, in lieu of
payment thereof in cash, the amount of such dividends may be paid, in whole or
in part, by issuance by the Corporation to the holders of the Series F
Preferred, of additional shares of Series F Preferred, with the number of shares
being equal to (i) the dollar amount of the dividend which the holder has
elected to receive in the form of additional shares of Series F Preferred,
divided by (ii) the Series F Stated Value as of the record date for such
dividend. If the Series F PIK Election is not for the entire amount of the
dividend, each holder of Series F Preferred shall receive the same proportion of
cash and additional shares of Series F Preferred for each share of Series F
Preferred held.
Dividends payable for any period less than a full dividend period
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.
For definitional purposes of the term "Series F PIK Election" the
shares of Series F Preferred received or receivable pursuant to clauses (i) or
(ii) are deemed received or receivable pursuant to a "Series F PIK Election."
All additional shares of Series F Preferred issued upon a Series F PIK
Election shall be deemed issued as of the record date for such dividend. No
fractional shares shall be issued upon a Series F PIK Election, but rather cash
in lieu of fractional shares shall be paid, with the deemed value per whole
share of Series F Preferred being the Series F Stated Value as of the record
date for such dividend. Any dividend (or portion thereof) shall be deemed fully
paid to the extent a Series F PIK Election is made with respect to such dividend
(or portion thereof).
(b) No full dividends may be declared or paid or funds set apart
for the payment of dividends on any Series F Parity Securities (except dividends
on Series F Parity Securities paid in shares of Series F Junior Securities) for
any period unless full cumulative dividends to be paid hereunder prior to the
date thereof shall have been paid on the Series F Preferred. If dividends are
not so paid, the Series F Preferred, if and to the extent a Series F PIK
Election has not been made with respect to such dividends, shall share dividends
pro rata with the Series F Parity Securities according to the amount of
dividends due and payable with respect to each. No dividends may be paid or set
aside for such payment on Series F Junior Securities (except dividends on Series
F Junior Securities paid in additional shares of Series F Junior Securities),
and no Series F Parity Securities or Series F Junior Securities may be
repurchased, redeemed or otherwise retired nor may funds be set aside for
payment with respect thereto, nor shall the Corporation permit any corporation
or entity directly or indirectly controlled by the Corporation to purchase any
shares of Series F Parity Securities or Series F Junior Securities (except in
each case for (a) cashless exercises of stock options (whether effected by
surrendering stock options or outstanding shares of Stock), (b) repurchases by
the Corporation of Series F Parity Securities or Series F Junior Securities
solely funded by life insurance proceeds, or (c) a payment in respect of
fractional shares) if full cumulative dividends to be paid hereunder prior to
the date thereof have not been paid on the Series F Preferred.
(c) If, in any year, any cash or other distributions are
declared by the Corporation's Board of Directors to be paid on Common Stock
(including, without limitation,
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any distribution of stock or other securities or property or rights or warrants
to subscribe for securities of the Corporation or any of its Subsidiaries by way
of dividend or spinoff), other than dividends or distributions of shares of
Common Stock that are referred to in clause (i) of Section 3.6.7(c), then an
additional dividend shall be paid at the same time to the holders of the Series
F Preferred at the rate per share equal to the product of (x) such per share
dividend on the Common Stock multiplied by (y) the number of shares of Common
Stock into which each share of Series F Preferred (including any issuable upon
the payment of any accrued but unpaid Series F PIK Election) is then
convertible. Dividends payable to the holders of the Series F Preferred pursuant
to this Section 3.6.3(c) shall be paid in the same form as paid to holders of
Common Stock. Solely for purposes of this Section 3.6.3(c), the term
"distribution" means any transfer of cash or property without consideration,
whether by way of dividend or otherwise (except a dividend in shares of Common
Stock of the Corporation) including, but not limited to, securities of other
persons, evidences of indebtedness issued by the Corporation or other persons
and assets, but does not include (i) any repurchase of shares from a terminated
employee of or consultant to the Corporation in accordance with the terms of the
agreement applicable to such employee or consultant providing for such
repurchase, (ii) any repurchase of shares funded solely with the proceeds of
life insurance covering certain executives of the Corporation as provided in the
Shareholders' Agreement or approved by the Corporation's Board of Directors,
(iii) any distribution that is part of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and (iv) a payment of dissenter's
rights or in respect of fractional shares.
(d) The Corporation shall at all times reserve and keep
available for issuance upon a Series F PIK Election, free from any preemptive
rights, such number of its authorized but unissued shares of Series F Preferred
as will from time to time be necessary to permit the maximum then available
Series F PIK Election, and shall take all action required to increase the
authorized number of shares of Series F Preferred if necessary to permit the
maximum then available Series F PIK Election.
(e) All accrued but unpaid dividends on Series F Preferred shall
be paid pursuant to a liquidation, dissolution or winding up as provided in
Section 3.6.4 as a component of the Series F Liquidation Value. All accrued but
unpaid dividends in respect of a particular share of Series F Preferred shall be
paid upon conversion of that share pursuant to Section 3.6.7. All accrued but
unpaid dividends in respect of a particular share of Series F Preferred shall be
paid upon a redemption pursuant to Section 3.6.6 as a component of the Series F
Redemption Price.
3.6.4. Liquidation.
-----------
(a) Upon the dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary) the holders of Series F Preferred
shall be entitled to receive out of the assets of the Corporation available for
distribution to stockholders before any payment or distribution shall be made on
any Series F Junior Securities, an amount equal to the Series F Liquidation
Value with respect to each outstanding share of Series F Preferred.
(b) Unless both (i) waived by the affirmative vote of the
holders of at least a majority of the then outstanding shares of Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred voting as a single class on an as converted
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basis, and (ii) waived by the Series B Preferred under Section 3.2.3(b), Series
C Preferred under Section 3.3.3(b) and Series D Preferred under Section
3.4.3(b), the sale, lease or exchange (for cash, shares of stock, securities or
other consideration) of all or substantially all the property and assets of the
Corporation or the merger or consolidation of the Corporation into or with any
other corporation or the merger or consolidation of any other corporation into
or with the Corporation (other than a consolidation or merger in which the
Corporation is the continuing entity and which does not result in any change in
the Common Stock) or an exchange or sale of 90% or more of the capital stock of
the Corporation to accomplish an acquisition of the Corporation in a single or
related transaction shall be deemed to be a liquidation for the purposes of this
Section 3.6.4.
(c) After the payment to the holders of the Series F Preferred
of the full amounts provided for in this Section 3.6.4, the holders of Series F
Preferred as such shall have no right or claim to any of the remaining assets of
the Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of Series F Preferred upon any dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 3.6.4(a) above, no such distribution shall be made
on account of any Series F Parity Securities unless proportionate amounts are
distributed to the holders of Series F Preferred, ratably, in proportion to the
full amounts for which holders of Series F Preferred and all such Series F
Parity Securities are respectively entitled upon such dissolution, liquidation
or winding-up.
3.6.5. Voting Rights. The holder of each share of Series F
-------------
Preferred shall be entitled to vote on all matters and shall be entitled to the
number of votes equal to the largest number of full shares of Common Stock into
which such shares of Series F Preferred could be converted, pursuant to the
provisions of Section 3.6.7 hereof, at the record date for the determination of
shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or the
Shareholders' Agreement or as required by law, the holders of shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred and Common Stock shall vote together as a
single class on all matters and not as separate classes.
3.6.6. Redemption.
----------
(a) The Corporation may not require the redemption of any shares
of Series F Preferred. The holder or holders of at least 60% of the outstanding
shares of Series F Preferred may, at their option, at any time, or from time to
time, from and after February 20, 2003, upon notice given to the Corporation by
the holder or holders of at least 60% of the outstanding shares of Series F
Preferred (a "Series F Redemption Notice") require the Corporation to redeem,
--------------------------
out of funds legally available therefor, any or all outstanding shares of Series
F Preferred (including shares not held by such holder or holders). The
redemption price per share of Series F Preferred (the "Series F Redemption
-------------------
Price") payable pursuant to this Section 3.6.6 shall be the Series F Liquidation
Value of such share as of the Series F Redemption Date (hereinafter defined).
For the purpose of determining the "per share amount" in the definition of
Series F Liquidation Value, the value of each share of Common Stock shall equal
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the Fair Market Value. Unless waived by the Corporation, a Series F Redemption
Notice is irrevocable with respect to the holders giving such notice.
(b) Promptly upon the determination of the Series F Redemption
Price, the Corporation shall (i) give notice of the Series F Redemption Price to
the holders requesting redemption and to holders of Series F Preferred required
to accept redemption pursuant to Section 3.6.6(a), if any, stating the
redemption date (the "Series F Redemption Date"), which Series F Redemption Date
------------------------
shall be no less than twenty (20) days and no more than forty (40) days
following the date of the Series F Redemption Notice, and (ii) give notice to
each holder of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred stating the Series F Redemption Date.
On the Series F Redemption Date, the Corporation shall, unless such shares of
Series F Preferred have been previously surrendered for conversion pursuant to
Section 3.6.7, redeem the shares of Series F Preferred set forth in the Series F
Redemption Notice at a price per share equal to the Series F Redemption Price,
upon submission of certificates of the Series F Preferred in accordance with
Section 3.6.6(c) hereof.
(c) Except as provided in Section 3.6.6(d), on or after the
Series F Redemption Date, a holder of Series F Preferred requesting redemption
of or otherwise required to redeem Series F Preferred set forth in the Series F
Redemption Notice shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
by the Corporation, and thereupon the Series F Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. If all the shares of Series F Preferred evidenced
by a certificate are not redeemed, the Corporation shall on the Series F
Redemption Date deliver to the owner a new certificate in the name of the owner
for the unredeemed shares.
(d) From and after the Series F Redemption Date, unless there
shall have been a default in payment of the Series F Redemption Price, all
rights of the holder requesting or required to accept redemption of the shares
of Series F Preferred for which redemption has been requested (except the right
to receive the Series F Redemption Price without interest upon surrender of
their certificate or certificates) shall cease, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to paragraphs 3.6.6(e) and
3.6.6(f), if the funds of the Corporation legally available for redemption of
shares of Series F Preferred on the Series F Redemption Date are insufficient to
redeem the total number of shares of Series F Preferred to be redeemed on such
date, (i) those funds that are legally available shall be used to redeem the
maximum possible number of shares ratably among the holders of such shares, (ii)
the shares of Series F Preferred not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein, until any subsequent
redemption, and (iii) at any time thereafter when additional funds of the
Corporation are legally available for redemption of shares of Series F Preferred
such funds will immediately be used to redeem the balance of the shares which
the Corporation has become obliged to redeem but which it has not redeemed.
(e) If and to the extent, not later than five (5) days prior to
the Series F Redemption Date, the Corporation receives a Series A Redemption
Notice pursuant to Section 3.1.6(c), a Series B Redemption Notice pursuant to
Section 3.2.6(a), a Series C Redemption
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Notice pursuant to Section 3.3.6(a) a Series D Redemption Notice pursuant to
Section 3.4.6(a), or a Series E Redemption Notice pursuant to Section 3.5.6(a),
the Series A Redemption Date (as defined in Section 3.1.6(c)), the Series B
Redemption Date (as defined in Section 3.2.6(b)), the Series C Redemption Date
(as defined in Section 3.3.6(b)), the Series D Redemption Date (as defined in
Section 3.4.6(b)) or the Series E Redemption Date (as defined in Section
3.5.6(b)), notwithstanding any contrary provision in Section 3.1.6(c), Section
3.2.6(b), Section 3.3.6(b), Section 3.4.6(b) or Section 3.5.6(b), shall be the
same as the Series F Redemption Date (such date being the "Redemption Date")
---------------
with respect to the shares of Series A Preferred designated for redemption in
such Series A Redemption Notice, shares of Series B Preferred designated for
redemption in such Series B Redemption Notice, shares of Series C Preferred
designated for redemption in such Series C Redemption Notice, shares of Series D
Preferred designated for redemption in such Series D Redemption Notice and
shares of Series E Preferred designated for redemption in such Series E
Redemption Notice.
(f) Redemptions of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred and Series F
Preferred that occur, or would occur but for the absence of funds legally
available therefor, on the same date shall be made, ratably in proportion to the
amounts that the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred and Series F Preferred to be
redeemed on such Redemption Date are entitled to receive in respect of such
redemption.
3.6.7. Conversion. (a) Upon the earlier of (i) the consummation
----------
of a Qualified IPO or (ii) for each of at least 20 consecutive trading days
after an initial public offering of the Common Stock the aggregate market
capitalization of the Free Common Stock is at least $25 million and the Common
Stock has a Current Market Price of at least $3.00 per share (subject to
adjustment for stock splits and combinations, recapitalizations and stock
dividends of the Common Stock), each share of Series F Preferred shall
automatically be converted into a number of shares of Common Stock at the then
effective Series F Conversion Ratio. In addition, (x) at the option of the
holder of any Series F Preferred, such holder shall have the right, at any time
and from time to time prior to or after the consummation of an initial public
offering of the Common Stock, by written notice to the Corporation, to convert
any and all shares of Series F Preferred owned by such holder at such time into
a number of shares of Common Stock, at the then effective Series F Conversion
Ratio, and (y) upon the election of holders of at least 51% of the then
outstanding Series F Preferred either at a duly called shareholders meeting or
by written consent, all of the outstanding Series F Preferred shall
automatically convert into Common Stock at the then applicable conversion ratio
for such stock.
(b) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series F Preferred, free from
any preemptive rights, such number of its authorized but unissued shares of
Common Stock as will from time to time be necessary to permit the conversion of
all outstanding shares of Series F Preferred (including those issuable upon the
occurrence of a Series F IPO Adjustment) into shares of Common Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all such shares of Series F
Preferred.
(c) The Series F Conversion Ratio shall be subject to
adjustment from time to time as follows:
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(i) In case the Corporation shall at any time or from time
to time after the Series F Issue Date (A) pay a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares of Common
Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the
outstanding shares of Common Stock into a smaller number of shares or (D) issue
by reclassification of the shares of Common Stock any shares of capital stock of
the Corporation, then, and in each such case, the Series F Conversion Ratio in
effect immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of Series F
Preferred thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the Corporation that
such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such shares of Series F
Preferred been surrendered for conversion immediately prior to the happening of
such event or the record date therefor, whichever is earlier. An adjustment made
pursuant to this clause (i) shall become effective (x) in the case of any such
dividend or distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of such subdivision,
reclassification or combination, at the close of business on the day upon which
such corporate action becomes effective. No adjustment shall be made pursuant to
this clause (i) in connection with any transaction to which Section 3.6.7(g)
applies.
(ii) Except with respect to Excluded Securities, if the
Corporation shall, while there are any shares of Series F Preferred outstanding,
issue or sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a Purchase Price (as defined in Section 3.6) less than the
applicable Series F Conversion Price in effect immediately prior to such
issuance or sale, then in each such case such applicable Series F Conversion
Price, except as hereinafter provided, shall be lowered so as to be equal to an
amount determined by multiplying such applicable Series F Conversion Price by a
fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the conversion of all then presently exercisable
options, warrants, purchase rights or convertible securities whose exercise or
conversion price is less than the applicable Series F Conversion Price then in
effect), plus (b) the number of shares of Common Stock or Common Stock
Equivalents which the aggregate consideration, if any, received by the
Corporation for the total number of such additional shares of Common Stock or
Common Stock Equivalents so issued would purchase at the applicable Series F
Conversion Price in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then presently
exercisable options, warrants, purchase rights or convertible securities whose
exercise or conversion price is less than the applicable Conversion Price then
in effect), plus (b) the number of such additional shares of Common Stock or
Common Stock Equivalents so issued.
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The provisions of the foregoing paragraph as they
may apply to the Series F Preferred may be waived in any instance (without the
necessity of convening any meeting of stockholders of the Corporation) upon the
written agreement of holders of at least 60% of the then outstanding shares of
Series F Preferred (voting as a separate class).
(iii)(A) For the purposes of Section 3.6.7(c)(ii), the
issuance of any Common Stock Equivalent shall be deemed an issuance of Common
Stock with respect to adjustments in the applicable Series F Conversion Price if
the Purchase Price (as hereinafter determined) which may be received by the
Corporation for such Common Stock shall be less than the applicable Series F
Conversion Price in effect at the time of such issuance. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. Except as provided in subparagraph (B) below,
no adjustment of the applicable Series F Conversion Price shall be made under
3.6.7(c)(ii) upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise, conversion or exchange of any Common Stock Equivalents
if any adjustment shall previously have been made upon the issuance of any such
Common Stock Equivalents as above provided.
(B) Should the Purchase Price of any such Common Stock
Equivalents be decreased from time to time, then, upon the effectiveness of each
such change, the applicable Series F Conversion Price will be that which would
have been obtained (x) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the actual Purchase Price of such
securities, and (y) had the adjustments made to the applicable Series F
Conversion Price since the date of issuance of such Common Stock Equivalents
been made to such applicable Series F Conversion Price as adjusted pursuant to
clause (A) immediately above. Any adjustment of the applicable Series F
Conversion Price with respect to 3.6.7(c)(ii) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common Stock Equivalent
expires or is canceled without being exercised, or is repurchased by the
Corporation at a price per share at or less than the original purchase price, so
that the applicable Series F Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the applicable Conversion Price
that would have been in effect had the expired or canceled Common Stock
Equivalent not been issued.
(C) The Purchase Price which may be received by the
Corporation shall be determined in each instance as of the date of issuance of
Common Stock Equivalents without giving effect to any possible future upward
price adjustments or rate adjustments which may be applicable with respect to
such Common Stock Equivalents.
(iv) For purposes of this Section 3.6.7(c), the aggregate
consideration receivable by the Corporation in connection with the issuance of
shares of Common Stock and/or Common Stock Equivalents shall be deemed to be
equal to the sum of the aggregate offering price (before deduction of
underwriting discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the minimum
aggregate amount, if any, payable upon conversion, exchange or exercise of any
such Common Stock Equivalents. If the consideration received by the Corporation
in connection with the sale or issuance of shares of Common Stock (or Common
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<PAGE>
Stock Equivalents) consists, in whole or in part, of property other than cash or
its equivalent, the value of such property shall be the Fair Market Value.
(v) In addition to the other adjustments to the Series F
Conversion Price contemplated by this Section 3.6.7, the Series F Conversion
Price shall be adjusted from time to time as follows (collectively, the "Series
------
F Additional Adjustments" and each a "Series F Additional Adjustment"):
- ------------------------ ------------------------------
(A) If the Corporation closes an initial public
offering of shares of Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation with an initial public
offering price to the public of less than two times the Series F Conversion
Price in effect immediately prior to such closing, the Series F Conversion Price
in effect immediately prior to such closing (after making all other adjustments
required to be made pursuant to this Section 3.6.7 prior to such closing) shall
be reduced to an amount equal to fifty percent (50%) of such initial public
offering price to the public, which reduction shall be deemed effective as of
the closing of such public offering; and
(B) If a Qualified IPO is not consummated before
July 31, 2000, the Series F Conversion Price shall be reduced to an amount equal
to seventy-five percent (75%) of the Series F Conversion Price in effect as of
the close of business on July 30, 2000 (after making all other adjustments
required to be made pursuant to this Section 3.6.7 prior through such date),
which reduction shall be deemed effective as of immediately after the close of
business on July 30, 2000.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series F Preferred shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Series F Preferred which is being
converted.
(e) The Corporation will at no time close its transfer books
against the transfer of any Series F Preferred, or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Series F Preferred, in
any manner which interferes with the timely conversion of such Series F
Preferred, except as may otherwise be required to comply with applicable
securities laws.
(f) If any event occurs as to which, in the opinion of the
Corporation's Board of Directors, the provisions of this Section 3.6.7 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series F Preferred in accordance with the essential
intent and principles of such provisions, the Corporation's Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights of the
holders of the Series F Preferred.
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<PAGE>
(g) If the Corporation shall be a party to any Transaction
(but excluding (i) any Transaction for which provision for adjustment is
otherwise made in this Section 3.6.7 and (ii) any Transaction that is deemed to
be a liquidation for the purposes of Section 3.6.4), in each case, as a result
of which shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series F Preferred shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series F Preferred would have been entitled upon such Transaction; and, in any
such case, appropriate adjustment (as determined by the Corporation's Board of
Directors) shall be made in the application of the provisions set forth in this
Section 3.6.7 with respect to the rights and interest thereafter of the holders
of the Series F Preferred, to the end that the provisions set forth in this
Section 3.6.7 shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series F Preferred. Except as provided in the
Shareholders' Agreement, the Corporation shall not effect any Transaction (other
than a consolidation or merger in which the Corporation is the continuing
corporation) unless prior to or simultaneously with the consummation thereof the
Corporation, or the successor corporation or purchaser, as the case may be,
shall provide in its charter document that each share of Series F Preferred
shall be converted into such shares of stock, securities or property as, in
accordance with the foregoing provisions, each such holder is entitled to
receive. The provisions of this Section 3.6.7(g) shall similarly apply to
successive Transactions.
(h) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
except as has been approved by the holders of at least 50.1% of the then
outstanding Series F Preferred voting as a class on an as-converted basis either
at a duly called shareholders meeting or by written consent, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3.6.7 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series F Preferred against
impairment.
(i) All calculations under this Section 3.6.7 shall be made to
the nearest one hundredth (1/100) of a cent or the nearest one tenth (1/10) of a
share, as the case may be. Upon conversion of the Series F Preferred pursuant to
this Section 3.6.7, the Corporation may pay cash based on the Series F
Conversion Price in lieu of issuing fractional shares.
3.6.8. Notice of Certain Events. In case, at any time while any
------------------------
shares of Series F Preferred are outstanding:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(b) the Corporation shall authorize the issuance to the
holders of its Common Stock as a class, of Common Stock Equivalents, or rights
or warrants to subscribe for or purchase shares of its Common Stock or of any
other subscription rights or warrants;
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(c) the Corporation shall authorize any reorganization,
reclassification or recapitalization of its Common Stock;
(d) the Corporation shall authorize the consolidation or
merger of the Corporation into or with any other person, the sale or transfer of
a substantial portion of its capital stock, business or assets to another
person, or any other similar business combination or transaction; or
(e) the Corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation;
then the Corporation shall promptly deliver to the transfer agent of the Series
F Preferred and to each of the holders of shares of Series F Preferred at their
last addresses as shown on the books of the Corporation, at least 15 days before
the date hereinafter specified (or the earlier of the dates hereinafter
specified, in the event that more than one date is specified), a notice
describing such event and stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which any such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
(including cash), if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up. Any notice
required to be given hereunder to the holders of shares of Series F Preferred
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation, and such notice may be waived with respect to all of the
outstanding Series F Preferred by the holders of a majority of the outstanding
Series F Preferred.
3.6.9. Certain Remedies. Any registered holder of Series F
----------------
Preferred may proceed to protect and enforce its rights and the rights of any
other holders of Series F Preferred with any and all remedies available at law
or in equity.
3.6.10. Protective Provisions. So long as any shares of Series F
---------------------
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holder or
holders of at least 50.1% of the then outstanding shares of Series F Preferred:
(a) alter or change the rights, preference or privileges of
the shares of Series F Preferred or otherwise amend the Certificate of
Incorporation, in either case, whether by merger, consolidation or otherwise, so
as to affect adversely the shares of Series F Preferred (provided, however, that
the approval of the holders of Series F Preferred shall not be required for any
alteration or change of the rights of such holders upon liquidation as set forth
in Section 3.6.4 or redemption as set forth in Section 3.6.6 (including changes
to the definition of Series F Liquidation Value) so long as similar changes are
made to the terms of the Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred);
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(b) increase the authorized number of shares of Series F
Preferred except to pay, or reserve for payment, upon a Series F PIK Election;
or
(c) except as provided by the Brinson Purchase Agreement, the
Shareholders' Agreement or upon a Series F PIK Election, authorize the issuance
of, issue, or sell any additional shares of Series F Preferred.
3.6.11. Reports as to Adjustments. Upon any adjustment of the
-------------------------
Series F Conversion Ratio then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the operation of the conversion
provisions set forth in Section 3.6.7, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series F
Preferred as shown on the books of the Corporation a copy of a certificate
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation, with
the original being delivered to the transfer agent for the Series F Preferred,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Series F
Conversion Ratio then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion granted pursuant to
Section 3.6.7, and shall set forth in reasonable detail the method of
calculation of each and a brief statement of the facts requiring such
adjustment.
3.6.12. No Reissuance of Series F Preferred. No share or shares
-----------------------------------
of Series F Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and without further
corporate or stockholder action all such shares shall be canceled, retired and
eliminated from the shares that the Corporation shall be authorized to issue.
3.6.13. Definitions. In addition to any other terms defined
-----------
herein, the following terms shall have the meanings indicated for purposes of
this Section 3.6:
"Purchase Price" has the meaning given that term in Section 3.3.14.
"Series F Conversion Ratio," determined as of any date, shall equal
the number of shares of Common Stock into which one share of Series F Preferred
is convertible pursuant to Section 3.6.7 and shall be determined by dividing (i)
$2.13 (as adjusted for stock splits, reverse splits, stock dividends (other than
a Series F PIK Election) and stock combinations of the Series F Preferred, or
pursuant to Section 3.6.7(g)) and, if applicable, a Series F IPO Adjustment
pursuant to Section 3.6.7.(j)) by (ii) the Series F Conversion Price. The
Series F Conversion Ratio shall initially equal one and shall be subject to
adjustment as provided in paragraphs (c) and (j) of Section 3.6.7.
"Series F Conversion Price" means, as of the Series F Issue Date, $2.13
and, thereafter is subject to adjustment for stock splits, reverse splits, stock
dividends (other than a Series F PIK Election) and stock combinations of the
Series F Preferred and as provided in Section 3.6.7. Notwithstanding the
foregoing, the Series F Conversion Price shall not be less than the par value of
one share of Common Stock.
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"Series F Issue Date" means the first date on which shares of Series F
Preferred are issued.
"Series F Liquidation Value" means the greater of (i) $2.13 (as
adjusted for stock splits, reverse splits, stock dividends (other than a Series
F PIK Election) and stock combinations, in each case of the Series F Preferred),
for each share of Series F Preferred plus all accrued but unpaid dividends on
the Series F Preferred or (ii) the per share amount that the holders of the
Series F Preferred would have received upon liquidation if all shares of Series
F Preferred had been converted to Common Stock immediately prior to such
liquidation at the Series F Conversion Price then in effect, plus all accrued
but unpaid dividends on the Series F Preferred.
"Series F Stated Value" means $2.13 per share (as adjusted for stock
splits, reverse splits, stock dividends (other than a Series F PIK Election) and
stock combinations of the Series F Preferred or pursuant to Sections 3.6.3(a)
(other than in respect of a Series F PIK Election) and 3.6.7(g)).
3.7. Supermajority Vote.
------------------
3.7.1 In addition to any affirmative vote of a holder of a class
or series of capital stock of the Corporation required by law or this
Certificate of Incorporation, except as set forth in the Shareholders'
Agreement, the merger or consolidation of the Corporation with another
corporation or entity, or the sale by the Corporation of substantially all of
the Corporation's assets used or useful in its businesses, shall require the
affirmative vote of the holders of at least 66-2/3% of the combined voting power
of the Preferred Stock (voting on an as-converted basis) and the Common Stock,
voting together as a single class. Such an affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or the Corporation's Board of Directors.
3.7.2 The approval by the holders of a majority of the Common
Stock, Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred and Series F Preferred, each voting as a separate
Class (as to the Common Stock) or Series (as to the Preferred Stock) is required
prior to any stock split, reverse split or combination of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred or Series F Preferred, or declaration or payment of any dividend or
distribution thereon payable in the form of such preferred stock (other than
with respect of a Series A PIK Election, Series B PIK Election, Series C PIK
Election, Series D PIK Election, Series E PIK Election or Series F PIK
Election). Any amendment to this Section 3.7.2 requires the approval by the
holders of a majority of the Common Stock, Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred, each voting as a separate Class (as to the Common Stock) or Series
(as to the Preferred Stock).
3.8. Spider. The distribution of shares of the capital stock of
------
Spider Technologies, Inc. occurred pursuant to the Distribution Plan
("Distribution Plan") approved by the Corporation's Board of Directors on or
-----------------
about October 26, 1999, and by the holders of a majority of each of the Common
Stock, Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred and more than 66-2/3% of the combined
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voting power of the Preferred Stock (voting on an as-converted basis) and the
Common Stock, voting together as a single class, as of October 1, 1999. The
Distribution Plan and the actions contemplated thereby shall not constitute a
dividend, distribution, dissolution, winding up, liquidation, recapitalization,
reclassification, reorganization, sale or transfer of a substantial portion of
the Corporation's capital stock, business or assets, or any similar business
combination or transaction, an issuance or sale of its capital stock or a Common
Stock Equivalent, subscription right, or warrant, event permitting the exercise
of preemptive or similar rights, a Transaction, a Stock Adjustment, or cause any
adjustment in the Series A Original Purchase Price, Series A Liquidation Value,
Series A Conversion Price, Series A Redemption Price, Series B Stated Value,
Series B Liquidation Value, Series B Redemption Price, Series B Conversion
Ratio, Series B Conversion Price, Series C Stated Value, Series C Liquidation
Value, Series C Redemption Price, Series C Conversion Ratio, Series C Conversion
Price, Series D Stated Value, Series D Liquidation Value, Series D Redemption
Price, Series D Conversion Ratio, Series D Conversion Price, Series E Stated
Value, Series E Liquidation Value, Series E Redemption Price, Series E
Conversion Ratio, or Series E Conversion Price, Series F Stated Value, Series F
Liquidation Value, Series F Redemption Price, Series F Conversion Ratio, or
Series F Conversion Price, or otherwise result in the application of any term
hereof or of the Series NB Warrant, or require any notice to any holder of
capital stock of the Corporation except as given. The provisions of this Amended
and Restated Certificate of Incorporation fully address each matter, adjustment
or notice which may otherwise have been affected by or resulted in the
application of any term of this, or the preceding, Amended and Restated
Certificate of Incorporation; provided that the definition of "Fair Market
Value" shall take into account the fact that Spider Technologies, Inc. is, as of
the distribution pursuant to the Distribution Plan, no longer an asset of the
Corporation and hence not a component of determining Fair Market Value. Further,
a holder of the Corporation's capital stock or Series NB Warrant shall not be
entitled (in respect of such capital stock or Series NB Warrant) to receive
capital stock or other securities of Spider Technologies, Inc. except as
provided in the Distribution Plan.
3.9 Liquidation Preference Notice. The Shareholders' Agreement may
-----------------------------
contain provisions whereby holders of the Corporation's capital stock subject
thereto have agreed in certain circumstances to vote their shares to reduce or
increase the amounts receivable by holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series
F Preferred upon a liquidation or redemption, all as further set forth therein.
This Section is set forth solely as a matter of notice, does not grant any
person any rights, does not alter any provision of the Shareholders' Agreement
(including the consents required for amendment, modification, waiver or
termination thereof), and does not expressly or impliedly create any obligation
to amend this provision to reflect any amendment, modification, waiver or
termination of the Shareholders' Agreement.
3.10. References. All Section references in this Article IV are to
----------
Sections of this Article IV unless otherwise expressly stated.
ARTICLE V
Election of directors need not be by written ballot unless required by
the Corporation's by-laws. In furtherance and not in limitation of the power
conferred upon the Corporation's Board of Directors by law, the Corporation's
Board of Directors shall have the
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power to make, adopt, alter, amend and repeal from time to time by-laws of this
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal by-laws made by the Corporation's Board of
Directors.
Notwithstanding any other provisions of this
Certificate, if the consolidated financial statements of the Corporation for the
twelve month period ending March 31, 2001, do not report a positive number for
earnings before taxes and before amortization of goodwill in respect of
companies or operations acquired by the Corporation or its subsidiaries after
January 1, 1998, (utilizing the same accounting principles, standards and
assumptions as in effect on May 5, 1998 and excluding the effects of (i)
performance based compensation paid to executives of companies or operations
acquired by the Corporation or its subsidiaries in an amount (which may be all
or a part of such compensation) as determined by the audit committee of the
Corporation prior to the time of signing of the letter of intent or the term
sheet for the acquisition, and (ii) such similar or other charges and costs as
the Corporation's Board of Directors, Conning and Beacon may agree in writing
are appropriate in respect of a particular purchase of a business, and (iii)
accounting charges in respect of stock options, including repriced options, if
such option or repricing was approved by the Corporation's Board of Directors,
then from and after the date of such financial statements (regardless of whether
the Corporation subsequently reports a positive such number with respect to any
subsequent fiscal year), action of the Corporation's Board of Directors shall
require twelve affirmative votes, and (A) each Beacon Director (as defined in
the Shareholders' Agreement) shall be entitled to cast three votes, (B) each
Conning Director (as defined in the Shareholders' Agreement) shall be entitled
to cast three votes, (C) each other director shall be entitled to cast one vote,
and (D) the Beacon Directors and Conning Directors will use good faith efforts
to exercise their voting rights together.
ARTICLE VI
1. Indemnification of Directors and Officers. The Corporation shall
-----------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, pension,
profit sharing and other benefit plans), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
---- ----------
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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2. Derivative Actions. The Corporation shall indemnify any person who
------------------
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
3. Indemnification in Certain Cases. To the extent that a director,
--------------------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
4. Procedure. Any indemnification under Sections 1 and 2 of this Article
---------
VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by a majority vote of the directors who are
not parties to such action, suit or proceeding even though less than a quorum of
the Corporation's Board of Directors, or (b) if there are no such directions,
or, even if such directors so direct, by independent legal counsel in a written
opinion, or (c) by the stockholders.
5. Advances for Expenses. Expenses (including attorneys' fees) incurred
---------------------
by an officer or director in defending a civil, criminal, administrative or
investigative action, suit or proceeding 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 or officer to repay such
amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VI. Such expense
(including attorneys' fees) incurred by other employees and agents may be paid
upon such terms and conditions, if any, as the Corporation's Board of Directors
deems appropriate.
6. Rights Not-Exclusive. The indemnification and advancement of expenses
--------------------
provided by, or granted pursuant to, the other subsections of this Article VI
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
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7. Insurance. The Corporation shall have power to purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article VI.
8. Definition of Corporation. For purposes of this Article VI,
-------------------------
references to the "Corporation" 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 and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this section
with respect to such constituent corporation if its separate existence had
continued.
9. Construction. For purposes of this Article VI, references to "other
------------
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
10. Survival of Rights. The indemnification and advancement of expenses
------------------
provided by, or granted pursuant to, this Article VI shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. No subsequent amendment of this Article VI shall diminish the rights
hereunder of any director or officer with respect to any action taken or claim
made prior to such amendment.
ARTICLE VII
No director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision does not eliminate the liability of a
director (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 GCL or (iv) for any transaction from which the director
derived an improper personal benefit. For purposes of the prior sentence, the
term "damages" shall, to the extent permitted by law, include without
limitation, any judgment, fine, amount paid in settlement, penalty, punitive
damages, excise or other tax assessed with respect to an employee benefit plan,
or expense of any nature (including, without limitation, counsel fees and
disbursements). Each person who serves as a
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director of the Corporation while this Article VII is in effect shall be deemed
to be doing so in reliance on the provisions of this Article VII, and neither
the amendment or repeal of this Article VII, nor the adoption of any provision
of this Amended and Restated Certificate of Incorporation inconsistent with this
Article VII, shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for, arising out of, based upon, or
in connection with any acts or omissions of such director occurring prior to
such amendment, repeal, or adoption of an inconsistent provision. The provisions
of this Article VII are cumulative and shall be in addition to and independent
of any and all other limitations on or eliminations of the liabilities of
directors of the Corporation, as such, whether such limitations or eliminations
arise under or are created by any law, rule, regulation, by-law, agreement, vote
of stockholders or disinterested directors, or otherwise. If the GCL is
hereafter amended to permit further elimination or limitation of 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 this Article VII by the stockholders of
the Corporation or otherwise shall not adversely affect any right or protection
of a director of the Corporation existing at the time of such repeal or
modification. For purposes of this Article VII, all references to a director
shall also be deemed to refer to any person or persons, if any, who, pursuant to
a provision of this Amended and Restated Certificate of Incorporation, exercise
or perform any of the powers or duties otherwise conferred or imposed upon the
Corporation's Board of Directors.
ARTICLE VIII
The Corporation hereby elects pursuant to Section 203(b)(3) not to be
governed by Section 203(a) of the GCL.
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IN WITNESS WHEREOF, Intek Information, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed and attested by its duly
authorized officers, this 19th day of November, 1999.
INTEK INFORMATION, INC.
By: /S/ TIMOTHY C. O'CROWLEY
----------------------------------
Timothy C. O'Crowley, President
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Exhibit 3.3
RESTATED
BYLAWS
OF
INTEK INFORMATION, INC.
(a Delaware corporation)
(November 4, 1999)
ARTICLE I
Stockholders
------------
Section 1. Annual Meeting. The annual meeting of the stockholders
shall be held on such date, at such time and at such place as shall be set by
the Board of Directors for the purpose of electing directors and for the
transaction of such other business as may come before the meeting.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose, unless otherwise prescribed by statute, may be called by the
President, and by the Board of Directors.
Section 3. Place of Meeting. The Board of Directors may designate any
place as the place for any annual meeting or for any special meeting of
stockholders. If no designation is made the place of the meeting shall be the
registered office of the Company in the State of Delaware.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting, and, in case of a special meeting, the
purpose for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally, by facsimile or by mail, by or at the direction of the President, or
the Secretary to each stockholder of record entitled to vote at such meeting.
If notice is given by facsimile, such notice shall be deemed to have been made
upon confirmation of facsimile transmission by the transmitting fax machine. If
mailed, the notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
stock transfer books of the Company, with postage thereon prepaid.
Section 5. Quorum. A majority of the shares outstanding of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a quorum is represented at a meeting,
a majority of the shares so represented may adjourn the meeting without further
notice if the time and place thereof are announced at the meeting at which the
adjournment is taken, provided, however, that the period shall not exceed thirty
(30) days for any one adjournment. At such adjournment of a meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally called. The
stockholders present at a duly organized meeting may continue to transact
<PAGE>
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
If a quorum is present, the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the stockholders, unless the vote of a greater number is required by
law or the Certificate of Incorporation.
Section 6. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the Company
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
Section 7. Voting of Shares. Each outstanding share shall be entitled to
one vote, and each fractional share shall be entitled to a corresponding
fractional vote on each matter submitted to a vote at a meeting of the
stockholders except as otherwise provided in the Certificate of Incorporation.
In the election of Directors, each record holder of stock entitled to vote at
such election shall have the right to vote the number of shares owned by him for
as many persons as there are directors to be elected, and for whose election he
has the right to vote. Cumulative voting shall not be allowed.
Section 8. Action Without a Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken or which may be
taken at a meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the Company shall
be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors of
the Company shall not be less than one (1) nor more than ten (10) (or eleven
(11) if a Brinson Director is appointed as provided in the Amended and Restated
Certificate of Incorporation of the Company) as shall be fixed from time to time
by the Board of Directors, and except as otherwise provided in that certain
Amended and Restated Shareholders' and Voting Agreement by and among the Company
and its stockholders, dated November 4, 1999, as amended from time to time (the
"Shareholders' Agreement"), no decrease in the number of directors shall have
the effect of
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shortening the term of any incumbent director. Directors shall be elected at
each annual meeting of stockholders. Each Director shall hold office until the
next annual meeting of stockholders and thereafter until his successor shall
have been elected and qualified. Directors need not be stockholders of the
Company.
Section 3. Vacancies. Any Director may resign at any time by giving
written notice to the President or to the Secretary of the Company. Such
resignation shall take effect at the time specified therein and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Except as provided otherwise in a Shareholders'
Agreement or the Company's Certificate of Incorporation, as amended, any vacancy
occurring in the Board of Directors, including any vacancy created by an
increase in the number of Directors, may be filled by the affirmative vote of a
majority of the remaining Directors though less than a quorum. A Director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
Section 4. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after and at the
same place as the annual meeting of stockholders. The Board of Directors may
adopt a resolution as to the time and place for the holding of additional
regular meetings without other notice than such resolution.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or any two (2) Directors.
The person or persons authorized to call special meetings of the Board of
Directors may fix any place as the place for holding any special meeting of the
Board of Directors called by them.
Section 6. Notice. Notice of any special meeting shall be given at least
two (2) days prior thereto by written notice delivered personally, by facsimile,
or mailed to each Director at his or her business address. If notice is given
by facsimile, such notice shall be deemed to be delivered when confirmation of
delivery is printed by the transmitting fax machine. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed with postage thereon prepaid. The attendance of a Director at a
meeting shall constitute a waiver of notice of such meeting except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. But if less than a majority is present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
Section 8. Manner of Action. Except as provided in the Shareholders'
Agreement, the act of the majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
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<PAGE>
Section 9. Compensation. By resolution of the Board of Directors, any
Director may be paid any one of the following: his expenses, if any, of
attendance at meetings; a fixed sum for attendance at each meeting; or a stated
annual amount as a Director. No such payment shall preclude any Director from
serving the Company in any other capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A Director of the Company who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he files
his written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
Section 11. Meeting by Conference Telephone. Members of the Board of
Directors or any committee designated by the Board may participate in a meeting
of the Board or committee by means of a conference telephone or similar
communications equipment by which all persons participating in a meeting can
hear each other at the same time. Such participation shall constitute presence
in person at the meeting.
Section 12. Action Without a Meeting. Any action required or permitted to
be taken at a meeting of the Directors or any committee designated by the Board
may be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the Directors or all members of the
committee entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
Directors or of the committee.
Section 13. Committees. The Board of Directors may appoint an executive
committee and any other committee of the Board of Directors, to consist of one
or more directors of the Company, and may delegate to any such committee any of
the authority of the Board of Directors, however conferred, other than 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 Company's property
and assets, recommending to the stockholders a dissolution of the Company or a
revocation of a dissolution, or amending the Bylaws of the Company. No
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock unless the resolution creating such committee
expressly so provides. Except as provided in the Shareholders' Agreement, each
such committee shall serve at the pleasure of the Board of Directors, shall have
the scope of responsibilities typical of that type of committee, shall act only
in the intervals between meetings of the Board of Directors and shall be subject
to the control and direction of the Board of Directors. Each such committee
shall only recommend actions to the entire Board of Directors and shall have no
authority to bind the Company. The entire Board of Directors will not adopt any
action contrary to a properly authorized compensation committee or audit
committee decision and if the Board of Directors disagrees with such a decision
then no action on the matter may be taken until there is agreement
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<PAGE>
between the committee and the Board of Directors (except that this sentence does
not apply to any decision as to a matter: (i) that was not within the scope of
the committee's responsibility or (ii) which the Board of Directors cannot
delegate to a committee pursuant to the Delaware General Corporation Law). The
compensation committee shall, among other things, recommend whether stock option
grants will be incentive stock options or non-qualified stock options. Any such
committee may act by a majority of its members at a meeting or by a writing or
writings signed by all of its members. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next regular meeting of the Board of Directors.
ARTICLE III
Officers and Agents
-------------------
Section 1. General. The officers of the Company shall be a President and
a Secretary. The Board of Directors may appoint such other officers, assistant
officers, and agents, including a Chairman of the Board, a Treasurer, Assistant
Secretaries and Assistant Treasurers, as they may consider necessary, who shall
be chosen in such a manner and hold their offices for such terms and have such
authority and duties as from time to time may be determined by the Board of
Directors. The salaries for all the officers of the Company shall be fixed by
the Board of Directors or a corporation committee thereof. Any number of
offices may be held by the same person. In all cases where duties of any
officer, agent or employee are not prescribed by the Bylaws or by the Board of
Directors, such officer, agent or employee shall follow the orders and
instructions of the President.
Section 2. Election and Term of Office. The officers of the Company
shall be elected by the Board of Directors annually at the first meeting of the
Board held after each annual meeting of the stockholders. Each officer shall
hold office until the first of the following to occur: until his successor shall
have been duly elected and shall have qualified; until his death; until he shall
resign; or until he shall have been removed in the manner hereafter provided.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the Company will be
served thereby.
Section 4. Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors for the unexpired portion of the term.
Section 5. President. The President shall, subject to the direction and
supervision of the Board of Directors, be the chief executive officer of the
Company. He shall preside at all meetings of stockholders and Directors, he
shall have general supervision of the affairs of the Company, and he shall sign
or countersign all certificates of stock, contracts and other
instruments of the Company.
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Section 6. Vice President. In the absence or disability of the
President, the Vice President shall perform the duties of the President. The
Vice President shall assist the President and shall perform the duties as may be
assigned to him by the President or the Board of Directors.
Section 7. Secretary. The Secretary shall (a) keep the minutes of the
proceedings of the stockholders and the Board of Directors, (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law, (c) be custodian of the corporate records and of the seal of
the Company and affix the seal to all documents when authorized by the Board of
Directors, (d) keep at its registered office or principal place of business a
record containing the names and addresses of all stockholders and the number and
class of shares held by each, unless such record shall be kept at the office of
the Company's transfer agent or registrar, (e) sign with the President or Vice
President certificates for shares of the Company, the issuance of which shall
have been authorized by resolution of the Board of Directors, and (f) have
general charge of the stock transfer books of the Company, unless the Company
has a transfer agent.
Section 8. Treasurer. The Treasurer shall be the principal financial
officer of the Company and shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the Company
and shall deposit the same in accordance with the instruction of the Board of
Directors. He shall receive and give receipts and acquittances for monies paid
in on account of the Company, and shall pay out of the funds on hand all bills,
payrolls, and other just debts of the Company of whatever nature upon maturity.
He shall perform all other duties incident to the office of Treasurer, and upon
request of the Board of Directors, shall make such reports to it as may be
required at any time. He shall, if required by the Board, give the Company a
bond in such sums and with such sureties as shall be satisfactory to the Board,
conditioned upon the faithful performance of his duties and for the restoration
to the Company of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the Company.
He shall have such other powers and perform such other duties as may be from
time to time prescribed by the Board of Directors or the President.
ARTICLE IV
Stock
-----
Section 1. Certificates. Shares of the Company's stock shall be
represented by consecutively numbered certificates signed in the name of the
Company by its President or Vice President and by the Secretary or the Treasurer
and shall be sealed with the seal of the Company. Certificates of stock shall be
in such form consistent with law as shall be prescribed by the Board of
Directors. No certificates shall be issued until the shares represented thereby
are fully paid.
Section 2. Lost Certificates. In case of the alleged loss, destruction
or mutilation of a certificate of stock, the Board of Directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as it may prescribe. The Board of Directors may in its
discretion require a bond in such form and amount and with such surety as it may
determine, before issuing a new certificate.
6
<PAGE>
Section 3. Transfer of Shares. Upon surrender to the Company of a
certificate of stock duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and such documentary stamps as
may be required by law, it shall be the duty of the Company to issue a new
certificate to the person entitled thereto, and cancel the old certificate.
Every such transfer of stock shall be entered on the stock book of the Company
which shall be kept at its principal office or by its registrar duly appointed.
The Company shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice thereof
except as may be required by the laws of the State of Delaware.
ARTICLE V
Indemnification of Officers and Directors
-----------------------------------------
To the full extent authorized or permitted by law, the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was a Director or officer of the Company or is or was serving at the
request of the Company in any capacity any other corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE VI
Miscellaneous
-------------
Section 1. Waivers of Notice. Whenever notice is required by law, by the
Certificate of Incorporation or by these Bylaws, a waiver thereof in writing
signed by the director, stockholder or other person entitled to said notice,
whether before, at or after the time stated therein, or his appearance at such
meeting in person or (in the case of a stockholder's meeting) by proxy, shall be
equivalent to such notice.
Section 2. Amendments. Subject to repeal or change by action of the
stockholders, the Board of Directors shall have the power to make, amend and
repeal the Bylaws of the Company at any regular meeting of the Board of
Directors or at any special meeting called for that purpose.
7
<PAGE>
Exhibit 4.3
INTEK INFORMATION, INC.
A Delaware Corporation
REGISTRATION RIGHTS AGREEMENT
Dated as of October 30, 1999
Prepared by Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado, 80302
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of October
30, 1999, by and between INTEK INFORMATION INC., a Delaware corporation (the
"Company") and the undersigned owners of certain capital stock of the Company.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company entered into a Stock Purchase Agreement dated October
30, 1999 ("Purchase Agreement") with Acorn Information Services, Inc., a
Delaware corporation ("Acorn"), and the owners of all of the outstanding capital
stock of Acorn (the "Acorn Shareholders") pursuant to which the Company has
agreed to issue certain shares of the Company's common stock, $.0001 par value
per share, (the "Common Stock"), to the Acorn Shareholders upon the achievement
by Acorn of certain performance targets set forth in the Purchase Agreement;
WHEREAS, pursuant to the Purchase Agreement, the Company agreed to issue
certain shares of Common Stock to Prospero LLC., a Connecticut limited liability
company, ("Prospero") on behalf of Acorn in consideration for certain services
performed for Acorn in connection with the transactions contemplated by the
Purchase Agreement;
WHEREAS, upon receipt of the Common Stock under the Purchase Agreement, the
Company, the Acorn Shareholders and certain other holders of capital stock of
the Company are entering into an Amended and Restated Shareholders' and Voting
Agreement (the "Shareholders' Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition to the
closing of the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Acorn Holder" or "Acorn Holders" means the Acorn shareholders who own
------------ -------------
Registrable Securities and who are signatories to this Agreement.
1
<PAGE>
"Affiliate" means (i) with respect to any Person, any other Person directly
---------
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, (ii) with respect to any natural Person,
shall also mean the spouse, sibling, child, step-child, grandchild, niece,
nephew or parent of such Person, or the spouse thereof, (iii) the estate of a
Shareholder or Affiliate, (iv) any trust created for the benefit of an Acorn
Shareholder or by an Acorn Shareholder for an Affiliate of such Acorn
Shareholder specified in clause (ii), and (v) with respect to any Person, any
general partner or limited partner of such Person.
"Common Stock" means the Common Stock, $.0001 par value per share, of the
------------
Company and any equity securities of the Company issued or issuable with respect
to the Common Stock in connection with a reclassification, recapitalization,
stock combination, stock dividend payable in stock of the Company, merger,
consolidation or other reorganization.
"Contingent Earn-Out Consideration" means the consideration payable to the
---------------------------------
Acorn Shareholders in cash and Intek Common Stock under Section 2.2 of the
Purchase Agreement contingent upon Acorn achieving certain performance targets,
and subject to Section 2.4 and Section 5.18 of the Purchase Agreement. The
stock portion of such Contingent Earn-Out Consideration shall be referred to
herein as the "Stock Earn-Out Consideration".
----------------------------
"Holder" or "Holders" means any party who is a signatory to this Agreement
------ -------
and any party who shall hereafter acquire and hold Registrable Securities.
"IPO" means the initial underwritten offering of the Common Stock pursuant
---
to an effective registration statement under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
------------
"Other Registrable Securities" mean those securities defined in each of the
----------------------------
Other Registration Rights Agreements as "Registrable Securities."
"Other Registration Rights Agreements" mean (i) that certain Registration
------------------------------------
Rights Agreement made as of February 3, 1997, by and between the Company and The
Beacon Group III - Focus Value Fund, L.P., as amended by (a) that certain
Amendment No. 1 to Registration Rights Agreement made as of December 22, 1997,
(b) that certain Amendment No. 2 to Registration Rights Agreement made as of May
7, 1998, (c) that certain Amendment No. 3 to Registration Rights Agreement made
as of April 16, 1999, and (d) that certain Amendment No. 4 to Registration
Rights Agreement made as of the date hereof; (ii) that certain Amended and
Restated Registration Rights Agreement made as of February 3, 1997, by and among
the Company, Resource BancShares Corporation and Timothy C. O'Crowley, as
amended by (a) that certain Amendment No. 1 to Amended and Restated Registration
Rights Agreement made as of May 7, 1998, (b) that certain Amendment No. 2 to
Amended and Restated Registration Rights
2
<PAGE>
Agreement made as of April 16, 1999; and (c) that certain Amendment No. 3 to the
Amended and Restated Registration Rights Agreement made as of the date hereof;
(iii) that certain Registration Rights Agreement made as of February 3, 1997, by
and among the Company, Frank Richards, Tyce Fields, Bain & Company, Inc., Squam
Lake Investors II, L.P. and certain other persons named therein, as amended by
(a) that certain Amendment No. 1 to Registration Rights Agreement made as of May
7, 1998, (b) that certain Amendment No. 2 to Registration Rights Agreement made
as of April 16, 1999, and (c) that certain Amendment No. 3 to Registration
Rights Agreement made as of the date hereof; (iv) that certain Registration
Rights Agreement made as of May 7, 1998, by and between the Company and Conning
Insurance Capital Limited Partnership V, as amended by (a) that certain
Amendment No. 1 to Registration Rights Agreement made as of April 16, 1999, and
(b) that certain Amendment No. 2 to Registration Rights made as of the date
hereof; and (v) that certain Registration Rights Agreement made as of April 16,
1999 by and among the Company and U.S. Information Technology Financing, L.P.,
Encompass Group, Inc., Trans Cosmos USA, Inc. and certain other parties thereto,
as amended by that certain Amendment No. 1 to Registration Rights Agreement made
as of the date hereof.
"Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Registrable Securities" means any (i) Common Stock issued or issuable to
----------------------
the Acorn Shareholders and to Prospero under the Purchase Agreement, and (ii)
shares of Common Stock issued or issuable, directly or indirectly, with respect
to the Common Stock referenced in clause (i) above by way of any stock split,
stock dividend payable in the capital stock of the Company, recapitalization or
combination of shares. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, or (ii) such securities shall
have been sold (other than in a privately negotiated sale) pursuant to Rule 144
(or any successor provision) under the Securities Act.
"Requisite Percentage of Outstanding Holders" means the Acorn Holders of
-------------------------------------------
Registrable Securities who hold individually or in the aggregate at least 50% of
the total Registrable Securities then outstanding.
"Requisite Percentage of Participating Holders" means the Acorn Holders of
---------------------------------------------
Registrable Securities participating in a registration hereunder who hold
individually or in the aggregate at least 50% of the total Registrable
Securities held by all Acorn Holders participating in the registration.
"SEC" means the Securities and Exchange Commission.
---
3
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
--------------
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration.
-------------------
2.1.1. Request for Registration. Subject to Section 2.1.4, after
------------------------
payment of the Stock Earn-Out Consideration under the Purchase Agreement, at any
time and from time to time starting after twelve months after an IPO, one or
more Acorn Holders of Registrable Securities representing the Requisite
Percentage of Outstanding Holders shall have the right to require the Company to
file a registration statement under the Securities Act covering all or any part
of their respective Registrable Securities, by delivering a written request
therefor to the Company specifying the number of Registrable Securities to be
included in such registration by such Acorn Holder(s) and the intended method of
distribution thereof. All such requests pursuant to this Section 2.1.1 are
referred to herein as "Demand Registration Requests," and the registrations so
----------------------------
requested are referred to herein as "Demand Registrations" (with respect to any
--------------------
Demand Registration, the Acorn Holder(s) making such demand for registration
being referred to as the "Initiating Holder"). As promptly as practicable, but
-----------------
no later than 15 days after receipt of a Demand Registration Request, the
Company shall give written notice (the "Demand Exercise Notice") of such Demand
----------------------
Registration Request to all Acorn Holders of record of Registrable Securities.
2.1.2. Registration of Other Securities. The Company shall include
--------------------------------
in a Demand Registration (i) the Registrable Securities of the Initiating Holder
and (ii) the Registrable Securities of any other Acorn Holder that shall have
made a written request to the Company for inclusion thereof in such registration
(which request shall specify the maximum number of Registrable Securities
intended to be disposed of by such Holder(s)) within 30 days after the receipt
of the Demand Exercise Notice; provided, however, that the Company shall not be
-------- -------
obligated to cause a Demand Registration to become effective for greater than
twenty five percent (25%) of the total number of shares of Registrable
Securities held by all of the Acorn Holders as of the date of a Demand
Registration Request, and if the number of shares of Registrable Securities for
which a Demand Registration Request was made exceeds such amount, the number of
shares of Registrable Securities each participating Acorn Holder will be
entitled to register shall be based on his or her pro rata ownership of
Registrable Securities.
2.1.3. Registration. The Company shall, as expeditiously as
------------
possible following a Demand Registration Request, use its best efforts to (i)
effect such registration under the Securities Act of the Registrable Securities
that the Company has been so requested to register,
4
<PAGE>
for distribution in accordance with such intended method of distribution, and
(ii) if requested by the Initiating Holder, obtain acceleration of the effective
date of the registration statement relating to such registration.
2.1.4. Limitations on Requested Registrations. The rights of Acorn
--------------------------------------
Holders of Registrable Securities to request Demand Registrations pursuant to
Section 2.1.1 are subject to the following limitations:
2.1.4.1 the Company shall not be obligated to cause a
Demand Registration to become effective for greater than the twenty five
percent (25%) of the total number of shares of Registrable Securities held
by all of the Acorn Holders;
2.1.4.2 the Company shall have the sole discretion pursuant
to Section 2.2.4 of the Purchase Agreement to provide in lieu of a Demand
Registration hereunder (i) a loan with a term of three (3) years, bearing
fixed simple interest at the prime rate reported on the date of the loan in
the "Money Rates" section of the Wall Street Journal (or if such rate is
-------------------
not published, a comparable rate of Citibank, N.A. ("Prime Rate") amortized
in equal monthly payments in an amount equal to up to twenty-five percent
(25%) of the fair market value of Registrable Securities held by the
requesting Acorn Holders as of the date of such loan and secured by such
25% of the Registrable Securities held by the requesting Acorn Holders; or
(ii) an offer to repurchase twenty-five percent (25%) of the Registrable
Securities held by the requesting Acorn Holders at fair market value as of
such date.
2.1.4.3 the Company shall not be obligated to cause a
Demand Registration to become effective within six months after the
effective date of any other registration of securities (other than pursuant
to a registration on Form S-8 or any successor or similar form that is then
in effect),
2.1.4.4 (except as set forth below) in no event shall the
Company be required to effect, in the aggregate, without regard to the
Acorn Holder of Registrable Securities making such request, more than one
Demand Registration (it being agreed that any Demand Registration that does
not become effective shall not count toward the foregoing limitation unless
at the request of the Requisite Percentage of Participating Holders, such
Demand Registration has been withdrawn after the relevant registration
statement has been filed but prior to it becoming effective); and
2.1.4.5 the Company shall not be obligated to effect a
Demand Registration having an aggregate anticipated offering price of less
than $150,000 unless such offering shall cover all remaining Registrable
Securities. Notwithstanding any other provision of this Section 2.1.4.5,
any Acorn Holder participating in a Demand
5
<PAGE>
Registration who is unable to register all of the Registrable Securities
that such Acorn Holder sought to register because of the "cutback"
provision set forth in Section 2.1.5 shall be entitled to an additional
Demand Registration solely with respect to such Acorn Holder's shares of
Registrable Securities not registered because of the proviso in Section
2.1.5, and such additional Demand Registration shall not count toward the
one Demand Registration contemplated in Section 2.1.4.4.
2.1.4.6 the Company shall not be obligated to effect a
Demand Registration requested later than three (3) months prior to the date
on which the Acorn Holders must pay tax for the receipt of the Registrable
Securities.
2.1.5 Underwriter Cutbacks. If the managing underwriter of any
--------------------
underwritten offering shall advise the Acorn Holders participating in a Demand
Registration that the Registrable Securities covered by the registration
statement cannot be sold in such offering within a price range acceptable to the
Requisite Percentage of Participating Holders, then the Acorn Holders
representing the Requisite Percentage of Participating Holders shall have the
right to notify the Company in writing that they have determined that the
registration statement be abandoned or withdrawn, in which event the Company
shall abandon or withdraw such registration statement. If the managing
underwriter of any underwritten offering shall advise the Company in writing
that, in its opinion, the number of securities requested to be included in a
Demand Registration exceeds the number that can be sold in such offering within
a price range acceptable to the Requisite Percentage of Participating Holders,
the Company will include in such registration, to the extent of the number that
the Company is so advised can be sold in such offering, Registrable Securities
requested to be included in such registration, pro rata among the Acorn Holders
requesting such registration in accordance with the number of Registrable
Securities held by each such Acorn Holder; provided, however, that if, pursuant
-------- -------
to any of the Other Registration Rights Agreements, the parties holding Other
Registrable Securities exercise "piggy-back" rights in connection with a Demand
Registration that is governed by the general provisions of this sentence, then
the Company will include in such registration, to the extent of the number that
the Company is so advised can be sold in such offering, first all Registrable
-----
Securities requested to be so included and after all such Registrable Securities
are so included, second, Other Registrable Securities requested to be included
------
in such registration, pro rata among the Acorn Holders and the holders of such
Other Registrable Securities participating in such offering in accordance with
(i) with respect to Acorn Holders, the number of Registrable Securities held by
such Acorn Holder and (ii) with respect to holders of Other Registrable
Securities, the number of shares of Other Registrable Securities held by and, if
applicable, issuable upon conversion of any other securities of the Company
convertible into, exchangeable for or exercisable for Common Stock to each such
holder.
6
<PAGE>
2.1.6 Selection of Underwriters. The managing underwriter or
-------------------------
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Company.
2.1.7 Postponement; Suspension. The Company shall be entitled to
------------------------
postpone or suspend for a reasonable period of time (but not to exceed, in the
aggregate, 90 days in any 365 day period) the filing or effectiveness of any
registration statement required to be prepared and filed by it pursuant to this
Section 2.1 if, (i) the postponement or suspension is necessary due to
circumstances that would require disclosure that would materially and adversely
affect a material acquisition, divestiture or financial transaction of the
Company or (ii) such postponement or suspension is necessary to prepare
financial statements of an acquired company required to be included in such
registration statement pursuant to the requirements of Regulation S-X of the
SEC. The Company shall give the participating Acorn Holders prompt written
notice of its determination to postpone or suspend the filing of any
registration statement, and an approximation of the anticipated delay. If the
Company shall so postpone or suspend the filing of a registration statement, the
participating Acorn Holders representing the Requisite Percentage of
Participating Holders shall have the right to withdraw the request for
registration by giving written notice to the Company within 20 days after
receipt of the notice of postponement or suspension (as the case may be) and, in
the event of such withdrawal, such request shall not be counted toward the
number of Requested Registrations (including for purposes of Section 2.1.4).
2.1.8 Taxes. If the proceeds to be received by an Acorn Holder
-----
participating in a Demand Registration hereunder would not exceed such Acorn
Holder's tax liability arising out of the receipt of his or her shares of
Registrable Securities under a registration statement filed pursuant to such
Demand Registration, the participating Acorn Holder shall notify the Company of
the amount of such tax obligation and the difference between the Acorn Holder's
tax obligation and the proceeds received by the Acorn Holder from the sale of
his or her shares of Registrable Securities under such registration statement
(the "Tax Shortfall"). Upon receipt of such notice, the Company shall offer to
-------------
include in such Demand Registration up to an additional twenty five percent
(25%) of the total number of shares of Registrable Securities held by the
participating Acorn Holders, but in no event a greater number of shares of
Registrable Securities as having a fair market value greater than the amount of
the Tax Shortfall.
2.2 Piggyback Registrations.
-----------------------
2.2.1 Piggyback Registrations. If, at any time, the Company
-----------------------
proposes or is required to register any of its equity securities under the
Securities Act (other than pursuant to registrations on such form or similar
form(s) solely for registration of securities in connection with an employee
benefit plan or dividend reinvestment plan or a merger, consolidation or
acquisition) on a registration statement on Form S-1, Form S-2 or Form S-3 (or
an equivalent general registration form then in effect), whether or not for its
own account, the Company shall
7
<PAGE>
give prompt written notice of its intention to do so to Prospero. Upon the
written request of Prospero, made within 15 days following the receipt of any
such written notice (which request shall specify the maximum number of
Registrable Securities intended to be disposed of by Prospero and the intended
method of distribution thereof), the Company shall use its best efforts to cause
all such Registrable Securities, of which Prospero has so requested the
registration, to be registered under the Securities Act (with the securities
that the Company at the time it proposes to register) to permit the sale or
other disposition by Prospero (in accordance with the intended method of
distribution thereof) of the Registrable Securities to be so registered. There
is no limitation on the number of such piggyback registrations pursuant to the
preceding sentence that the Company is obligated to effect. No registration
effected under this Section 2.2.1 shall relieve the Company of its obligations
to effect Demand Registrations hereunder.
2.2.2 Abandonment or Delay. If, at any time after giving written
--------------------
notice of its intention to register any equity securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such equity securities, the Company may, at its election,
give written notice of such determination to Prospero and (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities of Prospero in connection with such abandoned
registration, without prejudice, however, to the rights of Holders under Section
2.1, and (ii) in the case of a determination to delay such registration of its
equity securities, shall be permitted to delay the registration of such
Registrable Securities for the same period as the delay in registering such
other equity securities.
2.2.3 Right to Withdraw. Prospero shall have the right to withdraw
-----------------
its request for inclusion of its Registrable Securities in any registration
statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw; provided, however, that (i) such request must be
-------- -------
made in writing prior to the earlier of the execution of the underwriting
agreement or the execution of the custody agreement with respect to such
registration and (ii) such withdrawal shall be irrevocable and, after making
such withdrawal, Prospero shall no longer have any right to include Registrable
Securities in the registration as to which such withdrawal was made.
2.2.4 Cutbacks. If the managing underwriter of any underwritten
--------
offering shall inform the Company by letter of its belief that the number of
Registrable Securities requested to be included in a registration under this
Section 2.2 would materially adversely affect such offering, then the Company
will include in such registration, first, the securities proposed by the Company
-----
to be sold for its own account and, second, the Registrable Securities and all
------
other securities of the Company to be included in such registration to the
extent of the number and type, if any, that the Company is so advised can be
sold in (or during the time of) such offering, first, pro rata among Prospero
-----
and the holders of Other Registrable Securities under any of the Other
Registration Rights Agreements participating in such offering in accordance with
(i) with
8
<PAGE>
respect to Prospero, the number of shares of Registrable Securities held by
Prospero, and (ii) with respect to holders of Other Registrable Securities, the
number of Other Registrable Securities held by, and if applicable, issuable upon
conversion of securities convertible into, exchangeable or exercisable for,
shares of Common Stock, to each such holder, and second, pro rata among the
------
holders of any other securities of the Company with respect to which the holders
thereof are entitled to and desire "piggy-back" or similar registration rights;
provided, however, that if such registration is effected by the Holders pursuant
- -------- -------
to Section 2.1 herein, Section 2.1.5 shall govern the determination of
Registrable Securities and Other Registrable Securities to be included in such
registration.
2.3 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company shall, as expeditiously as possible:
2.3.1 prepare and file with the SEC a registration statement on an
appropriate registration form of the SEC for the disposition of such Registrable
Securities in accordance with the intended method of disposition thereof, which
form (i) shall be selected by the Company and (ii) shall, in the case of a shelf
registration, be available for the sale of the Registrable Securities by the
selling Holders thereof and such registration statement shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith, and
the Company shall use its best efforts to cause such registration statement to
become effective (provided, however, that before filing a registration statement
--------
or prospectus or any amendments or supplements thereto, or comparable statements
under securities or blue sky laws of any jurisdiction, the Company will furnish
to counsel for the underwriters, if any, copies of all such documents proposed
to be filed (including all exhibits thereto), which documents will be subject to
the reasonable review and reasonable comment of such counsel, and the Company
shall not file any registration statement or amendment thereto or any prospectus
or supplement thereto to which the holders of a majority of the Registrable
Securities covered by such registration statement or the underwriters, if any,
shall reasonably object in writing);
2.3.2 prepare and file with the SEC 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 (which shall not be required to exceed 90 days) as any seller of
Registrable Securities pursuant to such registration statement shall request and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such registration
statement in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
9
<PAGE>
2.3.3 furnish, without charge, to each seller of such Registrable
Securities and each underwriter, if any, of the securities covered by such
registration statement such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits), and
the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act, and other documents, as such seller and underwriter may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller (the Company hereby consenting to the use in
accordance with applicable law of each such registration statement (or amendment
or post-effective amendment thereto) and each such prospectus (or preliminary
prospectus or supplement thereto) by each such seller of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such registration statement or prospectus);
2.3.4 use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as any sellers of Registrable Securities
or any managing underwriter, if any, shall reasonably request in writing, and do
any and all other acts and things that may be reasonably necessary or advisable
to enable such sellers or underwriter, if any, to consummate the disposition of
the Registrable Securities in such jurisdictions, except that in no event shall
the Company be required to qualify to do business as a foreign corporation in
any jurisdiction where it would not, but for the requirements of this Section,
be required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
2.3.5 promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose; (v) of the
existence of any fact of which the Company becomes aware that results in the
registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated by ARTICLE III below cease to be
true and correct in all material respects; and, if
10
<PAGE>
the notification relates to an event described in clause (v), the Company shall
promptly prepare and furnish to each such seller and each underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading;
2.3.6 comply with all applicable rules and regulations of the SEC,
and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 16 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
2.3.7 enter into such customary agreements (including, if
applicable, an underwriting agreement) and take such other actions as the
Holders of a majority of the Registrable Securities participating in such
offering shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
2.3.8 use its best efforts to promptly obtain the withdrawal of
any order suspending the effectiveness of the registration statement;
2.3.9 furnish to each Holder participating in the offering and the
managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
2.3.10 cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold, and cause such Registrable Securities to be
issued in such denominations and registered in such names in accordance with the
underwriting agreement prior to any sale of Registrable Securities to the
underwriters or, if not an underwritten offering, in accordance with the
instructions of the selling holders of Registrable Securities at least three
business days prior to any sale of Registrable Securities; and
2.3.11 take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
11
<PAGE>
The Company may require as a condition precedent to the Company's
obligations under this Section 2.3 that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request provided that such information shall be
used only in connection with such registration.
Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clauses (iii), (iv) or (v) of Section 2.3.5, such Holder will discontinue such
Holder's disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
2.3.5 and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the prospectus covering such Registrable Securities that
was in effect at the time of receipt of such notice. In the event the Company
shall give any such notice, the applicable period mentioned in Section 2.3.2
shall be extended by the number of days during such period from and including
the date of the giving of such notice to and including the date when each seller
of any Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 2.3.5.
If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
2.4 Registration Expenses.
---------------------
2.4.1 "Expenses" shall mean any and all fees and expenses incident to
the Company's performance of or compliance with this Article 2, including,
without limitation: (i) SEC, stock exchange or NASD registration, listing and
filing fees and all listing fees and fees with respect to the inclusion of
securities in NASDAQ, (ii) fees and expenses of compliance with state securities
or "blue sky" laws and in connection with the preparation of a "blue sky"
survey, including without limitation, reasonable fees and expenses of blue sky
counsel, (iii) printing and copying expenses, (iv) messenger and delivery
expenses, (v) expenses incurred in connection
12
<PAGE>
with any road show, (vi) fees and disbursements of counsel for the Company,
(vii) fees and disbursements of all independent public accountants (including
the expenses of any audit and/or "cold comfort" letter) and fees and expenses of
other persons, including special experts, retained by the Company, (viii) fees
and expenses payable to a Qualified Independent Underwriter (as defined in NASD
Conduct Rule 2720(b)(15)), (ix) fees and expenses payable to the underwriters
referred to in Section 2.3.6 and (x) any other fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities
(collectively, "Expenses").
--------
2.4.2 The Company shall pay all Expenses with respect to any Demand
Registration whether or not it becomes effective or remains effective for the
period contemplated by Section 2.3.2 and with respect to up to one registration
effected under Section 2.2. Notwithstanding the foregoing, if, with respect to a
Demand Registration, at the request of the Requisite Percentage of Participating
Holders such registration has been withdrawn after the relevant registration
statement has been filed but prior to its becoming effective, then the Company,
on the one hand, and the Holders participating in such registration, on the
other hand, shall each bear one-half of the Expenses incurred by the Company in
connection with such registration, and any Expenses to be borne hereunder by
such Holders shall be borne by them pro rata in accordance with the number of
shares of Registrable Securities that, with respect to each such Holder, were
included in such registration.
2.4.3 Notwithstanding the foregoing, (i) the provisions of this
Section 2.4 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (ii) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
--------
discounts and commissions in accordance with the number of shares sold in the
offering by such Holder, and (iii) the Company shall, in the case of all
registrations under this ARTICLE 2, be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
2.5 Certain Limitations on Registration Rights.
------------------------------------------
2.5.1 In the case of any registration under Section 2.1 pursuant to
an underwritten offering, or in the case of a registration under Section 2.2 if
the Company has determined to enter into an underwriting agreement in connection
therewith, all securities to be included in such registration shall be subject
to an underwriting agreement and no Person may participate in such registration
unless such Person agrees to sell such Person's securities on the basis provided
therein and completes and executes all reasonable questionnaires and other
documents (including custody agreements and powers of attorney) that must be
executed in
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<PAGE>
connection therewith, and provides such other information to the Company or the
underwriter as may be necessary to register such Person's securities.
2.5.2 No Holder shall have any right to demand or participate in a
registration under this ARTICLE 2 if such Holder may sell twenty five percent
(25%) or more its Registrable Securities in a five (5) month period (such period
commencing on the date of the notice under Section 2.1.1 or 2.2.1, as the case
may be) under Rule 144 under the Securities Act.
2.6 Limitations on Sale or Distribution of Other Securities.
-------------------------------------------------------
2.6.1 To the extent requested in writing by a managing underwriter,
if any, of any registration effected pursuant to Section 2.1, each Holder of
Registrable Securities agrees not to sell, transfer or otherwise dispose of,
including any sale pursuant to Rule 144 under the Securities Act, any
Registrable Securities (other than as part of such underwritten public offering)
during the time period reasonably requested by the managing underwriter, not to
exceed 180 days (and the Company hereby also so agrees (except that the Company
may effect any sale or distribution of any such securities pursuant to a
registration on Form S-4 (if reasonably acceptable to such managing underwriter)
or Form S-8, or any successor or similar form that is then in effect) to use its
reasonable best efforts to cause each holder of any equity security or any
security convertible into or exchangeable or exercisable for any equity security
of the Company purchased from the Company at any time other than in a public
offering so to agree). Each managing underwriter shall be entitled to rely on
the agreements of each Holder of Registrable Securities set forth in this
Section 2.6.1 and shall be a third party beneficiary of the provisions of this
Section 2.6.1.
2.6.2 The Company hereby agrees that, if it shall previously have
received a request for registration pursuant to Section 2.1, and if such
previous registration shall not have been withdrawn or abandoned, the Company
shall not sell, transfer, or otherwise dispose of, any Common Stock, or any
other equity security of the Company or any security convertible into or
exchangeable or exercisable for any equity security of the Company (other than
as part of a private sale pursuant to a transaction for which Form S-4 would be
used if such sale were registered, an underwritten public offering pursuant to
such request for registration pursuant to Section 2.2, a registration on Form S-
4 or Form S-8 or any successor or similar form that is then in effect, upon the
conversion, exchange or exercise of any then outstanding Common Stock Equivalent
or in connection with the issuance or exercise of options pursuant to a stock
option plan or pursuant to an employee stock purchase plan), for a period of at
least 40 days commencing on the date 10 days prior to the effective date of such
previous registration, and the Company shall so provide in any registration
rights agreements hereafter entered into with respect to any of its securities.
14
<PAGE>
2.7 No Required Sale. Nothing in this Agreement shall be deemed to create
----------------
an independent obligation on the part of any Holder to sell any Registrable
Securities pursuant to any effective registration statement.
2.8 Indemnification.
---------------
2.8.1 In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Article 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each Holder of Registrable Securities, its directors, officers, Affiliates,
employees, stockholders, members and partners (and the directors, officers,
Affiliates, employees, stockholders, members and partners thereof), each other
Person who participates as an underwriter or a Qualified Independent
Underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholder, member or partner of such underwriter or
Qualified Independent Underwriter, and each other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
actions or proceedings (whether commenced or threatened) in respect thereof
("Claims") and expenses (including reasonable fees of counsel and any amounts
------
paid in any settlement effected with the Company's consent, which consent shall
not be unreasonably withheld or delayed) to which each such indemnified party
may become subject under the Securities Act or otherwise, insofar as such Claims
or expenses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such securities were registered under the Securities Act, together
with the documents incorporated by reference therein or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iii) any
violation or alleged violation by the Company of any federal, state or common
law, rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with any such registration;
provided, however, that the Company shall not be liable to any such indemnified
- -------- -------
party in any such case to the extent such Claim or expense arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in such registration
statement or amendment thereof or supplement thereto or in any such prospectus
or any preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use therein. Such indemnity and
reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such seller.
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<PAGE>
2.8.2 Each Holder of Registrable Securities that are included in the
securities as to which any registration under Section 2.1 or Section 2.2 is
being effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 2.1 or Section 2.2, any underwriter and Qualified Independent
Underwriter, if any) shall, severally and not jointly, indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2.8.1) to the fullest extent permitted by law, on an after-tax basis, the
Company, its officers, directors, Affiliates, employees and stockholders,
members and partners (and the directors, officers, Affiliates, employees,
stockholders, members and partners thereof), each Person controlling the Company
within the meaning of the Securities Act and all other prospective sellers and
their directors, officers, general and limited partners and respective
controlling Persons with respect to any untrue statement or alleged untrue
statement of any material fact in, or omission or alleged omission of any
material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto, in
each case, to the extent (and only to the extent) that such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or its
representatives by or on behalf of such Holder (or underwriter or Qualified
Independent Underwriter, if any), specifically for use therein and Holder shall
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Claim as such
expenses are incurred; provided, however, that the aggregate amount that any
-------- -------
such Holder shall be required to pay pursuant to this Section 2.8.2 and Sections
2.8.3 and 2.8.5 shall in no case be greater than the amount of the net proceeds
received by such person upon the sale of the Registrable Securities pursuant to
the registration statement giving rise to such claim. Such indemnity and
reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
2.8.3 Indemnification similar to that specified in Sections 2.8.1 and
2.8.2 (with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration or
other qualification of securities under any state securities and "blue sky"
laws.
2.8.4 Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section 2.8, but the failure of any indemnified party
to provide such notice shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 2.8, except to the
extent the indemnifying party is materially prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this ARTICLE 2. In case any action or
proceeding is brought against an indemnified party and it
16
<PAGE>
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, unless in the
reasonable opinion of outside counsel to the indemnified party a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, to assume the defense thereof jointly with any other indemnifying
party similarly notified, to the extent that it chooses, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party that it so chooses, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
-------- -------
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within 20 days after receiving notice from
such indemnified party that the indemnified party believes it has failed to do
so; or (ii) if such indemnified party who is a defendant in any action or
proceeding that is also brought against the indemnifying party reasonably shall
have concluded that there may be one or more legal defenses available to such
indemnified party that are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction), and the indemnifying party shall be liable for
any expenses therefor. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (A)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (B) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
2.8.5 If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under Sections 2.8.1, 2.8.2
or 2.8.3, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative
17
<PAGE>
benefits of the indemnifying party and the indemnified party as well as any
other relevant equitable considerations. The parties hereto agree that it would
not be just and equitable if contributions pursuant to this Section 2.8.5 were
to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
preceding sentences of this Section 2.8.5. The amount paid or payable in respect
of any Claim shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such Claim. No person 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 guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the violation relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement or
omission. Notwithstanding anything in this Section 2.8.5 to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
Section 2.8.5 to contribute any amount in excess of the net proceeds received by
such indemnifying party from the sale of Registrable Securities in the offering
to which the losses, claims, damages or liabilities of the indemnified parties
relate, less the amount of any indemnification payment made by such indemnifying
party pursuant to Sections 2.8.2 and 2.8.3.
2.8.6 The indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution that any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Securities by any such party.
2.8.7 The indemnification and contribution required by this Section
2.8 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
ARTICLE III
UNDERWRITTEN OFFERINGS
3.1 Requested Underwritten Offerings. If requested by the underwriters
--------------------------------
for any underwritten offering by the Acorn Holders pursuant to a registration
requested under Section 2.1, the Company shall enter into a customary
underwriting agreement with the underwriters. Such underwriting agreement shall
contain such representations and warranties by, and such other agreements on the
part of, the Company and such other terms as are generally included in the
standard underwriting agreement of such underwriters, including, without
limitation, indemnities and contribution agreements. Any Holder participating in
the offering shall be a
18
<PAGE>
party to such underwriting agreement and shall make such representations and
warranties by the participating Holders as are customary in agreements of that
type.
3.2 Piggyback Underwritten Offerings. In the case of a registration
--------------------------------
pursuant to Section 2.2 hereof, if the Company shall have determined to enter
into an underwriting agreement in connection therewith, all of the Holders of
Registrable Securities to be included in such registration shall be subject to
such underwriting agreement. Any Holder participating in such registration may,
at its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Holder and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holder. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders as are customary in
agreements of that type.
ARTICLE IV
GENERAL
4.1 Rule 144. If the Company shall have filed a registration statement
--------
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of the
Common Stock or securities of the Company convertible into or exchangeable or
exercisable for Common Stock, the Company covenants that (i) so long as it
remains subject to the reporting provisions of the Exchange Act, it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and (ii) will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (A) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (B) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.2 Amendments and Waivers. This Agreement may be amended, modified,
----------------------
supplemented or waived only upon the written agreement of the Company and the
holders of not less than a majority of the shares of Registrable Securities;
provided, however, that the addition of new parties to this Agreement in
- -------- -------
accordance with the provisions of the Purchase Agreement shall not be deemed an
amendment hereof and shall not require the consent of any party hereto.
19
<PAGE>
4.3 Notices. Except as otherwise provided in this Agreement, all notices,
-------
requests, consents and other communications hereunder to any party shall be
deemed to be sufficient if contained in a written instrument delivered in person
or by telecopy, nationally recognized overnight courier or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or in a counterpart
hereto (as the case may be ) or such other address as may hereafter be
designated in writing by such party to the other parties:
(i) if to the Company, to:
Intek Information Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telephone: (303) 357-3000
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telephone: (303) 546-1300
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
(ii) if to an Acorn Shareholder, at the address set forth in the
signature pages hereto:
with a copy to:
Wiggin & Dana
3 Stamford Plaza
P.O. Box 110325
Stamford, CT 06911-0325
Telephone: (203) 363-7600
Telecopy: (203) 363-7676
Attention: William A. Perrone
20
<PAGE>
(iii) if to Prospero:
Prospero LLC
265 Post Road West
Westport, CT 06880
Telephone: (203) 454-5616
Telecopy: (203) 459-8157
Attention: Dan Donovan
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
4.4 No Inconsistent Agreements. Without the prior written consent of
--------------------------
holders of a majority of the Common Stock, the Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted in this Agreement or otherwise
conflicts with the provisions hereof, other than any lock-up agreement with the
underwriters in connection with any registered offering effected hereunder,
pursuant to which the Company shall agree not to register for sale, and the
Company shall agree not to sell or otherwise dispose of, Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, for
a specified period following the registered offering. The Acorn Shareholders
will not unreasonably withhold their consent to any waiver of a term hereof or
an amendment hereto. No consent of the Acorn Shareholders or Prospero LLC to an
amendment hereto will be required if the same amendment is made in respect of
securities subject to Other Registration Rights Agreements.
4.5 Miscellaneous.
-------------
4.5.1 This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and the respective successors,
personal representatives and assigns of the parties hereto, whether so expressed
or not. If any Person shall acquire Registrable Securities from any Holder, in
any manner, whether by operation of law or otherwise, such transferee shall
promptly notify the Company and such Registrable Securities acquired from such
Holder shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits of and be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement. If the Company
shall so request, any such successor or assign shall agree in writing to acquire
and hold the Registrable Securities acquired from such Holder subject to all of
the terms hereof. If any Holder shall acquire additional Registrable Securities,
such Registrable Securities shall be subject to all of the terms, and entitled
to all the benefits, of this Agreement.
21
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No Person other than a Holder shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein.
4.5.2 This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
4.5.3 This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Colorado without giving effect to
the conflicts of law principles thereof.
4.5.4 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. All section
references are to this Agreement unless otherwise expressly provided.
4.5.5 This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
4.5.6 Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
4.5.7 The parties hereto acknowledge that there would be no adequate
remedy at law if any party fails to perform any of its obligations hereunder,
and accordingly agree that each party, in addition to any other remedy to which
it may be entitled at law or in equity, shall be entitled to seek injunctive
relief, including specific performance, to enforce such obligations without the
posting of any bond.
4.5.8 Each party hereto shall take all such action necessary to cause
each certificate of the Company's securities to bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REGISTRATION RIGHTS AGREEMENT, BY AND AMONG INTEK INFORMATION, INC.
AND CERTAIN OTHER PARTIES DATED OCTOBER 30, 1999, COPIES OF WHICH ARE
AVAILABLE AT THE OFFICES OF INTEK INFORMATION, INC.
4.5.9 Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in
22
<PAGE>
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth above.
INTEK INFORMATION, INC.
By: /S/ TIMOTHY C. O'CROWLEY
-----------------------------------
Timothy C. O'Crowley,
Chief Executive Officer and President
THE ACORN SHAREHOLDERS
/S/ VENKAT SHARMA /S/ SHOBA MURALI
- ------------------------------- ---------------------------------------
Venkat Sharma Shoba Murali
Address: Address:
_______________________________ _______________________________________
_______________________________ _______________________________________
_______________________________ _______________________________________
Telephone: ____________________ Telephone: ____________________________
Facsimile: ____________________ Facsimile: ____________________________
/S/ RAJA RAMANRAYAN /S/ SUNIL GUPTA
- ------------------------------- ---------------------------------------
Raja Ramanrayan Sunil Gupta
Address: Address:
_______________________________ _______________________________________
_______________________________ _______________________________________
_______________________________ _______________________________________
Telephone: ____________________ Telephone: ____________________________
Facsimile: ____________________ Facsimile: ____________________________
/S/ RICHARD WAYNE PROSPERO LLC.
- -------------------------------
Richard Wayne By: /S/ DANIEL DONAVAN
-----------------------------------
Address: Daniel Donovan, Managing Member
_______________________________
_______________________________
_______________________________
Telephone: ____________________
Facsimile: ____________________
24
<PAGE>
The undersigned hereby consent to the terms of this Registration Rights
Agreement with the shareholders of Acorn Information Services, Inc. as holders
of capital stock of Intek Information, Inc.
CONNING INSURANCE CAPITAL LIMITED PARTNERSHIP V
By: Conning Investment Partners V, LLC, its General Partner
By: Conning & Company, its Member/Manager
By: /S/ GREGORY L. BATTON
------------------------
Name:_______________________
Title:______________________
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Focus Value Acorn Shareholders, L.L.C., its General Partner
By: Focus Value GP, Inc., its Managing Member
By: /S/ ERIC WILKINSON
------------------------
Name:_______________________
Title:______________________
TIMOTHY C. O'CROWLEY
By: /S/ TIMOTHY C. O'CROWLEY
------------------------
RESOURCE BANCSHARES CORPORATION
By: /S/ D.W. JOHNSON
------------------------
Name:_______________________
Title:______________________
U.S. INFORMATION TECHNOLOGY FINANCING, L.P.
By: /S/ SHOZO OKUKDA
------------------------
Name:_______________________
Title:______________________
ENCOMPASS GROUP, INC.
By: /S/ YASUKI MATSUMOTO
------------------------
Name:_______________________
Title:______________________
25
<PAGE>
TRANS COSMOS USA, INC.
By: /S/ YASUKI MATSUMOTO
------------------------
Name:_______________________
Title:______________________
26
<PAGE>
Exhibit 4.4
THIS AGREEMENT INCLUDES A PROVISION FOR THE RESOLUTION OF DISPUTES BY
ARBITRATION
INTEK INFORMATION, INC.
SECURITIES PURCHASE AGREEMENT
-----------------------------
August 2, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Authorization and Sale of Securities....................................... 1
Closing Date; Delivery..................................................... 1
Representations and Warranties of the Company.............................. 2
Representations and Warranties of the Purchasers........................... 9
Conditions to Closing of Purchasers........................................ 11
Conditions to Closing of Company........................................... 13
Covenants of the Company................................................... 13
Composition of Board of Directors.......................................... 15
Miscellaneous.............................................................. 15
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT 1.1 - CERTIFICATE OF AMENDMENT
EXHIBIT 3.2A - REGISTRATION RIGHTS AGREEMENT
EXHIBIT 3.2B - STOCKHOLDERS AGREEMENT
EXHIBIT 3.2C - WARRANT TO PURCHASE COMMON STOCK
EXHIBIT 3.4 - CAPITALIZATION OF THE COMPANY
EXHIBIT 3.6 - FINANCIAL STATEMENTS
EXHIBIT 3.10 - PATENTS, TRADEMARKS, COPYRIGHTS
EXHIBIT 3.11 - MATERIAL CONTRACTS
EXHIBIT 3.18 - RELATED PARTY TRANSACTIONS
EXHIBIT 3.22 USE OF PROCEEDS
EXHIBIT 5.7 - MANAGEMENT EMPLOYMENT AGREEMENT
EXHIBIT 5.8 - LEGAL OPINION
EXHIBIT 5.9 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE>
INTEK INFORMATION, INC.
SECURITIES PURCHASE AGREEMENT
-----------------------------
This Agreement is made as of August 2, 1996, by and between INTEK
INFORMATION, INC., a Delaware corporation (the "Company"), with principal
offices at 370 Seventeenth Street, Suite 3950, Denver, Colorado 80202-5656, and
RESOURCE BANCSHARES CORPORATION, a South Carolina corporation, as "Purchaser" or
as "Shareholder."
SECTION 1
Authorization and Sale of Securities
------------------------------------
1.1. Authorization. Prior to the Closing Date the Company will authorize
-------------
the sale and issuance of (i) 20,000 shares (the "Shares") of its Series A
Preferred Stock, par value $.001 per share as set forth below at a price of
$50.00 per Share. Prior to the Closing Date the Company will reserve 4,000,000
shares of its Common Stock, par value $.001 per share for issuance upon
conversion of the Shares. The Shares will have the rights, preferences,
privileges and restrictions set forth in the Certificate of Amendment attached
hereto as Exhibit 1.1 (the "Certificate of Amendment").
1.2. First Sale of Securities. Subject to the terms and conditions
------------------------
hereof, the Company will issue and sell the Shares to the Purchaser, and
Purchaser will buy the Shares from the Company.
SECTION 2
Closing Date; Delivery
----------------------
2.1 Closing Date. The purchase and sale of the Shares pursuant to
------------
Section 1.2 shall be held at a closing (the "Closing") to be conducted at the
offices of the Company by mail or express service on August 2, 1996 or at such
other time and place as the Company and the Purchaser shall agree. The date of
the Closing is hereinafter referred to as the "Closing Date."
2.2 Delivery. At the Closing the Company will deliver to the Purchaser a
--------
certificate registered in the Purchaser's name, representing the Shares to be
purchased against payment of the $1,000,000 purchase price therefor, by check
payable to the Company or wire transfer pursuant to the Company's instructions.
Upon twenty-one (21) days prior notice to the Purchaser by the Company,
Purchaser shall make a further capital contribution of $975,000 to the Company
for which no additional securities of the Company will be issued. The obligation
-1-
<PAGE>
to make such contribution is not a lien, claim or assessment against the Shares
and the Shares shall be fully paid and non-assessable upon payment of the
$1,000,000 delivered at Closing.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Purchaser as of date hereof and
as of the Closing as follows:
3.1 Organization and Standing: Articles and Bylaws. The Company is a
-----------------------------------------------
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is not
presently qualified to do business as a foreign corporation in any jurisdiction,
but will be qualified as a foreign corporation in the State of Colorado, as of
Closing, and the failure to be qualified in any other jurisdiction will not have
a material adverse effect on the Company's business as now conducted or as now
proposed to be conducted. The Company has furnished Purchaser with copies of
its Certificate of Incorporation and Bylaws which copies are true, correct and
complete and contain all amendments thereto.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power and authority to execute and deliver this Agreement, to sell and issue the
Shares hereunder, and to carry out and perform its obligations under the terms
of this Agreement, and on the Closing Date the Company will have all requisite
legal and corporate power and authority to execute and deliver the Registration
Rights Agreement set forth as Exhibit 3.2A hereto (the "Registration Rights
Agreement"), the Stockholders Agreement set forth as Exhibit 3.2B hereto (the
"Stockholders Agreement"), the two Warrants to Purchase Common Stock set forth
as Exhibit 3.2C hereto (the "Warrant Agreement") and any other agreement to
which the Company is party the execution and delivery of which is contemplated
hereby (the Registration Rights Agreement, the Stockholders Agreement, the
Warrant Agreement and such other agreements being referred to herein as the
"Additional Agreements") and to carry out and perform its obligations under the
terms thereof.
3.3. Subsidiaries. The Company has no subsidiaries and does not otherwise
------------
own or control, directly or indirectly, any equity interest in any corporation,
association or business entity. The Company is not a participant in any joint
venture, partnership or similar arrangement.
3.4. Capitalization. The authorized capital stock of the Company consists
--------------
or will, immediately prior to the Closing Date consist, solely of 40,000,000
shares of Common Stock, of which 7,428,571 shares are or will be issued and
outstanding immediately prior to the Closing Date and 2,000,000 shares of
Preferred Stock, 20,000 of which compose the Shares and none of
-2-
<PAGE>
which are or will be issued and outstanding immediately prior to the Closing
Date. The outstanding shares of capital stock have been duly authorized and
validly issued, and are fully paid and nonassessable. The Company has reserved
all Shares for issuance hereunder and sufficient Common Stock to cover the
conversion of the Shares. A complete and accurate schedule listing all
stockholders of the Company and the number of shares held by each such
stockholder, and a listing of all outstanding options and warrants and any other
obligation of the Company convertible into capital stock of the Company, are set
forth as EXHIBIT 3.4 hereto. Except as set forth in the Stockholders Agreement
and the Warrant Agreement, there are no options, warrants or other rights to
purchase any of the Company's authorized and unissued capital stock and,
further, there are no preemptive rights or rights of first refusal with respect
to the Company's capital stock or other contracts or agreements which, through
anti-dilution protection or otherwise, obligate the Company to issue its capital
stock.
Immediately after Closing the Shares will represent thirty-five percent
(35%) of the outstanding Common Stock treating the Shares on an as-converted to
common basis.
3.5 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Additional Agreements by the Company,
the authorization, sale, issuance and delivery of the Shares and the performance
of all of the Company's obligations hereunder and thereunder has been taken or
will be taken prior to the Closing. This Agreement, constitutes, and the
Additional Agreements, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as indemnification provisions in
the Registration Rights Agreement may be limited by principles of public policy
and securities laws, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The
Shares, and the underlying shares of Common Stock issuable upon conversion of
the Shares when issued in compliance with the provisions of this Agreement at
their respective times of issuance, (i) will be validly issued, fully paid and
nonassessable, will be free of any liens or encumbrances, and will not be
subject to any restrictions on transfer (except for those of the Stockholders
Agreement), provided, however, that such shares may be subject to restrictions
on transfer under the state and/or federal securities laws as set forth herein,
and (ii) are not and will not be subject to any preemptive rights or rights of
first refusal except for those in the Stockholders Agreement.
3.6. Financial Statements. The Company's unaudited pro forma balance
--------------------
sheet dated and as of July 31, 1996 (the "Financial Statements") is attached as
EXHIBIT 3.6. The Financial Statements are complete and correct in all material
respects and they have been prepared in accordance with generally accepted
accounting principles (except for the absence of notes) on a consistent basis
throughout the periods indicated. The Financial Statements accurately describe
the financial condition of the Company as of the dates indicated and the effect
of the merger of Intek Information, Inc., a Colorado corporation ("Intek
Colorado") with and into the Company.
-3-
<PAGE>
3.7. No Material Adverse Change. Since July 31, 1996 (the "Balance
--------------------------
Sheet Date"):
a) The Company has not entered into any transaction which was not in
the ordinary course of its business except as contemplated by this Agreement.
b) There has been no change in the condition (financial or
otherwise), business, property, assets, or liabilities of the Company other than
changes in the ordinary course of its business, none of which, individually or
in the aggregate, is material.
c) There has been no damage to, destruction of or loss of physical
property (whether or not covered by insurance) materially adversely affecting
the business or operations of the Company.
d) There has been no resignation or termination of employment of any
officer or key employee of the Company, and the Company does not know of the
impending resignation or termination of employment of any officer or employee of
the Company that would have a materially adverse effect on the business of the
Company.
e) There have been no loans or advances made by the Company to
employees, officers or directors.
3.8 Title to Properties and Assets: Liens, Etc. The Company has good and
------------------------------------------
marketable title to its properties (both real and personal) and assets, and has
good title to all its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, conditional sale agreement, security interest, encumbrances
or charge, other than (i) the lien of current taxes not yet due and payable,
(ii) possible minor liens and encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, which do not require the expenditure of a material
amount to discharge and which have not arisen otherwise than in the ordinary
course of business and (iii) the purchase money security interest in the amount
of $140,000 (the "Eden Debt") of Eden Financial Group, Inc. ("Eden") in
furniture, fixtures and equipment sold by it to the Company.
3.9 Material Liabilities. Except as described in the Financial
--------------------
Statements the Company does not have any obligations or liabilities (whether
accrued, absolute or contingent) other than obligations or liabilities incurred
in the ordinary course of business since the Balance Sheet Date. Pursuant to the
Agreement and Plan of Merger dated as of August 2, 1996 with Intek Colorado, the
Company has assumed certain liabilities and obligations of that company all of
which are set forth in the representations and warranties herein, and the
representations and warranties made by the Company in this Agreement assume and
reflect the merger of Intek Colorado with and into the Company.
3.10 Patents and Other Intangible Assets.
-----------------------------------
-4-
<PAGE>
(a) The Company to the best of its knowledge (i) owns or has the
right to use, free and clear of all liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights, used in
the conduct of its business as now conducted or as proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person under or with respect to any of the foregoing, and (ii) is
not obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant to,
any patent, trademark, tradename, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise except for the Eden Debt. The Company has not received any
communication alleging that, and has no knowledge of any allegation that, the
Company or any of its employees has violated or infringed upon or, by conducting
the Company's business as proposed, would violate or infringe upon any patent,
trademark, service mark, trade name, copyright, license or right of any other
person or entity used in the conduct of the Company's business as now conducted
or proposed to be conducted. All patents, trademarks, service marks, tradenames,
copyrights and licenses (and applications therefor) owned or used by the Company
are listed on EXHIBIT 3.10 hereto.
(b) To the best of its knowledge, the Company owns or has the
unrestricted right to use all trade secrets, including know-how, inventions,
designs, processes, computer programs and technical data required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company, free and clear of any
rights, liens or claims of others, including without limitation former employers
of all employees of the Company.
3.11 Material Contracts and Commitments. All contracts, agreements and
----------------------------------
instruments to which the Company is a party are valid, binding and in full force
and effect in all material respects, and are valid, binding and enforceable by
the Company in accordance with their respective terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies. Neither the Company nor to the Company's knowledge any
other party to such contract is in default in any material respect under such
contracts. Each of such material contracts, agreements and instruments has been
listed on EXHIBIT 3.11 attached hereto.
3.12 Compliance with Other Instruments, None Burdensome, Etc. The Company
-------------------------------------------------------
is not in violation of any material term or provision of the Certificate of
Incorporation or By-laws of the Company, or any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, and to the best
of its knowledge is not in violation of any order, statute, rule or regulation
applicable to the Company. The execution, delivery and performance of and
compliance with this Agreement and the Additional Agreements, and the issuance
of the Shares have not resulted and will not result in any violation of, or
conflict with, or constitute a default under, any of the terms of the
Certificate of Incorporation or Bylaws of the Company or any corporate
restriction or of any indenture, mortgage, deed of trust, pledge, bank loan or
credit agreement, or any instrument, document or agreement by which the Company
or its properties
-5-
<PAGE>
may be bound or affected, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company.
3.13 Litigation, Etc. There are no actions, suits, proceedings or
----------------
investigations pending against the Company or its properties, or to the best of
the Company's knowledge, its employees, before any court or governmental agency
(nor, to the best of the Company's knowledge, is there any basis therefor or
threat thereof), which, either in any case or in the aggregate, might result in
any adverse change in the business or financial condition of the Company or any
of its properties or assets, or in any impairment of the right or ability of the
Company to carry on its business as now conducted or as proposed to be
conducted, or in any liability on the part of the Company, and none which
questions the validity of this Agreement, the Additional Agreements, the Shares
or any action taken or to be taken in connection herewith. The Company is not a
party to or named in or subject to any order, writ, injunction, decree or
judgment of any court, governmental agency or instrumentality.
3.14 Employees. To the best of the Company's knowledge, after reasonable
---------
investigation, no employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such employee with the Company or
any other party because of the nature of the business conducted or to be
conducted by the Company. The Company does not have any collective bargaining
agreements covering any of its employees. There is no strike, labor dispute or
union organization activity pending or threatened between the Company and its
employees and, to the best of the Company's knowledge, after due inquiry, none
of its employees belong to any union or collective bargaining unit. The Company
is not a party to or bound by any employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreement except for the Management Employment
Agreement with Timothy C. O'Crowley.
3.15 Insurance. The Company has, or shall have within ten (10) days after
---------
the Closing, fire, casualty and liability insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its properties
which might be damaged or destroyed.
3.16 Registration Rights. Except as set forth in the Registration Rights
-------------------
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
3.17 Governmental Consent, Etc. No consent, approval or authorization of
--------------------------
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement or the Additional Agreements, or the offer, sale or
issuance of the Shares and the issuance of the Common Stock issuable upon
conversion thereof, except for the qualification (or taking such action as may
be necessary to secure an exemption from qualification, if available) of the
offer and sale of the Shares and Common Stock issuable upon conversion thereof
under applicable Blue Sky laws and
-6-
<PAGE>
SEC Regulation D, which filings and qualifications, if required, will be
accomplished by the Company in a timely manner prior to or promptly upon the
completion of the Closing.
3.18 Company Transactions with its Officers, Directors, or Shareholders.
------------------------------------------------------------------
Except as set forth in EXHIBIT 3.18 and the Eden Debt, the Company is not
indebted, either directly or indirectly, to any of its officers, directors or
shareholders or to their respective spouses or children, in any amount
whatsoever, other than for payment of salary for services rendered and
reasonable employee expenses. None of the Company's officers, directors, or
shareholders or any members of their immediate families is indebted to the
Company, nor do any officers, directors or, to the best of the knowledge of the
Company, shareholders have any direct or indirect ownership interest in any firm
or corporation which controls, is controlled by or under common control with the
Company or which competes with the Company, or with which the Company has a
material supplier or customer relationship, except with respect to any aggregate
interest in less than five percent (5%) of the stock of any corporation whose
stock is publicly traded. Except for the Eden Debt and for the license of the
Eden software to the Company, no officer, director or shareholder or any member
of their immediate families is, directly or indirectly, interested in any
material contract with the Company. The Company is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation, but does provide
indemnification to its officers, directors, agents and employees.
3.19 Taxes Paid. The Company has timely filed all tax returns that are
----------
required to have been filed by it with appropriate federal, state, county and
local governmental agencies or instrumentalities. The Company has paid or
established reserves for all income, franchise, payroll and other taxes due as
reflected on those returns. There is no pending dispute with any taxing
authority relating to any of the Company's returns. The Company has no knowledge
of any proposed material liability for any tax to be imposed upon its properties
or assets for which there is not an adequate reserve reflected in the Financial
Statements. No federal or state income or sales tax returns of the Company have
been audited.
3.20 Offering. Subject to the accuracy of Purchasers' representations in
--------
Section 4 hereof, the offer, sale and issuance of the Shares and the issuance of
the Common Stock issuable upon conversion thereof constitute transactions exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Securities Act") and applicable Blue Sky laws. Neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
3.21 Brokers or Finders. The Company has not incurred, and will not
------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby. It is understood the Purchaser may pay
advisory fees to Jack Ellsworth in the amount of $25,000.
3.22 Use of Proceeds. EXHIBIT 3.22 sets forth the Company's intended use
---------------
of proceeds from the sale of the Shares under this Agreement.
-7-
<PAGE>
3.23 Compliance; Licenses and Permits.
--------------------------------
(a) The Company has complied in all respects with, and is not in
violation in any respect of, all or any Legal Requirements (including all
Environmental Laws and securities laws) and Permits (including Environmental
Permits and securities law mandated permits) applicable to the business of the
Company as presently or previously conducted, or as currently proposed to be
conducted except where such non-compliance or violation has not had, and could
not reasonably be expected to have, a material adverse effect upon the Company.
The Company (including to the Company's knowledge all applicable employees) has
all Federal, state, local and foreign governmental licenses and permits
(collectively, "Permits") which are required for the conduct of its business
presently or previously conducted by the Company which Permits are in full force
and effect, and no violations are outstanding or uncured with respect to any
such Permits and no proceeding is pending or, to the best knowledge of the
Company, threatened to revoke or limit any thereof. No condition or event has
occurred which, with notice or the passage of time or both, would constitute a
violation of a Legal Requirement or Permit except where such noncompliance or
violation has not had, and could not reasonably be expected to have, a material
adverse effect upon the Company. The Company will in the future have a
subsidiary or be otherwise licensed pursuant to requirements of the Securities
and Exchange Commission and National Association of Securities Dealers, Inc. to
conduct certain of its activities.
(b) The Company is not responsible, or potentially responsible, for
the remediation or cost of remediation of wastes, substances or materials at, on
or beneath any facilities or at, on or beneath any land adjacent thereto or in
connection with any Waste or Contamination Site (as defined below). The Company
is not liable, directly or indirectly, in connection with any release by it of
hazardous substance into the environment nor do there exist any facts upon which
a finding of such liability could be based.
(c) As used herein, (i) "Environmental Law" shall mean any Legal
Requirement which relates to or otherwise imposes liability or standards of
conduct concerning discharges, emissions, releases or threatened releases or
noises, odors or any pollutants, contaminants or hazardous or toxic wastes,
substances or materials, whether as matter or energy, into ambient air, water or
land, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or handling
of pollutants, contaminants or hazardous or toxic wastes, substances or
materials, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resource Conversation and Recovery Act of
1976, as amended, the Toxic Substances Control Act of 1976, as amended, the
Clean Water Act, as amended, the Clean Air Act, any "Superfund" or "Superlien"
law, and any other similar Federal, state, local or foreign statutes now in
effect, (ii) "Environmental Permit" shall mean any Permit required by or
pursuant to any applicable Environmental Law (iii) "Waste or Contamination Site"
shall mean any site or location, wherever located (including any well, tank,
pit, sump, pond, lagoon, tailings pile, spoil pile, impoundment, ditch, trench,
drain, landfill, warehouse or waste storage container), where pollutants,
contaminants or hazardous or toxic wastes, substances or materials have been
-8-
<PAGE>
deposited, stored, treated, reclaimed, disposed of, placed or otherwise come to
be located, and (iv) "Legal Requirements" means any applicable law, rule,
regulation, order or ordinance.
3.24 Disclosure. The Company has provided to Purchaser all of the
----------
information reasonably available to the Company that the Purchaser has requested
for the purpose of deciding whether to purchase Shares and all information which
the Company believes is reasonably necessary to enable Purchaser to make such a
decision. No representation or warranty of the Company contained in this
Agreement and any exhibit attached hereto, or any written statement or
certificate furnished or to be furnished to the Purchaser made or delivered in
connection herewith (when read together) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
3.25 Minute Books. The Copy of the minute books of the Company provided
------------
to the Purchaser contains minutes of all meetings of incorporators, directors
and stockholders (and all actions by written consent without a meeting in lieu
thereof) as to the Company and any predecessor entities and accurately reflect
all actions by directors (and committees thereof) and stockholders with respect
to the transactions referred to in such minutes.
SECTION 4
Representations and Warranties of the Purchasers
------------------------------------------------
Purchaser hereby represents and warrants to the Company with respect to the
purchase of the Shares and conversion thereof as follows:
4.1 Experience. It has substantial experience in evaluating the
----------
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
4.2 Investment. It is acquiring the Shares and common stock issuable on
----------
conversion thereof for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares and common stock issuable
on conversion thereof have not been, and will not be when issued, registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
such Purchaser's representations as expressed herein. Purchaser was not formed
solely for the purpose of acquiring the Shares and common stock issuable on
conversion thereof.
4.3 Rule 144. It acknowledges that the Shares and common stock issuable
--------
on conversion thereof must be held indefinitely unless subsequently registered
under the Securities Act or unless
-9-
<PAGE>
an exemption from such registration is available. It is aware of the provisions
of Rule 144 promulgated under the Securities Act which permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker," and
the number of shares being sold during any three-month period not exceeding
specified limitations.
4.4. No Public Market. It understands that no public market now exists
----------------
for any securities issued by the Company and there is no assurance the Company
will become a public company.
4.5 Access to Data. It has had an opportunity to discuss the Company's
--------------
business, management and financial affairs with its management and the
opportunity to review the Company's facilities and business plan.
4.6 Authorization. All corporate action on the part of such Purchaser
-------------
necessary for the authorization, execution, delivery and performance of this
Agreement and the Additional Agreements by Purchaser and the performance of all
of the Purchaser's obligations hereunder has been taken or will be taken prior
to the Closing. This Agreement constitutes and the Additional Agreements when
executed and delivered by such Purchaser will constitute valid and legally
binding obligations of Purchaser, enforceable in accordance with its terms,
except as the indemnification provisions of the Registration Rights Agreement
may be limited by principles of public policy and securities laws, and subject
to laws of general application relating to bankruptcy, insolvency, and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
4.7 Compliance with Other Instruments. The execution, delivery and
----------------------------------
performance of and compliance with this Agreement and the Additional Agreements,
and the purchase of the Shares do not result in any violation of, or conflict
with, or constitute a default under, any of the terms of any of its governing
documents or of any indenture, mortgage, deed of trust, pledge, bank loan or
credit agreement, corporate charter, bylaw or any instrument, document or
agreement by which the Purchaser or its properties may be bound or affected, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Purchaser.
4.8. Governmental Consent, Etc. No consent, approval or authorization of
-------------------------
or designation, declaration or filing with any governmental authority on the
part of the Purchaser is required in connection with the valid execution and
delivery of this Agreement, or the purchase of the Shares. Purchaser will
provide such information as requested by the Company in connection with filings
described in Section 3.17.
-10-
<PAGE>
4.9. Accredited Investor. Purchaser hereby represents that it is an
-------------------
"accredited investor" (as that term is defined in Regulation D under the
Securities Act).
4.10. Residence. Purchaser hereby represents that its state of
---------
organization is South Carolina and state of headquarters is South Carolina.
4.11. NASD Matters. Purchasers' acquisition of Shares or the presence
------------
of a representative of Purchaser on the Board of the Company would not, to
Purchaser's actual knowledge and belief without inquiry, cause the Securities
and Exchange Commission, National Association of Securities Dealers, Inc., any
state securities commission, to seek, or provide any basis for any such body to
seek, to deny, modify, terminate or fail to renew any license, permit or
accreditation necessary to operate the business of the Company.
4.12. Securities Act, etc.. None of Purchaser, its officers, directors
--------------------
or to Purchaser's actual knowledge and belief without inquiry controlling
persons (a) have been convicted within the ten years preceding the date of this
Agreement of any felony or misdemeanor of the types described in Rule 262 (b)(1)
under the Securities Act, (b) are subject to an order, judgment or decree of the
types described in Rule 262(b)(2) under the Securities Act, (c) are subject to
an order of the Securities and Exchange Commission of the types described in
Rule 262(b)(3) under the Securities Act, (d) have been suspended or expelled
from, or suspended or barred from association with a member of, a national
securities exchange or association as described in Rule 262(b)(4) under the
Securities Act and (e) are subject to an order or injunction as described in
Rule 262(b)(5) under the Securities Act.
4.13. Lawyers and Accountants. Purchaser is not relying upon any
-----------------------
investigation made by the Company's counsel or accountants or the presence of
such counsel or accountants as an indication counsel or the accountants has
reviewed or passed upon the representations, warranties, projections or business
plan of the Company or the wisdom of an investment in the Company.
4.14 Disclosure. No representation or warranty of the Purchaser
----------
contained certificate furnished or to be furnished to the Company pursuant
thereto (when read together) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
-11-
<PAGE>
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
The Purchaser's obligations to purchase the Shares at the Closing are, at
the option of Purchaser, subject to the fulfillment of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects as of the Closing Date (provided, however, that if any portion
of any representation or warranty is already qualified by materiality, such
portion of such representation or warranty as so qualified must be true and
correct in all respects), and Purchaser shall have received a Certificate of the
Chief Executive Officer of the Company to such effect.
5.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects, and
Purchaser shall have received a Certificate of the Chief Executive Officer of
the Company to such effect.
5.3 Legal Matters. All material matters of a legal nature which pertain
-------------
to this Agreement and the transactions contemplated hereby shall have been
reasonably approved by counsel to Purchaser.
5.4 Certificate of Amendment. The Company shall have duly filed the
------------------------
Certificate of Amendment with the Office of the Delaware Secretary of State.
5.5 Registration Rights Agreement. The Company, Timothy C. O'Crowley and
-----------------------------
the Purchaser shall have entered into and delivered the Registration Rights
Agreement.
5.6 Stockholders Agreement. The Company, the Purchasers and any other
----------------------
holder of outstanding common stock shall have entered into and delivered the
Stockholders Agreement.
5.7 Employment Agreement. The Company and Timothy C. O'Crowley shall
--------------------
have entered into and delivered an Employment Agreement providing for a salary
of $240,000 per year in substantially the form attached as EXHIBIT 5.7 hereto.
5.8 Legal Opinion. The Purchaser shall have received an opinion of the
-------------
Company's legal counsel as to the matters described in EXHIBIT 5.8 hereto.
5.9 Proprietary Information. The employees of the Company shall have
-----------------------
executed and delivered a Proprietary Information and Inventions Agreement in the
form of EXHIBIT 5.9 hereto.
-12-
<PAGE>
5.10 Warrant Agreement. The Company and Purchaser shall have entered into
-----------------
and delivered the Purchaser's Warrant Agreement.
5.11 Directors. H. Jackson Upchurch, Jr. and John W. Currie shall have
---------
been elected directors of the Company.
5.12 Merger. The merger of Intek Colorado into the Company shall have
------
occurred pursuant to approval of the shareholders of Intek Colorado and the
Company.
5.13 Certificate. The Purchaser shall have received a Certificate of the
-----------
Secretary of the Company certifying that attached thereto is a full and complete
copy of the Company's by-laws, certificate of incorporation, certificate of
merger for the Merger and articles of merger for the Merger, each as amended to
date and as in effect on the date of Certificate.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Shares at the Closing Date
is, at the option of the Company, subject to the fulfillment as of the Closing
Date of the following conditions:
6.1 Representations. The representations and warranties made by
---------------
Purchaser in Section 4 hereof shall have been true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date (provided, however, that if any portion of any representation
or warranty is already qualified by materiality, such portion of such
representation or warranty as so qualified must be true and correct in all
respects), and the Company shall have received a Certificate of the Chief
Executive Officer of the Purchaser to such effect.
6.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects, and the
Company shall have received a Certificate of the Chief Executive Officer of the
Purchaser to such effect.
6.3 Legal Matters. All material matters of a legal nature which pertain
-------------
to this Agreement, and the transactions contemplated hereby, shall have been
reasonably approved by counsel to the Company.
6.4 Agreements. The agreements described in Sections 5.5, 5.6, 5.7, 5.9
----------
and 5.10 shall have been entered into and delivered.
6.5 Merger. The merger of Intek Colorado into the Company shall have
------
occurred pursuant to approval of the shareholders of Intek Colorado and the
Company.
-13-
<PAGE>
SECTION 7
Covenants of the Company
-------------------------
7.1 Financial Information. The Company will from time to time mail the
---------------------
following reports to Purchaser:
a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, audited consolidated balance
sheets as of the end of such fiscal year, and consolidated statements of
income, shareholders equity and cash flows and of the Company and its
subsidiaries, if any for such year, prepared in accordance with generally
accepted accounting principles, consistently applied and, an unaudited
attachment thereto, setting forth in each case in comparative form the
figures for the previous fiscal year and setting forth in comparative form
the budgeted figures for the fiscal year then reported, all in reasonable
detail.
b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and
in any event within forty-five (45) days after each such quarter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as
of the end of each such period, and consolidated statements of income of
the Company and its subsidiaries for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles consistently applied (other than for accompanying notes),
subject to changes resulting from year-end adjustments, all in reasonable
detail and signed by the President or principal financial or accounting
officer of the Company, and in comparative form the budgeted figures for
such period.
By not later than sixty (60) days prior to the end of each fiscal year, the
Company will prepare and submit to the Board of Directors for its review and
approval a detailed financial budget for the next fiscal year, which budget as
approved by the Board shall be delivered to Purchaser within thirty (30) days
after the start of each fiscal year for so long as Purchaser is a holder of
twenty (20) percent or more of the Shares.
The Company shall promptly supply only to Purchaser and not any transferee of
the Shares, for so long as the Purchaser is a holder of twenty (20) percent or
more of the Shares, regularly prepared monthly financial information of the
Company as prepared for internal senior management.
7.2. Board of Directors Meetings. The Company will hold a minimum of four
---------------------------
(4) meetings of the Board of Directors a year unless the Board of Directors
shall otherwise determine.
7.3 Sale of Preferred. The Company will not sell any Shares except
-----------------
pursuant to this
-14-
<PAGE>
Agreement, and the Shares will constitute all of the issued and
outstanding Series A Preferred Stock of the Company.
7.4 Termination of Covenants. The covenants set forth in this Section 7
------------------------
shall terminate and be of no further force or effect at such time as the Company
is required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 ("Exchange Act"), as amended or Purchaser owns less than
10% of the outstanding Common Stock of the Company on an "as-converted to
common" basis, excluding unexercised options or warrants.
7.5 Reimbursement of Counsel Expenses. The Company shall reimburse the
---------------------------------
reasonable fees and expenses of Purchaser's legal counsel incurred subsequent to
June 1, 1996, and up to forty-five (45) days after Closing in connection with
this Agreement, but in any event not more than $25,000.
SECTION 8
Composition of Board of Directors
---------------------------------
The composition of the Board of Directors shall be as provided in the
Stockholders Agreement.
SECTION 9
Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of Delaware, without application of principles of
choice of law.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby.
9.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of Purchaser to purchase the Shares at
Closing shall not be assignable without the prior consent of the Company. The
Company's rights under this Agreement may not be assigned or transferred
(whether by assignment, merger or otherwise) without the prior written consent
of Purchaser.
9.4 Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
-15-
<PAGE>
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought,
provided, however, that holders of a majority of the Shares may act for all
holders of Shares.
9.5 Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Purchaser, at the Purchaser's address set forth on the
signature page hereto, or at such other address as Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares who has so furnished an
address to the Company, or (c) if to the Company, one copy should be sent to its
address set forth on the cover page of this Agreement and addressed to the
attention of the corporate secretary, or at such other address as the Company
shall have furnished to Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
three (3) days (excluding Saturday and Sunday) after the same has been
deposited, postage prepaid, in a regularly maintained receptacle for the deposit
of the United States mail, addressed and mailed as aforesaid.
9.6 Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and be executed
by the party to be bound thereby, and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
9.7 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be enforceable against the party actually executing such
counterparts, and all of which together shall constitute one instrument.
9.8 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision provided that no such severability
-16-
<PAGE>
shall be effective if it materially changes the economic benefit of this
Agreement to any party.
9.9 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
9.10 Arbitration. Except as provided below, any and all disputes arising
-----------
under or related to this Agreement which cannot be resolved through negotiations
between the parties shall be submitted to binding arbitration. If the parties
fail to reach a settlement of their dispute within fifteen (15) days after the
earliest date upon which one of the parties notified the other(s) of its desire
to attempt to resolve the dispute, then the dispute shall be promptly submitted
to arbitration by a single arbitrator through the American Arbitration
Association ("AAA"). The arbiter shall be selected by AAA on the basis, if
possible, of his or her expertise in the subject matter(s) of the dispute. The
decision of the arbitrator shall be final, nonappealable and binding upon the
parties, and it may be entered in any court of competent jurisdiction. The
arbitration shall take place in Atlanta, Georgia. The arbitrator shall be bound
by the laws of the State of Delaware applicable to the issues involved in the
arbitration and all Georgia rules relating to the admissibility of evidence,
including, without limitation, all relevant privileges and the attorney work
product doctrine. All discovery shall be completed in accordance with the time
limitations prescribed in the Georgia rules of civil procedure, unless otherwise
agreed by the parties or ordered by the arbitrator on the basis of strict
necessity adequately demonstrated by the party requesting an extension of time.
The arbitrator shall have the power to grant equitable relief where applicable
under Delaware law. The arbitrator shall issue a written opinion setting forth
his or her decision and the reasons therefor within thirty (30) days after the
arbitration proceeding is concluded. The obligation of the parties to submit
any dispute arising under or related to this Agreement to arbitration as
provided in this Section shall survive the expiration or earlier termination of
this Agreement. Notwithstanding the foregoing, either party may seek and obtain
an injunction or other appropriate relief from a court to preserve or protect
trademarks, tradenames, copyrights, patents, trade secrets or other intellectual
property or proprietary information or to preserve the status quo with respect
to any matter pending conclusion of the arbitration proceeding, but no such
application to a court shall in any way be permitted to stay or otherwise impede
the progress of the arbitration proceeding.
In the event of any arbitration or litigation being filed or
instituted between the parties concerning this Agreement, the prevailing party
will be entitled to receive from the other party or parties its attorneys' fees,
witness fees, costs and expenses, court costs and other reasonable expenses,
whether or not such controversy, claim or action is prosecuted to judgment or
other form of relief.
The foregoing Agreement is hereby executed as of the date first above
written.
INTEK INFORMATION, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------------------
Timothy C. O'Crowley, President
-17-
<PAGE>
RESOURCE BANCSHARES CORPORATION
By: /s/ EDWARD J. SEBASTIAN
-----------------------------
Title: Chairman and CEO
-----------------------------
Address: Suite 650
1501 Main Street
Columbia, South Carolina 29701
Attention: Chairman
-18-
<PAGE>
Exhibit 4.5
PREFERRED STOCK PURCHASE AGREEMENT
by and among
INTEK INFORMATION INC.,
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.,
SQUAM LAKE INVESTORS II, L.P.,
and
BAIN & COMPANY, INC.
dated as of February 3, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
I. Issuance and Sale of Securities............................................... 1
1.1. The Purchase........................................................... 1
1.2. The Closing............................................................ 2
II. Representations and Warranties of the Company................................. 3
2.1. Organization and Good Standing; Power and Authority; Qualifications.... 3
2.2. Authorization of the Documents......................................... 4
2.3. Capitalization......................................................... 4
2.4. Authorization and Issuance of Capital Stock............................ 6
2.5. Reservation of Shares.................................................. 6
2.6. Financial Statements................................................... 6
2.7. Absence of Undisclosed Liabilities..................................... 7
2.8. Absence of Material Changes............................................ 7
2.9. No Conflict............................................................ 8
2.10 Agreements............................................................. 9
2.11. Patents, Trademarks, etc............................................... 9
2.12. Equity Investments; Subsidiaries....................................... 10
2.13. Corporate Minute Books................................................. 10
2.14. Suitability............................................................ 10
2.15. Assets................................................................. 10
2.16. Employee Benefit Plans................................................. 11
2.17. Labor Relations; Employees............................................. 14
2.18. Litigation; Orders..................................................... 15
2.19. Compliance with Laws; Permits.......................................... 15
2.20. Offering Exemption..................................................... 15
2.21. Related Transactions................................................... 16
2.22. Disclosure............................................................. 16
2.23. Taxes.................................................................. 16
2.24. Environmental Protection............................................... 18
2.25. Consents............................................................... 20
2.26. Insurance.............................................................. 20
2.27. Brokers................................................................ 21
2.28. Use of Proceeds........................................................ 21
2.29. Previous Issuances Exempt.............................................. 21
2.30. Real Property.......................................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.31. Accounts Receivable................................................... 22
2.32. Investment Banking Services........................................... 22
2.33. Registration Rights................................................... 23
III. Representations and Warranties of the Investors.............................. 23
3.1. Investor Representations.............................................. 23
3.2. Representations and Warranties of Beacon.............................. 24
3.3. Representations and Warranties of Bain................................ 24
3.4. Representations and Warranties of SLI................................. 25
IV. Certain Covenants............................................................ 26
4.1. Operation of the Business Prior to Closing............................ 26
4.2. Conduct of Business of the Company Prior to Closing................... 26
4.3. Third Party Consents Prior to Closing................................. 28
4.4. No Negotiation Prior to Closing....................................... 28
4.5. Access to Records Prior to Closing.................................... 29
4.6. Post-Closing Covenants................................................ 29
V. Survival of Representations, Warranties, Agreements and Covenants, etc....... 32
VI. Expenses..................................................................... 32
VII. Indemnification.............................................................. 33
7.1. General Indemnification............................................... 33
7.2. Indemnification Principles............................................ 33
7.3. Claim Notice.......................................................... 34
7.4. Claim Procedure....................................................... 34
VIII. Miscellaneous................................................................ 36
8.1. Remedies.............................................................. 36
8.2. Transfer Taxes........................................................ 36
8.3. Further Assurances.................................................... 37
8.4. Successors and Assigns; Assignment.................................... 37
8.5. Entire Agreement...................................................... 37
8.6. Notices............................................................... 37
8.7. Amendments............................................................ 39
8.8. Counterparts.......................................................... 39
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.9. Headings................................................................. 39
8.10. Nouns and Pronouns....................................................... 39
8.11. Governing Law............................................................ 39
8.12. Severability............................................................. 40
8.13. Knowledge................................................................ 40
8.14. Option Financing......................................................... 40
8.15. Termination.............................................................. 41
</TABLE>
<PAGE>
Exhibits
A - Legal Opinions
B - Amended and Restated Certificate of Incorporation
C - By-laws
D - Escrow Agreement with Chrisman, Bynum & Johnson, P.C.
E - Shareholders' Agreement
F - Registration Rights Agreements
G - Note
H - Subordination Letter
<PAGE>
Index of Defined Terms
Term Section
- ---- -----------
Acquired Corporation.............................................. 8.14
ACM............................................................... 2.24
Affiliated Group.................................................. 2.23
Bain.............................................................. Preamble
Bain Entities..................................................... Preamble
Balance Sheet Date................................................ 2.6
Beacon............................................................ Preamble
Claim Notice...................................................... 7.3
Closing........................................................... 1.2
Closing Date...................................................... 1.2
Common Stock...................................................... 2.3
Company........................................................... Preamble
Company Benefit Plan.............................................. 2.16
Company Financial Statements...................................... 2.6
Contract.......................................................... 2.10
Conversion Shares................................................. 2.3
Documents......................................................... 2.1
Employee.......................................................... 2.16
Employee Agreement................................................ 2.16
Encumbrances...................................................... 2.3
Environmental Costs............................................... 2.24
Environmental Laws................................................ 2.24
Environmental Matter.............................................. 2.24
Environmental Permits............................................. 2.24
ERISA............................................................. 2.16
ERISA Affiliate................................................... 2.16
Exchange Act...................................................... 2.21
GAAP.............................................................. 2.6
Hazardous Substances.............................................. 2.24
Investor.......................................................... Preamble
Investor Entity................................................... 11.1
IPO............................................................... 5.10
Leased Real Properties............................................ 2.31
Litigation........................................................ 21.0
Losses............................................................ 7.2
Material Adverse Effect........................................... 2.1
Merger............................................................ 8.14
Merger Agreement.................................................. 8.14
Note.............................................................. 8.14
Owned Real Properties............................................. 2.30
Option............................................................ 8.14
Option Financing.................................................. 8.14
Option Financing Closing Date..................................... 8.14
PCBs.............................................................. 2.24
Pension Plan...................................................... 2.16
Permitted Encumbrances............................................ 2.30
Preferred Stock................................................... 2.3
Purchase.......................................................... 1.1(b)
Purchase Price.................................................... 1.1(b)
Real Properties................................................... 2.30
Registration Rights Agreement..................................... 2.1
Return............................................................ 2.23
Securities Act.................................................... 2.14
Series B Preferred Stock.......................................... Recitals
Shareholders' Agreement........................................... 2.1
SLI............................................................... Preamble
Subsidiary........................................................ 2.12
Subordination Letter.............................................. 8.14
Taxes............................................................. 2.23
Transaction Proposals............................................. 4.4
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of February 3, 1997, by and among INTEK INFORMATION
INC., a Delaware corporation (the "Company"), THE BEACON GROUP III - FOCUS VALUE
FUND, L.P., a Delaware limited partnership ("Beacon"), SQUAM LAKE INVESTORS II,
L.P., a Delaware limited partnership ("SLI") and BAIN & COMPANY, INC., a
Massachusetts corporation ("Bain"). (Bain and SLI are collectively referred to
herein as the "Bain Entities") (Beacon and the Bain Entities are collectively
referred to herein as the "Investors," and each of them is referred to herein as
"Investor")
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company wishes to sell to Beacon and the Bain Entities, and
Beacon and the Bain Entities wish to purchase from the Company, shares of Series
B Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred Stock").
ACCORDINGLY, the parties hereto hereby agree as follows:
I. Issuance and Sale of Securities
1.1. The Purchase
------------
(a) On the date hereof, the Company shall issue the Note (as defined in
Section 8.14) to Beacon in exchange for the payment therefor by Beacon of
$800,000, and each of Eden Financial Group. Inc., Fundmark Investment Company
Services, Inc. and Timothy C. O'Crowley shall execute and deliver the
Subordination Letter (as defined in Section 8.14) to Beacon. The proceeds to
the Company from the sale of the Note shall be used to purchase an option to
acquire PROTOCALL New Business Specialists, Inc. pursuant to the terms of the
Merger Agreement (as defined in Section 8.14) and to make certain preliminary
payments in connection therewith.
(b) At the Closing (as defined in Section 1.2(a)), (i) Beacon shall
purchase from the Company and the Company shall sell to Beacon 9,615,738 shares
of Series B Preferred Stock, (ii) Bain shall purchase from the Company and the
Company shall sell to Bain 287,191 shares of Series B Preferred Stock and (iii)
SLI shall purchase from the
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Company and the Company shall sell to SLI 287,191 shares of Series B Preferred
Stock (the "Purchase"). The aggregate purchase price (the "Purchase Price") to
be paid (i) by Beacon for the Series B Preferred Stock purchased by it hereunder
is $16,740,999.86, including the amount of principal due under the Note, if any,
that is forgiven by Beacon upon consummation of the Merger (as defined in
Section 8.14) and (ii) by each of Bain and SLI for the Series B Preferred Stock
purchased by them, respectively, hereunder is $499,999.53. The respective
obligations of Beacon, Bain and SLI hereunder are several and not joint.
1.2. The Closing
-----------
(a) The closing of the Purchase (the "Closing") shall take place at the
offices of Chrisman, Bynum & Johnson, P.C. ("CBJ"), 1900 15th Street, Boulder,
Colorado 80302 on a date (the "Closing Date") as soon as practicable following
the satisfaction or waiver of each of the conditions set forth in Sections 5 and
6 (other than those conditions that by their nature are to be fulfilled at the
Closing, but subject to the fulfillment of such conditions).
(b) At the Closing, the Company shall deliver to each of Beacon, Bain and
SLI a certificate or certificates representing the respective shares of Series B
Preferred Stock purchased by them, registered in the name of Beacon, Bain or
SLI, as the case may be. Delivery of such certificates to Beacon, Bain and SLI
shall be made against receipt at the Closing by the Company from each of Beacon,
Bain and SLI of their respective portions of the Purchase Price, which shall be
paid by wire transfers to an account designated at least one business day prior
to the Closing by the Company.
(c) At the Closing, (i) Chrisman, Bynum & Johnson, P.C., counsel to the
Company, shall deliver to the Investors its opinion substantially in the form of
Exhibit A-1 attached hereto, (ii) the McNair Law Firm, counsel to Resource
Bancshares Corporation, shall deliver to the Investors its opinion substantially
in the form of Exhibit A-2 attached hereto, (iii) the Company shall deliver to
the Investors copies of the Company's Certified Amended and Restated Certificate
of Incorporation substantially in the form of Exhibit B attached hereto and the
Company's By-Laws substantially in the form of Exhibit C attached hereto, each
certified by the Assistant Secretary of the Company as true, correct and
complete and in effect as of the Closing, and (iv) each of the Investors, the
Company and the other stockholders of the Company shall deliver duly executed
counterparts to the Shareholders' Agreement (as defined in Section 2.1) and the
various Registration Rights Agreements (as defined in Section 2.1) to which they
are parties.
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(d) Simultaneous with the Closing, (i) the Company's warrants number W-1
(issued to O'Crowley) and W-2 (issued to Resource Bancshares Corporation) shall
be canceled and of no further force or effect, and the Company shall deliver to
Beacon evidence satisfactory to Beacon in this regard, and (ii) the Company
shall repurchase from Resource Bancshares Corporation 5,000 shares of the
Company's Series A Preferred Stock, par value of $.001 per share, in exchange
for an aggregate purchase price of $1,741,000.
(e) At the Closing, the Company shall deliver to the Investors a
certificate, dated the Closing Date and executed by the Chief Executive Officer
of the Company, certifying to the effect that (i) each of the representations
and warranties of the Company set forth in this Agreement are accurate in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date and (ii) each of the covenants and obligations that the Company is
obligated to perform or to comply with pursuant to this Agreement at or prior to
the Closing shall have been duly performed and complied with in all material
respects.
(f) Other than (i) the opinion of CB&J to be delivered in connection with
the Option Financing, (ii) the Note and (iii) the Subordination Letter (each of
which shall be delivered to Beacon simultaneously with the execution of this
Agreement and the delivery by Beacon to the Company of the Option Financing),
the certificates, instruments and other documents that are to be delivered at
the Closing pursuant to this Section 1.2 shall be duly executed and delivered to
CB&J on the date hereof and held in escrow by CB&J pursuant to the terms of and
escrow agreement substantially in the form attached hereto as Exhibit F.
(g) At the Closing, the Company shall execute and deliver indemnification
agreements for the benefit of Thomas G. Mendell and Eric R. Wilkinson that are
in the same form and substance as any indemnification agreements with directors
in effect as of the date hereof.
II. Representations and Warranties of the Company
The Company hereby represents and warrants to the Investors as follows as
of the date hereof and as of the Closing Date:
2.1. Organization and Good Standing; Power and Authority; Qualifications.
-------------------------------------------------------------------
The Company (a) is duly organized, validly existing and in good standing under
the laws
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of its jurisdiction of organization, (b) has all requisite power and authority
to own, lease and operate its properties and to carry on its business as
presently conducted and as proposed to be conducted and (c) has all requisite
power and authority to enter into and carry out the transactions contemplated by
this Agreement, the shareholders' agreement among the Company, Beacon, the Bain
Entities and each and every other holder of equity securities of the Company, in
the form of Exhibit E hereto (the "Shareholders' Agreement") (i) the
registration rights agreement between the Company and Beacon, in the form of
Exhibit E-1 hereto and (ii) the registration rights agreement among the Company,
the Bain Entities and certain other parties, in the form of Exhibit E-2 hereto
(the "Registration Rights Agreements," together with this Agreement, the
Shareholders' Agreement and the Note (as defined in Section 8.14) and the
Subordination Letter (as defined in Section 8.14), the "Documents"). The Company
is qualified to transact business as a foreign corporation in, and is in good
standing under the laws of, those jurisdictions listed on Schedule 2.1, which
jurisdictions constitute all of the jurisdictions wherein the character of the
property owned or leased or the nature of the activities conducted by it makes
such qualification necessary, except for those jurisdictions where the failure
to be so qualified and in good standing would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, liabilities, condition (financial
or other) or results of operations of the Company (a "Material Adverse Effect").
2.2. Authorization of the Documents. The execution, delivery and
------------------------------
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except to the extent that
enforceability may be limited by principles of equity, bankruptcy, insolvency or
other similar laws affecting creditors' rights generally. As of the Closing
Date, each holder of issued and outstanding voting shares of the Company has
executed and delivered the Shareholders' Agreement.
2.3. Capitalization
--------------
(a) The authorized capitalization of the Company immediately following
the Purchase will consist of:
(i) Preferred Stock. 20,000,000 shares of Preferred Stock, par
value $.001 per share ("Preferred Stock"), of which (A) 20,000 shares have been
designated Series A Preferred Stock (including the 5,000 shares of Series A
Preferred Stock that will have been repurchased and automatically canceled in
connection with the
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<PAGE>
transactions contemplated by this Agreement), (B) 12,532,248, shares have been
designated Series B Convertible Preferred Stock (the "Series B Preferred Stock")
and (C) 7,447,752 shares of "blank check" preferred stock that have no
designation and none of which have been issued or are outstanding. All of the
shares of Series A Preferred Stock have been validly issued and are outstanding,
fully paid and nonassessable and free and clear of all mortgages, judgments,
claims, liens, security interests, pledges, escrows, charges or other
encumbrances of any kind or character whatsoever ("Encumbrances"). As of the
Closing, (A) 12,053,391 shares of Series B Preferred Stock, comprised of (1)
9,615,738 shares of Series B Preferred Stock issued to Beacon as contemplated by
this Agreement, (2) 287,191 shares of Series B Preferred Stock issued to Bain as
contemplated by this Agreement, and (3) 287,191 shares of Series B Preferred
Stock issued to SLI as contemplated by this Agreement will be validly issued and
outstanding, fully paid and nonassessable and free and clear of all Encumbrances
(except for Encumbrances arising under the Documents), and (B) 1,863,271
authorized shares of Series B Preferred Stock are currently expected to be
issued in connection with the Company's proposed acquisition of another business
after which issuance, all authorized shares of Series B Preferred Stock will be
validly issued, outstanding, fully paid and nonassessable and free and clear of
all Encumbrances.
(ii) Common Stock. 45,000,000 shares of Common Stock, par value
$.001 per share ("Common Stock"), of which 7,428,571 shares have been validly
issued, and are outstanding, fully paid and nonassessable and free and clear of
all Encumbrances.
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of
record of capital stock of the Company, including the number of shares of
capital stock held by each such holder, and (ii) all outstanding warrants,
options, agreements, convertible securities or other commitments pursuant to
which the Company is or may become obligated to issue any shares of the capital
stock or other securities of the Company, which names all persons entitled of
record to receive such shares or other securities, the shares of capital stock
or other securities required to be issued thereunder as of the date hereof and
the price per share, if any, payable with respect to the issuance of any share
of capital stock issuable thereunder. Except as set forth on Schedule 2.3(b),
the Company has no knowledge of the names of any beneficial owners of shares of
capital stock of the Company who are not otherwise holders of record. Except as
set forth on Schedule 2.3(b) or as contemplated by the Documents there is, and
immediately after the Closing there will be, no agreement, restriction or
encumbrance (such as a preemptive or similar right, right of first refusal,
right of first offer, proxy, voting agreement, voting trust, registration rights
agreement, stockholders' agreement, warrant, etc.,) (i) with respect to which
the
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<PAGE>
Company is a party and (ii) with respect to the best knowledge of the Company,
to which the Company is not a party with respect to the purchase, sale or voting
of any shares of capital stock or other securities of the Company pursuant to
any provision of law, the Certificate of Incorporation or By-laws of the
Company, any agreement or otherwise. Except as contemplated by the Documents or
except for the right to vote its shares of capital stock of the Company for the
election of directors, no person has the right to nominate or elect one or more
directors of the Company.
(c) The shares of Common Stock issuable upon conversion of the Series
B Preferred Stock issued to the Investors on the date of the Closing under this
Agreement (the "Conversion Shares") represent, in the aggregate, (i) (prior to
accounting for the issuance of Series B Preferred Stock in connection with the
contemplated acquisition of another business as described in clause (B) of
Subsection 2.3(a)(i) above, the repurchase of 5,000 shares of Series A Preferred
Stock as contemplated in Section 1.2(d) above and any issuance of capital stock
of the Company pursuant to any Stock Option Plan or Employee Stock Purchase
Plan) 47.1% of the outstanding Common Stock of the Company on the date of the
Closing on a fully diluted basis and the voting power of such issued shares will
represent, in the aggregate, 47.1% of the total number of votes able to be cast
on any matter by all voting securities of the Company (other than any matter
that the holders of Series A Preferred Stock are entitled by law to vote on as a
separate class and any matter to be voted on by the holders of shares of Series
B Preferred Stock as a separate class) on the date of the Closing on a fully
diluted basis, and (ii) (after accounting for the issuance of Series B Preferred
Stock in connection with the contemplated acquisition of another business as
described in clause (B) of Subsection 2.3(a)(i) above, the repurchase of 5,000
shares of Series A Preferred Stock as contemplated in Section 1.2(d) above and
the issuance of the maximum number of shares of capital stock of the Company
issuable pursuant to any options or rights then outstanding under any stock
option plan or employee stock purchase plan) 37.1% of the outstanding Common
Stock of the Company on the date of the Closing on a fully diluted basis.
2.4. Authorization and Issuance of Capital Stock. The authorization,
-------------------------------------------
issuance, sale and delivery of the Series B Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action on
the part of the Company, and when issued, sold and delivered in accordance with
this Agreement, the Series B Preferred Stock and the Conversion Shares will be
validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof, free and clear of any
Encumbrances, other than Encumbrances, if any, arising as a result of actions
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<PAGE>
taken by any of the Investors, and, except as set forth in the Shareholders'
Agreement, not subject to preemptive or similar rights of the stockholders of
the Company or others. The terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of any series of Preferred Stock
of the Company are as stated in the Company's Certificate of Incorporation and
the Documents.
2.5. Reservation of Shares. The Company has reserved a sufficient number
---------------------
of shares of Common Stock for issuance to the Investors upon the conversion of
the Series B Preferred Stock issued to the Investors on the date of the Closing
in accordance with this Agreement.
2.6. Financial Statements. The Company has furnished to the Investors the
--------------------
unaudited statements of income, stockholders' equity and cash flows of the
Company for the period commencing upon the Company's inception through July 31,
1996 and the unaudited balance sheet of the Company as of such date, and the
unaudited balance sheet of the Company as of November 30, 1996 (the "Balance
Sheet Date") and the related unaudited statements of income and cash flows for
the three month period ended November 30, 1996 (all such financial statements,
the "Company Financial Statements"). All such financial statements (i) are in
accordance with the books and records of the Company, (ii) have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied (except that such unaudited financial statements do not contain (i) all
of the footnotes required under GAAP or (ii) customary year-end adjustments) and
(iii) fairly and accurately present the financial position of the Company and
its consolidated subsidiaries as of July 31, 1996 and November 30, 1996,
respectively, and the results of its operations and cash flows for the period
commencing upon the Company's inception through July 31, 1996 and for the four
months ended November 30, 1996, respectively.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
----------------------------------
2.7, the Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known, whether due or to
become due and regardless of when asserted) other than (i) liabilities or
obligations reserved against or otherwise disclosed in the Company Financial
Statements, (ii) other liabilities or obligations that were incurred after
November 30, 1996 in the ordinary course of business consistent (in amount and
kind) with past practice (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and that do
not exceed $10,000 in the aggregate, and (iii) liabilities or obligations under
Contracts
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<PAGE>
listed in the Schedules to this Agreement or under Contracts that are not
required to be disclosed therein (but not liabilities for breaches thereof).
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8,
---------------------------
since November 30, 1996, the Company has conducted its business in the ordinary
course, consistent with past practice and there has not been (a) any Material
Adverse Effect or any event or condition (other than events or conditions
affecting the Company's industry generally and which have been publicly
reported) which could reasonably be expected to have such a Material Adverse
Effect, (b) any waiver or cancellation of any material right of the Company, or
the cancellation of any material debt or claim held by the Company, (c) any
payment, discharge or satisfaction of any claim, liability or obligation of the
Company other than in the ordinary course of business, (d) any Encumbrance upon
the assets of the Company other than any Permitted Encumbrance (as defined in
Section 2.30), (e) any declaration or payment of dividends on, or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company, (f) any issuance of any stock,
bonds or other securities of the Company, (g) any sale, assignment or transfer
of any tangible or intangible assets of the Company except in the ordinary
course of business, (h) any loan by the Company to any officer, director,
employee, consultant or shareholder of the Company (other than advances to such
persons in the ordinary course of business in connection with travel and travel
related expenses), (i) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, property, financial
condition or results of operations of the Company, (j) any increase, direct or
indirect, in the compensation paid or payable to any officer or director of the
Company or, other than in the ordinary course of business, to any other
employee, consultant or agent of the Company, (k) any change in the accounting
or tax methods, practices or policies, or of any material tax election of the
Company, (l) any indebtedness incurred for borrowed money by the Company other
than in the ordinary course of business, (m) any amendment to or termination of
any material agreement to which the Company is a party other than the expiration
of any such agreement in accordance with its terms, (n) any change of which
either (i) the Company has received notice or (ii) otherwise has knowledge with
respect to the regulation of the Company or its activities by any administrative
agency or governmental body to the extent such change has had or could
reasonably be expected to have a Material Adverse Effect, (o) any material
change in the manner of business or operations of the Company (including,
without limitation, any accelerations or deferral of the payment of accounts
payable or other current liabilities or deferral of the collection of accounts
or notes receivable), (p) any capital expenditures or commitments therefor by
the Company that aggregate in excess of $10,000, (q) except for any amendments
to the Company's certificate of incorporation and by-laws required in connection
with the transactions
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<PAGE>
contemplated by this Agreement, any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company, (r) any
transaction entered into by the Company other than in the ordinary course of
business or any other material transaction entered into by the Company whether
or not in the ordinary course of business, or (s) any agreement or commitment
(contingent or otherwise) by the Company to do any of the foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
-----------
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery by
the Company of the Series B Preferred Stock and the Conversion Shares) will not
(a) (relying, in part, upon the representations and warranties of the Investors
in Article III, where applicable) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to it, or any
of its properties or assets, (b) conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
Encumbrance upon any of its properties or assets under, any Contract to which it
is a party or (c) violate its certificate of incorporation or by-laws or other
organizational documents.
2.10. Agreements
----------
(a) Except as set forth on Schedule 2.10, the Company is not a
party to any contract, agreement, indenture, mortgage, guaranty, lease, license
or understanding, written or oral (a "Contract"), other than any Contract which
(i) pursuant to its terms, has expired, been terminated or fully performed by
the parties, and in each case, under which the Company has no liability,
contingent or otherwise, or (ii) involves monthly payments to or from the
Company (as opposed to an indemnity agreement or similar contract under which
the Company has any contingent liability) which monthly payments do not
aggregate on an annual basis to $10,000 or more, and in each case, is not
material to the business or financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of
all Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been provided to Beacon. Each of such Contracts is, as of the date
hereof, and will continue to be at and after the Closing, a legal, valid, and
binding obligation of, enforceable against, and in full force and effect
against, the Company and, to the best knowledge of the
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Company, the other parties thereto. There is no breach, violation or default by
the Company and no event (including, without limitation, the consummation of the
transactions contemplated by the Documents) which, with notice or lapse of time
or both, would (i) constitute a breach, violation or default by the Company
under any such Contract or (ii) give rise to any lien or right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration against the Company under any such Contract. To the best of the
Company's knowledge, except as set forth on Schedule 2.10, no other party to any
of such Contracts is in arrears in respect of the performance or satisfaction of
the terms and conditions on its part to be performed or satisfied under any of
such Contracts, no waiver or indulgence has been granted by any of the parties
thereto and no party to any of such Contracts has repudiated any provision
thereof.
2.11. Patents, Trademarks, etc. To the Company's best knowledge, the
------------------------
Company owns, possesses or has the right to use pursuant to license, sublicense,
agreement or permission all patents, inventions, trademarks, service marks,
trade names, whether registered or otherwise, together with all goodwill
associated therewith, copyrights, licenses, information, proprietary rights, and
processes necessary for the lawful conduct of its business as now conducted,
without any infringement of or conflict with the rights of others. Except as
set forth in Schedule 2.11, there are no outstanding options, licenses, or
agreements of any kind relating to the foregoing intellectual property rights,
nor is the Company bound by or a party to any options, licenses, or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the conduct of the Company's business infringes or
conflicts with the rights of others under patents, trademarks, copyrights and
trade secrets. To the best of the Company's knowledge, except as set forth in
Schedule 2.11, the Company's business as now conducted and as proposed to be
conducted will not infringe or conflict with the rights of others, including
rights under patents, trademarks, copyrights and trade secrets.
2.12. Equity Investments; Subsidiaries. Except as set forth in
--------------------------------
Schedule 2.12, the Company has no Subsidiaries and has never owned, and does not
presently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any company, association, trust,
partnership, joint venture or other entity. For purposes of this Agreement, the
term "Subsidiary" means, with respect to any person, any company, partnership or
other entity (a) of which shares of capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such company, partnership or other entity are at
the time owned or
10
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controlled, directly or indirectly, by such person or (b) the management of
which is otherwise controlled, directly or indirectly, through one or more
intermediaries by such person.
2.13. Corporate Minute Books. The corporate records of the Company are
----------------------
correct and complete. True and correct copies of all minutes of meetings or
other actions by the directors, stockholders or incorporators of the Company
since its inception has previously been provided to Beacon.
2.14. Suitability. To the best knowledge of the Company, none of the
-----------
events described in Item 401(f) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), has occurred during the last five years
with respect to any director or officer of the Company.
2.15. Assets
------
(a) The Company has good and marketable title, or a valid
leasehold interest in or contractual right to use, all of its assets and
properties, free and clear of any Encumbrances except (i) as disclosed in
Schedule 2.15(a), (ii) Encumbrances for taxes not yet due and payable, (iii)
Encumbrances set forth on Schedule 2.15(a) for taxes and charges and other
claims, the validity of which the Company is contesting in good faith or (iv)
Permitted Encumbrances. The assets and properties owned by, or leased to, the
Company are sufficient for the conduct of the business and operation of the
Company as presently conducted and as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings,
facilities, machinery, equipment, furniture, leasehold and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property owned by, or leased to the Company, as of the date hereof, (i) are to
the Company's best knowledge without investigation, in good operating condition
and repair (normal wear and tear excepted) and (in the case of buildings or
structures located on the Real Properties (as defined in Section 2.31)) free of
any structural or engineering defects and (ii) to the Company's best knowledge,
are suitable for their current use.
(c) Except as set forth on Schedule 2.15(c), the Company has
not received notice of, and has no knowledge of, any pending, threatened or
contemplated condemnation proceeding or similar taking affecting the assets of
the Company (including the Real Properties).
11
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2.16. Employee Benefit Plans
----------------------
(a) Schedule 2.16 hereto contains a true and complete list of
(i) each plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefore, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is now or previously has been sponsored, maintained, contributed to or required
to be contributed to by the Company or pursuant to which the Company has any
liability, contingent or otherwise, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (each, a "Company Benefit
Plan"); and (ii) each management, employment, bonus, option, equity (or equity
related), severance, consulting, non compete, confidentiality or similar
agreement or contract, pursuant to which the Company has any liability,
contingent or otherwise, between the Company and any current, former or retired
employee, officer, consultant, independent contractor, agent or director of the
Company (an "Employee") (each, an "Employee Agreement"). Except as identified on
Schedule 2.16, neither the Company nor any ERISA Affiliate (as defined in
2.16(b)) currently sponsors, maintains, contributes to, or is required to
contribute to, nor has the Company ever sponsored, maintained, contributed to or
been required to contribute to, or incurred any liability to, (i) any
"multiemployer plan" (as defined in ERISA Section 3(37)) or (ii) any Company
Benefit Plan which provides, or has any liability to provide, life insurance,
medical, severance or other employee welfare benefits to any Employee upon his
or her retirement or termination of employment, except as required by Section
4980B of the Code. Neither the Company nor any of the entities set forth on
Schedule 2.16(a) has or has had any ERISA Affiliates other than the Company or
any of such entities.
(b) An "ERISA Affiliate" is defined as any entity that is (or
at any relevant time was) a member of a "controlled group of corporations" with,
or under "common control" with, or a member of an "affiliated service group"
with, or otherwise required to be aggregated with, the Company or any entity
listed on Schedule 2.16(a) as set forth in Section 414(b), (c), (m) or (o) of
the Code or Section 4001(a)(14) of ERISA.
(c) The Company has provided to Beacon current, accurate and
complete copies of all documents embodying or relating to each Company Benefit
Plan and each Employee Agreement, including all amendments thereto, trust or
funding agreements relating thereto (if any), the two most recent annual reports
(Series 5500 and related schedules) required under ERISA (if any), summary
annual reports, the most recent
12
<PAGE>
determination letter (if any) received from the Internal Revenue Service, the
most recent summary plan description (with all material modifications) (if any),
if the Company Benefit Plan is funded, the most recent annual and periodic
accounting of Company Benefit Plan assets, and all material communications to
any Employee or Employees relating to any Company Benefit Plan or Employee
Agreement.
(d) With respect to each Company Benefit Plan (i) the Company
and each ERISA Affiliate has performed all obligations required to be performed
by it under each Company Benefit Plan and Employee Agreement and neither the
Company nor any ERISA Affiliate is in default under or in violation of, any
Company Benefit Plan, (ii) each Company Benefit Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA and the IRC, including without limiting the foregoing, the timely filing
of all required reports, documents and notices, where applicable, with the IRS
and the Department; (iii) each Company Benefit Plan intended to qualify under
Section 401 of the IRC is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
IRC and no circumstances exist which would adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the IRC or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or,
under currently applicable laws and regulations, may subject the Company or any
ERISA Affiliate or any fiduciary to any tax, penalty or other liability, whether
by way of indemnity or otherwise; (vi) there are no actions, proceedings,
arbitrations, suits or claims pending, or to the best knowledge of the Company
and any ERISA Affiliate, threatened or anticipated (other than routine claims
for benefits) against the Company or any ERISA Affiliate or any administrator,
trustee or other fiduciary of any Company Benefit Plan with respect to any
Company Benefit Plan or Employee Agreement, or against any Company Benefit Plan
or against the assets of any Company Benefit Plan; (vii) no event or transaction
has occurred with respect to any Company Benefit Plan that would result in the
imposition of any tax under Chapter 43 of Subtitle D of the IRC; (viii) each
Company Benefit Plan can be amended, terminated or otherwise discontinued
without liability to the Company or any ERISA Affiliate; (ix) no Company Benefit
Plan is under audit or investigation by the IRS, the Department or the PBGC, and
to the best knowledge of the Company and any ERISA Affiliate, no such audit or
investigation is pending or threatened.
13
<PAGE>
(e) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Company
Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or
Beacon to amend or terminate any Company Employee Plan and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. Except as set forth in Schedule
2.16(e), no payment or benefit which will or may be made by the Company, Beacon
or any of their respective affiliates with respect to any employee will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(f) With respect to each Company Benefit Plan (other than a
multi-employer plan) which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan"), (i) no steps have been taken
to terminate any Pension Plan now maintained or contributed to, no termination
of any Pension Plan has occurred pursuant to which all liabilities have not been
satisfied in full, no liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate which has not been satisfied in full, and no
event has occurred and no condition exists that could reasonably be expected to
result in the Company or any ERISA Affiliate incurring a liability under Title
IV of ERISA or could constitute grounds for terminating any Pension Plan; (ii)
no proceeding has been initiated by the PBGC to terminate any Pension Plan or to
appoint a trustee to administer any Pension Plan; (iii) each Pension Plan which
is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the
Code, has been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such Pension Plan has incurred any "accumulated
funding deficiency," as defined in Section 412 of the Code and Section 302 of
ERISA, whether or not waived; (iv) neither the Company or any ERISA Affiliate
has sought nor received a waiver of its funding requirements with respect to any
Pension Plan and all contributions payable with respect to each Pension Plan
have been timely made; (v) no reportable event, within the meaning of Section
4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA, has
occurred with respect to any Pension Plan; and (vi) the present value of all
accrued benefits of each Pension Plan, determined on a plan termination basis
using the actuarial assumptions established by the PBGC as in effect on the date
of determination, does not as of the date hereof and will not as of the Closing
exceed the fair market value of the assets (which for this purpose shall not
include any accrued but unpaid contributions) of such Pension Plan.
14
<PAGE>
(g) Immediately following the Closing, the Company will be
primarily engaged, directly or through a Subsidiary or Subsidiaries, in the
production or sale of a product or service other than the investment of capital
within the meaning of Department of Labor Regulation (S) 2510.3-101(c), (d) or
(e).
2.17. Labor Relations; Employees
--------------------------
(a) Schedule 2.17(a) lists all employees of the Company with an
annual salary in excess of $25,000. Except as set forth on Schedule 2.17(a), (i)
the Company is not delinquent in payments to any of its employees, for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed by the date hereof or material amounts required to be
reimbursed by them to the date hereof, (ii) the Company is in material
compliance with all applicable federal, state and local laws, rules and
regulations respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, (iii) the Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, commitment or arrangement with any
labor union, and no labor union has requested or, to the best knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company, (iv) there is no labor strike, dispute, slowdown or stoppage
actually pending, or, to the best knowledge of the Company, threatened against
or involving the Company, and (v) to the best knowledge of the Company, no
salaried key employee has any plans to terminate his or her employment with the
Company. Each of the officers of the Company, each key employee and each other
employee and consultant now employed or retained by the Company who has access
to confidential information of the Company has executed a confidentiality
agreement, and such agreements are in full force and effect.
(b) Except as set forth on Schedule 2.17(b), the Company is not a
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement except for the Management Employment Agreement
with Timothy C. O'Crowley ("O'Crowley") and the written employment agreements to
be entered into with five employees of PROTOCALL New Business Specialists, Inc.
as disclosed to Beacon. To the best knowledge of the Company, there has been no
breach, violation or default by O'Crowley under such Management Employment
Agreement.
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there
------------------
is no civil, criminal, administrative or regulatory action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, regulator, arbitrator
15
<PAGE>
or similar panel, governmental instrumentality or other agency now pending or,
to the best knowledge of the Company, threatened against the Company or the
assets or the business of the Company. Except as set forth in Schedule 2.18, the
Company is not subject to any order, writ, injunction or decree of any court of
any federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality.
2.19. Compliance with Laws; Permits. Except as provided in Schedule 2.19,
-----------------------------
the Company (a) has complied in all material respects with all federal, state,
local and foreign laws, rules, ordinances, codes, consents, authorizations,
registrations, regulations, decrees, directives, judgments and orders applicable
to it and its business (including, without limitation, the Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994), and (b) has all federal, state, local and foreign
governmental licenses, permits and authorizations necessary in the conduct of
its business as currently conducted (including, without limitation, any state
teleservice industry registration requirements), such licenses, permits and
qualifications are in full force and effect, and no violations (other than
violations notice of which has not been received by the Company) have been
recorded in respect of any such licenses, permits and qualifications, and no
proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such license, permit or qualification. Schedule 2.19 sets
forth a list of all such licenses, permits and authorizations, and the
expiration dates thereof.
2.20. Offering Exemption. Assuming the accuracy of the representations
------------------
and warranties contained in Section 3 hereof, the offer and sale of the Series B
Preferred Stock to the Investors as contemplated hereby and the issuance and
delivery of the Conversion Shares to the Investors upon the conversion of the
Series B Preferred Stock are each exempt from registration under the Securities
Act and under applicable state securities and "blue sky" laws, each as currently
in effect.
2.21. Related Transactions
--------------------
(a) Except as set forth on Schedule 2.21(a), no current
stockholder, director, officer or employee of the Company, or any "affiliate" or
"associate" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of any of the foregoing
persons or the Company is presently, or during the past five years has been,
directly or indirectly, a party to any agreement, transaction or series of
similar transactions with the Company, other than in connection with any such
person's duties as a director, officer or employee of the Company.
16
<PAGE>
(b) Each ongoing intercompany transaction set forth on Schedule
2.21(a), if any, is on terms that are (i) consistent with the past practice of
the Company and (ii) at least as favorable to the Company as would be available
with independent third parties dealing at arms' length.
2.22. Disclosure. Neither this Agreement nor any certificate, instrument
----------
or written statement furnished or made to the Investors by or on behalf of the
Company in connection with this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact which
the Company has not disclosed to Beacon or its counsel in writing and of which
the Company is aware which materially and adversely affects or which could
reasonably be expected to materially and adversely affect the business,
financial condition, operations, property or affairs of the Company or the
ability of the Company to perform its obligations under the Documents.
2.23. Taxes
-----
(a) Except as set forth on Schedule 2.23(a), (i) the Company (and
for each Affiliated Period, each Affiliated Group of which the Company was a
member) has timely filed all Tax Returns (as such terms are defined below)
required by law to have been filed by it and has timely paid all Taxes required
to be paid by it including, without limitation, any Tax for which a notice of
assessment or demand for payment has been received by the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member),
(ii) all Tax Returns filed by the Company (and for each Affiliated Period, each
Affiliated Group of which the Company was a member) were complete and correct in
all material respects and (iii) all amounts required to be collected or withheld
by the Company have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are adequate to cover any such liability in accordance
with GAAP. If the Company files its Tax Returns for its taxable year, which
includes the date hereof in conformance with its past practices and tax
reporting, to the best knowledge of the Company, there will be no basis for any
material adverse audit adjustments with respect to the Company under any of the
provisions of the Code, or any provisions of state, local or foreign tax law,
with respect to operations and activities of the Company during the period that
began on March 6, 1996 and ends on the date hereof. "Taxes," for purposes of
this Agreement, means any taxes,
17
<PAGE>
assessments, duties, fees, levies, imposts, deductions, withholdings, including,
without limitation, income, gross receipts, ad valorem, value added, excise,
real or personal property, asset, sales, use, license, payroll, transaction,
capital, net worth and franchise taxes, estimated taxes, withholding,
employment, social security, workers compensation, utility, severance,
production, unemployment compensation, occupation, premium, windfall profits,
transfer and gains taxes, or other governmental charges of any nature whatsoever
imposed by any government or taxing authority of any country or political
subdivision of any country and any liabilities with respect thereto, including
any penalties, additions to tax, fines or interest thereon, and includes any
liability of the Company arising under any tax sharing agreement to which the
Company is or has been a party. For purposes of this Agreement, (i) "Affiliated
Group" shall mean any affiliated group within the meaning of Internal Revenue
Code (S) 1504(a) (or any similar group defined under a similar provision of
state, local or foreign law), (ii) Affiliated Period shall mean each taxable
period during which the Company was a member of an Affiliated Group for all or
part of such period, and (iii) "Return" shall mean any report, return,
statement, estimate, declaration, notice, form or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.23(b) contains a list of states, territories and
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.23(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Tax Returns with respect to
which an audit or examination is in progress or with respect to which a written
notification of intent to audit or examine has been received by the Company (and
for each Affiliated Period, each Affiliated Group of which the Company was a
member) from the IRS or any other taxing authority that relate to Taxes for
which the Company (and for each Affiliated Period, each Affiliated Group of
which the Company was a member) could be liable, (iii) no taxing authority in a
jurisdiction where the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) does not file Tax Returns has made a
claim, assertion or threat that such non-filing entity is or may be subject to
taxation by such jurisdiction, (iv) the Company has not been a member of a
consolidated, combined or unitary group for federal or state income tax
purposes, (v) the Company is not a party to any Tax allocation or sharing
agreement and (vi) the Company does not have any liability for the Taxes of any
person as a transferee or successor or by contract.
18
<PAGE>
2.24. Environmental Protection. Except as set forth on Schedule 2.24(a),
------------------------
the Company has been operated at all times, and is, in material compliance with
all applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.24(b), the Company has obtained, is in material compliance with,
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.24(c), there are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings of which the Company has received notice or otherwise should or has
reason to have knowledge pending or, to the knowledge of the Company, threatened
against the Company, and no requests from any governmental authority to perform
any investigatory or remedial activity have been made to the Company, that are
based on or related to any actual or alleged release of Hazardous Substances or
any other Environmental Matters or the failure to have any required
Environmental Permits. Except as set forth on Schedule 2.24(d), there are no
past or present conditions, events, circumstances, facts, activities, practices,
incidents, actions or omissions of the Company or its predecessors that (i) may
give rise to any liability or other obligation under any past, current or
proposed Environmental Laws that may require the Company to incur any material
Environmental Costs, (ii) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company that may
require the Company to incur any material Environmental Costs, or (iii) may
interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on Schedule
2.24(e), to the knowledge of the Company there are no (and have never been any)
underground or aboveground storage tanks, incinerators or surface impoundments
at, on, under, about, or within any Owned Real Property or Leased Real Property.
Except as set forth on Schedule 2.24(f), neither the Company nor any of its
Subsidiaries has received any notice (written or oral) or other communication
that the Company or its Subsidiaries is or may be a potentially responsible
party or otherwise liable in connection with any waste disposal site allegedly
containing, or other location used for the disposal of, any Hazardous
Substances. Schedule 2.24(g) contains a list of all sites or locations used by
or on behalf of the Company or its Subsidiaries for the disposal of any waste
containing Hazardous Substances.
19
<PAGE>
For the purposes of this Section 2.24, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
-------------------
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including without limitation any actual, punitive
or consequential damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement, arising out of,
relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et
--
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
- ----
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- ---- --
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
- ---
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Clean Water
-- --- -- ---
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
-- ---
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
-- ---
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
-- ----
Transportation Act, 49 U.S.C. (S)(S) 1801, et seq., as any of the above statutes
-- ----
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to environmental matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
"Environmental Matter" shall mean any matter arising out of, relating to,
--------------------
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air
20
<PAGE>
(indoor or outdoor), surface water, groundwater, soil, buildings, facilities,
real or personal property or fixtures, or otherwise arising out of, relating to,
or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling, release or threatened release of
Hazardous Substances.
"Hazardous Substances" shall mean any pollutants, contaminants, substances,
--------------------
materials, wastes, constituents, compounds, chemicals, natural or man-made
elements or forces (including, without limitation, petroleum or any by-products
or fractions thereof, any form of natural gas, lead, asbestos or asbestos-
containing materials ("ACM"), building construction materials and debris,
polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon and other
radioactive elements, electromagnetic field and other types of radiation, sonic
forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the basis of
liability under, any Environmental Laws.
2.25. Consents. Except as set forth on Schedule 2.25, and assuming the
--------
accuracy and completeness of the representations and warranties of the Investors
set forth in Article III hereof, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery and performance
by the Company of the Documents or any documentation relating thereto, the
consummation by the Company of the transactions contemplated hereby or thereby,
or the issuance, sale or delivery to the Investors of the Series B Preferred
Stock and the Conversion Shares.
2.26. Insurance. Substantially all of the assets of the Company that
---------
are of insurable character (including all material assets of the Company that
are of insurable character) are covered by insurance with reputable insurers
against risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice and sufficient
in amount to allow it to replace any of its properties which might be damaged or
destroyed. The Company is not in default with respect to its obligations under
any material insurance policy maintained by it. Schedule 2.26 sets forth a list
of all insurance coverage carried by the Company, the carrier and the terms and
amount of coverage. All such policies and other instruments are in full force
and effect and all premiums with respect thereto have been paid. The Company
has not failed to give any notice or present any claim under any such insurance
policy in due and timely fashion or as required by any of such insurance
policies or has not otherwise, through any act, omission or non-disclosure,
jeopardized or impaired full recovery of any claim under
21
<PAGE>
such policies, and there are no claims by the Company under any of such policies
to which any insurance company is denying liability or defending under a
reservation of rights or similar clause. The Company has not received notice of
any pending or threatened termination of any of such policies or any premium
increases for the current policy period with respect to any of such policies and
the consummation of the transactions contemplated by this Agreement will not
result in any such termination or premium increase.
2.27. Brokers. Except as set forth on Schedule 2.27, neither the Company
-------
nor any of its officers, directors, employees or stockholders has employed any
broker or finder in connection with the transactions contemplated by this
Agreement.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as
---------------
otherwise expressly contemplated by this Agreement, the Company is not required
pursuant to any Contract or otherwise to apply the proceeds received from the
Investors pursuant to the transactions contemplated hereby in any specified
manner.
2.29. Previous Issuances Exempt. All shares of capital stock and other
-------------------------
securities issued by the Company prior to the Closing have been issued in
transactions exempt from registration under the Securities Act, and all
applicable state securities or "blue sky" laws. The Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
Securities Act.
2.30. Real Property. Schedule 2.30 lists all real property owned or
-------------
leased by the Company. The Company has title to its owned real properties
(collectively, the "Owned Real Properties") in each case, free and clear of all
imperfections of title and all Encumbrances, except for (a) those consisting of
zoning or planning restrictions, easements, permits and other restrictions or
limitations on the use of such property or irregularities in title thereto
which, individually and in the aggregate, do not materially impair the use of
such property, (b) warehousemen's, mechanics', carriers', landlords',
repairmen's or other similar Encumbrances arising in the ordinary course of
business and securing obligations not yet due and payable, (c) other
Encumbrances which arise in the ordinary course of business and which
individually and in the aggregate do not materially impair its use of such
property or its ability to obtain financing by using such asset as collateral
(encumbrances referenced in clauses (a), (b) and (c), collectively referred to
as
22
<PAGE>
the "Permitted Encumbrances") and (d) Encumbrances listed on Schedule 2.31. The
Company has leasehold title to its leased real properties (collectively, the
"Leased Real Properties," together with the Owned Real Properties, the "Real
Properties"), and, in each case, has not taken or failed to take any action that
would result in the creation of any Encumbrance with respect to any Leased Real
Property. To the best knowledge of the Company without investigation, other than
as described on Schedule 2.31, there are no intended public improvements which
will result in any charge being levied against, or in the creation of any
Encumbrances upon, the Leased Real Properties or any portion thereof. To the
best knowledge of the Company without investigation, there are no options,
rights of first refusal, rights of first offer or other similar rights with
respect to the Real Properties. With respect to each lease of Real Property to
which the Company is a party, so long as the Company performs all of its
obligations under such lease for Real Property within applicable notice and
grace periods, (x) the rights of the Company under such lease shall not be
terminated and (y) to the best knowledge of the Company, the Company's
possession of such Real Property and the use and enjoyment thereof shall not be
disturbed by any landlord, overlandlord, mortgagee or other superior party.
Except as set forth on the Schedule 2.30, the Company is not obligated to
purchase any Leased Real Property and no leased Real Property is required to be
accounted for under GAAP as a capitalized lease.
2.31. Accounts Receivable. The accounts receivable and notes receivable
-------------------
reflected on the books and records of the Company were and are bona fide
accounts receivable and notes receivable created in the ordinary and usual
course of business in connection with bona fide transactions and consistent with
past practice.
2.32. Investment Banking Services. Except as set forth in Schedule 2.32,
---------------------------
the Company is not a party to any Contract which grants rights to any third
party with respect to the performance of investment banking services for it,
including, without limitation, with respect to its sale or a public offering,
including an initial public offering, of its securities.
2.33. Registration Rights. Except as required by the Registration Rights
-------------------
Agreement or as set forth on Schedule 2.33, the Company has no obligations with
respect to registration under the Securities Act of any of its currently
outstanding securities or any of its securities which may hereafter be issued.
III. Representations and Warranties of the Investors
23
<PAGE>
3.1. Investor Representations. Each Investor severally and not jointly
------------------------
represents and warrants to the Company as follows as of the date hereof and the
Closing Date:
(a) Such Investor (or its advisors) is a sophisticated investor
with sufficient financial experience to assess the risks of investing in the
Company and purchasing Series B Preferred Stock, and is acquiring the Series B
Preferred Stock to be purchased by it under this Agreement for its own account,
for investment and not with a view to the distribution thereof within the
meaning of the Securities Act. Such Investor was not formed for the purpose of
acquiring Series B Preferred Stock or otherwise to invest in the Company.
(b) Such Investor understands that (i) except as provided in the
Registration Rights Agreements, the Series B Preferred Stock has not been, and
that the Conversion Shares will not be, registered under the Securities Act or
any state securities laws, by reason of their issuance by the Company in a
transaction exempt from the registration requirements thereof and (ii) the
Series B Preferred Stock and the Conversion Shares may not be sold unless such
disposition is registered under the Securities Act and applicable state
securities laws or is exempt from registration thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Except as set forth on Schedule 3.1(d), such Investor has not
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
3.2. Representations and Warranties of Beacon. Beacon represents and
----------------------------------------
warrants to the Company as follows as of the date hereof and the Closing Date:
(a) Beacon is validly existing under the laws of the state of
Delaware, is resident in New York and has all power and authority to enter into
and perform each of the Documents to which it is a party. Each of the Documents
to which it is a party has been duly authorized by all necessary action on the
part of Beacon. Each of the Documents to which it is a party constitutes a valid
and binding agreement of Beacon
24
<PAGE>
enforceable against Beacon in accordance with its terms except to the extent
that enforceability may be limited by principles of equity, bankruptcy,
insolvency or other similar laws affecting creditors' rights generally.
(b) The execution, delivery and performance by Beacon of each of
the Documents to which it is a party and the consummation by Beacon of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets or (ii) violate its organizational
documents.
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by Beacon of each of
the Documents to which it is a party or any documentation relating thereto, or
the consummation by Beacon of the transactions contemplated thereby.
3.3. Representations and Warranties of Bain. Bain represents and
--------------------------------------
warrants to the Company as follows as of the date hereof and the Closing Date:
(a) Bain is validly existing under the laws of the state of
Massachusetts, is resident in Massachusetts and has all power and authority to
enter into and perform each of the Documents to which it is a party. Each of the
Documents has been duly authorized by all necessary action on the part of Bain.
Each of the Documents constitutes a valid and binding agreement of Bain
enforceable against Bain in accordance with its terms except to the extent that
enforceability may be limited by principles of equity, bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
(b) The execution, delivery and performance by Bain of each of the
Documents to which it is a party and the consummation by Bain of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets or (ii) violate its organizational
documents.
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by Bain of each of
the
25
<PAGE>
Documents to which it is a party or any documentation relating thereto, or the
consummation by Bain of the transactions contemplated thereby.
(d) Bain is an institutional buyer as contemplated by Massachusetts
securities laws.
3.4. Representations and Warranties of SLI. SLI represents and warrants
-------------------------------------
to the Company as follows as of the date hereof and the Closing Date:
(a) SLI is validly existing under the laws of the state of
Delaware, is resident in Massachusetts and has all power and authority to enter
into and perform each of the Documents to which it is a party. Each of the
Documents has been duly authorized by all necessary action on the part of SLI.
Each of the Documents constitutes a valid and binding agreement of SLI
enforceable against SLI in accordance with its terms except to the extent that
enforceability may be limited by principles of equity, bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
(b) The execution, delivery and performance by SLI of each of the
Documents to which it is a party and the consummation by SLI of the transactions
contemplated thereby will not (i) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to it, or any
of its properties or assets or (ii) violate its organizational documents.
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by SLI of each of the
Documents to which it is a party or any documentation relating thereto, or the
consummation by SLI of the transactions contemplated thereby.
(d) SLI is an institutional buyer as contemplated by Massachusetts
securities laws.
IV. Certain Covenants
4.1. Operation of the Business Prior to Closing. Between the date of
------------------------------------------
this Agreement and the Closing, unless otherwise agreed in writing by Beacon,
the Company shall:
26
<PAGE>
(a) except as otherwise allowed or required pursuant to the terms
of this Agreement, conduct its business and operations only in the ordinary
course in a manner consistent with past practice;
(b) use best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations and good will with all material
suppliers, customers, licensers, licensees, landlords, trade creditors,
Employees, agents, and others having material business relationships with the
Company;
(c) confer with Beacon concerning operational matters of a material
nature;
(d) maintain in full force and effect the insurance described in
Section 2.26 or insurance providing at least comparable coverage;
(e) maintain all the properties and assets of the business and
operations of the Company in the ordinary course consistent with past practice;
(f) maintain its books and records in the usual, regular and
ordinary manner, on a basis consistent with prior years;
(g) perform and comply with its obligations under all Contracts in
the ordinary course of business, consistent with past practice;
(h) furnish to the Investors copies of all financial statements and
certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity; and
(i) report periodically to the Investors concerning the status and
operation of the business and operations of the Company.
4.2. Conduct of Business of the Company Prior to Closing. Except as
---------------------------------------------------
contemplated by this Agreement or with the prior written consent of Beacon,
during the period from the date of this Agreement to the Closing, the Company
shall not, without the prior written consent of Beacon:
27
<PAGE>
(a) amend its charter or bylaws or comparable organizational
documents or the terms of any of its securities or any agreements relating
thereto;
(b) issue, pledge or sell, or authorize the issuance, pledge or
sale of, additional shares of capital stock or other securities of any class or
series, including, without limitation, securities exchangeable for or
convertible into capital stock of any class or series, or any calls,
commitments, rights, warrants or options to acquire any securities or capital
stock;
(c) declare, set aside, make or pay any dividend or other
distribution, acquire, or propose to redeem or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock, or any of its other
securities;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock, or any of its other
securities;
(e) except for increases in salary, wages and benefits of officers
(other than executive officers) or employees of the Company in the ordinary
course of business in accordance with past practice, increase the compensation
or benefits payable or to become payable to any Employee, or pay any benefit not
required by any existing plan or arrangement or grant any severance or
termination pay to (except pursuant to existing agreements or policies), or
enter into or amend any Employee Agreement or establish, adopt, enter into, or
amend or fund any payments owing under, or accelerate the vesting of any
benefits under, any Company Benefit Plan, except in each case to the extent
required by applicable law;
(f) acquire, sell, lease or dispose of any assets which are
material to the Company, or enter into any commitment to do any of the foregoing
or enter into any material commitment or transaction;
(g) (i) create, incur, assume or prepay any indebtedness for
borrowed money (including obligations in respect of capital leases) except for
short-term debt in the ordinary course of business consistent with past practice
under existing lines of credit, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person or (iii) make any loans, advances or capital
contributions to, or investments in, or enter into any "keep well" arrangements
or other agreement to maintain the financial condition of, any other person;
28
<PAGE>
(h) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof;
(i) pay, discharge or satisfy any claims or liabilities, except for
the payment, discharge or satisfaction of liabilities in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof or waive, release, grant, or transfer any rights of
material value or modify in any material respect any existing Contract, other
than in the ordinary course of business consistent with past practice;
(j) (i) make any material Tax election, (ii) settle or compromise
any material Tax Liability or (iii) extend or waive any statute of limitations
in respect of Taxes;
(k) make or agree to make any capital expenditure in an amount in
excess of $10,000;
(l) mortgage, pledge or subject to any Encumbrance any of its
properties or assets, tangible or intangible;
(m) amend, modify or waive the provisions of any material Contract;
(n) take any action that would cause any of the representations and
warranties contained in Section 2 to be untrue at the date made or any future
date or would result in any of the conditions to the consummation of the
transactions contemplated by the Documents not being fulfilled; or
(o) authorize or agree in writing or otherwise to take any of the
foregoing actions.
4.3. Third Party Consents Prior to Closing. Prior to the Closing, the
-------------------------------------
Company shall use commercially reasonable efforts to obtain all consents
required from third parties which are party to Contracts with the Company to the
transactions contemplated by the Documents.
4.4. No Negotiation Prior to Closing. Until such time, if any, as this
-------------------------------
Agreement is terminated pursuant to Section 7, (except with the written consent
of the Investors) the
29
<PAGE>
Company will not and will not permit any of its representatives to, directly or
indirectly, solicit, initiate, or encourage any inquiries, offers or proposals
from, discuss or negotiate with, execute any agreement regarding or provide any
information to, any person (other than the Investors) relating to any
transaction involving an equity investment in the Company, the sale of the
business or operations of the Company or a substantial amount of the property or
assets of the Company, or of any of the capital stock or any other equity
securities of the Company (including by way of an initial public offering), or
any merger, consolidation, business combination, liquidation, recapitalization,
dissolution or similar transaction involving the Company or any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the transactions
contemplated by the Documents or which would or could reasonably be expected to
materially dilute the benefits to the Investors of the transactions contemplated
by the Documents (collectively, "Transaction Proposals"). If any such inquiries
or Transaction Proposals are received by, or any such information is requested
from or any such negotiations or discussions are sought to be initiated with the
Company, then the Company will promptly notify the Investors of the nature,
terms and status of the foregoing and the identity of the inquiring party and
provide the Investors with a copy of all written materials provided in
connection with such Transaction Proposal. Until such time, if any, as this
Agreement is terminated pursuant to Section 7 (except with the written consent
of the Investors) the Company will not accept any Transaction Proposal from any
person or entity other than the Investors. This Section 4.4 shall not apply to
any transaction contemplated hereby, including the contemplated sale or issuance
of Series B Preferred Stock as described in Sections 1.1 and 2.3(a)(i), the
repurchase by the Company of 5,000 shares of Series A Preferred Stock from
Resource Bancshares Corporation and the grant of stock options pursuant to the
Company's 1997 Stock Option Plan (including, without limitation, options granted
to management of PROTOCALL New Business Specialists, Inc. in connection with the
acquisition thereof by the Company).
4.5. Access to Records Prior to Closing. During the period commencing on
----------------------------------
the date of this Agreement and continuing through the Closing, the Company shall
(i) afford to Beacon and its representatives full access, during normal business
hours, upon reasonable advance notice, with due regard to its ongoing
operations, to the personnel, properties, contracts, books and records, and
other documents and data of the Company, (ii) furnish Beacon and its
representatives with copies of all such contracts, books and records (including,
but not limited to, Tax Returns), and other existing documents and data as
Beacon and its representatives may reasonably request, and (iii) furnish Beacon
and its representatives such additional financial, operating, and other data and
information as Beacon and its representatives may reasonably request. No
investigation or receipt of
30
<PAGE>
information shall affect any representation or warranty of the Company contained
in this Agreement or the conditions to the obligations of the Investors
specified in this Agreement.
4.6 Post-Closing Covenants. From and after the date hereof:
----------------------
(a) Access to Records. Until such time as Beacon and its Affiliates
-----------------
own in the aggregate less than 5% of the outstanding Common Stock of the Company
(for the purposes hereof calculated by including outstanding shares of Series A
Preferred Stock and Series B Preferred Stock on an as-converted basis), the
Company shall afford Beacon and its representatives full access, during normal
business hours, upon reasonable advance notice, with due regard to its ongoing
operations, to the personnel, properties, contracts, books and records, and
other documents and data of the Company.
(b) System of Accounting. The Company shall maintain its books of
--------------------
account and other financial and corporate records in accordance with good
business and accounting practices and the financial condition of the Company.
(c) Maintenance of Corporate Existence, etc. The Company shall
---------------------------------------
maintain in full force and effect its corporate existence, rights, governmental
approvals and franchises and all licenses and other rights to use patents,
processes, trademarks, trade names or copyrights owned or possessed by it and
deemed by it to be material to the conduct of its business.
(d) Compliance with Laws. The Company shall comply in all material
--------------------
respects with all applicable laws, rules, regulations and orders.
(e) Maintenance of Properties and Leases. To the extent they are
------------------------------------
material to the conduct of its business, (i) the Company shall keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all reasonably needful and proper, or
legally required, repairs, renewals, replacements, additions and improvements
thereto; and (ii) the Company shall comply at all times with each provision of
all leases to which it is a party or under which it occupies, or has possession,
of, property.
(f) Insurance. The Company shall keep its assets which are of an
---------
insurable character, if any, insured by financially sound and reputable insurers
against loss or damage by fire, extended coverage and other hazards and risks
and liability to
31
<PAGE>
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated. The Company shall maintain after the
Closing the directors' and officers' liability insurance described in Section
5.13.
(g) Licenses and Permits. The Company shall use its best efforts to
--------------------
obtain all federal, state, local and foreign governmental licenses, permits and
qualifications material to and necessary in the conduct of business as proposed
to be conducted.
(h) Compliance with Contracts. The Company shall comply with all
-------------------------
material obligations which it incurs pursuant to any contract or agreement,
whether oral or written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto.
(i) Confidentiality Agreements. The Company shall use its best
--------------------------
efforts to obtain a confidentiality agreement from its future officers, key
employees and other employees who will have access to confidential information
of the Company upon their employment.
(j) Disclosure of Investment. The Company shall not, directly or
------------------------
indirectly, (i) except as may be necessary or desirable in connection with a
request by a governmental agency, regulatory or supervisory authority or court
or as required by law, disclose the transactions contemplated by the Documents
or any of the terms thereof without the prior consent of the Investors, (ii) use
in advertising or publicity the name of any party hereto, or any partner or
employee of such party hereto or any of its respective affiliates, or any trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof owned by any party hereto or any of its
respective affiliates, in either case without the prior written consent of such
party or (iii) represent, directly or indirectly, that any product or service
provided by the Company has been approved or endorsed by an Investor without the
prior written consent of such Investor; provided, however, the Company may
-------- -------
orally disclose: (i) that an Investor is a stockholder of the Company and (ii)
the percentage of the outstanding shares of capital stock of the Company held by
such Investor; provided, however, further, that the Company may, subject to
-------- ------- --------
review and consent of an Investor (which consent will not be unreasonably
withheld), disclose information with respect to such Investor's purchase of
Series B Preferred Stock hereunder solely as required to be made in the
Company's
32
<PAGE>
financial statements in accordance with GAAP and/or the requirements of the
United States Securities and Exchange Commission.
(k) Use of Proceeds. The Company shall use the proceeds from the
---------------
sale of Series B Preferred Stock hereunder as set forth on Schedule 4.6(k).
(l) Board of Directors. At and after the Closing, the Company shall
------------------
cause the board of directors of the Company to be comprised of the number of
directors as contemplated by the Shareholders' Agreement.
(m) Election of Directors. On the Closing Date, the Company shall
---------------------
cause Thomas G. Mendell and Eric R. Wilkinson to be elected to the board of
directors of the Company.
(n) Directors' and Officers' Insurance. The Company shall obtain,
----------------------------------
with financially sound and reputable insurers, directors' and officers'
liability insurance, as soon as reasonably practicable following the Closing and
maintain such insurance in full force and effect thereafter, in the amount of
$3,000,000 per occurrence and $5,000,000 in the aggregate or a binder with
respect to such insurance in form and substance satisfactory to Beacon.
(o) The Merger. The Company shall exercise the Option (as defined
----------
in Section 8.14) and consummate the Merger in accordance with the terms of the
Merger Agreement, simultaneously with the Closing.
V. Survival of Representations, Warranties, Agreements and Covenants, etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 10.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of Beacon; provided, however, (x) the representations and warranties set
-------- -------
forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 3.3, 3.4 and 8.14 and the
final sentence of Section 2.16(a) shall survive the Closing indefinitely and (y)
the representations and warranties set forth in Sections 2.19, 2.20, 2.23, 2.24
and 2.28 shall survive the Closing until the expiration of
33
<PAGE>
the applicable statute of limitations (except to the extent a Claim Notice
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved). All agreements contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
VI. Expenses
Each party hereto shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby; provided that, notwithstanding the foregoing,
--------
the Company shall pay to Beacon an amount in cash equal to the lesser of (i)
100% of Beacon's out of pocket fees and expenses (including, without limitation,
fees and disbursements of Beacon's attorneys, accountants and consultants)
incurred in connection with Beacon's due diligence review of the Company and the
negotiation and execution of the Documents and the transactions contemplated
thereby and (ii) $170,000. Beacon shall deliver to the Company copies of all
due diligence and other reports with respect to the cost of which the Company
has reimbursed Beacon (other than under circumstances that would, upon delivery
of such materials by Beacon, result in a violation or loss of any privilege with
respect to such materials or the information contained therein).
VII. Indemnification
7.1. General Indemnification. The Company shall, on an after Tax basis,
-----------------------
indemnify, defend and hold the Investors, their affiliates, their respective
officers, directors, partners, members, employees, agents, representatives,
successors and assigns (each an "Investor Entity") harmless from and against all
Losses (as defined below) incurred or suffered by an Investor Entity (whether
incurred or suffered directly or indirectly through ownership of Common Stock or
Preferred Stock) arising or resulting from the breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in any certificate or other instrument delivered by the Company
pursuant hereto including, without limitation, the Documents. The Investors,
severally but not jointly, shall, on an after Tax basis, indemnify, defend and
hold the Company, its affiliates, their respective officers, directors,
employees, agents, representatives, successors and assigns harmless from and
against all Losses arising from the breach of any of their respective
representations, warranties, covenants or agreements in this Agreement or in any
certificate or other instrument delivered by them pursuant
34
<PAGE>
hereto, including, without limitation, the Documents. All claims for
indemnification for Losses arising in connection with certificates, instruments
or Documents shall be governed by and subject to this Article VII.
7.2. Indemnification Principles. For purposes of this Article VII, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses,
(including, without limitation, losses of earnings of Intek and its Affiliates)
liabilities, obligations, payments, damages (actual, punitive or consequential),
charges, judgments, fines, penalties, amounts paid in settlement, reasonable
costs and expenses (including, without limitation, interest that may be imposed
in connection therewith, costs and expenses of investigation, actions, suits,
proceedings, demands, assessments and fees, expenses and disbursements of
counsel, consultants and other experts); and (b) each of the representations and
warranties made by any party in this Agreement or in any certificate or other
instrument delivered pursuant hereto, including, without limitation, the
Documents, shall be deemed to have been made without the inclusion of
limitations or qualifications as to materiality or knowledge such as the words
"material adverse affect," "immaterial," "material," "in all material respects"
and "knowledge," "best knowledge" or "knowingly" or words of similar import.
Any indemnification payment by the Company to an Investor pursuant to this
Article VII shall include an additional amount so that such Investor suffers no
Loss as a result of any diminution in the book value of the stockholder's equity
related to its investment under the Agreement as a result of such
indemnification payment. Any payment by the Company to an Investor pursuant to
this Article VII, shall be treated for federal income tax purposes as an
adjustment to the price paid by such Investor for the Series B Preferred Stock
pursuant to this Agreement.
7.3. Claim Notice. A party seeking indemnification under this Article
------------
VII shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnity arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of the
party from whom indemnity is sought except to the extent such party is
materially prejudiced thereby.
35
<PAGE>
7.4. Claim Procedure
---------------
(a) Procedure for Indemnification with Respect to Third-Party
---------------------------------------------------------
Claims. If any indemnified party hereunder determines to seek indemnification
- ------
under this Article VII with respect to Losses resulting from the assertion of
liability by third parties, such indemnified party shall give notice to the
indemnifying party hereunder within 30 days of such indemnified party becoming
aware of any such Losses or of facts upon which any claim for such Losses will
be based; the notice shall set forth such material information with respect
thereto as is then reasonably available to such indemnified party. In case any
such liability is asserted against such indemnified party, and such indemnified
party notifies the indemnifying party thereof, the indemnifying party will be
entitled, if it so elects by written notice delivered to such indemnified party
within 10 days after receiving such indemnified party's notice, to assume the
defense thereof with counsel satisfactory to such indemnified party, in which
case, the indemnifying party will not be liable to the indemnified party under
this Section 7.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
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 indemnified
party unless such indemnified party shall reasonably determine that there is a
conflict of interest between or among such indemnified party and the
indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party 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 indemnified party to be indemnified hereunder in
respect of any Losses that may or do result 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, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VII shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party 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 the indemnifying party.
36
<PAGE>
Notwithstanding anything in this Article VII to the contrary, (i) if there is a
reasonable probability that a claim may materially adversely affect such
indemnified party, such indemnified party shall have the right to participate in
such defense, compromise, or settlement and the indemnifying party shall not,
without such indemnified party's written consent (which consent shall not be
unreasonably withheld), settle or compromise any of such claims, 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 indemnified party a release from all liability in respect
of such claim. With respect to any assertion of liability by a third party that
results in any claim for indemnification hereunder, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that an indemnified party asserts the existence of a claim
- ------
with respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 7.4(b), 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 the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party 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.
VIII. Miscellaneous
8.1. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, Beacon, SLI and/or Bain, with respect to a breach by the Company, and
the Company, with respect to a breach by an Investor, may proceed to protect and
enforce its rights either by suit in
37
<PAGE>
equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement. In addition to
the foregoing, (a) if Intek fails to consummate the Merger (as defined in
Section 8.14) other than due to the wrongful failure of Beacon to consummate the
purchase of Series B Preferred Stock as contemplated hereby, the Investors shall
have the right to rescind the Purchase and, in the event of such rescission, the
Company shall refund the Purchase Price in full, and (b) if the Merger is not
consummated due to a material breach of the Merger Agreement (as defined in
Section 8.14) by PROTOCALL New Business Specialists, Inc., (i) the Company
hereby assigns all of its rights and remedies under the Merger Agreement with
respect to repayment of the Option purchase price, and (ii) the Company's
obligations under the notes shall automatically terminate immediately upon first
discovery of such breach.
8.2. Transfer Taxes. The Company agrees that it will pay, and will hold
--------------
Beacon, SLI and Bain harmless from any and all liability with respect to any
transfer, documentary, stamp or other similar Taxes that may be determined to be
payable in connection with the execution and delivery and performance of this
Agreement, and that it will similarly pay and hold Beacon, SLI or Bain, as
applicable, harmless from all Taxes in respect of the issuance of the Series B
Preferred Stock and the Conversion Shares to Beacon, SLI or Bain, as applicable,
each as contemplated by this Agreement. Notwithstanding the foregoing, the
Company shall have no obligation to pay or hold Beacon, Bain or SLI, as
applicable, harmless with respect to any transfer, documentary, stamp or other
similar Taxes that may be determined to be payable in connection with the
transfer by Beacon, Bain or SLI, as applicable, of shares of Series B Preferred
Stock or Conversion Shares to any other Person.
8.3. Further Assurances. At any time or from time to time after the
------------------
Closing, the Company, on the one hand, and each of Beacon, SLI and Bain, on the
other hand, agree to cooperate with each other, and at the request of the other
party, to execute and deliver any further instruments or documents and to take
all such further action as the other party may reasonably request in order to
evidence or effectuate the consummation of the transactions contemplated hereby
relating to the Purchase and to otherwise carry out the intent of the parties
hereunder.
38
<PAGE>
8.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, Beacon, SLI and Bain and the respective
successors, permitted assigns, heirs and personal representatives of the
Company, Beacon, SLI and Bain. In addition, and whether or not any express
assignment has been made, except as otherwise expressly stated in this
Agreement, the provisions of Articles II, IV, VIII, IX, X and XII of this
Agreement that are for Beacon's, SLI's and/or Bain's benefit as a purchaser or
holder of Series B Preferred Stock, are also for the benefit of, and enforceable
by, any subsequent holder of such Series B Preferred Stock and/or Conversion
Shares. Neither this Agreement nor any rights hereunder may be transferred
prior to the Closing Date without the written consent of the Company and Beacon.
8.5. Entire Agreement. This Agreement and the other writings referred to
----------------
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(a) if to the Company, to:
Intek Information Inc.
370 17th Street
39th Floor
Denver, CO 80202-5656
Telecopy: (303) 405-8421
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
39
<PAGE>
(b) if to Beacon, to:
The Beacon Group III - Focus Value Fund, L.P.
399 Park Avenue
New York, New York 10152
Telecopy: (212) 339-9109
Attention: Eric R. Wilkinson
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: David N. Shine, Esq.
(c) if to Bain or SLI, to:
c/o Bain & Company, Inc.
2 Copley Place
Boston, Massachusetts 02116
Telecopy: (617) 572-3266
Attention: Treasurer
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
8.7. Amendments. The terms and provisions of this Agreement may only be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company, Beacon, Bain and
SLI.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
40
<PAGE>
8.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
8.10. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
8.11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York, the State of Delaware and of the United States
of America, in each case located in the County of New York or the County of New
Castle, Delaware, as applicable, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts). Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York, the
State of Delaware or the United States of America, in each case located in the
County of New York or the County of New Castle, Delaware, as applicable, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum.
8.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
8.13. Knowledge. As used herein, "knowledge of the Company" and
---------
similar phrases shall mean, in addition to actual knowledge of the Company, (a)
the actual knowledge of any officer, director or key employee of the Company and
(b) with respect to any such Person, knowledge that such Person should have or
could reasonably be inferred to have by virtue of such Person's activities,
circumstances or relationship with the Company and its business.
41
<PAGE>
8.14. Option Financing. Subject to the terms and conditions hereof,
----------------
and in reliance upon the representations and warranties and covenants of the
Company herein, in connection with the merger (the "Merger") of a Subsidiary of
------
the Company with PROTOCALL New Business Specialists, Inc. (the "Acquired
--------
Corporation") pursuant to an agreement and plan of reorganization (the "Merger
- ----------- ------
Agreement") substantially in the form previously delivered to Beacon among the
- ---------
Company, the Acquired Corporation and the shareholders of the Acquired
Corporation, Beacon hereby agrees to purchase from the Company, and the Company
hereby agrees to sell and issue to Beacon, the Company's promissory note (the
"Note") substantially in the form attached hereto as Exhibit G in exchange for
- -----
$800,000 (the "Option Financing"). Payment of the obligations of the Company to
----------------
O'Crowley, Fundmark Investment Company Services, Inc. and Eden Financial Group,
Inc. in connection with certain obligations of the Company owed to such parties
shall be subordinated and junior in right of payment to payment of the
obligations of the Company under the Note as set forth in the subordination
letter (the "Subordination Letter") substantially in the form attached hereto as
--------------------
Exhibit H. The Company hereby covenants that the proceeds of the Option
Financing shall only be used to purchase an option and provide merger
consideration in connection with the Merger. In addition to the representations
and warranties of the Company set forth in Section 2, the Company hereby
represents and warrants to Beacon in connection with the Option Financing that
the Merger and the execution, delivery and performance of any agreements or
other documents in connection therewith has been duly authorized by all
requisite corporate action on the part of the Company. The proceeds of the
Option Financing shall be paid to the Company, and the Company shall deliver the
Note duly executed thereby to Beacon, simultaneously with the execution of this
Agreement and the Merger Agreement at such place and time as previously agreed
upon by the Company and Beacon (such time of payment and delivery being referred
to herein as the "Option Financing Closing Date"). Payment shall be made in
-----------------------------
same-day funds by wire transfer to such account or accounts as are specified for
payment by the Company of the cash portion of the merger consideration payable
pursuant to the Merger Agreement against delivery to Beacon of the Note. In
addition to the foregoing, on the Option Financing Closing Date, Beacon shall
have received the Subordination Letter duly executed by the parties thereto.
8.15. Termination. This Agreement may be terminated by written notice
-----------
given prior to the Closing: (a) by Beacon, if the Merger has not been
consummated by February 21, 1997, or such later date as the parties hereto may
agree in writing, (b) by any party hereto, if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply full with such party's obligations under this Agreement) on or before
February 21, 1997, or such later date as the parties hereto may agree in writing
or (c) by the Investors, if a material breach of any of the representations,
42
<PAGE>
warranties or covenants of the Company set forth in this Agreement has been
committed between the date hereof and the Closing, and such breach has not been
either waived by Beacon or cured by the Company within 10 days after the
Company's receipt of written notice thereof from Beacon. Termination of this
Agreement pursuant to this Section 8.15 shall terminate all obligations of the
parties hereto except for the obligations under Sections 4.6(j). 8.1, 8.6, 8.11,
8.13 and 8.14 and Articles VI and VII; provided that termination of this
--------
Agreement pursuant to this Section 8.15 (other than clause (b) of this first
sentence of this Section 8.15) shall not relieve a defaulting or breaching party
hereunder from any liability to the other parties hereto resulting from the
default or breach hereunder of such defaulting or breaching party occurring
prior to the date of termination; provided, further, that, so long as any
-----------------
obligations shall remain outstanding under the Note, all representations and
warranties of the Company in Article II and Section 8.14 and all covenants of
the Company in Article IV (including Section 4.6) and Article VIII shall not
terminate and shall remain in full force and effect.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
INTEK INFORMATION INC.
By: /s/ Timothy C. O'Crowley
-------------------------------------
Timothy C. O'Crowley
Chief Executive Officer and President
THE BEACON GROUP III-FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, LLC, its general partner
By: Focus Value GP, Inc., its member
By: /s/ ERIC WILKINSON
-------------------------------------------------------
Name: Eric Wilkinson
Title: Managing Director
BAIN & COMPANY, INC.
By: /s/ Gary Wilkinson
-------------------------------------------------------
Gary Wilkinson
Treasurer
SQUAM LAKE INVESTORS II, L.P.
By: GPI, Inc., its managing general partner
By: /s/ Gary Wilkinson
-------------------------------------------------------
Gary Wilkinson
Treasurer
44
<PAGE>
PURCHASE AGREEMENT Exhibit 4.6
by and between
INTEK INFORMATION INC.
and
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
dated as of December 22, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
I. Issuance and Sale of Securities...................................................... 1
1.1. The Purchase............................................................... 1
------------
1.2. The Closing................................................................ 1
-----------
1.3. Use of Proceeds............................................................ 2
---------------
1.4. Repurchase Option.......................................................... 3
-----------------
II. Representations and Warranties of the Company........................................ 3
2.1. Organization and Good Standing; Power and Authority; Qualifications........ 3
-------------------------------------------------------------------
2.2. Authorization of the Documents............................................. 3
------------------------------
2.3. Capitalization............................................................. 3
--------------
2.4. Authorization and Issuance of Capital Stock................................ 4
-------------------------------------------
2.5. Reservation of Shares...................................................... 4
---------------------
2.6. Financial Statements....................................................... 5
--------------------
2.7. Absence of Undisclosed Liabilities......................................... 5
----------------------------------
2.8. Absence of Material Changes................................................ 5
---------------------------
2.9. No Conflict................................................................ 5
-----------
2.10. Disclosure................................................................ 6
----------
2.11. Consents.................................................................. 6
--------
2.12. Use of Proceeds........................................................... 6
---------------
2.13. Accuracy of Prior Representations and Warranties.......................... 6
------------------------------------------------
III. Representations and Warranties of Beacon............................................. 7
IV. Survival of Representations, Warranties, Agreements and Covenants, etc............... 7
V. Expenses............................................................................. 8
VI. Indemnification...................................................................... 8
6.1. General Indemnification.................................................... 8
-----------------------
6.2. Indemnification Principles................................................. 8
--------------------------
6.3. Claim Notice............................................................... 9
------------
6.4. Claim Procedure............................................................ 9
---------------
VII. Miscellaneous........................................................................ 11
7.1. Remedies................................................................... 11
--------
7.2. Transfer Taxes............................................................. 11
--------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.3. Further Assurances...................................................... 11
------------------
7.4. Successors and Assigns; Assignment...................................... 12
----------------------------------
7.5. Entire Agreement........................................................ 12
----------------
7.6. Notices................................................................. 12
-------
7.7. Amendments.............................................................. 13
----------
7.8. Counterparts............................................................ 13
------------
7.9. Headings................................................................ 13
--------
7.10. Nouns and Pronouns...................................................... 13
------------------
7.11. Governing Law........................................................... 13
-------------
7.12. Severability............................................................ 14
------------
7.13. Amendment to Purchase Agreement......................................... 14
-------------------------------
7.14. Transfer of the Beacon Series B Shares and the Series B Warrant......... 14
---------------------------------------------------------------
7.15. Federal Income Tax Treatment............................................ 15
----------------------------
</TABLE>
ii
<PAGE>
Exhibits
A - Opinion of Chrisman, Bynum & Johnson
B - Amended and Restated Certificate of Incorporation
C - Amendment No. 1 to Registration Rights Agreement (Beacon)
D - Warrant No.1 to Purchase Common Stock
E - Series B Warrant to Purchase Common Stock
F - Amendment No. 1 to Shareholders' Agreement
iii
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of December 22, 1997, by
and between INTEK INFORMATION, INC., a Delaware corporation (the "Company"), and
THE BEACON GROUP III - FOCUS VALUE FUND, L.P., a Delaware limited partnership
("Beacon").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Beacon holds 9,615,738 shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share ("Series B Preferred
Stock") which were purchased by Beacon pursuant to the Preferred Stock Purchase
Agreement dated as of February 3, 1997 by and among the Company, Beacon and
certain other parties (the "Purchase Agreement") (capitalized terms used in this
Agreement and not otherwise defined herein shall have the meanings ascribed to
them in the Purchase Agreement); and
WHEREAS, the Company wishes to sell to Beacon, and Beacon wishes to
purchase from the Company, (i) shares of the Company's Series C Convertible
Preferred Stock, par value $.001 per share ("Series C Preferred Stock"), (ii)
Warrant No.1 ("Warrant No. 1") of the Company to purchase 3.500,000 shares of
the Company's Common Stock (as defined below) and (iii) Series B Warrant of the
Company (the "Series B Warrant" and, together with Warrant No.1, the "Warrants")
to purchase additional shares of the Company's Common Stock (the shares of
Common Stock for which the Warrants are exercisable being referred to herein as
the "Warrant Shares").
ACCORDINGLY, the parties hereto hereby agree a follows:
I. Issuance and Sale of Securities
1.1. The Purchase. At the Closing (as defined in Section 1.3(a)), Beacon
------------
shall purchase (the "Purchase") from the Company and the Company shall sell to
Beacon (i) 2,871,913 shares of Series C Preferred Stock (the "Purchased Shares")
and (ii) the Warrants. The aggregate purchase price (the "Purchase Price") to be
paid by Beacon for the Series C Preferred Stock and the Warrants purchased by it
hereunder is $5,000,000.53 (the "Purchase Price").
1.2. The Closing.
-----------
(a) The closing of the transactions contemplated by this Agreement (the
"Closing') shall take place at the offices of Chrisman, Bynum & Johnson, P.C.,
1900 15/th/ Street, Boulder, Colorado 80302 at 10:00 a.m., Boulder, Colorado
local time on
<PAGE>
December 22, 1997 or on such other date as the parties hereto may agree (the
"Closing Date").
(b) At the Closing, the Company shall deliver to Beacon a certificate or
certificates representing the Purchased Shares, registered in the name of
Beacon. Delivery of such certificate(s) to Beacon shall be made against receipt
of the Purchase Price at the Closing by the Company (i) from Beacon which shall
be paid by wire transfer to an account designated at least one business day
prior to the Closing by the Company.
(c) At the Closing:
(i) Chrisman, Bynum & Johnson, P.C., counsel to the Company, shall
deliver to Beacon its opinion substantially in the form of Exhibit A;
(ii) The Company shall deliver to Beacon copies of the Company's
Amended and Restated Certificate of Incorporation (the "New Certificate of
Incorporation") substantially in the form of Exhibit B attached hereto,
certified by the Assistant Secretary of the Company as true, correct and
complete and in effect as of the Closing;
(iii) Beacon and the Company shall deliver duly executed counterparts
to Amendment No. 1 of even date herewith to the Registration Rights
Agreement (the "Rights Agreement") dated as of February 3, 1997 between the
Company and Beacon substantially in the form of Exhibit C attached hereto
(the "Rights Agreement Amendment");
(iv) Each of the Company and Beacon shall deliver and execute duly
executed counterparts to each of Warrant No.1 and the Series B Warrant,
substantially in the form attached hereto as Exhibits D and E,
respectively;
(v) Each of Beacon, the Company and certain other stockholders of the
Company shall deliver duly executed counterparts to Amendment No.1 of even
date herewith to the Shareholders' Agreement substantially in the form of
Exhibit F attached hereto (such amendment, together with this Agreement,
the Rights Agreement Amendment and the Warrants, the "Documents"); and
(vi) Beacon shall deliver to the Company all certificates representing
Beacon Series B Shares issued thereto as provided in Section 7.14.
1.3. Use of Proceeds. The proceeds to the Company from the sale to Beacon
---------------
of the Purchased Shares shall be applied, first, to repay any amounts
-----
outstanding (including principal, accrued but unpaid interest, fees and
penalties) under that certain Demand Promissory Note of the Company dated as of
November 20, 1997 and that certain
2
<PAGE>
Demand Promissory Note of the Company dated as December 17, 1992, which
payments shall be made at the Closing, and, thereafter, to fund the working
----------
capital needs and certain capital expenditures of the Company. Upon receipt of
such payment Beacon will promptly deliver such notes to the Company marked "paid
in full."
1.4. Repurchase Option. If, in connection with the transactions contemplated
-----------------
by this Agreement, the U.S. Department of Justice or Federal Trade Commission
issues a "second request" under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") prior to termination of the applicable waiting period
under the HSR Act, upon written notice, Beacon may elect by written notice to
the Company to have the Company repurchase the Purchased Shares and the Warrants
on a date specified in such notice (which shall be at least five days following
delivery of such notice (the "Repurchase Date")) in exchange for a repurchase
price (the "Repurchase Price"), payable in cash, equal to the Purchase Price. If
the Company fails to repurchase the Purchased Shares and the Warrants on or
prior to the Repurchase Date, interest shall accrue on the Repurchase Price at a
rate of twenty percent (20%) per annum (the "Applicable Rate") commencing on the
date set forth in such notice through the date the Repurchase Price, and all
interest accrued thereon, is paid in full. Prior to termination of the
applicable waiting period under the HSR Act, Beacon shall not vote any
securities acquired hereunder.
II. Representations and Warranties of the Company
The Company hereby represents and warrants to Beacon as follows (except as
set forth on the schedules hereto):
2.1. Organization and Good Standing; Power and Authority; Qualifications.
-------------------------------------------------------------------
The Company (a) is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, (b) has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted and as proposed to be conducted and (c) has all requisite
power and authority to enter into and carry out the transactions contemplated by
the Documents.
2.2. Authorization of the Documents. The execution, delivery and
------------------------------
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except to the extent that
enforceability may be limited by principles of equity, bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
2.3. Capitalization. The authorized capitalization of the Company
--------------
immediately following the Purchase and the Exchange will consist of:
3
<PAGE>
(a) Preferred Stock. 25,000,000 shares of Preferred Stock, par value $.001
per share ("Preferred Stock"), of which (A) 15,000 shares have been designated
Series A Preferred Stock, (B) 12,532,248 shares have been designated Series B
Preferred Stock, (C) 5,686,387 shares have been designated Series C Preferred
Stock, and (D) 6,766,365 shares of "blank check" preferred stock that have no
designation and none of which have been issued or are outstanding. All of the
shares of Preferred Stock have been validly issued and are fully paid and
nonassessable and free and clear of all mortgages, judgments, claims, liens,
security interests, pledges, escrows, charges or other encumbrances of any kind
or character whatsoever ("Encumbrances"). As of the Closing, 2,871,913 shares of
Series C Preferred Stock (all of which shall be issued to Beacon pursuant to the
Purchase) will be validly issued, outstanding, fully paid and nonassessable and
free and clear of all Encumbrances (other than encumbrances arising under the
Shareholders Agreement, the Rights Agreement or the Documents).
(b) Common Stock. 65,000,000 shares of Common Stock, par value $.0001 per
share ("Common Stock"), of which 7,428,650 shares have been validly issued, and
are outstanding, fully paid and nonassessable and free and clear of all
Encumbrances (other than encumbrances arising under the Shareholders Agreement,
the Rights Agreement or the Documents).
2.4. Authorization and Issuance of Capital Stock. The authorization,
-------------------------------------------
issuance, sale and delivery of the Purchased Shares pursuant to this Agreement
and the authorization, reservation, issuance, sale and delivery of the Warrant
Shares pursuant to the exercise of the Warrants and the shares of Common Stock
issuable upon conversion of the Purchased Shares issued to Beacon hereunder (the
"Conversion Shares") have been duly authorized by all requisite corporation
action on the part of the Company, and when issued, sold and delivered in
accordance with this Agreement or upon conversion of the Purchased Shares or
exercise of the Warrants, the Purchased Shares, the Warrant Shares and the
Conversion Shares will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
free and clear of any Encumbrances, other than Encumbrances, if any, arising as
a result of actions taken by Beacon, and not subject to preemptive or similar
rights of the stockholders of the Company or others that have not been validly
waived. The terms, designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of any series of Preferred Stock of the Company
are as stated in the Company's charter, as amended through the Closing Date, and
the Documents.
2.5. Reservation of Shares. The Company has reserved a sufficient number
---------------------
of shares of Common Stock for issuance to Beacon upon the conversion of the
Series C Preferred Stock issued to Beacon in accordance with this Agreement and
exercise of the Warrants in accordance with the terms thereof.
4
<PAGE>
2.6. Financial Statements. The Company has furnished to Beacon the
--------------------
unaudited statements of income, stockholders' equity and cash flows of the
Company for the period commencing January 1, 1997 through October 31, 1997 and
the unaudited balance sheet of the Company as of such date (the "Balance Sheet
Date") and the related unaudited statement of income and cash flows for the
month ended October 31, 1997 (all such financial statements, the "Company
Financial Statements"). The Company Financial Statements (i) are in accordance
with the books and records of the Company, (ii) have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
(except that such unaudited financial statements do not contain (a) all of the
footnotes required under GAAP or (b) customary year-end adjustments) and (iii)
fairly and accurately present the financial position of the Company and its
consolidated subsidiaries as of the Balance Sheet Date and the results of its
operations and cash flows for the period commencing January 1, 1997 through
October 31, 1997 and for the month ended October 31, 1997, respectively.
2.7. Absence of Undisclosed Liabilities. The Company has no liabilities
----------------------------------
or obligation (whether accrued, absolute, contingent, unliquidated or otherwise
, whether or not known, whether due or to become due and regardless of when
asserted) other than (i) liabilities or obligations reserved against or
otherwise disclosed in the Company Financial Statements, (ii) other liabilities
or obligations that were incurred after October 31, 1997 in the ordinary course
of business consistent (in amount and kind) with past practice (none of which
result from breach of contract, breach of warranty, tort, infringement, claim or
lawsuit) and that do not exceed $10,000 in the aggregate, and (iii) liabilities
or obligations under any contracts listed in the Schedules to this Agreement or
under any contracts that are not required to be disclosed therein (but not
liabilities for breaches thereof).
2.8. Absence of Material Changes. Since October 31, 1997, there has not
---------------------------
occurred any event or condition that has a material adverse effect on the
business, operations, properties, assets, liabilities, condition (financial or
other) or results of operations of the Company and its subsidiaries taken as a
whole (a "Material Adverse Effect") or any event or condition (other than events
or conditions affecting the Company's industry generally and which have been
publicly reported) which could reasonably be expected to have such a Material
Adverse Effect.
2.9. No Conflict. The execution and delivery by the Company of the
-----------
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery
hereunder by the Company of the Purchased Shares, the Warrant Shares and the
Conversion Shares) will not (a) (based, in part, on the representations of
Beacon in this Agreement) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body
5
<PAGE>
applicable to it, or any of its properties or assets, (b) conflict with or
result in any breach of any of the terms, conditions or provision of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any Encumbrance upon any of its properties or assets under, any
contract to which it is a party or (c) violate its certificate of incorporation
or by-laws or other organizational documents.
2.10. Disclosure. Neither this Agreement nor any certificate, instrument
----------
or written statement furnished or made to Beacon by or on behalf of the Company
in connection with this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact which the Company
has not disclosed to Beacon or its counsel in writing and of which the Company
is aware that materially and adversely affects or which could reasonably be
expected to materially and adversely affect the business, financial condition,
operations, property or affairs of the Company or any of its subsidiaries or the
ability of the Company to perform its obligation under the Documents.
2.11. Consents. No permit, authorization, consent or approval of or by,
--------
or any notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery and performance by the
Company of the Documents or any documentation relating thereto, the consummation
by the Company of the transactions contemplated hereby or thereby, or the
issuance, sale or delivery to Beacon of the Purchased Shares, the Warrant Shares
and the Conversion Shares, other than (i) filings made under the HSR Act
(including possible additional filings upon exercise of a Warrant) and (ii)
notice to the Company's stockholders of action by written consent as provided in
Section 228 of the Delaware General Corporation Law.
2.12. Use of Proceeds. Except as expressly contemplated by Section 1.3
---------------
of this Agreement, the Company is not required pursuant to any contract or
otherwise to apply the proceeds received from Beacon pursuant to the
transactions contemplated hereby in any specified manner.
2.13. Accuracy of Prior Representations and Warranties. The information
------------------------------------------------
set forth on Schedule 2.13 modifies and updates the applicable schedules to the
Purchase Agreement through the date hereof. Except as Schedule 2.13 modifies the
schedules to the Purchase Agreement, the representations and warranties of the
Company contained in the Purchase Agreement are true and correct in all material
respects on the date hereof as if made on and as of the date hereof, after
giving effect to the transactions contemplated hereby.
6
<PAGE>
III. Representations and Warranties of Beacon
Beacon represents and warrants to the Company as follows as of the date
hereof:
(a) Beacon (or its advisors) is a sophisticated investor with
sufficient financial experience to assess the risks of investing in the
Company and acquiring the Purchased Shares, the Conversion Shares, the
Warrants and the Warrant Shares, and is acquiring the Purchased Shares to
be acquired by it under this Agreement and the Warrants for its own
account, for investment and not with a view to the distribution thereof
within the meaning of the Securities Act. Beacon was not formed for the
purpose of acquiring the Purchased Shares or the Warrants or otherwise
investing in the Company.
(b) Beacon understands that (i) except as provided in the Registration
Rights Agreement dated as of February 3, 1997 by and between the Company
and Beacon (as amended), the Purchased Shares and the Warrants have not
been, and that the Warrant Shares and the Conversion Shares will not be,
registered under the Securities Act or any state securities laws, by reason
of their issuance by the company in a transaction exempt from the
registration requirement thereof, and (ii) the Purchased Shares, the
Warrants, the Warrant Shares and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and
applicable state securities laws or is exempt from registration thereunder.
(c) Beacon further understands that the exemption from registration
afforded by Rule 144 (the provision of which are known to such Investor)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Beacon has not employed any broker or finder in connection with
the transaction contemplated by this Agreement.
(e) Beacon is an "Accredited Investor" (as defined in Rule 501(a)
under the Securities Act).
IV. Survival of Representations, Warranties, Agreements and Covenants, etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 6) shall
have been given prior to such date with respect to a breach of a representation
and warranty, in which case such representation and warranty shall survive until
such claim is resolved and shall in no way
7
<PAGE>
be affected by any investigation or knowledge of the subject matter thereof made
by or on behalf of Beacon; provided, however, that the representations and
--------- -------
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4 and 2.5 shall survive the
Closing indefinitely. All agreements contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
V. Expenses
The Company shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby. The Company shall reimburse Beacon for its
out of pocket fees and expenses (including, without limitation, fees and
disbursements of Beacon's attorneys, accountants and consultants) incurred in
connection with the negotiation and execution of the Documents and the
transactions contemplated thereby.
VI. Indemnification
6.1. General Indemnification. The Company shall, on an after tax basis,
-----------------------
indemnify, defend and hold Beacon, its affiliates, their respective officers,
directors, partners, members, employees, agents, representatives, successors and
assigns (each "Beacon Entity") harmless from and against all Losses (as defined
below) incurred or suffered by a Beacon Entity (whether incurred or suffered
directly or indirectly through ownership of Common Stock or Preferred Stock)
arising or resulting from the breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in any
certificate or other instrument delivered by the Company pursuant hereto
including, without limitation, the Documents. Beacon shall, on an after tax
basis, indemnify, defend and hold the Company, its affiliates, their respective
officers, directors, employees, agents, representatives, successors and assigns
harmless from and against all Losses arising from the breach of any of their
respective representations, warranties, covenants or agreements in this
Agreement or in any certificate or other instrument delivered by them pursuant
hereto, including, without limitation, the Documents. All claims for
indemnification for Losses arising in connection with certificates, instruments
or Documents shall be governed by and subject to this Article VI.
6.2. Indemnification Principles. For purposes of this Article VI, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses
(including, without limitation, losses of earnings of the Company and its
Affiliates) liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, reasonable costs and expenses (including, without limitation,
interest that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts); and (b)
each of the
8
<PAGE>
representations and warranties made by any party in this Agreement or in any
certificate or other instrument delivered pursuant hereto, including, without
limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality or knowledge such
as the words "material adverse effect," "immaterial," "material," "in all
material respects" and "knowledge," "best knowledge" or "knowingly" or words of
similar import. Any indemnification payment by the Company to an Investor
pursuant to this Article VI shall include an additional amount so that such
Investor suffers no Loss as a result of any diminution in the book value of the
stockholder's equity related to its investment under the Agreement as a result
of such indemnification payment. Any payment by the Company to Beacon pursuant
to this Article VI, shall be treated for federal income tax purposes as an
adjustment to the price paid by Beacon for the Series C Preferred Stock and the
Warrants pursuant to this Agreement.
6.3. Claim Notice. A party seeking indemnification under this Article VI
------------
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnity arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of the
party from whom indemnity is sought except to the extent such party is
materially prejudiced thereby.
6.4. Claim Procedure.
---------------
(a) Procedure for Indemnification with Respect to Third-Party Claims. If
----------------------------------------------------------------
any indemnified party hereunder determines to seek indemnification under this
Article VI with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the
9
<PAGE>
indemnified party under this Section 6.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the following sentence or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party. Notwithstanding the foregoing, (i) such
indemnified party 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 indemnified party unless such indemnified party shall reasonably determine
that there is a conflict of interest between or among such indemnified party and
the indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party 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 indemnified party to be indemnified hereunder in
respect of any Losses that may or do result 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, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VI shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party 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 the indemnifying party.
Notwithstanding anything in this Article VI to the contrary, (i) if there
is a reasonable probability that a claim may materially adversely affect such
indemnified party, such indemnified party shall have the right to participate in
such defense, compromise, or settlement and the indemnifying party shall not,
without such indemnified party's written consent (which consent shall not be
unreasonably withheld), settle or compromise any of such claims, 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 indemnified party a release from all liability in respect
of such claim. With respect to any assertion of liability by a third party that
results in any claim for indemnification hereunder, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) Procedure For Indemnification with Respect to Non-Third Party Claims.
--------------------------------------------------------------------
In the event that an indemnified party asserts the existence of a claim with
respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall
10
<PAGE>
give written notice to the indemnifying party. Such written notice shall state
that it is being given pursuant to this Section 6.4(b), 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 the
indemnifying party, within 30 days after the mailing of notice by such
indemnified party, shall not give written notice to such indemnified party
announcing its intent to contest such assertion of such indemnified party, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid claim. In the event, however, that the indemnifying party contests the
assertion of a claim by giving such written notice to such indemnified party
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.
VII. Miscellaneous
7.1. Remedies. In case any one or more of the covenants and/or agreements
--------
set forth in this Agreement shall have been breached by any party hereto,
Beacon, with respect to a breach by the Company, and the Company, with respect
to a breach by Beacon, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
7.2. Transfer Taxes. The Company agrees that it will pay, and will
--------------
hold Beacon harmless from any and all liability with respect to any transfer,
documentary, stamp or other similar taxes that may be determined to be payable
in connection with the execution and delivery and performance of this Agreement,
and that it will similarly pay and hold Beacon harmless from all such taxes in
respect of the issuance of the Purchased Shares, the Warrants, the Warrant
Shares and the Conversion Shares to Beacon, as contemplated by this Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to pay or
hold Beacon harmless with respect to any transfer, documentary, stamp or other
similar taxes that may be determined to be payable in connection with the
transfer by Beacon of Purchased Shares, the Warrants, the Warrant Shares or
Conversion Shares to any other Person.
7.3. Further Assurances. At any time or from time to time after the
------------------
Closing, the Company, on the one hand, and Beacon, on the other hand, agree to
cooperate with each other, and at the request of the other party, to execute and
deliver any further instruments or documents and to take all such further action
as the other party may reasonably request
11
<PAGE>
in order to evidence or effectuate the consummation of the transactions
contemplated hereby relating to the Purchase and to otherwise carry out the
intent of the parties hereunder.
7.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, and Beacon, and the respective successors,
permitted assigns, heirs and personal representatives of the Company and Beacon.
In addition, and whether or not any express assignment has been made, except as
otherwise expressly stated in this Agreement, the provisions of Articles II, IV
or VI of this Agreement that are for Beacon's benefit as purchaser or holder of
Series C Preferred Stock, the Warrants, the Warrant Shares or the Conversion
Shares, are also for the benefit of, and enforceable by, any subsequent holder
of such Series C Preferred Stock, the Warrants, the Warrant Shares and/or
Conversion Shares.
7.5. Entire Agreement. This Agreement and the other writings referred to
----------------
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
7.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(a) if to the Company, to:
Intek Information Inc.
370 17/th/ Street
39th Floor
Denver, CO 80202-5656
Telecopy: (303) 405-8421
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
12
<PAGE>
(b) if to Beacon, to:
The Beacon Group III - Focus Value Fund, L.P.
399 Park Avenue
New York, NY 10152
Telecopy: (212) 339-9109
Attention: Eric R. Wilkinson
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telecopy: (212) 859-8586
Attention: David C. Golay, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
7.7. Amendments. The terms and provisions of this Agreement may only
----------
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and Beacon.
7.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
7.10. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter
forms, and the singular form of names and pronouns shall include the plural vice
versa.
7.11. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York, the State of Delaware and of the United
States of America, in each case located in the County of New York or the County
of New Castle, Delaware, as applicable, for any action, proceeding or
investigation in any court or
13
<PAGE>
before any governmental authority ("Litigation") arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees not commence
any Litigation relating thereto except in such courts). Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York, the Sate of Delaware
or the United States of America, in each case located in the County of New York
or the County of New Castle, Delaware, as applicable, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum.
7.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
7.13. Amendment to Purchase Agreement. The parenthetical in Section 4.6(a)
-------------------------------
of the Purchase Agreement is hereby deleted in its entirety and replaced by the
following: "(for the purposes hereof calculated by including (i) outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Convertible Preferred Stock, par value $.001 per share, on an as-converted basis
and (ii) shares of Common Stock issuable upon exercise in full of Warrant No.1
and the Series B Warrant of the Company on an as-exercised basis)."
7.14. Transfer of the Beacon Series B Shares and the Series B Warrant. For
---------------------------------------------------------------
so long as the Series B Warrant remains outstanding, Beacon Series B Shares may
only be sold, transferred or otherwise disposed of in connection with the sale,
transfer or other disposition of the Series B Warrant, and if less than the full
Series B Warrant is being sold, transferred or otherwise disposed of, Beacon may
sell, transfer or otherwise dispose of only the percentage of the then
outstanding Beacon Series B Shares equal to the percentage of the Warrant Shares
for which the Series B Warrant is then exercisable for which the portion of the
Series B Warrant being sold, transferred or otherwise disposed of is
exercisable. At the Closing, the Company shall issue to Beacon a certificate
evidencing the Beacon Series B Shares, in exchange for delivery by Beacon of the
certificate previously issued thereto evidencing such shares with stock powers
endorsed in blank, bearing the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE CONSTITUTE
BEACON SERIES B SHARES WITHIN THE MEANING OF THE SERIES B
WARRANT TO PURCHASE COMMON STOCK OF THE CORPORATION. FOR SO
LONG AS THE SERIES B WARRANT
14
<PAGE>
REMAINS OUTSTANDING, BEACON SERIES B SHARES MAY ONLY BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN CONNECTION WITH THE SALE, TRANSFER OR OTHER
DISPOSITION OF THE SERIES B WARRANT, AND IF LESS THAN THE FULL SERIES B
WARRANT IS BEING SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, BEACON MAY
SELL, TRANSFER OR OTHERWISE DISPOSE OF ONLY THE PERCENTAGE OF THE THEN
OUTSTANDING BEACON SERIES B SHARES EQUAL TO THE PERCENTAGE OF THE WARRANT
SHARES FOR WHICH THE SERIES B WARRANT IS THEN EXERCISABLE FOR WHICH THE
PORTION OF THE SERIES B WARRANT BEING SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IS EXERCISABLE.
7.15. Federal Income Tax Treatment. It is intended that the Series C
----------------------------
Preferred Stock be treated as stock that is other than preferred stock for
purposes of Section 305 of the Internal Revenue Code of 1986, as amended, and
the parties hereto agree to treat the Series C Preferred Stock accordingly and
to take no position inconsistent therewith.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Purchase
Agreement as of the date first above written.
INTEK INFORMATION INC.
By: /s/ TIMOTHY C. O'CROWLEY
----------------------------
Timothy C. O'Crowley
Chief Executive Officer and President
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
By: Beacon Focus Value Investors, LLC,
its general partner
By: Focus Value GP, Inc., its member
By: /s/ THOMAS G. MENDELL
-------------------------
Name: Thomas G. Mendell
Title: Managing Director
16
<PAGE>
Exhibit 4.7
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
by and among
INTEK INFORMATION, INC.,
CONNING INSURANCE CAPITAL LIMITED PARTNERSHIP V,
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.
and
CERTAIN OTHER INVESTORS.
Dated as of May 7, 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
I. Issuance and Sale of Securities.............................................. 1
1.1. The Purchase Price..................................................... 1
1.2. The Initial Closing.................................................... 2
1.3. The Subsequent Closing................................................. 3
1.4. The Acquisition Purchase............................................... 6
1.5 The Option Purchase.................................................... 10
1.6. Provisions Common to All Closings...................................... 15
II. Representations and Warranties of the Company................................ 16
2.1. Organization and Good Standing; Power and Authority; Qualifications.... 16
2.2. Authorization of the Documents......................................... 17
2.3. Capitalization......................................................... 17
2.4. Authorization and Issuance of Capital Stock............................ 19
2.5. Reservation of Shares.................................................. 19
2.6. Financial Statements................................................... 20
2.7. Absence of Undisclosed Liabilities..................................... 20
2.8. Absence of Material Changes............................................ 20
2.9. No Conflict............................................................ 21
2.10 Agreements............................................................. 22
2.11. Patents, Trademarks, etc............................................... 23
2.12. Equity Investments; Subsidiaries....................................... 23
2.13. Corporate Minute Books................................................. 24
2.14. Suitability............................................................ 24
2.15. Assets................................................................. 24
2.16. Employee Benefit Plans................................................. 25
2.17. Labor Relations; Employees............................................. 28
2.18. Litigation; Orders..................................................... 28
2.19. Compliance with Laws; Permits.......................................... 29
2.20. Offering Exemption..................................................... 29
2.21. Related Transactions................................................... 29
2.22. Disclosure............................................................. 30
2.23. Taxes.................................................................. 30
2.24. Environmental Protection............................................... 31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.25. Consents.............................................................. 34
2.26. Insurance............................................................. 34
2.27. Brokers............................................................... 35
2.28. Use of Proceeds....................................................... 35
2.29. Previous Issuances Exempt............................................. 35
2.30. Real Property......................................................... 36
2.31. Accounts Receivable................................................... 36
2.32. Investment Banking Services........................................... 36
2.33. Registration Rights................................................... 36
2.34. Material.............................................................. 36
III. Representations and Warranties of the Investors.............................. 36
3.1. Investment Representations............................................ 37
3.2. Due Authorization, Etc................................................ 37
IV. Certain Covenants............................................................ 38
4.1. Operation of the Business Prior to the Initial Closing................ 38
4.2. Conduct of Business of the Company Prior to the Initial Closing....... 39
4.3. Third Party Consents Prior to Each Closing............................ 41
4.4. No Negotiation Prior to the Initial Closing........................... 41
4.5. Access to Records Prior to the Initial Closing........................ 42
4.6 Post-Closing Covenants................................................ 43
4.7 Decisions Regarding Spin Off.......................................... 43
4.8 UCC Releases.......................................................... 43
V. Survival of Representations, Warranties, Agreements and Covenants, etc....... 45
VI. Expenses..................................................................... 46
VII. Indemnification.............................................................. 47
7.1 General Indemnification............................................... 47
7.2 Indemnification Principles............................................ 47
7.3 Claim Notice.......................................................... 48
7.4 Claim Procedure....................................................... 48
</TABLE>
<PAGE>
<TABLE>
<S> <C>
VIII. Miscellaneous............................................................... 50
8.1 Remedies............................................................... 50
8.2 Transfer Taxes......................................................... 50
8.3 Further Assurances..................................................... 50
8.4 Successors and Assigns; Assignment..................................... 50
8.5 Entire Agreement....................................................... 51
8.6 Notices................................................................ 51
8.7 Amendments............................................................. 52
8.8 Counterparts........................................................... 53
8.9 Headings............................................................... 53
8.10 Nouns and Pronouns..................................................... 53
8.11 Governing Law.......................................................... 53
8.12 Severability........................................................... 53
8.13 Knowledge.............................................................. 53
8.14 Termination............................................................ 54
</TABLE>
<PAGE>
Exhibits
A - Legal Opinion
B - Amended and Restated Certificate of Incorporation
C - Bylaws
D - Amended and Restated Shareholders' and Voting Rights Agreement
E - Conning Registration Rights Agreement
F - Registration Rights Agreements and Amendments
G - Exchange Agreement - Beacon - Intek
H - Stock Option Actions
<PAGE>
Index of Defined Terms
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquisition Closing............................................... 1.4(d)
Acquisition Closing Date.......................................... 1.4(d)
Acquisition Purchase.............................................. 1.4(a)
Acquisition Purchaser............................................. 1.4(e)
ACM............................................................... 2.24
Adjusted EBITDA Losses............................................ 1.4(a)
Affiliated Group.................................................. 2.23
Balance Sheet Date................................................ 2.6
Beacon............................................................ Preamble
Bridge Loans...................................................... 1.2(d)
Business Purchase................................................. 1.4(a)
CEO Certificate................................................... 1.2(e)
BAC............................................................... 1.5(n)
Claim Notice...................................................... 7.3
Closing........................................................... 1.6
Closing Date...................................................... 1.6
Code.............................................................. 2.16(a)
Common Stock...................................................... 2.3
Company........................................................... Preamble
Company Benefit Plan.............................................. 2.16
Company Financial Statements...................................... 2.6
Conning........................................................... Preamble
Conning Registration Rights Agreement............................. 1.2(c)
Contract.......................................................... 2.10
Conversion Shares................................................. 2.4
Documents......................................................... 2.1
Employee.......................................................... 2.16
Employee Agreement................................................ 2.16
Encumbrances...................................................... 2.3
Environmental Costs............................................... 2.24
Environmental Laws................................................ 2.24
Environmental Matter.............................................. 2.24
Environmental Permits............................................. 2.24
ERISA............................................................. 2.16
ERISA Affiliate................................................... 2.16
Exchange Act...................................................... 2.21
Exercise Notice................................................... 1.5(b)
February Purchase Agreement....................................... 4.6
GAAP.............................................................. 2.6
Hazardous Substances.............................................. 2.24
HSR Act........................................................... 1.4(f)(xi)
Initial Closing................................................... 1.2(b)
Initial Closing Date.............................................. 1.2(b)
Initial Purchase.................................................. 1.1(a)
Investor.......................................................... Preamble
Investor Entity................................................... 11.1
IPO............................................................... 5.10
IRS............................................................... 2.16(c)
Leased Real Properties............................................ 2.31
Litigation........................................................ 21.0
Losses............................................................ 7.2
Material Adverse Effect........................................... 2.1
NASD.............................................................. 1.5(n)
NASD Approval..................................................... 1.5(n)
Owned Real Properties............................................. 2.30
Option Closing.................................................... 1.5(c)
Option Closing Date............................................... 1.5(c)
Option Holder..................................................... 1.5(a)
Option Purchase................................................... 1.5(a)
Other Investors................................................... Preamble
PCBs.............................................................. 2.24
Pension Plan...................................................... 2.16
Permitted Encumbrances............................................ 2.30
Preferred Stock................................................... 2.3
Purchase Option................................................... 1.5(a)
Purchase Price.................................................... 1.1(a)
RBC............................................................... 1.3(c)
Real Properties................................................... 2.30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Registration Rights Agreement..................................... 2.1
Restated Certificate.............................................. 1.2(c)
Return............................................................ 2.23
Securities Act.................................................... 2.14
Series D Preferred Stock.......................................... Recitals
Shareholders' Agreement........................................... 1.2(c)
SLI............................................................... 1.3(a)
Stated Value...................................................... 1.3(a)
Subsidiary........................................................ 2.12
Subsequent Closing................................................ 1.3(b)
Subsequent Closing Date........................................... 1.3(b)
Subsequent Purchase............................................... 1.3(a)
Taxes............................................................. 2.23
Transaction Proposals............................................. 4.4
</TABLE>
<PAGE>
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SERIES D PREFERRED STOCK PURCHASE AGREEMENT, dated as of May 7, 1998, by
and among INTEK INFORMATION, INC., a Delaware corporation (the "Company"),
-------
CONNING INSURANCE CAPITAL LIMITED PARTNERSHIP V ("Conning"), a Delaware limited
-------
partnership, THE BEACON GROUP III-FOCUS VALUE FUND, L.P., a Delaware limited
partnership ("Beacon"), and such other parties whose names and signatures shall
------
be affixed to the signature pages hereof (collectively, the "Other Investors").
---------------
(Conning, Beacon and the Other Investors are collectively referred to herein as
the "Investors," and each of them is referred to herein as an "Investor")
--------- --------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company wishes to sell to Conning, Beacon and the Other
Investors, and Conning, Beacon and the Other Investors wish to purchase from the
Company, shares of Series D Convertible Preferred Stock, par value $.001 per
share (the "Series D Preferred Stock");
------------------------
WHEREAS, Conning will initially invest approximately $12,000,000 and the
Other Investors in the aggregate may purchase up to approximately $1,000,000 of
Series D Preferred Stock within 75 days of Conning's initial purchase; and
WHEREAS, the Company, Conning and Beacon wish to set forth the
circumstances under which Conning and Beacon shall be committed to each purchase
up to approximately $3,000,000 of additional shares of Series D Preferred Stock
or shall have the option to do so.
ACCORDINGLY, the parties hereto hereby agree as follows:
I. Issuance and Sale of Securities
1.1. The Purchase Price
------------------
(a) The aggregate purchase price (the "Purchase Price") to be paid by each
--------------
Investor, excluding for shares purchased under the Purchase Option (as defined
below) and the Acquisition Purchase (as defined below), is set forth opposite
its name on the signature pages hereof. The respective obligations of the
Investors hereunder are several and not joint.
1
<PAGE>
1.2. The Initial Closing
-------------------
(a) At the Initial Closing (as defined in Section 1.2(b)), Conning shall
purchase from the Company and the Company shall sell to Conning 8,823,529 shares
of Series D Preferred Stock (the "Initial Purchase") for $11,999,999. The per
----------------
share purchase price to be paid by Conning for the Series D Preferred Stock
purchased by it at the Initial Closing is $1.36.
(b) The closing of the Initial Purchase (the "Initial Closing") shall take
---------------
place at the offices of Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street,
Boulder, CO 80302 on a date (the "Initial Closing Date") as soon as practicable
--------------------
following the satisfaction or waiver of each of the closing conditions set forth
herein. The parties will use their respective best efforts to have the Initial
Closing occur on or before May 5, 1998.
(c) At the Initial Closing: (i) Chrisman, Bynum & Johnson, P.C., counsel
to the Company, shall deliver to Conning its opinion substantially in the form
of Exhibit A attached hereto, (ii) the Company shall deliver to Conning copies
of the Company's Certified (by the Delaware Secretary of State) Amended and
Restated Certificate of Incorporation ("Restated Certificate") substantially in
--------------------
the form of Exhibit B attached hereto, the Company's By-Laws substantially in
the form of Exhibit C attached hereto, and resolutions of the Company's Board of
Directors approving the transaction contemplated hereby, each certified by the
Assistant Secretary of the Company as true, correct and complete and in effect
as of the Closing, (iii) Conning and the Company and the other necessary
stockholders of the Company (including Beacon and Timothy O'Crowley
("O'Crowley")) shall deliver duly executed counterparts to the Amended and
---------
Restated Shareholders' and Voting Rights Agreement among the Company, Conning,
Beacon and each and every other shareholder of the Company, in the form of
Exhibit D hereto (the "Shareholders' Agreement"), (iv) Conning and the Company
-----------------------
shall deliver executed counterparts to the Registration Rights Agreement by and
between the Company and Conning (the "Conning Registration Rights Agreement") in
-------------------------------------
the form of Exhibit E hereto, and (v) the Company shall deliver duly executed
copies of the Other Registration Rights Agreements (as defined in Section 2.1).
(d) Simultaneous with the Initial Closing: (i) Beacon and the Company
shall close the transactions described in the Exchange Agreement dated of even
date herewith between the Company and Beacon attached as Exhibit G hereto
pursuant to which, among other things, the Company's Warrant Number 1 issued to
Beacon and Series B Warrant No. B-1 issued to Beacon shall be exchanged for
3,500,000 shares of the Company's Series C Convertible Preferred Stock and a
Series NB-1 Warrant; (ii) the Company shall take those actions regarding Company
stock options as are detailed on Exhibit H hereto; and (iii) the
2
<PAGE>
Company (from proceeds of the sale of the Series D Preferred Stock) shall pay in
full the $1,400,000 loan from Beacon, $100,000 loan from O'Crowley, $100,000
loan from Patrick O'Neal and $100,000 loan from Rick Weller represented by four
Demand Promissory Notes dated respectively, April 21, 1998, April 28, 1998,
April 24, 1998 and April 21, 1998 (the "Bridge Loans").
------------
(e) At the Initial Closing, the Company shall deliver to Conning a
certificate ("CEO Certificate"), dated the Initial Closing Date and executed by
---------------
the Chief Executive Officer of the Company, certifying to the effect that (i)
each of the representations and warranties of the Company set forth in this
Agreement are accurate in all material respects on and as of the Initial Closing
Date as if made on and as of the Initial Closing Date and (ii) each of the
covenants and obligations that the Company is obligated to perform or to comply
with pursuant to this Agreement at or prior to the Initial Closing has been duly
performed and complied with in all material respects.
1.3. The Subsequent Closing
----------------------
(a) At the Subsequent Closing (as defined in Section 1.3(b)), the Other
Investors shall purchase from the Company and the Company shall sell to the
Other Investors up to $1,000,000 of Series D Preferred Stock in the respective
amounts set forth opposite the names and signatures of each Other Investor on
the signature pages hereof (the "Subsequent Purchase"). The per share purchase
-------------------
price to be paid by the Other Investors for Series D Preferred Stock shall be
the "Stated Value" (as of the Subsequent Closing of the Series D Preferred Stock
------------
(which Stated Value is currently $1.36)) as defined in the Restated Certificate.
The number of shares of Series D Preferred Stock shall not exceed 735,294 (based
upon the $1.36 current price). The number of shares of Series D Preferred Stock
purchased at the time of the Subsequent Purchase shall equal the Purchase Price
of the Series D Preferred Stock the Other Investors have agreed to purchase
divided by the Stated Value of the Series D Preferred Stock as of the Subsequent
Closing. The Other Investors shall be: (i) those Persons who are signatories
hereto at the time of execution of this original agreement by the Company,
Conning and Beacon (as to the amount shown to be purchased by them) and (ii)
those Persons added as parties hereto (or who wish to increase the amount
originally agreed to be purchased by them) who are mutually acceptable to the
Company, Conning and Beacon and consist of current shareholders of the Company
and/or senior management of the Company (including Squam Lake Investors II, L.P.
("SLI")) and also Sundree Securities, Inc., (who is acceptable) who become
---
parties to this Agreement as purchasers of shares of Series D Preferred Stock in
amounts mutually acceptable to the Company, Conning and Beacon.
3
<PAGE>
(b) The closing of the Subsequent Purchase (the "Subsequent Closing")
------------------
shall likewise take place at the offices of Chrisman, Bynum & Johnson, P.C., or
a location mutually acceptable to the Company and the Other Investors on a date
not later than seventy-five (75) days after the Initial Closing (the "Subsequent
----------
Closing Date") subject to the satisfaction or waiver of each of the closing
- ------------
conditions thereto set forth herein. The Company will provide each Other
Investor with not less than five (5) days advance notice of the Subsequent
Closing Date.
(c) At the Subsequent Closing: (i) the Company shall deliver to the Other
Investors copies of the Company's Restated Certificate substantially in the form
of Exhibit B attached hereto, the Company's By-Laws substantially in the form of
Exhibit C attached hereto, and resolutions of the Company's Board of Directors
approving the transactions contemplated hereby, each certified by the Assistant
Secretary of the Company as true, correct and complete and in effect as of the
Closing, (ii) each of the Other Investors who are not parties to a Registration
Rights Agreement as of the Subsequent Closing shall: (a) if an Affiliate of
Beacon, become a party to the Beacon Registration Rights Agreement; (b) if an
Affiliate of Conning, become a party to the Conning Registration Rights
Agreement; (c) if an Affiliate of O'Crowley or Resource BancShares Corporation
("RBC") become a party to the RBC Registration Rights Agreement; and (d)
---
otherwise become a party to the SLI Registration Rights Agreement (each as
defined in Section 2.1.), (iii) the Company, the Other Investors and the other
necessary stockholders of the Company shall deliver duly executed counterparts
to the Shareholders' Agreement, and (iv) the Company shall deliver duly executed
copies of the Other Registration Rights Agreements.
(d) The obligation of the Other Investors to make the Subsequent Purchase
is conditioned upon:
(i) the Initial Closing having occurred; and
(ii) the closing under the Exchange Agreement having occurred.
The obligation of the Company to close the Subsequent Purchase and issue
the Series D Preferred Stock at the Subsequent Closing is conditioned upon:
(i) the accuracy in all material respects as of the Subsequent
Closing of the representations and warranties in Article III hereof made by the
Other Investors;
(ii) the performance of the covenants of the Other Investors herein
to the Company to be performed at or before the Subsequent Closing;
4
<PAGE>
(iii) the Initial Closing having occurred; and
(iv) the Closing under the Exchange Agreement having occurred;
provided, that a failure of a condition of the Company's obligation to sell to a
- --------
particular Other Investor, or a particular Other Investor's obligation to
purchase, at the Subsequent Closing shall not affect the rights or obligations
of the Company in respect of other Other Investors or the obligations of other
Other Investors to the Company.
1.4. The Acquisition Purchase
------------------------
(a) Subject to the additional provisions of this Section 1.4 and Section
10.2 of the Shareholders' Agreement, Conning and Beacon each (severally, not
jointly) commit to purchase up to $3,000,000 of shares of Series D Preferred
Stock, less the dollar amount purchased by that person under Section 1.5 hereof,
to fund business acquisitions (a "Business Purchase") which are approved by the
-----------------
Company's Board of Directors after the Initial Closing and on or prior to April
30, 1999, the exact amount of each such purchase to be determined by the Board
of Directors. Each such purchase of the Series D Preferred Stock is hereinafter
referred to as an "Acquisition Purchase." Notwithstanding the foregoing,
--------------------
neither Conning nor Beacon shall be required to make an Acquisition Purchase:
(i) in 1998 if the Company's cumulative consolidated losses before interest,
taxes, depreciation and amortization of goodwill (utilizing the same accounting
principles, standards and assumptions as in effect on the Initial Closing Date
and excluding the effects of (A) performance based compensation paid to
executives of companies or operations acquired by the Company or its
Subsidiaries in an amount (which may be all or a part of such compensation) as
determined by the audit committee of the Company's Board of Directors prior to
the time of signing of the letter of intent or term sheet for the Business
Purchase) and (B) such other charges and costs as the Company's Board of
Directors, Conning and Beacon may agree in writing are appropriate in respect of
a particular Business Purchase ("Adjusted EBITDA Losses") from January 1, 1998
----------------------
through the date of closing of the Business Purchase exceeds $6,000,000; or (ii)
in 1999 if either (a) the Company's Adjusted EBITDA Losses for 1998 exceeded
$6,000,000, or (b) the Company's Adjusted EBITDA Losses from January 1, 1999,
through the date of closing of the Business Purchase exceeds $1,000,000; (iii)
if the Business Purchase is closed after April 30, 1999, or (iv) if the
definitive agreement for the Business Purchase provides for a Closing Date more
than 60 days after the execution date of the definitive agreement. The per
share purchase price to be paid for Series D Preferred Stock (plus any
securities and/or property deliverable in respect thereof as provided in this
Section) shall be the Stated Value as of the Acquisition Closing (as defined in
Section 1.4(d)). The number of shares of Series D Preferred Stock purchased at
the time of the Acquisition Purchase shall equal the dollar
5
<PAGE>
amount of the Series D Preferred Stock to be purchased divided by the Stated
Value of the Series D Preferred Stock as of the Acquisition Closing.
(b) The following procedures shall apply in respect of an Acquisition
Purchase:
(i) within five days after approval of a Business Purchase for
which the Company wishes to have an Acquisition Purchase occur, the Company will
notify Beacon and Conning as to the decision, including the required amount and
anticipated date of the Acquisition Purchase by each of them;
(ii) not less than fifteen business days before the closing date of
the Business Purchase, the Company shall inform Beacon and Conning of the date
for the Acquisition Purchase, which shall occur simultaneously with and shall be
conditioned upon the closing of the Business Purchase on substantially the terms
approved by the Company's Board of Directors; and
(iii) the amount of any Acquisition Purchase to be funded by Beacon
or Conning shall be such that: (i) until the total amount funded by Conning or
Beacon, as applicable, for Option Purchases (as defined in Section 1.5) and
Acquisition Purchases equals $3,000,000, Conning and Beacon will make
Acquisition Purchases in equal amounts and (ii) after Conning or Beacon, but not
--
both, has made Option Purchases and Acquisition Purchases of $3,000,000, the
Acquisition Purchase will be made by whichever of Conning or Beacon has not made
$3,000,000 of Option Purchases and Acquisition Purchases.
(c) For purposes of this Section, a Business Purchase shall mean the
acquisition of a company, business or business operation as a going concern,
whether by asset purchase, stock purchase, merger or other method.
(d) The closing of an Acquisition Purchase (an "Acquisition Closing")
-------------------
shall likewise take place at the offices of Chrisman, Bynum & Johnson, P.C., or
a location mutually satisfactory to the Company, Beacon and Conning, on a date
mutually agreed upon by such parties subject to Section 1.4(b)(ii) (the
"Acquisition Closing Date"), following the satisfaction or waiver of each of the
------------------------
closing conditions thereto set forth herein.
(e) At the Acquisition Closing: (i) Chrisman, Bynum & Johnson, P.C.,
counsel to the Company, shall deliver to the purchaser thereunder ("Acquisition
-----------
Purchaser") its opinion substantially in the form of Exhibit A attached hereto,
- ---------
(ii) the Company shall deliver to the Acquisition Purchaser copies of the
Company's Restated Certificate substantially in the form of Exhibit B attached
hereto, the Company's By-Laws substantially in the form of Exhibit
6
<PAGE>
C attached hereto, and resolutions of the Company's Board of Directors approving
the transactions contemplated by the Business Purchase and Acquisition Purchase,
each certified by the Assistant Secretary of the Company as true, correct and
complete and in effect as of the Closing, (iii) each of the Acquisition
Purchasers who are not parties to a Registration Rights Agreement as of the
Option Closing shall: (a) if an Affiliate of Beacon, become a party to the
Beacon Registration Rights Agreement; (b) if an Affiliate of Conning, become a
party to the Conning Registration Rights Agreement, and (iv) if an Acquisition
Purchaser is not already party to the Shareholders' Agreement, the Company, the
Acquisition Purchaser and the other necessary stockholders of the Company shall
deliver duly executed counterparts to the Shareholders' Agreement.
(f) At the Acquisition Closing, the Company shall deliver to the
Acquisition Purchasers a CEO Certificate, dated the Acquisition Closing Date and
executed by the Chief Executive Officer of the Company, certifying to the effect
that (i) each of the representations and warranties of the Company set forth in
this Agreement are accurate in all material respects on and as of the
Acquisition Closing Date as if made on and as of the Acquisition Closing Date
and (ii) each of the covenants and obligations that the Company is obligated to
perform or to comply with pursuant to this Agreement at or prior to the
Acquisition Closing shall have been duly performed and complied with in all
material respects; provided, however, that the certificate may include such
-------- -------
additions and modifications to the representations and warranties of the Company
herein as necessary to make such representations and warranties true, correct
and accurate as of the Acquisition Closing Date.
The obligation of the Acquisition Purchaser to close an Acquisition Closing
is conditioned upon:
(i) the simultaneous closing of the Business Purchase;
(ii) the accuracy in all material respects of the representations
and warranties in Article II hereof as of the Acquisition Closing subject to
transactions contemplated by the Documents, changes in the ordinary course of
business and actions approved by Conning's and Beacon's designated directors of
the Company;
(iii) no violation of the covenants of the Company herein or in the
other Documents;
(iv) no event or condition having occurred or arisen between the
date of this Agreement and the Acquisition Closing which has a Material Adverse
Effect on the Company;
7
<PAGE>
(v) the performance of the covenants of the Company herein to the
Acquisition Purchaser to be performed at or before the Acquisition Closing in
respect of the Acquisition Purchase;
(vi) the Initial Closing having occurred;
(vii) the Closing under the Exchange Agreement having occurred;
(viii) if applicable, NASD Approval (as defined in Section 1.5(n));
(ix) the simultaneous closing by each other Acquisition Purchaser;
(x) the Company shall have entered into a written teleservicing
agreement with SONY Electronics, Inc. on substantially the terms and conditions
of the draft agreement dated April 25, 1998 delivered to Conning and Beacon on
or about May 4, 1998; and
(xi) if applicable, the termination of the waiting period under the
Hart-Scott -Rodino Antitrust Improvements Act ("HSR Act").
-------
(g) The obligation of the Company to close an Acquisition Closing and
issue the Series D Preferred Stock (and other securities or property, if any) at
the Acquisition Closing is conditioned upon:
(i) the simultaneous closing of the Business Purchase;
(ii) the accuracy in all material respects of the representations
and warranties in Article III hereof made by the Acquisition Purchaser;
(iii) the performance of the covenants of the Acquisition
Purchaser herein to the Company to be performed at or before the Acquisition
Closing;
(iv) the Initial Closing having occurred;
(v) the Closing under the Exchange Agreement having occurred;
(vi) if applicable, NASD Approval; and
(vii) if applicable, the termination of the waiting period under the
HSR Act.
8
<PAGE>
(h) The right of the Company to require an Acquisition Purchase shall
terminate upon (i) a "Qualified IPO" as defined in the Restated Certificate,
(ii) upon the sale, lease or exchange of all or substantially all the property
and assets of the Company, or (iii) the merger or consolidation of the Company
into or with any other corporation, or the merger of any other corporation into
the Company, in which control of the Company is transferred.
(i) The Company may not require the closing of more than three (3)
Acquisition Purchases by Conning or three (3) Acquisition Purchases by Beacon.
(j) Conning may not assign its rights and obligations under this Section
except to an Affiliate of Conning. Beacon may not assign its rights and
obligations under this Section except to an Affiliate of Beacon.
(k) The Company may not require Conning or Beacon to purchase any security
pursuant to an Acquisition Purchase other than Series D Preferred Stock and the
securities described in Section 1.4(1).
(l) If while the right to require an Acquisition Purchase remains
outstanding and unexpired, the holders of Series D Preferred Stock shall have
received, or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property (including
cash) of the Company by way of dividend or distribution, then and in each case,
upon an Acquisition Purchase, the Acquisition Purchaser shall also acquire, in
addition to the number of shares of Series D Preferred Stock receivable upon the
Acquisition Purchase, and without payment of any additional consideration
therefor, the amount of such other additional stock or other securities or
property (including cash) of the Company that such Acquisition Purchaser, would
hold on the date of such exercise had it been the holder of record of the
Acquisition Purchase Series D Preferred Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
the Acquisition Purchase, retained such shares and/or all other additional stock
or property so deliverable to it as aforesaid during such period.
(m) Upon the occurrence of each adjustment or readjustment pursuant to
Paragraph (l), the Company at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to Beacon and
Conning a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based.
9
<PAGE>
(n) In no event shall any event or condition resulting in an adjustment,
change, increase, or decrease in the number or types of securities, property or
cash receivable pursuant to the Restated Certificate also result in an
adjustment under this Section 1.4 so as to "double count" the change,
adjustment, increase or decrease.
1.5 The Option Purchase
-------------------
(a) Subject to the additional provisions of this Section 1.5, Conning and
Beacon are each granted an option to purchase an additional $3,000,000 of shares
of Series D Preferred Stock through April 30, 1999 ("Purchase Option"), less the
---------------
dollar amount purchased by that person pursuant to an Acquisition Purchase. The
Purchase Option can be exercised in whole or in part in writing and on up to two
(2) occasions by each of Conning and Beacon at any time during the term of the
Purchase Option. Conning and Beacon need not exercise their Purchase Option in
the same amounts or at the same times. The purchase that occurs upon an
exercise of the Purchase Option is referred to hereinafter as an "Option
------
Purchase." Conning may not assign its rights or obligations under this Section
- --------
except to an Affiliate of Conning. Beacon may not assign its rights or
obligations under this Section except to an Affiliate of Beacon. The holder of
a Purchase Option right under this Section is an "Option Holder." The per share
-------------
price to be paid for Series D Preferred Stock (and any other securities, cash
and/or property deliverable in respect thereof as provided in this Section)
shall be the Series D Stated Value (as defined in the Restated Certificate) as
of the closing of the Option Purchase. The number of shares of Series D
Preferred Stock purchased at the time of the Option Purchase shall equal the
purchase price paid divided by the Series D Stated Value as of the closing of
the Option Purchase.
(b) The following procedures shall apply in respect of an Option Purchase:
(i) when an Option Holder wishes to exercise a Purchase Option
right it will provide written notice thereof to: (a) the Company; (b) Beacon;
and (c) Conning (an "Exercise Notice"). The Exercise Notice shall specify the
---------------
dollar amount for which the exercise is being made, the amount and type of
securities, cash and/or property which the Option Holder understands it will
receive on exercise, and the Option Closing Date requested by the Option Holder
(which shall not be less than twenty (20) nor more than thirty (30) days after
the delivery of the Exercise Notice).
(ii) the Company shall: (a) promptly inform the Option Holder,
Beacon and Conning, in writing of any discrepancies between the information in
the Exercise Notice and the understandings of the Company; and (b) within five
(5) days of delivery of the Exercise
10
<PAGE>
Notice delivery a copy of the Exercise Notice and the notice specified in clause
(a) immediately above to any Option Holder registered as such with the Company.
(iii) Any other Option Holder may also exercise its option under this
Section 1.5 at any time by delivery of an Exercise Notice as provided above, and
the related Option Closing shall occur at the same time as the Option Closing
under the first Exercise Notice if the other Option Holder has provided notice
of its Option Exercise within ten (10) days after the first delivery of the
Exercise Notice to the Option Holder.
(iv) An Exercise Notice is irrevocable.
(c) The closing of an Option Purchase (an "Option Closing") shall likewise
--------------
take place at the offices of Chrisman, Bynum & Johnson, P.C., or a location
mutually satisfactory to the Company, and the exercising Option Holders, on a
date mutually agreed upon by such parties which shall be within thirty (30) days
after the Purchase Option is exercised and as soon as practicable following the
satisfaction or waiver of each of the closing conditions thereto set forth
herein (the "Option Closing Date").
-------------------
(d) At the Option Closing: (i) Chrisman, Bynum & Johnson, P.C., counsel to
the Company, shall deliver to the Option Holder its opinion substantially in the
form of Exhibit A attached hereto, (ii) the Company shall deliver to the Option
Holder copies of the Company's Restated Certificate substantially in the form of
Exhibit B attached hereto, the Company's By-Laws substantially in the form of
Exhibit C attached hereto, and resolutions of the Company's Board of Directors
approving the transactions contemplated hereby, each certified by the Assistant
Secretary of the Company as true, correct and complete and in effect as of the
Closing, (iii) each of the Option Holders who are not parties to a Registration
Rights Agreement as of the Option Closing shall: (a) if an Affiliate of Beacon,
become a party to the Beacon Registration Rights Agreement; or (b) if an
Affiliate of Conning, become a party to the Conning Registration Rights
Agreement; and (iv) if an Option Purchaser is not already a party to the
Shareholders' Agreement, the Company, the Option Holders and the other necessary
stockholders of the Company shall deliver duly executed counterparts to the
Shareholders' Agreement.
(e) At the Option Closing, the Company shall deliver to the Option Holder
a CEO Certificate, dated the Option Closing Date and executed by the Chief
Executive Officer of the Company, certifying to the effect that (i) each of the
representations and warranties of the Company set forth in this Agreement are
accurate in all material respects on and as of the Option Closing Date as if
made on and as of the Option Closing Date and (ii) each of the covenants and
obligations that the Company is obligated to perform or to comply with
11
<PAGE>
pursuant to this Agreement at or prior to the Option Closing shall have been
duly performed and complied with in all material respects; provided, however,
-------- -------
that the CEO Certificate may include such additions and modifications to the
representations and warranties of the Company herein as necessary to make such
representations and warranties true, correct and accurate as of the Option
Closing Date.
(f) The obligation of any Option Holder to close an Option Closing after
giving notice of the Option Exercise is conditioned upon:
(i) the Option Holder's acceptance of the disclosures in the CEO
Certificate;
(ii) no violation of the covenants of the Company contained herein
or in the other Documents;
(iii) no event or condition having occurred or arisen between the
date of the Option Exercise and the Option Closing which has a Material Adverse
Effect on the Company;
(iv) the performance of the covenants of the Company herein to the
Option Holder to be performed at or before the Option Closing in respect of the
Option Purchase;
(v) if applicable, the receipt of NASD Approval (as defined in
Section 1.5(n)); and
(vi) if applicable, the termination of the waiting period under the
HSR Act.
(g) The obligation of the Company to close an Option Closing and issue the
Series D Preferred Stock and other securities, cash and/or property is
conditioned upon:
(i) the accuracy in all material respects as of the Option Closing
of the representations and warranties in Article III hereof made by the Option
Holders;
(ii) the performance of the covenants of the Option Holders herein
to the Company to be performed at or before the Option Closing;
(iii) the Initial Closing having occurred;
(iv) the Closing under the Exchange Agreement having occurred;
12
<PAGE>
(v) if applicable, the receipt of NASD Approval; and
(vi) if applicable, the termination of the waiting period under the
HSR Act.
provided, that a failure of a condition of the Company's obligation to sell, or
- --------
an Option Holder's obligation to purchase, at the Option Closing, as to one
Option Holder shall not affect the rights or obligations of the Company in
respect of other Option Holders or the obligations of other Option Holders to
the Company.
(h) The Company covenants that during the term this Purchase Option is
exercisable, the Company will reserve from its authorized and unissued Series D
Preferred Stock a sufficient number of shares to provide for the issuance of
Series D Preferred Stock upon the exercise of this Purchase Option, and upon a
Series D PIK Election (as defined in the Restated Certificate) in respect of
such Series D Preferred Stock (and shares of its Common Stock for issuance on
conversion of such Series D Preferred Stock). The Company further covenants
that all shares that may be issued upon the exercise of this Purchase Option and
payment of the purchase price thereof, all as set forth herein, will be free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer by a shareholder occurring contemporaneously or
otherwise specified herein). The Company agrees that its issuance of this
Purchase Option shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Series D Preferred Stock upon the exercise of this
Purchase Option.
(i) Whenever the purchase price per share or number of shares, securities,
property or cash purchasable hereunder shall be adjusted pursuant to this
Section, the Company shall issue a certificate signed by its Chief Financial
Officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the purchase price and number of shares, securities, property or
cash purchasable hereunder after giving effect to such adjustment, and shall
cause a copy of such certificate to be mailed (by first-class mail, postage
prepaid) to the registered Option Holders.
(j) The purchase price and the number of shares purchasable hereunder are
subject to adjustment from time to time as follows:
(i) should all of the Company's Series D Preferred Stock be, or if
outstanding would be, at any time prior to the expiration of this Purchase
Option, redeemed or converted into shares of the Company's Common Stock in
accordance with the Restated
13
<PAGE>
Certificate, then this Purchase Option shall become immediately exercisable for
that number of shares of the Company's Common Stock equal to the number of
shares of the Common Stock that would have been received if this Purchase Option
had been exercised in full and the Series D Preferred Stock received thereupon
had been simultaneously converted immediately prior to such event, and the
purchase price per share shall immediately be adjusted to equal the quotient
obtained by dividing (x) the aggregate purchase price of the maximum number of
shares of Series D Preferred Stock for which this Purchase Option was
exercisable immediately prior to such conversion or redemption, by (y) the
number of shares of Common Stock for which this Purchase Option is exercisable
immediately after such conversion or redemption;
(ii) if at any time while this Purchase Option is outstanding and
unexpired there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the Option Holders shall thereafter be
entitled to receive upon exercise of this Purchase Option, during the period
specified herein and upon payment of the Stated Value then in effect, the number
of shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon exercise of this Purchase Option would
have been entitled to receive in such reorganization, merger, consolidation,
sale or transfer if this Purchase Option had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section. The foregoing provisions of this
subsection shall similarly apply to successive reorganizations, consolidations,
mergers, sales and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Purchase
Option. If the per-share consideration payable to the Option Holder for shares
in connection with any such transaction is in a form other than cash or
marketable securities then the value of such consideration shall be determined
in good fath by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Purchase Option with
respect to the rights and interests of the Option Holder, after the transaction,
to the end that the provisions of this Purchase
14
<PAGE>
Option shall be applicable after that event, as near as reasonably may be, in
relation to any shares or other property deliverable after that event upon
exercise of this Purchase Option;
(iii) if the Company, at any time while this Purchase Option, or any
portion hereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Purchase Option exist into the same or a different number of
securities of any other class or classes, this Purchase Option 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 that
were subject to the purchase rights under this Purchase Option immediately prior
to such reclassification or other change and the purchase price therefor shall
be appropriately adjusted, all subject to further adjustment as provided in this
Section. No adjustment shall be made pursuant to this subsection, upon any
conversion or redemption of the Series D Preferred Stock which is the subject of
this Section;
(iv) if the Company at any time while this Purchase Option, or any
portion hereof, remains outstanding and unexpired shall split, subdivide or
combine the securities (other than Series D Preferred Stock as to which
provision is already made by the purchase price being the Stated Value) as to
which purchase rights under this Purchase Option exist, into a different number
of securities of the same class, the purchase 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; and
(v) if while this Purchase Option remains outstanding and
unexpired, the holders of Series D Preferred Stock shall have received, or, on
or after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock or other securities or property (including cash) of the Company
by way of dividend or distribution, then and in each case, upon an Option
Purchase, the Option Holder shall also acquire, in addition to the number of
shares of Series D Preferred Stock receivable upon the Option Purchase, and
without payment of any additional consideration therefor, the amount of such
other additional stock or other securities or property (other than cash) of the
Company that such Option Holder would hold on the date of such exercise had it
been the holder of record of the Option Purchase Series D Preferred Stock on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such Option Purchase, retained such shares and/or all
other additional stock deliverable to it as aforesaid during such period.
(k) The Company will not, by any voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
under this
15
<PAGE>
Section by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Option Holder against impairment.
(l) No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of an Option Purchase. In lieu of any fractional share
to which the Option Holder would otherwise be entitled, the Company shall make a
cash payment equal to the applicable purchase price multiplied by such fraction.
(m) In no event shall any event or condition resulting in an adjustment,
change, increase, or decrease in the number or types of securities, property or
cash receivable pursuant to the Restated Certificate also result in an
adjustment under this Section 1.5 so as to "double count" the change,
adjustment, increase or decrease.
(n) Conning and its Affiliates may not exercise Conning's Purchase Option
in a manner so as to hold 25% or more of the equity ownership of the Company or
its subsidiary Brokerage Administrators Corporation ("BAC") until the approval
---
therefore has been received from the National Association of Securities Dealers,
Inc. ("NASD") as contemplated by NASD Membership and Registration Rule 1018(a).
----
The Company and BAC have applied for, and will use their best efforts to obtain
approval ("NASD Approval") for, Conning to hold 25% or more of the equity
-------------
ownership of the Company and BAC.
1.6. Provisions Common to All Closings
---------------------------------
The Initial Closing, the Subsequent Closing, each Acquisition Closing
and each Option Closing are referred to herein as a "Closing" and the date of
-------
any such Closing is referred to as a "Closing Date."
------------
(a) At each Closing, the Company shall deliver to each Investor a
certificate or certificates representing the respective shares of Series D
Preferred Stock and other securities and/or property purchased by it, registered
in the name of the Investor. Delivery of such certificates to the Investors
shall be made against receipt at the Closing by the Company from each Investor
of their respective portions of the Purchase Price, payment for the Option
Exercise or payment for the Acquisition Purchase, as applicable, which shall be
paid by wire transfers to an account designated at least one business day prior
to the Closing by the Company.
II. Representations and Warranties of the Company
16
<PAGE>
The Company hereby represents and warrants to the Investors as follows as
of the date hereof and as of each Closing Date (subject to such additional
disclosures made in the CEO Certificate for Closings other than the Initial
Closing):
2.1. Organization and Good Standing; Power and Authority; Qualifications.
-------------------------------------------------------------------
The Company and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, (b) has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as presently conducted and as proposed to be conducted
and (c) has all requisite power and authority to enter into and carry out the
transactions contemplated by this Agreement, the Restated Certificate, the
Shareholders' Agreement, the Registration Rights Agreement between the Company
and Conning, in the form of Exhibit E hereto, the Registration Rights Agreement
among the Company and Beacon, as amended by Amendment No. 1 and Amendment No. 2,
in the form of Exhibit F-1 hereto (the "Beacon Registration Rights Agreement"),
------------------------------------
the Registration Rights Agreement, as amended by Amendment No. 1 among the
Company, RBC and O'Crowley in the form of Exhibit F-2 (the "RBC Registration
----------------
Rights Agreement") and the Registration Rights Agreement, as amended by
- ----------------
Amendment No. 1 among the Company, Bain, SLI, Frank Richards and certain other
persons in the form of Exhibit F-3 (the "SLI Registration Rights Agreement")
---------------------------------
(collectively, such registration rights agreements being the "Registration
------------
Rights Agreements," and together with this Agreement, the Restated Certificate
- -----------------
and the Shareholders' Agreement, the "Documents"). The Company and each
---------
Subsidiary is qualified to transact business as a foreign corporation in, and is
in good standing under the laws of, those jurisdictions listed on Schedule 2.1,
------------
which jurisdictions constitute all of the jurisdictions wherein the character of
the property owned or leased or the nature of the activities conducted by it
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified and in good standing would not, individually or in
the aggregate, have or reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of the Company (a "Material
--------
Adverse Effect").
- --------------
2.2. Authorization of the Documents. The execution, delivery and
------------------------------
performance of each of the Documents and the Exchange Agreement has been duly
authorized by all requisite corporate action on the part of the Company, and
each of the Documents and the Exchange Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms except to the extent that enforceability may be limited by
principles of equity, bankruptcy, insolvency or other similar laws affecting
rights of persons generally and relating to equitable principles of general
application. As of the Closing Date, each holder of issued and outstanding
voting shares of
17
<PAGE>
the Company has executed and delivered the original Shareholders' and Voting
Agreement dated as of February 3, 1997, and the requisite shareholders of the
Company have executed and delivered the Shareholders' Agreement so as to make
its terms binding (as an amendment to the original Shareholders' and Voting
Agreement) on all holders of outstanding voting shares of the Company.
2.3. Capitalization
--------------
(a) The authorized capitalization of the Company immediately
following the Purchase and the closing under the Exchange Agreement (with the
resulting cancellation of the shares of Series B Preferred Stock and Series C
Preferred Stock exchanged by Beacon) will consist of:
(i) Preferred Stock. 50,833,671 shares of Preferred Stock, par
value $.001 per share ("Preferred Stock"), of which (A) 15,000 shares have been
---------------
designated Series A Preferred Stock, (B) 17,274,836 shares have been designated
Series B Convertible Preferred Stock, (C) 8,920,679 shares have been designated
Series C Convertible Preferred Stock, (D) 19,558,824 shares have been designated
Series D Convertible Preferred Stock and (E) 5,064,332 shares of "blank check"
preferred stock that have no designation and none of which have been issued or
are outstanding. All of the shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock have been validly issued and are
outstanding, fully paid and nonassessable and free and clear of all mortgages,
judgments, claims, liens, security interests, pledges, escrows, charges or other
encumbrances of any kind or character whatsoever ("Encumbrances") other than:
------------
(i) those created by the Registration Rights Agreements, the Shareholders'
Agreement or the Restated Certificate; (ii) those listed on Schedule 2.3(a); and
---------------
(iii) those created by, or as a result of actions of the shareholder and which
are not known to an executive officer of the Company. As of the Subsequent
Closing, (A) up to 9,558,823 shares of Series D Preferred Stock, comprised of
(1) 8,823,529 shares of Series D Preferred Stock issued to Conning as
contemplated by this Agreement, and (2) up to 735,294 shares of Series D
Preferred Stock issued to the Other Investors as contemplated by this Agreement
will be validly issued and outstanding, fully paid and nonassessable and free
and clear of all Encumbrances (except for Encumbrances arising under the
Documents) or those created by, or as a result of actions of Conning or such
Other Investor.
(ii) Common Stock. 105,805,860 shares of Common Stock, par
value $.0001 per share ("Common Stock"), of which 7,471,650 shares have been
------------
validly issued, and are outstanding, fully paid and nonassessable and free and
clear of all Encumbrances except for (i) those created by the Registration
Rights Agreements, the Shareholders'
18
<PAGE>
Agreement or the Restated Certificate; (ii) those listed on Schedule 2.3(a); and
---------------
(iii) those created by, or as a result of actions of the shareholder and which
are not known to an executive officer of the Company.
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of
---------------
record of capital stock of the Company, including the number of shares of
capital stock held by each such holder, and (ii) all outstanding warrants,
options, agreements, convertible securities or other commitments pursuant to
which the Company is or may become obligated to issue any shares of the capital
stock or other securities of the Company, which names all persons entitled of
record to receive such shares or other securities, the shares of capital stock
or other securities required to be issued thereunder as of the date hereof and
the price per share, if any, payable with respect to the issuance of any share
of capital stock issuable thereunder. Except as set forth on Schedule 2.3(b),
the Company has no knowledge of the names of any beneficial owners of shares of
capital stock of the Company who are not otherwise holders of record. Except as
set forth on Schedule 2.3(a) or as contemplated by the Documents there is, and
immediately after the Closing there will be, no agreement, restriction or
encumbrance (such as a preemptive or similar right, right of first refusal,
right of first offer, proxy, voting agreement, voting trust, registration rights
agreement, stockholders' agreement, warrant, etc.,) (i) with respect to which
the Company is a party and (ii) with respect to the best knowledge of the
Company, to which the Company is not a party with respect to the purchase, sale
or voting of any shares of capital stock or other securities of the Company
pursuant to any provision of law, the Restated Certificate or By-laws of the
Company, any agreement or otherwise. Except as contemplated by the Documents or
except for the right to vote its shares of capital stock of the Company for the
election of directors, no person has the right to nominate or elect one or more
directors of the Company.
(c) The shares of Common Stock issuable upon conversion of up to
8,823,524 shares of Series D Preferred Stock issued to Conning on the date of
the Initial Closing Date represent, in the aggregate, (i) (prior to any issuance
of capital stock of the Company pursuant to Sections 1.3, 1.4 or 1.5, any stock
option plan or employee stock purchase plan) 23.216% of the outstanding Common
Stock of the Company on the date of the Initial Closing and the voting power of
such issued shares will represent, in the aggregate, 23.216% of the total number
of votes able to be cast on any matter by all voting securities of the Company
(other than any matter that the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are
entitled by law to vote on as a separate class) on the date of the Initial
Closing, and (ii) (after the issuance of the maximum number of shares of capital
stock of the Company issuable pursuant to Section 1.3, 1.4, 1.5 and any options
or rights then outstanding under any stock option plan or employee stock
purchase plan including those to be issued pursuant to Exhibit H hereto,
19
<PAGE>
but excluding the effect of any Series B PIK Election, Series C PIK Election or
Series D PIK Election as defined in the Restated Certificate, and excluding from
the numerator any shares purchased by Conning pursuant to Section 1.3, 1.4 or
1.5) 17.615% of the outstanding Common Stock of the Company on the date of the
Initial Closing on a fully diluted basis.
2.4. Authorization and Issuance of Capital Stock. The authorization,
-------------------------------------------
issuance, sale and delivery of the Series D Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Common Stock issuable upon conversion of the Series D Preferred Stock issued
pursuant to this Agreement (the "Conversion Shares") have been duly authorized
-----------------
by all requisite corporate action on the part of the Company, and when issued,
sold and delivered in accordance with this Agreement, the Series D Preferred
Stock and the Conversion Shares will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof, free and clear of any Encumbrances, other than Encumbrances under the
Documents and those, if any, arising as a result of actions taken by any of the
Investors, and, except as set forth in the Shareholders' Agreement, not subject
to preemptive or similar rights of the stockholders of the Company or others.
The terms, designations, powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of any series of Preferred Stock of the Company are as stated in
the Company's Restated Certificate and the Documents.
2.5. Reservation of Shares. The Company has reserved a sufficient number
---------------------
of shares of Common Stock for issuance to the Investors upon the conversion of
the Series D Preferred Stock issued to the Investors on the date of each Closing
in accordance with this Agreement plus an additional number of shares of Common
Stock equal to 40% of such number to provide for conversion of a limited number
of additional shares of Series D Preferred Stock upon a "Series D PIK Election"
---------------------
as defined in the Restated Certificate. The Company has reserved 5,588,236
additional shares of Series D Preferred Stock for issuance upon such a Series D
PIK Election.
2.6. Financial Statements. The Company has furnished to the Investors the
--------------------
consolidated unaudited statements of income, stockholders' equity and cash flows
of the Company for the 12-month period commencing on January 1, 1997 through
December 31, 1997 and the consolidated unaudited balance sheet of the Company as
of such date, and the consolidated unaudited balance sheet of the Company as of
March 31, 1998 (the "Balance Sheet Date") and the related consolidated unaudited
------------------
statements of income and cash flows for the three-month period ended March 31,
1998 (all such financial statements, the "Company Financial Statements"). The
----------------------------
Company Financial Statements (i) are in accordance with the books and records of
the Company and the Subsidiaries, (ii) have been prepared in
20
<PAGE>
accordance with generally accepted accounting principles ("GAAP") consistently
----
applied (except that the financial statements for the three-month period ended
March 31, 1998 and the balance sheet as of such date do not include all of the
footnotes required under GAAP and do not include customary year-end adjustments)
and (iii) fairly and accurately present the financial position of the Company
and its consolidated subsidiaries as of December 31, 1997 and March 31, 1998,
respectively, and the results of its operations and cash flows for the periods
set forth in such statements; provided, however, that the Company, with the
concurrence of the Company's current auditors, as of the Company's December 31,
1997 balance sheet (and for the period then ended) may write down the value of
the intangible assets (principally goodwill) associated with the acquisition in
1997 of Protocall New Business Specialists, Inc. Schedule 2.7 sets forth
additional potential liabilities not contained in such statements.
At the time of the Initial Closing, the Company will arrange for Conning
and the Company's auditors Arthur Anderson ("AA") to discuss the status of the
Company's audited consolidated financial statements for the 12-month period
commencing on January 1, 1997 through December 31, 1997, including receiving
assurances that promptly after the Initial Closing AA will issue such audited
statements in substantially the form, and without material adjustments, to the
draft statements delivered to Conning by AA at that time.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
2.7, the Company and the Subsidiaries have no liabilities or obligations
- ---
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known, whether due or to become due and regardless of when asserted) other
than (i) liabilities or obligations reserved against or otherwise disclosed in
the Company Financial Statements, (ii) other liabilities or obligations that
were incurred after the Balance Sheet Date in the ordinary course of business
consistent (in amount and kind) with past practice (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement, claim
or lawsuit) and that do not exceed $100,000 in the aggregate, (iii) liabilities
or obligations under Contracts listed in the Schedules to this Agreement or
under Contracts that are not required to be disclosed therein (but not
liabilities for breaches thereof), and (iv) the Bridge Loans (which are to be
repaid at the Initial Closing).
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8,
--------------------------- ------------
since the Balance Sheet Date, the Company (which term includes each Subsidiary
for purposes of this Section) has conducted its business in the ordinary course,
consistent with past practice and there has not been (a) any Material Adverse
Effect or any event or condition (other than events or conditions affecting the
Company's industry generally and which have been publicly reported) which could
reasonably be expected to have such a Material Adverse
21
<PAGE>
Effect, (b) any waiver or cancellation of any material right of the Company, or
the cancellation of any material debt or claim held by the Company, (c) any
payment, discharge or satisfaction of any claim, liability or obligation of the
Company other than in the ordinary course of business and payments of the Bridge
Loans, (d) any Encumbrance upon the assets of the Company other than any
Permitted Encumbrance (as defined in Section 2.30), (e) any declaration or
payment of dividends on, or other distribution with respect to, or any direct or
indirect redemption or acquisition of, any securities of the Company, (f) any
issuance of any stock, bonds or other securities of the Company, (g) any sale,
assignment or transfer of any tangible or intangible assets of the Company
except in the ordinary course of business, (h) any loan by the Company to any
officer, director, employee, consultant or shareholder of the Company (other
than advances to such persons in the ordinary course of business in connection
with travel and travel related expenses), (i) any damage, destruction or loss
(whether or not covered by insurance) materially and adversely affecting the
assets, property, financial condition or results of operations of the Company,
(j) any increase, direct or indirect, in the compensation paid or payable to any
officer or director of the Company or, other than in the ordinary course of
business, to any other employee, consultant or agent of the Company, (k) any
change in the accounting or tax methods, practices or policies, or of any
material tax election of the Company, (l) any indebtedness incurred for borrowed
money by the Company other than in the ordinary course of business and the
Bridge Loans, (m) any amendment to or termination of any material agreement to
which the Company is a party other than the expiration of any such agreement in
accordance with its terms, (n) any change of which either (i) the Company has
received notice or (ii) otherwise has knowledge with respect to the regulation
of the Company or its activities by any administrative agency or governmental
body to the extent such change has had or could reasonably be expected to have a
Material Adverse Effect, (o) any material change in the manner of business or
operations of the Company (including, without limitation, any accelerations or
deferral of the payment of accounts payable or other current liabilities or
deferral of the collection of accounts or notes receivable), (p) any capital
expenditures or commitments therefor by the Company that aggregate in excess of
$50,000, (q) except for any amendments to the Company's certificate of
incorporation and by-laws required in connection with the transactions
contemplated by this Agreement, any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company, (r) any
transaction entered into by the Company other than in the ordinary course of
business or any other material transaction (other than the Bridge Loans) entered
into by the Company whether or not in the ordinary course of business, or (s)
any agreement or commitment (contingent or otherwise) by the Company to do any
of the foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
-----------
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby
22
<PAGE>
and the compliance by the Company with the provisions hereof and thereof
(including, without limitation, the issuance, sale and delivery by the Company
of the Series D Preferred Stock and the Conversion Shares and the entering into
and performance of the Exchange Agreement) will not (a) (relying, in part, upon
the representations and warranties of the Investors in Article III, where
applicable and Beacon in the Exchange Agreement) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it or the Subsidiaries, or any of their respective properties or assets,
provided, however, that (A) pursuant to the HSR Act, Conning, Beacon or their
respective Affiliates may be required to make a filing under the HSR Act if: (i)
in the case of Conning or its Affiliates their aggregate investment exceeds
$15,000,000 or causes Conning and its Affiliates to control the Company within
the meaning of the HSR Act, or (ii) in the case of Beacon or its Affiliates as
to any investment in the Company made more than one year after the termination
of the waiting period for Beacon's filing under the HSR Act pursuant to its
initial acquisition of Series C Preferred Stock, (B) as to Conning or its
Affiliates, holding 25% or more of the equity ownership of the Company or BAC,
will require NASD Approval, (b) except as listed on Schedule 2.9 conflict with
------------
or result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any Encumbrance upon any of its or the Subsidiaries' properties
or assets under, any Contract to which it or the Subsidiary is a party or (c)
violate its or the Subsidiaries' certificate of incorporation or by-laws or
other organizational documents.
2.10. Agreements
----------
(a) Except as set forth on Schedule 2.10, the Company (which term
-------------
includes the Subsidiaries for purposes of this Section) is not a party to any
contract, agreement, indenture, mortgage, guaranty, lease, license or
understanding, written or oral (a "Contract"), other than any Contract which (i)
--------
pursuant to its terms, has expired, been terminated or fully performed by the
parties, and in each case, under which the Company has no liability, contingent
or otherwise, or (ii) involves monthly payments to or from the Company (as
opposed to an indemnity agreement or similar contract under which the Company
has any contingent liability) which monthly payments do not aggregate on an
annual basis to $50,000 or more, and in each case, is not material to the
business or financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been made available to Conning and Beacon. Each of such Contracts
is, as of the date hereof, and will
23
<PAGE>
continue to be at and after the Closing, a legal, valid, and binding obligation
of, enforceable against, and in full force and effect against, the Company and,
to the best knowledge of the Company, the other parties thereto. There is no
breach, violation or default by the Company and no event (including, without
limitation, the consummation of the transactions contemplated by the Documents
except as listed on Schedule 2.9) which, with notice or lapse of time or both,
would (i) constitute a breach, violation or default by the Company under any
such Contract or (ii) give rise to any lien or right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation or
acceleration against the Company under any such Contract. To the best of the
Company's knowledge, except as set forth on Schedule 2.10, no other party to any
of such Contracts is in arrears in respect of the performance or satisfaction of
the terms and conditions on its part to be performed or satisfied under any of
such Contracts, no waiver or indulgence has been granted by any of the parties
thereto and no party to any of such Contracts has repudiated any provision
thereof.
2.11. Patents, Trademarks, etc. To the Company's best knowledge, the
------------------------
Company and the Subsidiaries own, possess or have the right to use pursuant to
license, sublicense, agreement or permission all patents, inventions,
trademarks, service marks, trade names, whether registered or otherwise,
together with all goodwill associated therewith, copyrights, licenses,
information, proprietary rights, and processes, including the TelWeb Customer
Communications Data System, as listed on Schedule 2.11, necessary for the lawful
-------------
conduct of their business as now conducted, without any infringement of or
conflict with the rights of others. The TelWeb Customer Communications Data
System is owned by the Company and none of it is licensed from other persons.
Except as set forth in Schedule 2.11, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing intellectual
property rights, nor is the Company or any Subsidiary bound by or a party to any
options, licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Except as set forth on Schedule 2.11, the Company and the Subsidiaries have not
received any communications alleging that the conduct of the Company's or any
Subsidiaries' business infringes or conflicts with the rights of others under
patents, trademarks, copyrights and trade secrets. To the best of the Company's
knowledge, except as set forth in Schedule 2.11, the Company's and each
Subsidiary's business as now conducted and as proposed to be conducted will not
infringe or conflict with the rights of others, including rights under patents,
trademarks, copyrights and trade secrets. The Company's computer systems and
software are "year 2000 compliant."
2.12. Equity Investments; Subsidiaries. Except as set forth in
--------------------------------
Schedule 2.12, the Company has no Subsidiaries and has never owned, and does not
- -------------
presently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any
24
<PAGE>
company, association, trust, partnership, joint venture or other entity. For
purposes of this Agreement, the term "Subsidiary" means, with respect to any
----------
person, any company, partnership or other entity (a) of which shares of capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other similar managing body of such
company, partnership or other entity are at the time owned or controlled,
directly or indirectly, by such person or (b) the management of which is
otherwise controlled, directly or indirectly, through one or more intermediaries
by such person.
2.13. Corporate Minute Books. The corporate records of the Company are
----------------------
correct and complete. True and correct copies of all minutes of meetings or
other actions by the directors, stockholders or incorporators of the Company
since its inception have previously been provided to Beacon and Conning.
2.14. Suitability. To the best knowledge of the Company, none of the
-----------
events described in Item 401(f) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), has occurred during the last five years
--------------
with respect to any director or officer of the Company.
2.15. Assets
------
(a) The Company (which term includes each Subsidiary for purposes of
this Section) has good and marketable title, or a valid leasehold interest in or
contractual right to use, all of its assets and properties, free and clear of
any Encumbrances except (i) as disclosed in Schedule 2.15(a), (ii) Encumbrances
----------------
for taxes not yet due and payable, (iii) Encumbrances set forth on Schedule
2.15(a) for taxes and charges and other claims, the validity of which the
Company is contesting in good faith or (iv) Permitted Encumbrances. The assets
and properties owned by, or leased to, the Company are sufficient for the
conduct of the business and operation of the Company as presently conducted and
as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings,
----------------
facilities, machinery, equipment, furniture, leasehold and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property owned by, or leased to the Company, as of the date hereof, (i) are to
the Company's best knowledge without investigation, in good operating condition
and repair (normal wear and tear excepted) and (in the case of buildings or
structures located on the Real Properties (as defined in Section 2.31)) free of
any structural or engineering defects and (ii) to the Company's best knowledge,
are suitable for their current use.
25
<PAGE>
(c) Except as set forth on Schedule 2.15(c), the Company has not
----------------
received notice of, and has no knowledge of, any pending, threatened or
contemplated condemnation proceeding or similar taking affecting the assets of
the Company (including the Real Properties).
2.16. Employee Benefit Plans
----------------------
(a) Schedule 2.16 hereto contains a true and complete list of (i)
-------------
each plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefore, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is now or previously has been sponsored, maintained, contributed to or required
to be contributed to by the Company (which includes each Subsidiary for purposes
of this Section) or pursuant to which the Company has any liability, contingent
or otherwise, including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (each, a "Company Benefit Plan"); and (ii) each
----- --------------------
management, employment, bonus, option, equity (or equity related), severance,
consulting, non compete, confidentiality or similar agreement or contract,
pursuant to which the Company has any liability, contingent or otherwise,
between the Company and any current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Company (an
"Employee") (each, an "Employee Agreement"). Except as identified on Schedule
-------- ------------------
2.16, neither the Company nor any ERISA Affiliate (as defined in 2.16(b))
currently sponsors, maintains, contributes to, or is required to contribute to,
nor has the Company ever sponsored, maintained, contributed to or been required
to contribute to, or incurred any liability to, (i) any "multiemployer plan" (as
defined in ERISA Section 3(37)) or (ii) any Company Benefit Plan which provides,
or has any liability to provide, life insurance, medical, severance or other
employee welfare benefits to any Employee upon his or her retirement or
termination of employment, except as required by Section 4980B of the Internal
Revenue Code ("Code"). Neither the Company nor any of the entities set forth on
----
Schedule 2.16(a) has or has had any ERISA Affiliates other than the Company or
- ----------------
any of such entities.
(b) An "ERISA Affiliate" is defined as any entity that is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with, or
under "common control" with, or a member of an "affiliated service group" with,
or otherwise required to be aggregated with, the Company or any entity listed on
Schedule 2.16(a) as set forth in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(a)(14) of ERISA.
26
<PAGE>
(c) The Company has provided to Conning and Beacon current, accurate
and complete copies of all documents embodying or relating to each Company
Benefit Plan and each Employee Agreement, including all amendments thereto,
trust or funding agreements relating thereto (if any), the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), summary annual reports, the most recent determination letter (if any)
received from the Internal Revenue Service ("IRS"), the most recent summary plan
---
description (with all material modifications) (if any), and if the Company
Benefit Plan is funded, the most recent annual and periodic accounting of
Company Benefit Plan assets, and has made available to Beacon and Conning all
material communications to any Employee or Employees relating to any Company
Benefit Plan or Employee Agreement.
(d) With respect to each Company Benefit Plan (i) the Company and each
ERISA Affiliate has performed all obligations required to be performed by it
under each Company Benefit Plan and Employee Agreement and neither the Company
nor any ERISA Affiliate is in default under or in violation of, any Company
Benefit Plan, (ii) each Company Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department; (iii) each Company Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code and no circumstances exist which would adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or,
under currently applicable laws and regulations, may subject the Company or any
ERISA Affiliate or any fiduciary to any tax, penalty or other liability, whether
by way of indemnity or otherwise; (vi) there are no actions, proceedings,
arbitrations, suits or claims pending, or to the best knowledge of the Company
and any ERISA Affiliate, threatened or anticipated (other than routine claims
for benefits) against the Company or any ERISA Affiliate or any administrator,
trustee or other fiduciary of any Company Benefit Plan with respect to any
Company Benefit Plan or Employee Agreement, or against any Company Benefit Plan
or against the assets of any Company Benefit Plan; (vii) no event or transaction
has occurred with respect to any Company Benefit Plan that would result in the
imposition of any tax under Chapter 43 of Subtitle D of the Code; (viii) each
Company Benefit Plan can be amended, terminated or
27
<PAGE>
otherwise discontinued without liability to the Company or any ERISA Affiliate;
(ix) no Company Benefit Plan is under audit or investigation by the IRS, the
Department or the PBGC, and to the best knowledge of the Company and any ERISA
Affiliate, no such audit or investigation is pending or threatened.
(e) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Company
Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company,
Conning or Beacon to amend or terminate any Company Employee Plan and receive
the full amount of any excess assets remaining or resulting from such amendment
or termination, subject to applicable taxes. Except as set forth in Schedule
--------
2.16(e), no payment or benefit which will or may be made by the Company,
- -------
Conning, or Beacon or any of their respective affiliates with respect to any
employee of the Company will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code.
(f) With respect to each Company Benefit Plan (other than a multi-
employer plan) which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan"), (i) no steps have been taken to
-------------
terminate any Pension Plan now maintained or contributed to, no termination of
any Pension Plan has occurred pursuant to which all liabilities have not been
satisfied in full, no liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate which has not been satisfied in full, and no
event has occurred and no condition exists that could reasonably be expected to
result in the Company or any ERISA Affiliate incurring a liability under Title
IV of ERISA or could constitute grounds for terminating any Pension Plan; (ii)
no proceeding has been initiated by the PBGC to terminate any Pension Plan or to
appoint a trustee to administer any Pension Plan; (iii) each Pension Plan which
is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the
Code, has been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such Pension Plan has incurred any "accumulated
funding deficiency," as defined in Section 412 of the Code and Section 302 of
ERISA, whether or not waived; (iv) neither the Company or any ERISA Affiliate
has sought nor received a waiver of its funding requirements with respect to any
Pension Plan and all contributions payable with respect to each Pension Plan
have been timely made; (v) no reportable event, within the meaning of Section
4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA, has
occurred with respect to any Pension Plan; and (vi) the present value of all
accrued benefits of each Pension Plan, determined on a plan
28
<PAGE>
termination basis using the actuarial assumptions established by the PBGC as in
effect on the date of determination, does not as of the date hereof and will not
as of the Closing exceed the fair market value of the assets (which for this
purpose shall not include any accrued but unpaid contributions) of such Pension
Plan.
(g) Immediately following the Closing, the Company will be primarily
engaged, directly or through a Subsidiary or Subsidiaries, in the production or
sale of a product or service other than the investment of capital within the
meaning of Department of Labor Regulation (S) 2510.3-101(c), (d) or (e).
2.17. Labor Relations; Employees
--------------------------
(a) Schedule 2.17(a) lists all employees of the Company (which term
----------------
includes each Subsidiary for purposes of this Section) with an annual salary in
excess of $40,000. Except as set forth on Schedule 2.17(a), (i) the Company is
not delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or material amounts required to be reimbursed by them to the
date hereof, (ii) the Company is in material compliance with all applicable
federal, state and local laws, rules and regulations respecting employment,
employment practices, labor, terms and conditions of employment and wages and
hours, (iii) the Company is not bound by or subject to (and none of its assets
or properties is bound by or subject to) any written or oral, express or
implied, commitment or arrangement with any labor union, and no labor union has
requested or, to the best knowledge of the Company, has sought to represent any
of the employees, representatives or agents of the Company, (iv) there is no
labor strike, dispute, slowdown or stoppage actually pending, or, to the best
knowledge of the Company, threatened against or involving the Company, and (v)
to the best knowledge of the Company, no salaried key employee has any plans to
terminate his or her employment with the Company. Each of the officers of the
Company, each key employee and each other employee and consultant now employed
or retained by the Company who has access to confidential information of the
Company has executed a confidentiality agreement, and such agreements are in
full force and effect.
(b) Except as set forth on Schedule 2.17(b), the Company is not a
----------------
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To the best knowledge of the Company, there
has been no breach, violation or default by any party under the agreements
listed on Schedule 2.17(b).
29
<PAGE>
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there
------------------ -------------
is no civil, criminal, administrative or regulatory action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, regulator, arbitrator or similar panel, governmental instrumentality
or other agency now pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or the assets or the business of
the Company or any of its Subsidiaries. Except as set forth in Schedule 2.18,
neither the Company nor any of its Subsidiaries is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
2.19. Compliance with Laws; Permits. Except as provided in Schedule
----------------------------- --------
2.19, the Company (which term includes each Subsidiary for purposes of this
- ----
Section) (a) has complied in all material respects with all federal, state,
local and foreign laws, rules, ordinances, codes, consents, authorizations,
registrations, regulations, decrees, directives, judgments and orders applicable
to it and its business (including, without limitation, the Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994), and (b) has all federal, state, local and foreign
governmental licenses, permits and authorizations necessary in the conduct of
its business as currently conducted (including, without limitation, any state
teleservice industry registration requirements), such licenses, permits and
qualifications are in full force and effect, and no violations (other than
violations notice of which has not been received by the Company) have been
recorded in respect of any such licenses, permits and qualifications, and no
proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such license, permit or qualification. Schedule 2.19 sets
forth a list of all such licenses, permits and authorizations, and the
expiration dates thereof.
2.20. Offering Exemption. Assuming the accuracy of the representations
------------------
and warranties contained in Section 3 hereof, the offer and sale of the Series D
Preferred Stock to the Investors as contemplated hereby and the issuance and
delivery of the Conversion Shares to the Investors upon the conversion of the
Series D Preferred Stock are each exempt from registration under the Securities
Act and under applicable state securities and "blue sky" laws, each as currently
in effect.
2.21. Related Transactions
--------------------
(a) Except as set forth on Schedule 2.21(a) and the Bridge Loans, no
----------------
current stockholder, director, officer or employee of the Company, or any
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of any of the
------------
foregoing persons or the Company is presently,
30
<PAGE>
or during the past five years has been, directly or indirectly, a party to any
agreement, transaction or series of similar transactions with the Company or any
of its Subsidiaries, other than in connection with any such person's duties as a
director, officer or employee of the Company or a Subsidiary.
(b) Each ongoing intercompany transaction set forth on Schedule
2.21(a), if any, is on terms that are (i) consistent with the past practice of
the Company and (ii) at least as favorable to the Company or the Subsidiary as
would be available with independent third parties dealing at arms' length.
2.22. Disclosure. Neither this Agreement nor any certificate,
----------
instrument or written statement furnished or made to the Investors by or on
behalf of the Company in connection with this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact which the Company has not disclosed to the Investors or their
respective counsel in writing and of which the Company is aware which materially
and adversely affects or which could reasonably be expected to materially and
adversely affect the business, financial condition, operations, property or
affairs of the Company or the ability of the Company to perform its obligations
under the Documents and the Exchange Agreement. All projections delivered to
the Investors in connection with this Agreement or the Exchange Agreement were
prepared in good faith, but are not guarantees of future performance.
2.23. Taxes
-----
(a) Except as set forth on Schedule 2.23(a), (i) the Company (and
----------------
for each Affiliated Period, each Affiliated Group of which the Company was a
member) has timely filed all Tax Returns (as such terms are defined below)
required by law to have been filed by it and has timely paid all Taxes required
to be paid by it including, without limitation, any Tax for which a notice of
assessment or demand for payment has been received by the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member),
(ii) all Tax Returns filed by the Company (and for each Affiliated Period, each
Affiliated Group of which the Company was a member) were complete and correct in
all material respects and (iii) all amounts required to be collected or withheld
by the Company have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
31
<PAGE>
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are adequate to cover any such liability in accordance
with GAAP. If the Company files its Tax Returns for its taxable year which
includes the date hereof, in conformance with its past practices and tax
reporting, to the best knowledge of the Company, there will be no basis for any
material adverse audit adjustments with respect to the Company under any of the
provisions of the Code, or any provisions of state, local or foreign tax law,
with respect to operations and activities of the Company during the period that
began on January 1, 1998 and ends on the date hereof. "Taxes," for purposes of
-----
this Agreement, means any taxes, assessments, duties, fees, levies, imposts,
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the Company arising under any tax sharing agreement to
which the Company is or has been a party. For purposes of this Agreement, (i)
"Affiliated Group" shall mean any affiliated group within the meaning of the
- -----------------
Code (S) 1504(a) (or any similar group defined under a similar provision of
state, local or foreign law), (ii) "Affiliated Period" shall mean each taxable
-----------------
period during which the Company was a member of an Affiliated Group for all or
part of such period, and (iii) "Return" shall mean any report, return,
------
statement, estimate, declaration, notice, form or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.23(b) contains a list of states, territories and
----------------
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.23(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Tax Returns with respect to
which an audit or examination is in progress or with respect to which a written
notification of intent to audit or examine has been received by the Company (and
for each Affiliated Period, each Affiliated Group of which the Company was a
member) from the IRS or any other taxing authority that relate to Taxes for
which the Company (and for each Affiliated Period, each Affiliated Group of
which the Company was a member) could be liable, (iii) no taxing authority in a
jurisdiction where the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) does not file Tax Returns has made a
claim, assertion or threat that such non-filing entity is or may be subject to
taxation by such jurisdiction, (iv) the Company has not been a member of a
32
<PAGE>
consolidated, combined or unitary group for federal or state income tax
purposes, (v) the Company is not a party to any Tax allocation or sharing
agreement and (vi) the Company does not have any liability for the Taxes of any
person as a transferee or successor or by contract.
2.24. Environmental Protection. Except as set forth on Schedule 2.24(a),
------------------------ ----------------
the Company (which term includes each Subsidiary for purposes of this Section)
has been operated at all times, and is, in material compliance with all
applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.24(b), the Company has obtained, is in material compliance with,
----------------
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
---------------------
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.24(c), there are no claims, notices, civil, criminal or
- ----------------
administrative actions, suits, hearings, investigations, inquiries or
proceedings of which the Company has received notice or otherwise should or has
reason to have knowledge pending or, to the knowledge of the Company, threatened
against the Company, and no requests from any governmental authority to perform
any investigatory or remedial activity have been made to the Company, that are
based on or related to any actual or alleged release of Hazardous Substances or
any other Environmental Matters or the failure to have any required
Environmental Permits. Except as set forth on Schedule 2.24(d), there are no
----------------
past or present conditions, events, circumstances, facts, activities, practices,
incidents, actions or omissions of the Company or its predecessors that (i) may
give rise to any liability or other obligation under any past, current or
proposed Environmental Laws that may require the Company to incur any material
Environmental Costs, (ii) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company that may
require the Company to incur any material Environmental Costs, or (iii) may
interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on
Schedule 2.24(e), to the knowledge of the Company there are no (and have never
- ----------------
been any) underground or aboveground storage tanks, incinerators or surface
impoundments at, on, under, about, or within any Owned Real Property or Leased
Real Property. Except as set forth on Schedule 2.24(f), the Company has not
----------------
received any notice (written or oral) or other communication that the Company is
or may be a potentially responsible party or otherwise liable in connection with
any waste disposal site allegedly containing, or other location used for the
disposal of, any Hazardous
33
<PAGE>
Substances. Schedule 2.24(g) contains a list of all sites or locations used by
----------------
or on behalf of the Company for the disposal of any waste containing Hazardous
Substances.
For the purposes of this Section 2.24, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
-------------------
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including without limitation any actual, punitive
or consequential damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement, arising out of,
relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et
--
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
- ----
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- ---- --
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
- ---
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Clean Water
-- --- -- ---
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
-- ---
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
-- ---
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
-- ----
Transportation Act, 49 U.S.C. (S)(S) 1801, et seq., as any of the above statutes
-- ----
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to environmental matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
34
<PAGE>
"Environmental Matter" shall mean any matter arising out of, relating to,
--------------------
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air (indoor or outdoor), surface water,
groundwater, soil, buildings, facilities, real or personal property or fixtures,
or otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
"Hazardous Substances" shall mean any pollutants, contaminants, substances,
--------------------
materials, wastes, constituents, compounds, chemicals, natural or man-made
elements or forces (including, without limitation, petroleum or any by-products
or fractions thereof, any form of natural gas, lead, asbestos or asbestos-
containing materials ("ACM"), building construction materials and debris,
polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon and other
radioactive elements, electromagnetic field and other types of radiation, sonic
forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the basis of
liability under, any Environmental Laws.
2.25. Consents. Except as set forth on Schedule 2.25, and assuming the
-------- -------------
accuracy and completeness of the representations and warranties of the Investors
set forth in Article III hereof, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery and performance
by the Company of the Documents and the Exchange Agreement or any documentation
relating thereto, the consummation by the Company of the transactions
contemplated hereby, thereby, or under the Exchange Agreement, or the issuance,
sale or delivery to the Investors of the Series D Preferred Stock and the
Conversion Shares or the issuance to Beacon of the Series C Preferred Stock or
Warrant NB-1 pursuant to the Exchange Agreement, except for a filing with the
Securities and Exchange Commission of a Form D pursuant to Regulation D of the
Securities Act, and corresponding filings with certain state securities
regulatory authorities.
2.26. Insurance. Substantially all of the assets of the Company (which
---------
term includes each Subsidiary for purposes of this Section) that are of
insurable character (including all material assets of the Company that are of
insurable character) are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice and sufficient
in amount to
35
<PAGE>
allow it to replace any of its properties which might be damaged or destroyed.
The Company is not in default with respect to its obligations under any material
insurance policy maintained by it. Schedule 2.26 sets forth a list of all
-------------
insurance coverage carried by the Company, the carrier and the terms and amount
of coverage. All such policies and other instruments are in full force and
effect and all premiums with respect thereto have been paid. The Company has not
failed to give any notice or present any claim under any such insurance policy
in due and timely fashion or as required by any of such insurance policies or
has not otherwise, through any act, omission or non-disclosure, jeopardized or
impaired full recovery of any claim under such policies, and there are no claims
by the Company under any of such policies to which any insurance company is
denying liability or defending under a reservation of rights or similar clause.
The Company has not received notice of any pending or threatened termination of
any of such policies or any premium increases for the current policy period with
respect to any of such policies and the consummation of the transactions
contemplated by this Agreement will not result in any such termination or
premium increase.
2.27. Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as
--------------- -------------
otherwise expressly contemplated by this Agreement (including the repayment of
the Bridge Loan), the Company is not required pursuant to any Contract or
otherwise to apply the proceeds received from the Investors pursuant to the
transactions contemplated hereby in any specified manner.
2.29. Previous Issuances Exempt. All shares of capital stock and other
-------------------------
securities issued by the Company prior to the Closing have been issued in
transactions exempt from registration under the Securities Act, and all
applicable state securities or "blue sky" laws. The Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
Securities Act.
2.30. Real Property. Schedule 2.30 lists all real property owned or
------------- -------------
leased by the Company (which term includes each Subsidiary for purposes of this
Section). The Company has title to its owned real properties (collectively, the
"Owned Real Properties") in each case, free and clear of all imperfections of
---------------------
title and all Encumbrances, except for (a) those
36
<PAGE>
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of such property or irregularities in
title thereto which, individually and in the aggregate, do not materially impair
the use of such property, (b) warehousemen's, mechanics', carriers', landlords',
repairmen's or other similar Encumbrances arising in the ordinary course of
business and securing obligations not yet due and payable, (c) other
Encumbrances which arise in the ordinary course of business and which
individually and in the aggregate do not materially impair its use of such
property or its ability to obtain financing by using such asset as c ollateral
(encumbrances referenced in clauses(a), (b) and (c), collectively referred to as
the "Permitted Encumbrances")and (d) Encumbrances listed on Schedule 2.30. The
---------------------- -------------
Company has leasehold title to its leased real properties (collectively, the
"Leased Real Properties, "together with the Owned Real Properties, the "Real
---------------------- ----
Properties"), and, in each case, has not taken or failed to take any action that
- ----------
would result in the creation of any Encumbrance with respect to any Leased Real
Property. To the best knowledge of the Company without investigation, other than
as described on Schedule 2.30, there are no intended public improvements which
will result in any charge being levied against, or in the creation of any
Encumbrances upon, the Leased Real Properties or any portion thereof. To the
best knowledge of the Company without investigation, there are no options,
rights of first refusal, rights of first offer or other similar rights with
respect to the Real Properties. With respect to each lease of Real Property to
which the Company is a party, so long as the Company performs all of its
obligations under such lease for Real Property within applicable notice and
grace periods, (x) the rights of the Company under such lease shall not be
terminated and (y) to the best knowledge of the Company, the Company's
possession of such Real Property and the use and enjoyment thereof shall not be
disturbed by any landlord, overlandlord, mortgagee or other superior party.
Except as set forth on the Schedule 2.30, the Company is not obligated to
purchase any Leased Real Property and no leased Real Property is required to be
accounted for under GAAP as a capitalized lease.
2.31. Accounts Receivable. The accounts receivable and notes
-------------------
receivable reflected on the books and records of the Company and each Subsidiary
were and are bona fide accounts receivable and notes receivable created in the
ordinary and usual course of business in connection with bona fide transactions
and consistent with past practice.
2.32. Investment Banking Services. Except as set forth in Schedule
--------------------------- --------
2.32, neither the Company nor any Subsidiary is a party to any Contract which
- ----
grants rights to any third party with respect to the performance of investment
banking services for it, including, without limitation, with respect to its sale
or a public offering, including an initial public offering, of its securities.
37
<PAGE>
2.33. Registration Rights. Except as required by the Registration Rights
-------------------
Agreements or as set forth on Schedule 2.33, the Company has no obligations with
-------------
respect to registration under the Securities Act of any of its currently
outstanding securities or any of its securities which may hereafter be issued.
2.34. Material. When the term "material" or "materially" is used in
--------
this Article II, it is in reference to the Company and its Subsidiaries on an
aggregate, consolidated basis.
III. Representations and Warranties of the Investors
Each Investor severally and not jointly represents and warrants to the
Company as follows as of the date hereof and the Closing Date:
3.1. Investment Representations.
--------------------------
(a) Such Investor (or its advisors) is a sophisticated investor
with sufficient financial experience to assess the risks of investing in the
Company and purchasing Series D Preferred Stock, and is acquiring the Series D
Preferred Stock to be purchased by it under this Agreement for its own account,
for investment and not with a view to the distribution thereof within the
meaning of the Securities Act. Such Investor was not formed for the purpose of
acquiring Series D Preferred Stock or otherwise to invest in the Company.
(b) Such Investor understands that (i) except as provided in the
Registration Rights Agreement applicable to it, the Series D Preferred Stock has
not been, and that the Conversion Shares will not be, registered under the
Securities Act or any state securities laws, by reason of their issuance by the
Company in a transaction exempt from the registration requirements thereof and
(ii) the Series D Preferred Stock and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from registration thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Except as set forth on Schedule 3.1(d), such Investor has not
---------------
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
38
<PAGE>
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
3.2. Due Authorization, Etc.
----------------------
(a) The Investor is validly existing under the laws of the state of
its organization (as set forth opposite its name on the signature pages herein),
is resident in the state so indicated on such signature pages and has all power
and authority to enter into and perform each of the Documents to which it is a
party. Each of the Documents to which it is a party has been duly authorized by
all necessary action on the part of the Investor. Each of the Documents to
which it is a party constitutes a valid and binding agreement of the Investor
enforceable against the Investor in accordance with its terms except to the
extent that enforceability may be limited by principles of equity, bankruptcy,
insolvency or other similar laws affecting rights generally.
(b) The execution, delivery and performance by the Investor of each of
the Documents to which it is a party and the consummation by the Investor of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets if such violation would materially
adversely affect the ability of the Investors to consummate the transactions
contemplated thereby or (ii) violate its organizational documents.
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by the Investor of
each of the Documents to which it is a party or any documentation relating
thereto, or the consummation by the Investor of the transactions contemplated
thereby.
(d) Bain is an institutional buyer as contemplated by Massachusetts
securities laws.
(e) SLI is an institutional buyer as contemplated by Massachusetts
securities laws.
39
<PAGE>
IV. Certain Covenants
4.1. Operation of the Business Prior to the Initial Closing. Except as
------------------------------------------------------
contemplated by the Documents or the Restated Certificate, during the period
between the date of this Agreement and the Initial Closing, without the prior
written consent of Conning, the Company shall:
(a) except as otherwise allowed or required pursuant to the terms of
this Agreement, conduct its business and operations only in the ordinary course
in a manner consistent with past practice;
(b) use best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations and good will with all material
suppliers, customers, licensers, licensees, landlords, trade creditors,
Employees, agents, and others having material business relationships with the
Company or a Subsidiary;
(c) confer with Conning concerning operational matters of a material
nature;
(d) maintain in full force and effect the insurance described in
Section 2.26 or insurance providing at least comparable coverage;
(e) maintain all the properties and assets of the business and
operations of the Company and the Subsidiaries in the ordinary course consistent
with past practice;
(f) maintain its books and records in the usual, regular and ordinary
manner, on a basis consistent with prior years;
(g) perform and comply with its and the Subsidiaries' obligations
under all Contracts in the ordinary course of business, consistent with past
practice;
(h) furnish to the Investors copies of all financial statements and
certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity; and
(i) report periodically to the Investors concerning the status and
operation of the business and operations of the Company.
40
<PAGE>
Notwithstanding the foregoing, the provisions of this Section shall in no
event apply after June 15, 1998 even if the Initial Closing has not occurred by
that date for any reason.
4.2. Conduct of Business of the Company Prior to the Initial Closing.
---------------------------------------------------------------
Except as contemplated by the Documents or the Restated Certificate, during the
period from the date of this Agreement and the Initial Closing, without the
prior written consent of Conning, the Company shall not:
(a) amend its charter or bylaws or comparable organizational documents
or the terms of any of its securities or any agreements relating thereto;
(b) issue, pledge or sell, or authorize the issuance, pledge or sale
of, additional shares of capital stock or other securities of any class or
series, including, without limitation, securities exchangeable for or
convertible into capital stock of any class or series, or any calls,
commitments, rights, warrants or options to acquire any securities or capital
stock except for the exercise or conversion of currently outstanding securities;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock, or any of its other
securities;
(e) except for increases in salary, wages and benefits of officers
(other than executive officers) or employees of the Company or a Subsidiary in
the ordinary course of business in accordance with past practice, increase the
compensation or benefits payable or to become payable to any Employee, or pay
any benefit not required by any existing plan or arrangement or grant any
severance or termination pay to (except pursuant to existing agreements or
policies), or enter into or amend any Employee Agreement or establish, adopt,
enter into, or amend or fund any payments owing under, or accelerate the vesting
of any benefits under, any Company Benefit Plan, except in each case to the
extent required by applicable law;
(f) acquire, sell, lease or dispose of any assets which are material
to the Company, or enter into any commitment to do any of the foregoing or enter
into any material commitment or transaction;
41
<PAGE>
(g) (i) create, incur, assume or prepay any indebtedness for borrowed
money (including obligations in respect of capital leases) except for short-term
debt in the ordinary course of business consistent with past practice under
existing lines of credit, (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or (iii) make any loans, advances or capital
contributions to, or investments in, or enter into any "keep well" arrangements
or other agreement to maintain the financial condition of, any other person;
(h) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(i) pay, discharge or satisfy any claims or liabilities, except for
the payment, discharge or satisfaction of liabilities in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof or waive, release, grant, or transfer any rights of
material value or modify in any material respect any existing Contract, other
than in the ordinary course of business consistent with past practice;
(j) (i) make any material Tax election, (ii) settle or compromise any
material Tax Liability or (iii) extend or waive any statute of limitations in
respect of Taxes;
(k) make or agree to make any capital expenditure in an amount in
excess of $100,000;
(l) mortgage, pledge or subject to any Encumbrance any of its
properties or assets, tangible or intangible;
(m) amend, modify or waive the provisions of any material Contract;
(n) take any action that would cause any of the representations and
warranties contained in Section 2 to be untrue at the date made or any future
date or would result in any of the conditions to the consummation of the
transactions contemplated by the Documents not being fulfilled; or
(o) authorize or agree in writing or otherwise to take any of the
foregoing actions.
42
<PAGE>
Notwithstanding the foregoing, the provisions of this Section shall in no
event apply after June 15, 1998 even if the Initial Closing has not occurred by
that date for any reason.
4.3. Third Party Consents Prior to Each Closing. Prior to each Closing,
------------------------------------------
the Company shall use commercially reasonable efforts to obtain all consents
required from third parties which are party to Contracts with the Company or its
Subsidiaries to the transactions contemplated by the Documents as to the
transactions to occur at that Closing.
4.4. No Negotiation Prior to Initial Closing. Until the earlier of this
---------------------------------------
Agreement being terminated pursuant to Section 8 and the Initial Closing (except
with the written consent of Conning), the Company will not and will not permit
any of its representatives to, directly or indirectly, solicit, initiate, or
encourage any inquiries, offers or proposals from, discuss or negotiate with,
execute any agreement regarding or provide any information to, any person (other
than the Investors) relating to any transaction involving an equity investment
in the Company, the sale of the business or operations of the Company or a
substantial amount of the property or assets of the Company, or of any of the
capital stock or any other equity securities of the Company (including by way of
an initial public offering), or any merger, consolidation, business combination,
liquidation, recapitalization, dissolution or similar transaction involving the
Company or any other transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially delay
the transactions contemplated by the Documents as they apply to Conning and are
to occur at the Initial Closing or which would or could reasonably be expected
to materially dilute the benefits to Conning of the transactions contemplated by
the Documents as they apply to Conning and are to occur at the Initial Closing
(collectively, "Transaction Proposals"). If any such inquiries or Transaction
---------------------
Proposals are received by, or any such information is requested from or any such
negotiations or discussions are sought to be initiated with the Company, then
the Company will promptly notify the Investors of the nature, terms and status
of the foregoing and the identity of the inquiring party and provide the
Investors with a copy of all written materials provided in connection with such
Transaction Proposal. Until the earlier of this Agreement being terminated
pursuant to Section 8 and the Initial Closing (except with the written consent
of Conning), the Company will not accept any Transaction Proposal from any
person or entity other than the Investors except with the written consent of
Conning and Beacon. This Section 4.4 shall not apply to any transaction
contemplated hereby, including the contemplated sale or issuance of Series D
Preferred Stock as described in Article I, the consummation of the Exchange
Agreement, and the grant of stock options pursuant to the Company's Stock Option
Plans.
4.5. Access to Records Prior to Initial Closing. During the period
------------------------------------------
commencing on the date of this Agreement and continuing through the Initial
Closing, the Company shall (i)
43
<PAGE>
afford to the Investors and their representatives full access, during normal
business hours, upon reasonable advance notice, with due regard to its ongoing
operations, to the personnel, properties, contracts, books and records, and
other documents and data of the Company, (ii) furnish the Investors and their
representatives with copies of all such contracts, books and records (including,
but not limited to, Tax Returns), and other existing documents and data as the
Investors and their representatives may reasonably request, and (iii) furnish
the Investors and their representatives such additional financial, operating,
and other data and information as the Investors and their representatives may
reasonably request. No investigation or receipt of information shall affect any
representation or warranty of the Company contained in this Agreement or the
conditions to the obligations of the Investors specified in this Agreement.
4.6 Additional Covenants. From and after the date hereof, as to Beacon,
--------------------
until such time as Beacon and its Affiliates own in the aggregate less than 5%
of the outstanding Common Stock of the Company (for the purposes hereof
calculated by including outstanding shares of each series of Preferred Stock on
an as-converted basis), and, as to Conning, until such time as Conning and its
Affiliates own, in the aggregate less than 5% of the outstanding Common Stock of
the Company so calculated:
(a) Access to Records. The Company shall afford Beacon and Conning
-----------------
and their respective representatives full access, during normal business hours,
upon reasonable advance notice, with due regard to its ongoing operations, to
the personnel, properties, contracts, books and records, and other documents and
data of the Company.
(b) System of Accounting. The Company shall maintain its books of
--------------------
account and other financial and corporate records in accordance with good
business and accounting practices and the financial condition of the Company and
the Subsidiaries.
(c) Maintenance of Corporate Existence, etc. The Company and the
---------------------------------------
Subsidiaries shall maintain in full force and effect its corporate existence,
rights, governmental approvals and franchises and all licenses and other rights
to use patents, processes, trademarks, trade names or copyrights owned or
possessed by it and deemed by it to be material to the conduct of its business.
(d) Compliance with Laws. The Company and the Subsidiaries shall
--------------------
comply in all material respects with all applicable laws, rules, regulations and
orders.
(e) Maintenance of Properties and Leases. To the extent they are
------------------------------------
material to the conduct of its business, (i) the Company and the Subsidiaries
shall keep its properties
44
<PAGE>
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all reasonably needful and proper, or legally
required, repairs, renewals, replacements, additions and improvements thereto;
and (ii) the Company and the Subsidiaries shall comply at all times with each
provision of all material leases to which it is a party or under which it
occupies, or has possession, of, property.
(f) Insurance. The Company shall keep its and the Subsidiaries'
---------
assets which are of an insurable character, if any, insured by financially sound
and reputable insurers against loss or damage by fire, extended coverage and
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar businesses similarly situated.
The Company shall maintain after the Closing the directors' and officers'
liability insurance described in Section 5.13.
(g) Licenses and Permits. The Company and the Subsidiaries shall use
--------------------
their best efforts to obtain all federal, state, local and foreign governmental
licenses, permits and qualifications material to and necessary in the conduct of
business as proposed to be conducted.
(h) Compliance with Contracts. The Company and the Subsidiaries shall
-------------------------
comply with all material obligations which it incurs pursuant to any contract or
agreement, whether oral or written, express or implied, as such obligations
become due, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently applied)
have been established on its books with respect thereto.
(i) Confidentiality Agreements. The Company shall use its best
--------------------------
efforts to obtain a confidentiality agreement from its and the Subsidiaries'
future officers, key employees and other employees who will have access to
confidential information of the Company or a Subsidiary upon their employment.
(j) Disclosure of Investment. The Company shall not, directly or
------------------------
indirectly, (i) except as may be necessary or desirable in connection with a
request by a governmental agency, regulatory or supervisory authority or court
or as required by law, disclose the transactions contemplated by the Documents
or any of the terms thereof without the prior consent of the Investors, (ii) use
in advertising or publicity the name of any party hereto, or any partner or
employee of such party hereto or any of its respective affiliates, or any trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof owned by any party hereto or any of its
respective affiliates, in either case without the prior written consent of such
party or (iii) represent, directly or indirectly, that
45
<PAGE>
any product or service provided by the Company has been approved or endorsed by
an Investor without the prior written consent of such Investor; provided,
--------
however, the Company may orally disclose: (i) that an Investor is a stockholder
- -------
of the Company and (ii)the percentage of the outstanding shares of capital stock
of the Company held by such Investor; provided, however, further, that the
-------- ------- -------
Company may, subject to review and consent of an Investor (which consent will
not be unreasonably withheld), disclose information with respect to such
Investor's purchase of Series D Preferred Stock hereunder and Conversion Shares
solely as required to be made in the Company's financial statements in
accordance with GAAP, with regulatory agencies, and/or the requirements of the
United States Securities and Exchange Commission.
(k) Use of Proceeds. The Company shall use the proceeds from the sale
---------------
of Series D Preferred Stock at the Initial Closing in part to repay the Bridge
Loans in full.
(l) Board of Directors. At and after the Closing, the Company shall
------------------
cause the board of directors of the Company to be comprised of the number of
directors as contemplated by the Shareholders' Agreement.
(m) Election of Directors. On the Closing Date, the Company shall
---------------------
cause Steven F. Piaker and Greg Batton to be elected to the board of directors
of the Company as representatives of Conning and Rick Weller to be elected as an
O'Crowley representative.
(n) Directors' and Officers' Insurance. The Company shall maintain,
----------------------------------
with financially sound and reputable insurers, directors' and officers'
liability insurance, in full force and effect, in the amount of $3,000,000 per
occurrence and $5,000,000 in the aggregate or a binder with respect to such
insurance in form and substance satisfactory to Beacon and Conning.
The covenants of this Section 4.6 and of Section 4.6 of the Preferred Stock
Purchase Agreement dated February 3, 1997 (the "February Purchase Agreement"),
---------------------------
by and among the Company, Beacon, SLI and Bain are deemed waived if the
particular action is approved by the Board of Directors of the Company and (i)
as to Beacon and its Affiliates if approved by both "Beacon Directors" and (ii)
as to Conning and its Affiliates if approved by both "Conning Directors" (each
as defined in the Shareholders Agreement). In addition, the provisions of
Sections 4.6 (c), (d), (e), (f), (g), (h) and (i), and comparable provisions of
the February Purchase Agreement shall terminate upon a "Qualified IPO" as
defined in the Shareholders' Agreement.
46
<PAGE>
When the term "material" or "materially" is used in this Article IV, it is
in reference to the Company and its Subsidiaries on an aggregate, consolidated
basis.
4.7 Decisions Regarding Spin Off. The Company has contemplated placing
----------------------------
its information technology group and related intellectual property (by license
or transfer) into a new subsidiary of the Company which would become a partially
owned subsidiary or be spun-off to the owners of the Company. Between the date
hereof and the Initial Closing, the Company will not make any determination with
regard to this matter without the written consent of Conning.
4.8 UCC Releases. The Company will use its best efforts to have filed
------------
within thirty (30) days of the date hereof, UCC termination statements for all
UCC statements filed against the Company or the Subsidiaries which should be
terminated because the obligation secured has been discharged, including any UCC
Statements of Eden Financial Group.
V. Survival of Representations, Warranties, Agreements and Covenants, Etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 7.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved) and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of the Investors; provided, however, (x) the representations and
-------- -------
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 3.1 and 3.2 and the
final sentence of Section 2.16(a) shall survive the Closing indefinitely and (y)
the representations and warranties set forth in Sections 2.19, 2.20, 2.23, 2.24
and 2.28 shall survive the Closing until the expiration of the applicable
statute of limitations (except to the extent a Claim Notice shall have been
given prior to such date with respect to a breach of a representation and
warranty, in which case such representation and warranty shall survive until
such claim is resolved). All agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
VI. Expenses
Each party hereto shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby; provided that, notwithstanding the foregoing,
--------
the Company shall pay (A) to Beacon an amount in cash equal to the lesser of (i)
100% of Beacon's out of pocket fees and
47
<PAGE>
expenses (including, without limitation, fees and disbursements of Beacon's
attorneys, accountants and consultants) incurred in connection with Beacon's due
diligence review of the Company and the negotiation and execution of the
Documents and the transactions contemplated thereby and (ii) $20,000; and (B) to
Conning (including if the Company fails to Close the Initial Purchase other than
due to a failure of a condition to its obligation to so Close, or if Conning
does not Close the Initial Purchase due to a breach hereof by the Company) an
amount in cash equal to the lesser of (i) 100% of Conning's out of pocket fees
and expenses (including, without limitation, fees and disbursements of Conning's
attorneys, accountants and consultants) incurred in connection with Conning's
due diligence review of the Company and the negotiation and execution of the
Documents and the transactions contemplated thereby and (ii) $50,000. The
Company shall not reimburse RBC more than an amount in cash equal to the lesser
of (i) 100% of RBC's out of pocket fees and expenses (including, without
limitation, fees and disbursements of RBC's attorneys, accountants and
consultants) incurred in connection with RBC's negotiation and execution of the
Documents and the transactions contemplated thereby and (ii) $15,000. Conning
and Beacon shall deliver to the Company copies of all due diligence and other
reports with respect to the cost of which the Company has reimbursed Beacon or
Conning (other than under circumstances that would, upon delivery of such
materials by Beacon or Conning, as applicable, result in a violation or loss of
any privilege with respect to such materials or the information contained
therein).
VII. Indemnification
7.1. General Indemnification. The Company shall, on an after Tax basis,
-----------------------
indemnify, defend and hold the Investors, their affiliates, their respective
officers, directors, partners, members, employees, agents, representatives,
successors and assigns (each an "Investor Entity") harmless from and against all
---------------
Losses (as defined below) incurred or suffered by an Investor Entity (whether
incurred or suffered directly or indirectly through ownership of Common Stock or
Preferred Stock) in respect of its purchase of Series D Preferred Stock under
this Agreement arising or resulting from the breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in any certificate or other instrument delivered by the Company
pursuant hereto including, without limitation, the Documents. The Investors,
severally but not jointly, shall, on an after Tax basis, indemnify, defend and
hold the Company, its affiliates, their respective officers, directors,
employees, agents, representatives, successors and assigns harmless from and
against all Losses arising from the breach of any of their respective
representations, warranties, covenants or agreements in this Agreement or in any
certificate or other instrument delivered by them pursuant hereto, including,
without limitation, the
48
<PAGE>
Documents. All claims for indemnification for Losses arising in connection with
certificates, instruments or Documents shall be governed by and subject to this
Article VII.
7.2. Indemnification Principles. For purposes of this Article VII, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses,
- -------
(including, without limitation, losses of earnings of the Company and its
Affiliates) liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, reasonable costs and expenses (including, without limitation,
interest that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts); and (b)
each of the representations and warranties made by any party in this Agreement
or in any certificate or other instrument delivered pursuant hereto, including,
without limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality or knowledge such
as the words "material adverse affect," "immaterial," "material," "in all
material respects" and "knowledge," "best knowledge" or "knowingly" or words of
similar import. Any indemnification payment by the Company to an Investor
pursuant to this Article VII shall include an additional amount so that such
Investor suffers no Loss in respect of its purchase of Series D Preferred Stock
under this Agreement as a result of any diminution in the book value of the
stockholder's equity related to its investment under the Agreement as a result
of such indemnification payment. Any payment by the Company to an Investor
pursuant to this Article VII, shall be treated for federal income tax purposes
as an adjustment to the price paid by such Investor for the Series D Preferred
Stock pursuant to this Agreement.
7.3. Claim Notice. A party seeking indemnification under this Article VII
------------
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each
------------
Claim Notice shall specify the nature of the claim, the applicable provision(s)
of this Agreement or other instrument under which the claim for indemnity
arises, and, if possible, the amount or the estimated amount thereof. No failure
or delay in giving a Claim Notice (so long as the same is given prior to
expiration of the representation or warranty upon which the claim is based) and
no failure to include any specific information relating to the claim (such as
the amount or estimated amount thereof) or any reference to any provision of
this Agreement or other instrument under which the claim arises shall affect the
obligation of the party from whom indemnity is sought except to the extent such
party is materially prejudiced thereby.
49
<PAGE>
7.4. Claim Procedure.
---------------
(a) Procedure for Indemnification with Respect to Third-Party Claims.
----------------------------------------------------------------
If any indemnified party hereunder determines to seek indemnification under this
Article VII with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the indemnified party under this
Section 7.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
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 indemnified
party unless such indemnified party shall reasonably determine that there is a
conflict of interest between or among such indemnified party and the
indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party 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 indemnified party to be indemnified hereunder in
respect of any Losses that may or do result 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, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VII shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party 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 the indemnifying party. Notwithstanding anything in this
Article VII to the contrary, (i) if there is a reasonable
50
<PAGE>
probability that a claim may materially adversely affect such indemnified party,
such indemnified party shall have the right to participate in such defense,
compromise, or settlement and the indemnifying party shall not, without such
indemnified party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any of such claims, 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 indemnified party a release from all liability in respect of
such claim. With respect to any assertion of liability by a third party that
results in any claim for indemnification hereunder, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that an indemnified party asserts the existence of a claim
- ------
with respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 7.4(b), 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 the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party 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.
VIII. Miscellaneous
8.1. Remedies. In case any one or more of the covenants and/or agreements
--------
set forth in this Agreement shall have been breached by any party hereto, the
Investors, with respect to a breach by the Company, and the Company, with
respect to a breach by an Investor, may proceed to protect and enforce its
rights either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement.
51
<PAGE>
8.2. Transfer Taxes. The Company agrees that it will pay, and will hold
--------------
the Investors harmless from any and all liability with respect to any transfer,
documentary, stamp or other similar Taxes that may be determined to be payable
in connection with the execution and delivery and performance of this Agreement,
and that it will similarly pay and hold the Investors harmless from all Taxes in
respect of the issuance of the Series D Preferred Stock and the Conversion
Shares to the Investors, as applicable, each as contemplated by this Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to pay or
hold the Investors harmless with respect to any transfer, documentary, stamp or
other similar Taxes that may be determined to be payable in connection with the
transfer by the Investor, as applicable, of shares of Series D Preferred Stock
or Conversion Shares to any other Person.
8.3. Further Assurances. At any time or from time to time after a Closing,
------------------
the Company, on the one hand, and each of the Investors, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchases and to otherwise carry out the intent of the parties hereunder.
8.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, the Investors and their respective
successors, permitted assigns, heirs and personal representatives. In addition,
and whether or not any express assignment has been made, except as otherwise
expressly stated in this Agreement, the provisions of Articles II, IV, VII, or
VIII of this Agreement that are for the Investors' benefit as a purchaser or
holder of Series D Preferred Stock, are also for the benefit of, and enforceable
by, any subsequent holder of such Series D Preferred Stock and/or Conversion
Shares. Neither this Agreement nor any rights hereunder may be transferred prior
to a Closing Date without the written consent of the Company, Conning and
Beacon.
8.5. Entire Agreement. This Agreement and the other writings referred to
----------------
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the
52
<PAGE>
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(a) if to the Company, to:
Intek Information, Inc.
370 17th Street
39th Floor
Denver, CO 80202-5656
Telecopy: (303) 405-8421
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
(b) if to Beacon, to:
The Beacon Group III - Focus Value Fund, L.P.
399 Park Avenue
New York, New York 10022
Telecopy: (212) 339-9109
Attention: Eric R. Wilkinson
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: David C. Golay, Esq.
53
<PAGE>
(c) if to Conning, to:
Conning Insurance Capital Limited Partnership V
City Place II
185 Asylum Street
Hartford, Connecticut 06103-4105
Attention: Steve Piaker
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Telecopy: (860) 293-3555
Attention: Charles F. Vandenburgh
(d) if to the Other Investors, to the respective addresses set
forth opposite their names on the signature page hereof.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
8.7. Amendments. The terms and provisions of this Agreement may only be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company, Conning and Beacon.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
8.10. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
54
<PAGE>
8.11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York, the State of Delaware and of the United States
of America, in each case located in the County of New York or the County of New
Castle, Delaware, as applicable, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
----------
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts). Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York, the
State of Delaware or the United States of America, in each case located in the
County of New York or the County of New Castle, Delaware, as applicable, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum.
8.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
8.13. Knowledge. As used herein, "knowledge of the Company" and similar
---------
phrases shall mean, in addition to actual knowledge of the Company, (a) the
actual knowledge of any officer, director or employee of the Company and (b)
with respect to any such Person, knowledge that such Person should have or could
reasonably be inferred to have by virtue of such Person's activities,
circumstances or relationship with the Company and its business.
8.14. Termination. This Agreement may be terminated by written notice
-----------
given prior to a Closing: (a) by Conning, Beacon or the Company, if the Initial
Closing has not occurred by May 20, 1998 (other than through the failure of any
party seeking to terminate this Agreement to comply fully with such party's
obligations under this Agreement), or such later date as Conning, Beacon and the
Company hereto may agree in writing, (b) solely as to the rights and obligations
of the Company and the Subsequent Investors as to the Subsequent Closing by the
Company, or a Subsequent Investor (as to that Investor), if the Subsequent
Closing has not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with such party's obligations under
this Agreement) on or before
55
<PAGE>
seventy-five (75) days after the Initial Closing (but in any event not later
than August 4, 1998), or such later date as the Company and the particular
Subsequent Investor(s) may agree in writing or (c) by an Investor as to the
purchase of Series D Preferred Stock by it hereunder, if a material breach of
any of the representations, warranties or covenants of the Company set forth in
this Agreement has been committed between the date hereof and the applicable
Closing, and such breach has not been either waived by the Investor or cured by
the Company within 10 days after the Company's receipt of written notice thereof
from an Investor. Termination of this entire Agreement pursuant to Clause (a) of
this Section 8.14 shall terminate all obligations of the parties hereto except
for the obligations under Sections 4.6(j). 8.1, 8.6, 8.11 and 8.13 and Articles
VI and VII; and termination of this Agreement as to a particular Investor (or
investment by an Investor) pursuant to Clause (b) of this Section 8.14 shall
terminate all obligations of the parties hereto in respect of that Investor (or
investment by the Investor, as applicable) except for the obligations under
Sections 4.6(j). 8.1, 8.6, 8.11 and 8.13 and Articles VI and VII; provided that
--------
termination of this Agreement pursuant to this Section 8.14 (other than clause
(c) of the first sentence of this Section 8.14) shall not relieve a defaulting
or breaching party hereunder from any liability to the other parties hereto
resulting from the default or breach hereunder of such defaulting or breaching
party occurring prior to the date of termination.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
THE COMPANY: INTEK INFORMATION, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------------------
Timothy C. O'Crowley
Chief Executive Officer and President
CONNING: CONNING INSURANCE CAPITAL
LIMITED PARTNERSHIP V
By: Conning Investment Partners V, LLC, its General
Partner
By: Conning & Company, its Member/Manager
By:__________________________________
Its: General Partner
By:__________________________________
Title: ______________________________
Address: City Place II, 185 Asylum Street,
------------------------------------
Hartford CT 06103-4105
-------------------------------------
State of Organization: Delaware
-----------------------
State of Residence: Connecticut
--------------------------
Shares Purchased: 8,823,529
----------------------------
Purchase Price: $11,999,999
------------------------------
57
<PAGE>
BEACON: THE BEACON GROUP III - FOCUS VALUE FUND,
L.P.
By: Beacon Focus Value Investors, LLC, its
general partner
Address: 399 Park Avenue, New York, New York
----------------------------------------
10022
--------
State of Organization: Delaware
--------------------------
Shares Purchased: 0
-------------------------------
Purchase Price: 0
---------------------------------
By: Focus Value GP, Inc., its member
By: /s/ ERIC WILKINSON
--------------------------------------------
Title:__________________________________________
THE OTHER INVESTORS: ________________________________________________
By:_____________________________________________
Address:________________________________________
State of Organization:__________________________
State of Residence:_____________________________
Shares Purchased:_______________________________
Purchase Price:_________________________________
________________________________________________
By:_____________________________________________
Address:________________________________________
State of Organization:__________________________
State of Residence:_____________________________
Shares Purchased:_______________________________
Purchase Price:_________________________________
________________________________________________
By:_____________________________________________
Address:________________________________________
State of Organization:__________________________
State of Residence:_____________________________
Shares Purchased:_______________________________
Purchase Price:_________________________________
________________________________________________
<PAGE>
By:____________________________________________
Address:_______________________________________
State of Organization:_________________________
State of Residence:____________________________
Shares Purchased:______________________________
Purchase Price:________________________________
_______________________________________________
By:____________________________________________
Address:_______________________________________
State of Organization:_________________________
State of Residence:____________________________
Shares Purchased:______________________________
Purchase Price:________________________________
<PAGE>
Exhibit 4.8
TARGET DISCLOSURE SCHEDULE
--------------------------
Disclosures made under one section heading of this Target Disclosure Schedule
- -----------------------------------------------------------------------------
may be deemed as disclosure relating to one or more other sections of the
- -------------------------------------------------------------------------
Agreement and Plan of Merger and Reorganization, dated as of January ___, 2000,
- -------------------------------------------------------------------------------
by and between Cisco Systems, Inc. and [Catacombs] to the extent such disclosure
- --------------------------------------------------------------------------------
would be appropriate in such other section provided that such disclosure is
- ---------------------------------------------------------------------------
either cross-referenced or the substance of such disclosure is reasonably
- -------------------------------------------------------------------------
evident from the context.
- -------------------------
<PAGE>
Table of Contents
Section Page
------- ----
I. Issuance and Sale of Securities......................................... 1
1.1. The Closing................................................ 1
-----------
II. Representations and Warranties of the Company........................... 3
2.1. Organization and Good Standing; Power and Authority;
----------------------------------------------------
Qualifications............................................. 3
--------------
2.2. Authorization of the Documents............................. 4
------------------------------
2.3. Capitalization............................................. 4
--------------
2.4. Authorization and Issuance of Capital Stock................ 5
-------------------------------------------
2.5. Reservation of Shares...................................... 5
---------------------
2.6. Financial Statements....................................... 5
--------------------
2.7. Absence of Undisclosed Liabilities......................... 6
----------------------------------
2.8. Absence of Material Changes................................ 6
---------------------------
2.9. No Conflict................................................ 7
-----------
2.10. Agreements................................................. 7
----------
2.11. Patents, Trademarks, etc................................... 8
------------------------
2.12. Equity Investments; Subsidiaries........................... 8
--------------------------------
2.13. Corporate Minute Books..................................... 9
----------------------
2.14. Suitability................................................ 9
-----------
2.15. Assets..................................................... 9
------
2.16. Employee Benefit Plans..................................... 10
----------------------
2.17. Labor Relations; Employees................................. 12
--------------------------
2.18. Litigation; Orders......................................... 13
------------------
2.19. Compliance with Laws; Permits.............................. 13
-----------------------------
2.20. Offering Exemption......................................... 13
------------------
2.21. Related Transactions....................................... 14
--------------------
2.22. Disclosure................................................. 14
----------
2.23. Taxes...................................................... 14
-----
2.24. Environmental Protection................................... 16
------------------------
2.25. Consents................................................... 18
--------
2.26. Insurance.................................................. 18
---------
2.27. Brokers.................................................... 18
-------
2.28. Use of Proceeds............................................ 18
---------------
2.29. Previous Issuances Exempt.................................. 19
-------------------------
2.30. Real Property.............................................. 19
-------------
2.31. Accounts Receivable........................................ 19
-------------------
<PAGE>
2.32. Investment Banking Services................................ 20
---------------------------
2.33. Registration Rights........................................ 20
-------------------
2.34. Material................................................... 20
--------
2.35 Spider Spin-Off............................................ 20
---------------
III. Representations and Warranties of the Investors and the Additional
Investors.............................................................. 20
3.1. Investment Representations................................. 20
--------------------------
3.2. Due Authorization, Etc..................................... 21
----------------------
3.3 USITF, Encompass and TCI Solely............................ 21
-------------------------------
IV. Certain Covenants...................................................... 22
4.1. Operation of the Business Prior to the Closing............. 22
----------------------------------------------
4.2. Third Party Consents Prior to the Closing.................. 23
-----------------------------------------
4.3. Access to Records Prior to the Closing..................... 23
--------------------------------------
4.4 Project Spinner............................................ 23
---------------
4.5 Use of Proceeds............................................ 23
---------------
V. Survival of Representations, Warranties, Agreements and Covenants, Etc. 23
VI. Expenses............................................................... 24
VII. Indemnification........................................................ 24
7.1. General Indemnification.................................... 24
-----------------------
7.2. Indemnification Principles................................. 25
--------------------------
7.3. Claim Notice............................................... 25
------------
7.4. Claim Procedure............................................ 25
---------------
VIII. Miscellaneous......................................................... 27
8.1. Remedies................................................... 27
--------
8.2. Transfer Taxes............................................. 27
--------------
8.3. Further Assurances......................................... 27
------------------
8.4. Successors and Assigns; Assignment......................... 28
----------------------------------
8.5. Entire Agreement........................................... 28
----------------
8.6. Notices.................................................... 28
-------
8.7. Amendments................................................. 29
----------
8.8. Counterparts............................................... 29
------------
8.9. Headings................................................... 29
--------
8.10. Nouns and Pronouns......................................... 29
------------------
8.11. Governing Law.............................................. 29
-------------
8.12. Severability............................................... 30
------------
8.13. Knowledge.................................................. 30
---------
8.14. Termination................................................ 30
-----------
<PAGE>
Exhibits
A - Legal Opinion
B - Amended and Restated Certificate of Incorporation
C - Bylaws
D - Amended and Restated Shareholders' and Voting Agreement
E - Investor Registration Rights Agreement
F - Amendments to Registration Rights Agreements
<PAGE>
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
SERIES E PREFERRED STOCK PURCHASE AGREEMENT, dated as of April 16, 1999, by
and among INTEK INFORMATION, INC., a Delaware corporation (the "Company"), U.S.
-------
INFORMATION TECHNOLOGY FINANCING, L.P., a Washington limited partnership
("USITF"), ENCOMPASS GROUP, INC., a Washington corporation ("Encompass"), TRANS
---------
COSMOS USA, INC., a Washington corporation ("TCI," and together with USITF and
---
Encompass, the "Investors," and each individually an "Investor"), and each of
--------- --------
those persons and entities whose names are set forth on the Schedule of
Investors attached hereto (the "Additional Investors" and each an "Additional
---------- --------- ----------
Investor").
- --------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company wishes to sell to the Investors, and the Investors
wish to purchase from the Company, shares of Series E Convertible Preferred
Stock, par value $.001 per share (the "Series E Preferred Stock");
------------------------
WHEREAS, the Investors wish to invest approximately $4,000,000, in the
aggregate, in the Company; and
WHEREAS, the Company wishes to sell to other qualified investors shares of
Series E Preferred Stock in accordance with the terms and conditions of this
Agreement.
ACCORDINGLY, the parties hereto hereby agree as follows:
I. Issuance and Sale of Securities
1.1. The Closing
-----------
(a) At the Closing (as defined in Section 1.1(b)), the Investors shall
purchase from the Company and the Company shall sell to the Investors an
aggregate of 2,484,472 shares of Series E Preferred Stock (the "Purchase") for
--------
an aggregate of $3,999,999.92 (the "Purchase Price"), as follows: (i) USITF
--------------
shall purchase 931,677 shares of Series E Preferred Stock for $1,499,999.97,
(ii) Encompass shall purchase 1,242,236 shares of Series E Preferred Stock for
$1,999,999.96, and (iii) TCI shall purchase 310,559 shares of Series E Preferred
Stock for $499,999.99. The per share purchase price to be paid by each Investor
for the Series E Preferred Stock purchased by it at the Closing is $1.61. The
Company has no obligation to sell any of such Series E Preferred Stock unless
all of the Investors purchase such quantities of Series E Preferred Stock.
(b) The closing of the Purchase (the "Closing") shall take place at the
-------
offices of Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder, CO
80302 on a date (the "Closing Date") as soon as practicable following the
------------
satisfaction or waiver of each of the closing
1
<PAGE>
conditions set forth herein. The parties will use their respective best efforts
to have the Closing occur on or before April 16, 1999.
(c) At the Closing: (i) Chrisman, Bynum & Johnson, P.C., counsel to the
Company, shall deliver to each Investor its opinion substantially in the form of
Exhibit A attached hereto, (ii) the Company shall deliver to each Investor
copies of the Company's Certified (by the Delaware Secretary of State) Amended
and Restated Certificate of Incorporation ("Restated Certificate") substantially
--------------------
in the form of Exhibit B attached hereto, the Company's By-Laws substantially in
the form of Exhibit C attached hereto, and resolutions of the Company's Board of
Directors approving the transaction contemplated hereby, each certified by the
Assistant Secretary of the Company as true, correct and complete and in effect
as of the Closing, (iii) the Company, each Investor and certain other equity
holders of the Company shall deliver duly executed counterparts to the Amended
and Restated Shareholders' and Voting Agreement in the form of Exhibit D hereto
(the "Shareholders' Agreement"), (iv) each Investor and the Company shall
-----------------------
deliver duly executed counterparts to the Registration Rights Agreement by and
among the Company and the Investors in the form of Exhibit E hereto (the
"Investor Registration Rights Agreement") and (v) the necessary parties shall
--------------------------------------
deliver executed counterparts to the Amendments (as defined in Section 2.1).
(d) At the Closing, the Company shall deliver to each Investor a
certificate ("CEO Certificate"), dated the Closing Date and executed by the
---------------
Chief Executive Officer of the Company, certifying to the effect that (i) each
of the representations and warranties of the Company set forth in this Agreement
are accurate in all material respects on and as of the Closing Date as if made
on and as of the Closing Date and (ii) each of the covenants and obligations
that the Company is obligated to perform or to comply with pursuant to this
Agreement at or prior to the Closing has been duly performed and complied with
in all material respects.
(e) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series E Preferred Stock purchased by it,
registered in the name of each Investor. Delivery of such certificate to each
Investor shall be made against receipt at the Closing by the Company from each
Investor of its respective portion of the Purchase Price, which shall be paid by
wire transfer to an account designated at least one business day prior to the
Closing by the Company.
(f) The Company may, at any time and from time to time during the 180-day
period immediately following the Closing, without obtaining the signature,
consent or permission of the Investors or any other party hereto, offer and sell
to Additional Investors (who may already be holders of securities of the
Company), at a price of $1.61 per share, up to an additional 1,242,236 shares of
Series E Preferred Stock (the "Additional Shares"). At the closing of any such
-----------------
sale of Additional Shares (each a "Subsequent Closing"), each such Additional
------------------
Investor shall deliver to the Company a duly executed counterpart to this
Agreement (certifying in particular the accuracy of the representations and
warranties in Article III hereof as applied to such Additional Investor), the
Shareholders' Agreement and the Investor Registration Rights Agreement. At each
Subsequent Closing, the Company shall deliver to each Additional Investor
participating in such Subsequent Closing (i) a CEO Certificate dated the date of
the Subsequent Closing, and (ii) a certificate
2
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representing the shares of Series E Preferred Stock purchased by it, registered
in the name of the Additional Investor. Delivery of such certificate to each
Additional Investor shall be made against receipt at the Subsequent Closing by
the Company from such Additional Investor of the purchase price therefor, which
shall be paid by wire transfer to an account designated at least one business
day prior to the Subsequent Closing by the Company. Any such Additional Shares
purchased by such Additional Investors, and such Additional Investors, shall be
subject to all of the terms and conditions of this Agreement and the other
Documents.
II. Representations and Warranties of the Company
The Company hereby represents and warrants to each Investor as follows as
of the date hereof and as of the Closing Date, and hereby represents and
warrants to the Additional Investors as follows as of the date hereof and as of
the date of the relevant Subsequent Closing (subject to additional disclosures
made in the CEO Certificate for each such Subsequent Closing):
2.1. Organization and Good Standing; Power and Authority; Qualifications.
-------------------------------------------------------------------
The Company and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, (b) has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as presently conducted and as proposed to be conducted
and (c) has all requisite power and authority to enter into and carry out the
transactions contemplated by (i) this Agreement, (ii) the Restated Certificate,
(iii) the Shareholders' Agreement, (iv) the Investor Registration Rights
Agreement, (v) Amendment No. 1 to the Registration Rights Agreement between the
Company and Conning Insurance Capital Limited Partnership V, in the form of
Exhibit F-1 hereto, (vi) Amendment No. 2 to the Registration Rights Agreement
among the Company, Frank Richards, Bain & Company, Inc., and Squam Lake
Investors II, L.P., in the form of Exhibit F-2 hereto, (vii) Amendment No. 2 to
the Registration Rights Agreement among the Company, Resource Bancshares
Corporation and Timothy C. O'Crowley, in the form of Exhibit F-3 hereto, and
(viii) Amendment No. 3 to the Registration Rights Agreement between the Company
and The Beacon Group III - Focus Value Fund, L.P., in the form of Exhibit F-4
hereto (the foregoing amendments to registration rights agreements are
collectively defined as the "Amendments," and all of the foregoing documents in
----------
this subpart (c) are collectively defined as the "Documents"). The Company and
---------
each Subsidiary is qualified to transact business as a foreign corporation in,
and is in good standing under the laws of, those jurisdictions listed on
Schedule 2.1, which jurisdictions constitute all of the jurisdictions wherein
- ------------
the character of the property owned or leased or the nature of the activities
conducted by it makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified and in good standing would
not, individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of the
Company (a "Material Adverse Effect").
-----------------------
2.2. Authorization of the Documents. The execution, delivery and
------------------------------
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the
3
<PAGE>
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by principles of equity,
bankruptcy, insolvency or other similar laws affecting rights of persons
generally and relating to equitable principles of general application.
2.3. Capitalization
--------------
(a) The authorized capitalization of the Company immediately following the
Purchase will consist of:
(i) Preferred Stock. 63,321,322 shares of Preferred Stock, par value $.001
per share ("Preferred Stock"), of which (A) 15,000 shares have been designated
---------------
Series A Preferred Stock, (B) 17,274,836 shares have been designated Series B
Convertible Preferred Stock, (C) 8,920,679 shares have been designated Series C
Convertible Preferred Stock, (D) 12,378,676 shares have been designated Series D
Convertible Preferred Stock, (E) 5,217,392 shares have been designated Series E
Convertible Preferred Stock, and (F) 19,514,739 shares of "blank check"
preferred stock that have no designation and none of which have been issued or
are outstanding. All of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
have been validly issued and are outstanding, fully paid and nonassessable and
free and clear of all mortgages, judgments, claims, liens, security interests,
pledges, escrows, charges or other encumbrances of any kind or character
whatsoever ("Encumbrances") other than: (i) those created by the Documents; (ii)
------------
those listed on Schedule 2.3(a); and (iii) those created by, or as a result of
---------------
actions of the shareholder and which are not known to an executive officer of
the Company.
(ii) Common Stock. 105,805,860 shares of Common Stock, par value $.0001 per
share ("Common Stock"). All of the outstanding shares of Common Stock have been
------------
validly issued, and are outstanding, fully paid and nonassessable and free and
clear of all Encumbrances except for (i) those created by the Documents; (ii)
those listed on Schedule 2.3(a); and (iii) those created by, or as a result of
---------------
actions of the shareholder and which are not known to an executive officer of
the Company.
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of record of
---------------
capital stock of the Company, including the number of shares of capital stock
held by each such holder, and (ii) all outstanding warrants, options,
agreements, convertible securities or other commitments pursuant to which the
Company is or may become obligated to issue any shares of the capital stock or
other securities of the Company, which names all persons entitled of record to
receive such shares or other securities, the shares of capital stock or other
securities required to be issued thereunder as of the date hereof and the price
per share, if any, payable with respect to the issuance of any share of capital
stock issuable thereunder. Except as set forth on Schedule 2.3(b), the Company
has no knowledge of the names of any beneficial owners of shares of capital
stock of the Company who are not otherwise holders of record. Except as set
forth on Schedule 2.3(a) or as contemplated by the Documents there is, and
immediately after the Closing there will be, no agreement, restriction or
encumbrance (such as a preemptive or similar right, right of first refusal,
right of first offer, proxy,
4
<PAGE>
voting agreement, voting trust, registration rights agreement, stockholders'
agreement, warrant, etc.,) (i) with respect to which the Company is a party and
(ii) with respect to the best knowledge of the Company, to which the Company is
not a party with respect to the purchase, sale or voting of any shares of
capital stock or other securities of the Company pursuant to any provision of
law, the Restated Certificate or By-laws of the Company, any agreement or
otherwise. Except as contemplated by the Documents or except for the right to
vote its shares of capital stock of the Company for the election of directors,
no person has the right to nominate or elect one or more directors of the
Company.
2.4. Authorization and Issuance of Capital Stock. The authorization,
-------------------------------------------
issuance, sale and delivery of the Series E Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Common Stock issuable upon conversion of the Series E Preferred Stock issued
pursuant to this Agreement (the "Conversion Shares") have been duly authorized
-----------------
by all requisite corporate action on the part of the Company, and when issued,
sold and delivered in accordance with this Agreement, the Series E Preferred
Stock and the Conversion Shares will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof, free and clear of any Encumbrances, other than Encumbrances under the
Documents and those, if any, arising as a result of actions taken by any of the
Investors or any of the Additional Investors, and, except as set forth in the
Shareholders' Agreement, not subject to preemptive or similar rights of the
stockholders of the Company or others. The terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of any series of Preferred
Stock of the Company are as stated in the Company's Restated Certificate and the
Documents.
2.5. Reservation of Shares. The Company has reserved a sufficient number of
---------------------
shares of Common Stock for issuance to the Investors upon the conversion of the
Series E Preferred Stock issued to the Investors on the date of the Closing in
accordance with this Agreement and for issuance to each Additional Investor upon
the conversion of the Series E Preferred Stock issued to it on the date of any
Subsequent Closing in accordance with this Agreement, plus an additional number
of shares of Common Stock equal to 40% of such numbers (in the aggregate) to
provide for conversion of a limited number of additional shares of Series E
Preferred Stock upon a "Series E PIK Election" as defined in the Restated
---------------------
Certificate. The Company has reserved 1,490,684 additional shares of Series E
Preferred Stock for issuance upon such a Series E PIK Election.
2.6. Financial Statements. The Company has furnished to each Investor the
--------------------
consolidated unaudited statements of income, stockholders' equity and cash flows
of the Company for the 12-month period commencing on January 1, 1998, through
December 31, 1998, and the consolidated unaudited balance sheet of the Company
as of such date (the "Balance Sheet Date" and all such financial statements, the
------------------
"Company Financial Statements"). The Company Financial Statements (i) are in
----------------------------
accordance with the books and records of the Company and the Subsidiaries, (ii)
have been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (except that the financial statements for the
----
12-month period ended December 31, 1998 and the balance sheet as of such date do
not include all of the footnotes required under GAAP and do not
5
<PAGE>
include customary year-end adjustments) and (iii) fairly and accurately present
the financial position of the Company and its consolidated subsidiaries as of
December 31, 1998, and the results of its operations and cash flows for the
periods set forth in such statements. Schedule 2.7 sets forth additional
potential liabilities not contained in such statements.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
2.7, the Company and the Subsidiaries have no liabilities or obligations
- ---
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known, whether due or to become due and regardless of when asserted) other
than (i) liabilities or obligations reserved against or otherwise disclosed in
the Company Financial Statements, (ii) other liabilities or obligations that
were incurred after the Balance Sheet Date in the ordinary course of business
consistent (in amount and kind) with past practice (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement, claim
or lawsuit) and that do not exceed $100,000 in the aggregate, and (iii)
liabilities or obligations under Contracts listed in the Schedules to this
Agreement or under Contracts that are not required to be disclosed therein (but
not liabilities for breaches thereof).
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8,
--------------------------- ------------
since the Balance Sheet Date, the Company (which term includes each Subsidiary
for purposes of this Section) has conducted its business in the ordinary course,
consistent with past practice and there has not been (a) any Material Adverse
Effect or any event or condition (other than events or conditions affecting the
Company's industry generally and which have been publicly reported) which could
reasonably be expected to have such a Material Adverse Effect, (b) any waiver or
cancellation of any material right of the Company, or the cancellation of any
material debt or claim held by the Company, (c) any payment, discharge or
satisfaction of any claim, liability or obligation of the Company other than in
the ordinary course of business, (d) any Encumbrance upon the assets of the
Company other than any Permitted Encumbrance (as defined in Section 2.30), (e)
any declaration or payment of dividends on, or other distribution with respect
to, or any direct or indirect redemption or acquisition of, any securities of
the Company, (f) any issuance of any stock, bonds or other securities of the
Company, (g) any sale, assignment or transfer of any tangible or intangible
assets of the Company except in the ordinary course of business, (h) any loan by
the Company to any officer, director, employee, consultant or shareholder of the
Company (other than advances to such persons in the ordinary course of business
in connection with travel and travel related expenses), (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the assets, property, financial condition or results of
operations of the Company, (j) any increase, direct or indirect, in the
compensation paid or payable to any officer or director of the Company or, other
than in the ordinary course of business, to any other employee, consultant or
agent of the Company, (k) any change in the accounting or tax methods, practices
or policies, or of any material tax election of the Company, (l) any
indebtedness incurred for borrowed money by the Company other than in the
ordinary course of business, (m) any amendment to or termination of any material
agreement to which the Company is a party other than the expiration of any such
agreement in accordance with its terms, (n) any change of which either (i) the
Company has received notice or (ii) otherwise has knowledge with respect to the
regulation of the Company or its activities by any administrative agency or
governmental body to the extent such change has had or could reasonably be
expected to
6
<PAGE>
have a Material Adverse Effect, (o) any material change in the manner of
business or operations of the Company (including, without limitation, any
accelerations or deferral of the payment of accounts payable or other current
liabilities or deferral of the collection of accounts or notes receivable), (p)
any capital expenditures or commitments therefor by the Company that aggregate
in excess of $100,000, (q) except for any amendments to the Company's
certificate of incorporation and by-laws required in connection with the
transactions contemplated by this Agreement, any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company, (r) any
transaction entered into by the Company other than in the ordinary course of
business or any other material transaction entered into by the Company whether
or not in the ordinary course of business, or (s) any agreement or commitment
(contingent or otherwise) by the Company to do any of the foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
-----------
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery by
the Company of the Series E Preferred Stock and the Conversion Shares) will not
(a) (relying, in part, upon the representations and warranties of the Investors
and the Additional Investors in Article III) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it or the Subsidiaries, or any of their respective properties or assets; (b)
except as listed on Schedule 2.9 conflict with or result in any breach of any of
------------
the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
Encumbrance upon any of its or the Subsidiaries' properties or assets under, any
Contract to which it or the Subsidiary is a party; or (c) violate its or the
Subsidiaries' certificate of incorporation or by-laws or other organizational
documents.
2.10. Agreements
----------
(a) Except as set forth on Schedule 2.10, the Company (which term includes
-------------
the Subsidiaries for purposes of this Section) is not a party to any contract,
agreement, indenture, mortgage, guaranty, lease, license or understanding,
written or oral (a "Contract"), other than any Contract which (i) pursuant to
--------
its terms, has expired, been terminated or fully performed by the parties, and
in each case, under which the Company has no liability, contingent or otherwise,
or (ii) involves monthly payments to or from the Company (as opposed to an
indemnity agreement or similar contract under which the Company has any
contingent liability) which monthly payments do not aggregate on an annual basis
to $50,000 or more, and in each case, is not material to the business or
financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been made available to each Investor. Each of such Contracts is,
as of the date hereof, and will continue to be at and after the Closing, a
legal, valid, and binding obligation of, enforceable against, and in full force
and effect
7
<PAGE>
against, the Company and, to the best knowledge of the Company, the other
parties thereto. There is no breach, violation or default by the Company and no
event (including, without limitation, the consummation of the transactions
contemplated by the Documents except as listed on Schedule 2.9) which, with
notice or lapse of time or both, would (i) constitute a breach, violation or
default by the Company under any such Contract or (ii) give rise to any lien or
right of termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration against the Company under any such
Contract. To the best of the Company's knowledge, except as set forth on
Schedule 2.10, no other party to any of such Contracts is in arrears in respect
of the performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts, no waiver or indulgence has
been granted by any of the parties thereto and no party to any of such Contracts
has repudiated any provision thereof.
2.11. Patents, Trademarks, etc. To the Company's best knowledge, the
------------------------
Company and the Subsidiaries own, possess or have the right to use pursuant to
license, sublicense, agreement or permission all patents, inventions,
trademarks, service marks, trade names, whether registered or otherwise,
together with all goodwill associated therewith, copyrights, licenses,
information, proprietary rights, and processes, including the TelWeb Customer
Communications Data System, as listed on Schedule 2.11, necessary for the lawful
-------------
conduct of their business as now conducted, without any infringement of or
conflict with the rights of others. The TelWeb Customer Communications Data
System is owned by the Company and none of it is licensed from other persons.
Except as set forth in Schedule 2.11, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing intellectual
property rights, nor is the Company or any Subsidiary bound by or a party to any
options, licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Except as set forth on Schedule 2.11, the Company and the Subsidiaries have not
received any communications alleging that the conduct of the Company's or any
Subsidiaries' business infringes or conflicts with the rights of others under
patents, trademarks, copyrights and trade secrets. To the best of the Company's
knowledge, except as set forth in Schedule 2.11, the Company's and each
Subsidiary's business as now conducted and as proposed to be conducted will not
infringe or conflict with the rights of others, including rights under patents,
trademarks, copyrights and trade secrets. The Company's computer systems and
software are "year 2000 compliant" in all material respects.
2.12. Equity Investments; Subsidiaries. Except as set forth in Schedule
-------------------------------- --------
2.12, the Company has no Subsidiaries and has never owned, and does not
- ----
presently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any company, association, trust,
partnership, joint venture or other entity. For purposes of this Agreement, the
term "Subsidiary" means, with respect to any person, any company, partnership or
----------
other entity (a) of which shares of capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such company, partnership or other entity are at
the time owned or controlled, directly or indirectly, by such person or (b) the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries by such person.
8
<PAGE>
2.13. Corporate Minute Books. The corporate records of the Company are
----------------------
correct and complete. True and correct copies of all minutes of meetings or
other actions by the directors, stockholders or incorporators of the Company
since its inception have previously been provided to the Investors.
2.14. Suitability. To the best knowledge of the Company, none of the events
-----------
described in Item 401(f) of Regulation S-K under the Securities Act of 1933, as
amended (the "Securities Act"), has occurred during the last five years with
--------------
respect to any director or officer of the Company.
2.15. Assets
------
(a) The Company (which term includes each Subsidiary for purposes of this
Section) has good and marketable title, or a valid leasehold interest in or
contractual right to use, all of its assets and properties, free and clear of
any Encumbrances except (i) as disclosed in Schedule 2.15(a), (ii) Encumbrances
----------------
for taxes not yet due and payable, (iii) Encumbrances set forth on Schedule
2.15(a) for taxes and charges and other claims, the validity of which the
Company is contesting in good faith or (iv) Permitted Encumbrances. The assets
and properties owned by, or leased to, the Company are sufficient for the
conduct of the business and operation of the Company as presently conducted and
as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings, facilities,
----------------
machinery, equipment, furniture, leasehold and other improvements, fixtures,
vehicles, structures, any related capitalized items and other tangible property
owned by, or leased to the Company, as of the date hereof, (i) are to the
Company's best knowledge without investigation, in good operating condition and
repair (normal wear and tear excepted) and (in the case of buildings or
structures located on the Real Properties (as defined in Section 2.31)) free of
any structural or engineering defects and (ii) to the Company's best knowledge,
are suitable for their current use.
(c) Except as set forth on Schedule 2.15(c), the Company has not received
----------------
notice of, and has no knowledge of, any pending, threatened or contemplated
condemnation proceeding or similar taking affecting the assets of the Company
(including the Real Properties).
2.16. Employee Benefit Plans
----------------------
(a) Schedule 2.16 hereto contains a true and complete list of (i) each
-------------
plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefore, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is now or previously has been sponsored, maintained, contributed to or required
to be contributed to by the Company (which includes each Subsidiary for purposes
of this Section) or pursuant to which the Company has any liability, contingent
or otherwise, including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act
9
<PAGE>
of 1974, as amended ("ERISA") (each, a "Company Benefit Plan"); and (ii) each
----- --------------------
management, employment, bonus, option, equity (or equity related), severance,
consulting, non compete, confidentiality or similar agreement or contract,
pursuant to which the Company has any liability, contingent or otherwise,
between the Company and any current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Company (an
"Employee") (each, an "Employee Agreement"). Except as identified on Schedule
-------- ------------------
2.16, neither the Company nor any ERISA Affiliate (as defined in 2.16(b))
currently sponsors, maintains, contributes to, or is required to contribute to,
nor has the Company ever sponsored, maintained, contributed to or been required
to contribute to, or incurred any liability to, (i) any "multiemployer plan" (as
defined in ERISA Section 3(37)) or (ii) any Company Benefit Plan which provides,
or has any liability to provide, life insurance, medical, severance or other
employee welfare benefits to any Employee upon his or her retirement or
termination of employment, except as required by Section 4980B of the Internal
Revenue Code ("Code"). Neither the Company nor any of the entities set forth on
Schedule 2.16(a) has or has had any ERISA Affiliates other than the Company or
- ----------------
any of such entities.
(b) An "ERISA Affiliate" is defined as any entity that is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with, or
under "common control" with, or a member of an "affiliated service group" with,
or otherwise required to be aggregated with, the Company or any entity listed on
Schedule 2.16(a) as set forth in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(a)(14) of ERISA.
(c) The Company has made available to each Investor current, accurate and
complete copies of all documents embodying or relating to each Company Benefit
Plan and each Employee Agreement, including all amendments thereto, trust or
funding agreements relating thereto (if any), the two most recent annual reports
(Series 5500 and related schedules) required under ERISA (if any), summary
annual reports, the most recent determination letter (if any) received from the
Internal Revenue Service ("IRS"), the most recent summary plan description (with
---
all material modifications) (if any), and if the Company Benefit Plan is funded,
the most recent annual and periodic accounting of Company Benefit Plan assets,
and has made available to each Investor all material communications to any
Employee or Employees relating to any Company Benefit Plan or Employee
Agreement.
(d) With respect to each Company Benefit Plan (i) the Company and each
ERISA Affiliate has performed all obligations required to be performed by it
under each Company Benefit Plan and Employee Agreement and neither the Company
nor any ERISA Affiliate is in default under or in violation of, any Company
Benefit Plan, (ii) each Company Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department; (iii) each Company Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant
10
<PAGE>
to Section 501(a) of the Code and no circumstances exist which would adversely
affect this qualification or exemption; (iv) no "prohibited transaction," within
the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Company Benefit Plan; (v) no action or failure to act and no
transaction or holding of any asset by, or with respect to, any Company Benefit
Plan has or, under currently applicable laws and regulations, may subject the
Company or any ERISA Affiliate or any fiduciary to any tax, penalty or other
liability, whether by way of indemnity or otherwise; (vi) there are no actions,
proceedings, arbitrations, suits or claims pending, or to the best knowledge of
the Company and any ERISA Affiliate, threatened or anticipated (other than
routine claims for benefits) against the Company or any ERISA Affiliate or any
administrator, trustee or other fiduciary of any Company Benefit Plan with
respect to any Company Benefit Plan or Employee Agreement, or against any
Company Benefit Plan or against the assets of any Company Benefit Plan; (vii) no
event or transaction has occurred with respect to any Company Benefit Plan that
would result in the imposition of any tax under Chapter 43 of Subtitle D of the
Code; (viii) each Company Benefit Plan can be amended, terminated or otherwise
discontinued without liability to the Company or any ERISA Affiliate; (ix) no
Company Benefit Plan is under audit or investigation by the IRS, the Department
or the PBGC, and to the best knowledge of the Company and any ERISA Affiliate,
no such audit or investigation is pending or threatened.
(e) The execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) (i) constitute an event under any Company Benefit Plan or
Employee Agreement that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee, or (ii) result in the triggering or imposition of any
restrictions or limitations on the right of the Company or the Investors to
amend or terminate any Company Employee Plan and receive the full amount of any
excess assets remaining or resulting from such amendment or termination, subject
to applicable taxes. Except as set forth in Schedule 2.16(e), no payment or
----------------
benefit which will or may be made by the Company or the Investors or any of
their respective affiliates with respect to any employee of the Company will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(f) With respect to each Company Benefit Plan (other than a multi-employer
plan) which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Pension Plan"), (i) no steps have been taken to terminate any
------------
Pension Plan now maintained or contributed to, no termination of any Pension
Plan has occurred pursuant to which all liabilities have not been satisfied in
full, no liability under Title IV of ERISA has been incurred by the Company or
any ERISA Affiliate which has not been satisfied in full, and no event has
occurred and no condition exists that could reasonably be expected to result in
the Company or any ERISA Affiliate incurring a liability under Title IV of ERISA
or could constitute grounds for terminating any Pension Plan; (ii) no proceeding
has been initiated by the PBGC to terminate any Pension Plan or to appoint a
trustee to administer any Pension Plan; (iii) each Pension Plan which is subject
to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code, has been
maintained in compliance with the minimum funding standards of ERISA and the
Code and no such Pension Plan has incurred any
11
<PAGE>
"accumulated funding deficiency," as defined in Section 412 of the Code and
Section 302 of ERISA, whether or not waived; (iv) neither the Company or any
ERISA Affiliate has sought nor received a waiver of its funding requirements
with respect to any Pension Plan and all contributions payable with respect to
each Pension Plan have been timely made; (v) no reportable event, within the
meaning of Section 4043 of ERISA, and no event described in Section 4062 or 4063
of ERISA, has occurred with respect to any Pension Plan; and (vi) the present
value of all accrued benefits of each Pension Plan, determined on a plan
termination basis using the actuarial assumptions established by the PBGC as in
effect on the date of determination, does not as of the date hereof and will not
as of the Closing exceed the fair market value of the assets (which for this
purpose shall not include any accrued but unpaid contributions) of such Pension
Plan.
(g) Immediately following the Closing, the Company will be primarily
engaged, directly or through a Subsidiary or Subsidiaries, in the production or
sale of a product or service other than the investment of capital within the
meaning of Department of Labor Regulation (S) 2510.3-101(c), (d) or (e).
2.17. Labor Relations; Employees
--------------------------
(a) Schedule 2.17(a) lists all employees of the Company (which term
----------------
includes each Subsidiary for purposes of this Section) with an annual salary in
excess of $40,000. Except as set forth on Schedule 2.17(a), (i) the Company is
not delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or material amounts required to be reimbursed by them to the
date hereof, (ii) the Company is in material compliance with all applicable
federal, state and local laws, rules and regulations respecting employment,
employment practices, labor, terms and conditions of employment and wages and
hours, (iii) the Company is not bound by or subject to (and none of its assets
or properties is bound by or subject to) any written or oral, express or
implied, commitment or arrangement with any labor union, and no labor union has
requested or, to the best knowledge of the Company, has sought to represent any
of the employees, representatives or agents of the Company, (iv) there is no
labor strike, dispute, slowdown or stoppage actually pending, or, to the best
knowledge of the Company, threatened against or involving the Company, and (v)
to the best knowledge of the Company, no salaried key employee has any plans to
terminate his or her employment with the Company. Each of the officers of the
Company, each key employee and each other employee and consultant now employed
or retained by the Company who has access to confidential information of the
Company has executed a confidentiality agreement, and such agreements are in
full force and effect.
(b) Except as set forth on Schedule 2.17(b), the Company is not a party to
----------------
or bound by any employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To the best knowledge of the Company, there has
been no breach, violation or default by any party under the agreements listed on
Schedule 2.17(b).
12
<PAGE>
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there
------------------ -------------
is no civil, criminal, administrative or regulatory action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, regulator, arbitrator or similar panel, governmental instrumentality
or other agency now pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or the assets or the business of
the Company or any of its Subsidiaries. Except as set forth in Schedule 2.18,
neither the Company nor any of its Subsidiaries is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
2.19. Compliance with Laws; Permits. Except as provided in Schedule 2.19,
----------------------------- -------------
the Company (which term includes each Subsidiary for purposes of this Section)
(a) has complied in all material respects with all federal, state, local and
foreign laws, rules, ordinances, codes, consents, authorizations, registrations,
regulations, decrees, directives, judgments and orders applicable to it and its
business (including, without limitation, the Telephone Consumer Protection Act
of 1991 and the Federal Telemarketing and Consumer Fraud and Abuse Prevention
Act of 1994), and (b) has all federal, state, local and foreign governmental
licenses, permits and authorizations necessary in the conduct of its business as
currently conducted (including, without limitation, any state teleservice
industry registration requirements), such licenses, permits and qualifications
are in full force and effect, and no violations (other than violations notice of
which has not been received by the Company) have been recorded in respect of any
such licenses, permits and qualifications, and no proceeding is pending or, to
the best knowledge of the Company, threatened to revoke or limit any such
license, permit or qualification. Schedule 2.19 sets forth a list of all such
licenses, permits and authorizations, and the expiration dates thereof.
2.20. Offering Exemption. Assuming the accuracy of the representations and
------------------
warranties contained in Section 3 hereof, the offer and sale of the Series E
Preferred Stock to the Investors and the Additional Investors as contemplated
hereby and the issuance and delivery of the Conversion Shares to the Investors
and the Additional Investors upon the conversion of the Series E Preferred Stock
are each exempt from registration under the Securities Act and under applicable
state securities and "blue sky" laws, each as currently in effect.
2.21. Related Transactions
--------------------
(a) Except as set forth on Schedule 2.21(a), no current stockholder,
----------------
director, officer or employee of the Company, or any "affiliate" or "associate"
(as such terms are defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of any of the foregoing persons or the
------------
Company is presently, or during the past five years has been, directly or
indirectly, a party to any agreement, transaction or series of similar
transactions with the Company or any of its Subsidiaries, other than in
connection with any such person's duties as a director, officer or employee of
the Company or a Subsidiary.
13
<PAGE>
(b) Each ongoing intercompany transaction set forth on Schedule 2.21(a), if
any, is on terms that are (i) consistent with the past practice of the Company
and (ii) at least as favorable to the Company or the Subsidiary as would be
available with independent third parties dealing at arms' length.
2.22. Disclosure. Neither this Agreement nor any certificate, instrument or
----------
written statement furnished or made to any Investor or any Additional Investor
by or on behalf of the Company in connection with this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
There is no fact which the Company has not disclosed to any Investor or any
Additional Investor or its respective counsel in writing and of which the
Company is aware which materially and adversely affects or which could
reasonably be expected to materially and adversely affect the business,
financial condition, operations, property or affairs of the Company or the
ability of the Company to perform its obligations under the Documents. All
projections delivered to the Investors and the Additional Investors in
connection with this Agreement were prepared in good faith, but are not
guarantees of future performance.
2.23. Taxes
-----
(a) Except as set forth on Schedule 2.23(a), (i) the Company (and for
----------------
each Affiliated Period, each Affiliated Group of which the Company was a member)
has timely filed all Tax Returns (as such terms are defined below) required by
law to have been filed by it and has timely paid all Taxes required to be paid
by it including, without limitation, any Tax for which a notice of assessment or
demand for payment has been received by the Company (and for each Affiliated
Period, each Affiliated Group of which the Company was a member), (ii) all Tax
Returns filed by the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) were complete and correct in all
material respects and (iii) all amounts required to be collected or withheld by
the Company have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are adequate to cover any such liability in accordance
with GAAP. If the Company files its Tax Returns for its taxable year which
includes the date hereof, in conformance with its past practices and tax
reporting, to the best knowledge of the Company, there will be no basis for any
material adverse audit adjustments with respect to the Company under any of the
provisions of the Code, or any provisions of state, local or foreign tax law,
with respect to operations and activities of the Company during the period that
began on January 1, 1999 and ends on the date hereof. "Taxes," for purposes of
-----
this Agreement, means any taxes, assessments, duties, fees, levies, imposts,
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium,
14
<PAGE>
windfall profits, transfer and gains taxes, or other governmental charges of any
nature whatsoever imposed by any government or taxing authority of any country
or political subdivision of any country and any liabilities with respect
thereto, including any penalties, additions to tax, fines or interest thereon,
and includes any liability of the Company arising under any tax sharing
agreement to which the Company is or has been a party. For purposes of this
Agreement, (i) "Affiliated Group" shall mean any affiliated group within the
----------------
meaning of the Code (S) 1504(a) (or any similar group defined under a similar
provision of state, local or foreign law), (ii) "Affiliated Period" shall mean
-----------------
each taxable period during which the Company was a member of an Affiliated Group
for all or part of such period, and (iii) "Return" shall mean any report,
------
return, statement, estimate, declaration, notice, form or other information
required to be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.23(b) contains a list of states, territories and
----------------
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.23(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Tax Returns with respect to
which an audit or examination is in progress or with respect to which a written
notification of intent to audit or examine has been received by the Company (and
for each Affiliated Period, each Affiliated Group of which the Company was a
member) from the IRS or any other taxing authority that relate to Taxes for
which the Company (and for each Affiliated Period, each Affiliated Group of
which the Company was a member) could be liable, (iii) no taxing authority in a
jurisdiction where the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) does not file Tax Returns has made a
claim, assertion or threat that such non-filing entity is or may be subject to
taxation by such jurisdiction, (iv) the Company has not been a member of a
consolidated, combined or unitary group for federal or state income tax
purposes, (v) the Company is not a party to any Tax allocation or sharing
agreement and (vi) the Company does not have any liability for the Taxes of any
person as a transferee or successor or by contract.
2.24. Environmental Protection. Except as set forth on Schedule 2.24(a),
------------------------ ----------------
the Company (which term includes each Subsidiary for purposes of this Section)
has been operated at all times, and is, in material compliance with all
applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.24(b), the Company has obtained, is in material compliance with,
----------------
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
---------------------
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.24(c), there are no claims, notices, civil, criminal or
- ----------------
administrative actions, suits, hearings, investigations, inquiries or
proceedings of which the Company has received notice or otherwise should or has
reason to have knowledge pending or, to the knowledge of the
15
<PAGE>
Company, threatened against the Company, and no requests from any governmental
authority to perform any investigatory or remedial activity have been made to
the Company, that are based on or related to any actual or alleged release of
Hazardous Substances or any other Environmental Matters or the failure to have
any required Environmental Permits. Except as set forth on Schedule 2.24(d),
----------------
there are no past or present conditions, events, circumstances, facts,
activities, practices, incidents, actions or omissions of the Company or its
predecessors that (i) may give rise to any liability or other obligation under
any past, current or proposed Environmental Laws that may require the Company to
incur any material Environmental Costs, (ii) may form the basis of any claim,
action, suit, proceeding, hearing, investigation or inquiry against the Company
that may require the Company to incur any material Environmental Costs, or (iii)
may interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on Schedule
--------
2.24(e), to the knowledge of the Company there are no (and have never been any)
- -------
underground or aboveground storage tanks, incinerators or surface impoundments
at, on, under, about, or within any Owned Real Property or Leased Real Property.
Except as set forth on Schedule 2.24(f), the Company has not received any notice
----------------
(written or oral) or other communication that the Company is or may be a
potentially responsible party or otherwise liable in connection with any waste
disposal site allegedly containing, or other location used for the disposal of,
any Hazardous Substances. Schedule 2.24(g) contains a list of all sites or
----------------
locations used by or on behalf of the Company for the disposal of any waste
containing Hazardous Substances.
For the purposes of this Section 2.24, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
-------------------
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including without limitation any actual, punitive
or consequential damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement, arising out of,
relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Clean Water
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
Transportation Act, 49
16
<PAGE>
U.S.C. (S)(S) 1801, et seq., as any of the above statutes have been or may be
amended from time to time, all rules and regulations promulgated pursuant to any
of the above statutes, and any other foreign, federal, state or local law,
statute, ordinance, rule or regulation governing Environmental Matters, as the
same have been or may be amended from time to time, including any common law
cause of action providing any right or remedy relating to Environmental Matters,
all indemnity agreements and other contractual obligations (including without
limitation leases, asset purchase agreements and merger agreements) relating to
environmental matters, and all applicable judicial and administrative decisions,
orders, and decrees relating to Environmental Matters.
"Environmental Matter" shall mean any matter arising out of, relating to,
--------------------
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air (indoor or outdoor), surface water,
groundwater, soil, buildings, facilities, real or personal property or fixtures,
or otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
"Hazardous Substances" shall mean any pollutants, contaminants, substances,
--------------------
materials, wastes, constituents, compounds, chemicals, natural or man-made
elements or forces (including, without limitation, petroleum or any by-products
or fractions thereof, any form of natural gas, lead, asbestos or
asbestos-containing materials ("ACM"), building construction materials and
debris, polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon
and other radioactive elements, electromagnetic field and other types of
radiation, sonic forces, infectious, carcinogenic, mutagenic, or etiologic
agents, pesticides, defoliants, explosives, flammables, corrosives and urea
formaldehyde foam insulation) that are regulated by, or may now or in the future
form the basis of liability under, any Environmental Laws.
2.25. Consents. Except as set forth on Schedule 2.25, and assuming the
-------- -------------
accuracy and completeness of the representations and warranties of the Investors
and the Additional Investors set forth in Article III hereof, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by the Company of the Documents or any
documentation relating thereto, the consummation by the Company of the
transactions contemplated hereby or thereby, or the issuance, sale or delivery
to the Investors and the Additional Investors of the Series E Preferred Stock
and the Conversion Shares, except for a filing with the Securities and Exchange
Commission of a Form D pursuant to Regulation D of the Securities Act, and
corresponding filings with certain state securities regulatory authorities.
2.26. Insurance. Substantially all of the assets of the Company (which term
---------
includes each Subsidiary for purposes of this Section) that are of insurable
character (including all material assets of the Company that are of insurable
character) are covered by insurance with reputable insurers against risks of
liability, casualty and fire and other losses and liabilities customarily
obtained to cover comparable businesses and assets in amounts, scope and
coverage which are consistent with
17
<PAGE>
prudent industry practice and sufficient in amount to allow it to replace any of
its properties which might be damaged or destroyed. The Company is not in
default with respect to its obligations under any material insurance policy
maintained by it. Schedule 2.26 sets forth a list of all insurance coverage
-------------
carried by the Company, the carrier and the terms and amount of coverage. All
such policies and other instruments are in full force and effect and all
premiums with respect thereto have been paid. The Company has not failed to give
any notice or present any claim under any such insurance policy in due and
timely fashion or as required by any of such insurance policies or has not
otherwise, through any act, omission or non-disclosure, jeopardized or impaired
full recovery of any claim under such policies, and there are no claims by the
Company under any of such policies to which any insurance company is denying
liability or defending under a reservation of rights or similar clause. The
Company has not received notice of any pending or threatened termination of any
of such policies or any premium increases for the current policy period with
respect to any of such policies and the consummation of the transactions
contemplated by this Agreement will not result in any such termination or
premium increase.
2.27. Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as otherwise
--------------- -------------
expressly contemplated by this Agreement, the Company is not required pursuant
to any Contract or otherwise to apply the proceeds received from the Investors
or the Additional Investors pursuant to the transactions contemplated hereby in
any specified manner.
2.29. Previous Issuances Exempt. All shares of capital stock and other
-------------------------
securities issued by the Company prior to the Closing have been issued in
transactions exempt from registration under the Securities Act, and all
applicable state securities or "blue sky" laws. The Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
Securities Act.
2.30. Real Property. Schedule 2.30 lists all real property owned or leased
------------- -------------
by the Company (which term includes each Subsidiary for purposes of this
Section). The Company has title to its owned real properties (collectively, the
"Owned Real Properties") in each case, free and clear of all imperfections of
---------------------
title and all Encumbrances, except for (a) those consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of such property or irregularities in title thereto which,
individually and in the aggregate, do not materially impair the use of such
property, (b) warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Encumbrances arising in the ordinary course of business and
securing obligations not yet due and payable, (c) other Encumbrances which arise
in the ordinary course of business and which individually and in the aggregate
do not materially impair its use of such property or its ability to
18
<PAGE>
obtain financing by using such asset as collateral (encumbrances referenced in
clauses (a), (b) and (c), collectively referred to as the "Permitted
---------
Encumbrances") and (d) Encumbrances listed on Schedule 2.30. The Company has
- ------------ -------------
leasehold title to its leased real properties (collectively, the "Leased Real
-----------
Properties," together with the Owned Real Properties, the "Real Properties"),
- ---------- ---------------
and, in each case, has not taken or failed to take any action that would result
in the creation of any Encumbrance with respect to any Leased Real Property. To
the best knowledge of the Company without investigation, other than as described
on Schedule 2.30, there are no intended public improvements which will result in
any charge being levied against, or in the creation of any Encumbrances upon,
the Leased Real Properties or any portion thereof. To the best knowledge of the
Company without investigation, there are no options, rights of first refusal,
rights of first offer or other similar rights with respect to the Real
Properties. With respect to each lease of Real Property to which the Company is
a party, so long as the Company performs all of its obligations under such lease
for Real Property within applicable notice and grace periods, (x) the rights of
the Company under such lease shall not be terminated and (y) to the best
knowledge of the Company, the Company's possession of such Real Property and the
use and enjoyment thereof shall not be disturbed by any landlord, overlandlord,
mortgagee or other superior party. Except as set forth on the Schedule 2.30, the
Company is not obligated to purchase any Leased Real Property and no leased Real
Property is required to be accounted for under GAAP as a capitalized lease.
2.31. Accounts Receivable. The accounts receivable and notes receivable
-------------------
reflected on the books and records of the Company and each Subsidiary were and
are bona fide accounts receivable and notes receivable created in the ordinary
and usual course of business in connection with bona fide transactions and
consistent with past practice.
2.32. Investment Banking Services. Except as set forth in Schedule 2.32,
--------------------------- -------------
neither the Company nor any Subsidiary is a party to any Contract which grants
rights to any third party with respect to the performance of investment banking
services for it, including, without limitation, with respect to its sale or a
public offering, including an initial public offering, of its securities.
2.33. Registration Rights. Except as required by the Investor Registration
-------------------
Rights Agreement or as set forth on Schedule 2.33, the Company has no
-------------
obligations with respect to registration under the Securities Act of any of its
currently outstanding securities or any of its securities which may hereafter be
issued.
2.34. Material. When the term "material" or "materially" is used in this
--------
Article II, it is in reference to the Company and its Subsidiaries on an
aggregate, consolidated basis.
2.35 Spider Spin-Off. Unless stated to the contrary in the CEO Certificate,
---------------
the spin-off of Spider Technologies, Inc. as contemplated in Section 4.4 hereof
has not occurred, nor has a record date for such spin-off been set, as of the
Closing or the Subsequent Closing, as the case may be.
III. Representations and Warranties of the Investors and the Additional
Investors
19
<PAGE>
Each Investor, jointly and severally, represents and warrants to the
Company as follows as of the date hereof and the Closing Date, and each
Additional Investor, severally but not jointly, represents and warrants to the
Company as follows as of the date of the relevant Subsequent Closing (for
purposes of this Article III, the term "Investor" shall refer to each Investor
--------
and to each Additional Investor, as applicable):
3.1. Investment Representations.
--------------------------
(a) Such Investor (or its advisors) is a sophisticated investor with
sufficient financial experience to assess the risks of investing in the Company
and purchasing Series E Preferred Stock, and is acquiring the Series E Preferred
Stock to be purchased by it under this Agreement for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act. Such Investor was not formed for the purpose of acquiring
Series E Preferred Stock or otherwise to invest in the Company.
(b) Such Investor understands that (i) except as provided in the
Investor Registration Rights Agreement applicable to it, the Series E Preferred
Stock has not been, and that the Conversion Shares will not be, registered under
the Securities Act or any state securities laws, by reason of their issuance by
the Company in a transaction exempt from the registration requirements thereof
and (ii) the Series E Preferred Stock and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from registration thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Except as set forth on Schedule 3.1(d), such Investor has not
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
3.2. Due Authorization, Etc.
----------------------
(a) The Investor is validly existing under the laws of the state or
country of its organization (as set forth opposite its name on the signature
pages herein), is resident in the state or country so indicated on such
signature pages and has all power and authority to enter into and perform each
of the Documents to which it is a party. Each of the Documents to which it is a
party has been duly authorized by all necessary action on the part of the
Investor. Each of the Documents to which it is a party constitutes a valid and
binding agreement of the Investor enforceable against
20
<PAGE>
the Investor in accordance with its terms except to the extent that
enforceability may be limited by principles of equity, bankruptcy, insolvency or
other similar laws affecting rights generally.
(b) The execution, delivery and performance by the Investor of each of
the Documents to which it is a party and the consummation by the Investor of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets if such violation would materially
adversely affect the ability of the Investor to consummate the transactions
contemplated thereby or (ii) violate its organizational documents.
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by the Investor of
each of the Documents to which it is a party or any documentation relating
thereto, or the consummation by the Investor of the transactions contemplated
thereby.
3.3. USITF, Encompass and TCI Solely. Each of USITF, Encompass and TCI
-------------------------------
hereby represent and warrant that (i) USITF and Encompass are each affiliates of
and controlled by TCI, and (ii) its principal office is in the State of
Washington.
IV. Certain Covenants
4.1. Operation of the Business Prior to the Closing. Except as contemplated
----------------------------------------------
by the Documents or the Restated Certificate, during the period between the date
of this Agreement and the Closing, without the prior written consent of TCI, the
Company shall:
(a) except as otherwise allowed or required pursuant to the terms of
this Agreement, conduct its business and operations only in the ordinary course
in a manner consistent with past practice;
(b) use best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations and good will with all material
suppliers, customers, licensers, licensees, landlords, trade creditors,
Employees, agents, and others having material business relationships with the
Company or a Subsidiary;
(c) confer with the Investors concerning operational matters of a
material nature;
(d) maintain in full force and effect the insurance described in
Section 2.26 or insurance providing at least comparable coverage;
21
<PAGE>
(e) maintain all the properties and assets of the business and
operations of the Company and the Subsidiaries in the ordinary course consistent
with past practice;
(f) maintain its books and records in the usual, regular and ordinary
manner, on a basis consistent with prior years;
(g) perform and comply with its and the Subsidiaries' obligations
under all Contracts in the ordinary course of business, consistent with past
practice;
(h) furnish to the Investors copies of all financial statements and
certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity; and
(i) report periodically to the Investors concerning the status and
operation of the business and operations of the Company.
Notwithstanding the foregoing, the provisions of this Section shall in no
event apply after April 15, 1999 even if the Closing has not occurred by that
date for any reason.
4.2. Third Party Consents Prior to the Closing. Prior to the Closing and to
-----------------------------------------
each Subsequent Closing, the Company shall use commercially reasonable efforts
to obtain all consents required from third parties which are party to Contracts
with the Company or its Subsidiaries to the transactions contemplated by the
Documents as to the transactions to occur at that closing.
4.3. Access to Records Prior to the Closing. During the period commencing
--------------------------------------
on the date of this Agreement and continuing through the Closing, the Company
shall (i) afford to each Investor and its representatives full access, during
normal business hours, upon reasonable advance notice, with due regard to its
ongoing operations, to the personnel, properties, contracts, books and records,
and other documents and data of the Company, (ii) furnish each Investor and its
representatives with copies of all such contracts, books and records (including,
but not limited to, Tax Returns), and other existing documents and data as each
Investor and its representatives may reasonably request, and (iii) furnish each
Investor and its representatives such additional financial, operating, and other
data and information as each Investor and its representatives may reasonably
request. No investigation or receipt of information shall affect any
representation or warranty of the Company contained in this Agreement or the
conditions to the obligations of the Investors specified in this Agreement.
4.4. Project Spinner. In the event that the Closing or any Subsequent
---------------
Closing occurs on or before the spin-off of the Company's proposed subsidiary,
Spider Technologies, Inc. ("Spider"), each Investor and each Additional
------
Investor, as the case may be, shall participate (on a pro rata basis) in the
Company's distribution of the securities of Spider. In the event that a
Subsequent Closing occurs after the spin-off, each Additional Investor
participating in such Subsequent Closing may receive from the Company, in the
discretion of the Company, that number of
22
<PAGE>
shares of the capital stock of Spider (or a warrant or other security
convertible into or exercisable for such number of shares of the capital stock
of Spider) such that the number of shares of Spider held by each such Additional
Investor shall be substantially similar (on a fully diluted basis) to the number
of shares that each such Additional Investor would have received in the spin-off
had such Subsequent Closing occurred prior to the spin-off. There can be no
assurance that the spin-off will occur.
4.5. Use of Proceeds. The Company shall use the proceeds from the sale to
---------------
the Investors of the Series E Preferred Stock hereunder in connection with the
development of its Spider technology, as a loan and/or capital contribution to
Spider and for working capital purposes.
V. Survival of Representations, Warranties, Agreements and Covenants, Etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 7.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved) and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of any Investor; provided, however, (x) the representations and
-------- -------
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 3.1 and 3.2 and the
final sentence of Section 2.16(a) shall survive the Closing indefinitely and (y)
the representations and warranties set forth in Sections 2.19, 2.20, 2.23, 2.24
and 2.28 shall survive the Closing until the expiration of the applicable
statute of limitations (except to the extent a Claim Notice shall have been
given prior to such date with respect to a breach of a representation and
warranty, in which case such representation and warranty shall survive until
such claim is resolved). All agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
VI. Expenses
Each party hereto shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby; provided that, notwithstanding the foregoing,
the Company shall pay to the Investors (including if the Company fails to Close
the Purchase other than due to a failure of a condition to its obligation to so
Close, or if the Investors do not Close the Purchase due to a breach hereof by
the Company) an amount in cash equal to the lesser of (i) 100% of the Investors'
out of pocket fees and expenses (including, without limitation, fees and
disbursements of the Investors' attorneys, accountants and consultants) incurred
in connection with the Investors' due diligence review of the Company and the
negotiation and execution of the Documents and the transactions contemplated
thereby and (ii) $20,000 (in the aggregate). At the Company's request, the
Investors shall deliver to the Company an accounting for all costs and expenses
for which they seek reimbursement hereunder.
23
<PAGE>
VII. Indemnification
7.1. General Indemnification. The Company shall, on an after Tax basis,
-----------------------
indemnify, defend and hold each Investor and each Additional Investor, their
affiliates, their respective officers, directors, partners, members, employees,
agents, representatives, successors and assigns (each an "Investor Entity")
---------------
harmless from and against all Losses (as defined below) incurred or suffered by
an Investor Entity (whether incurred or suffered directly or indirectly through
ownership of Common Stock or Preferred Stock) in respect of its purchase of
Series E Preferred Stock under this Agreement arising or resulting from the
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in any certificate or other instrument
delivered by the Company pursuant hereto including, without limitation, the
Documents. Each Investor and each Additional Investor, severally but not
jointly, shall, on an after Tax basis, indemnify, defend and hold the Company,
its affiliates, its respective officers, directors, employees, agents,
representatives, successors and assigns harmless from and against all Losses
arising from the breach of any of its representations, warranties, covenants or
agreements in this Agreement or in any certificate or other instrument delivered
by it pursuant hereto, including, without limitation, the Documents. All claims
for indemnification for Losses arising in connection with certificates,
instruments or Documents shall be governed by and subject to this Article VII.
7.2. Indemnification Principles. For purposes of this Article VII, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses,
------
(including, without limitation, losses of earnings of the Company and its
Affiliates) liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, reasonable costs and expenses (including, without limitation,
interest that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts); and (b)
each of the representations and warranties made by any party in this Agreement
or in any certificate or other instrument delivered pursuant hereto, including,
without limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality or knowledge such
as the words "material adverse affect," "immaterial," "material," "in all
material respects" and "knowledge," "best knowledge" or "knowingly" or words of
similar import. Any indemnification payment by the Company to an Investor or an
Additional Investor pursuant to this Article VII shall include an additional
amount so that such Investor or Additional Investor suffers no Loss in respect
of its purchase of Series E Preferred Stock under this Agreement as a result of
any diminution in the book value of the stockholder's equity related to its
investment under the Agreement as a result of such indemnification payment. Any
payment by the Company to an Investor or an Additional Investor pursuant to this
Article VII, shall be treated for federal income tax purposes as an adjustment
to the price paid by such Investor or Additional Investor for the Series E
Preferred Stock pursuant to this Agreement.
7.3. Claim Notice. A party seeking indemnification under this Article VII
------------
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a
24
<PAGE>
"Claim Notice"). Each Claim Notice shall specify the nature of the claim, the
------------
applicable provision(s) of this Agreement or other instrument under which the
claim for indemnity arises, and, if possible, the amount or the estimated amount
thereof. No failure or delay in giving a Claim Notice (so long as the same is
given prior to expiration of the representation or warranty upon which the claim
is based) and no failure to include any specific information relating to the
claim (such as the amount or estimated amount thereof) or any reference to any
provision of this Agreement or other instrument under which the claim arises
shall affect the obligation of the party from whom indemnity is sought except to
the extent such party is materially prejudiced thereby.
7.4. Claim Procedure.
---------------
(a) Procedure for Indemnification with Respect to Third-Party Claims.
----------------------------------------------------------------
If any indemnified party hereunder determines to seek indemnification under this
Article VII with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the indemnified party under this
Section 7.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
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 indemnified
party unless such indemnified party shall reasonably determine that there is a
conflict of interest between or among such indemnified party and the
indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party 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 indemnified party to be indemnified hereunder in
respect of any Losses that may or do result 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, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VII shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party 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 the indemnifying party. Notwithstanding anything in this
Article VII to the contrary, (i) if there is a reasonable probability that a
claim may materially adversely affect such indemnified party, such indemnified
party shall have the right to participate in such defense, compromise, or
25
<PAGE>
settlement and the indemnifying party shall not, without such indemnified
party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any of such claims, 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
indemnified party a release from all liability in respect of such claim. With
respect to any assertion of liability by a third party that results in any claim
for indemnification hereunder, the parties hereto shall make available to each
other all relevant information in their possession material to any such
assertion. Each Investor acknowledges, and each Additional Investor
acknowledges, that a third-party claim may also result in losses to other
holders of Preferred Stock of the Company who hold similar indemnification
rights and rights to assume their defense. The Investors and the Additional
Investors shall act in good faith in such circumstances to coordinate such
defense with such holders requesting such coordination.
(b) Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that an indemnified party asserts the existence of a claim
- ------
with respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 7.4(b), 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 the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party 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.
VIII. Miscellaneous
8.1. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, the Investors and the Additional Investors, with respect to a breach by
the Company, and the Company, with respect to a breach by an Investor or an
Additional Investor, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
26
<PAGE>
8.2. Transfer Taxes. The Company agrees that it will pay, and will
--------------
hold the Investors and the Additional Investors harmless from any and all
liability with respect to any transfer, documentary, stamp or other similar
Taxes that may be determined to be payable in connection with the execution and
delivery and performance of this Agreement, and that it will similarly pay and
hold the Investors and the Additional Investors harmless from all Taxes in
respect of the issuance of the Series E Preferred Stock and the Conversion
Shares to the Investors and the Additional Investors, as applicable, each as
contemplated by this Agreement. Notwithstanding the foregoing, the Company shall
have no obligation to pay or hold any Investor or any Additional Investor
harmless with respect to any transfer, documentary, stamp or other similar Taxes
that may be determined to be payable in connection with the transfer by any
Investor or any Additional Investor, as applicable, of shares of Series E
Preferred Stock or Conversion Shares to any other person or entity.
8.3. Further Assurances. At any time or from time to time after a Closing,
------------------
the Company, on the one hand, and the Investors and the Additional Investors, on
the other hand, agree to cooperate with each other, and at the request of the
other party, to execute and deliver any further instruments or documents and to
take all such further action as the other party may reasonably request in order
to evidence or effectuate the consummation of the transactions contemplated
hereby relating to the purchases and to otherwise carry out the intent of the
parties hereunder.
8.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, the Investors and the Additional Investors,
and their respective successors, permitted assigns, heirs and personal
representatives. In addition, and whether or not any express assignment has been
made, except as otherwise expressly stated in this Agreement, the provisions of
Articles II, IV, VII, or VIII of this Agreement that are for the Investors' and
the Additional Investors' benefit as a purchaser or holder of Series E Preferred
Stock, are also for the benefit of, and enforceable by, any subsequent holder of
such Series E Preferred Stock and/or Conversion Shares. Neither this Agreement
nor any rights hereunder may be transferred prior to the Closing Date without
the written consent of the Company and TCI.
8.5. Entire Agreement. This Agreement and the other writings referred to
----------------
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or in a counterpart hereto (as the case may be) or such other
address as may hereafter be designated in writing by such party to the other
parties:
if to the Company, to:
27
<PAGE>
Intek Information, Inc.
370 17th Street
39th Floor
Denver, CO 80202-5656
Telecopy: (303) 405-8421
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
if to an Investor, to the individual at the
address set forth in the signature pages hereto:
with a copy to:
Foster, Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Telecopy: (206) 749-1975
Attention: Robert Diercks
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
8.7. Amendments. The terms and provisions of this Agreement may only be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and TCI; provided,
--------
however, that the addition of new parties to this Agreement in accordance with
- -------
the provisions hereof shall not be deemed an amendment hereof and shall not
require the consent of any party hereto.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
28
<PAGE>
8.10. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
8.11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York, the State of Delaware and of the United States
of America, in each case located in the County of New York or the County of New
Castle, Delaware, as applicable, for any action, proceeding or investigation in
any court or before any governmental authority ("Litigation") arising out of or
----------
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts). Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York, the
State of Delaware or the United States of America, in each case located in the
County of New York or the County of New Castle, Delaware, as applicable, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES ACKNOWLEDGES THAT THE
FOREGOING IS ESSENTIAL TO THE EFFECTIVE AND EFFICIENT ENFORCEMENT OF THIS
AGREEMENT (IN LIGHT OF THE COMPANY'S OTHER STOCK PURCHASE AGREEMENTS AND THE
CHOICE-OF-LAW AND CHOICE-OF-FORUM PROVISIONS CONTAINED THEREIN), AND THEREFORE
AGREES TO BE IRREVOCABLY BOUND BY THE PROVISIONS OF THIS SECTION 8.11.
8.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
8.13. Knowledge. As used herein, "knowledge of the Company" and similar
---------
phrases shall mean, in addition to actual knowledge of the Company, (a) the
actual knowledge of any officer, director or employee of the Company and (b)
with respect to any such person, knowledge that such person should have or could
reasonably be inferred to have by virtue of such person's activities,
circumstances or relationship with the Company and its business.
8.14. Termination. This Agreement may be terminated by written notice given
-----------
prior to the Closing: (a) by TCI or the Company, if the Closing has not occurred
by April 15, 1999 (other than through the failure of any party seeking to
terminate this Agreement to comply fully with such party's obligations under
this Agreement), or such later date as TCI and the Company may agree in writing,
or (b) by TCI as to the purchase of Series E Preferred Stock by it and the other
Investors hereunder, if a material breach of any of the representations,
warranties or covenants of the Company
29
<PAGE>
set forth in this Agreement has been committed between the date hereof and the
Closing, and such breach has not been either waived by TCI or cured by the
Company within 10 days after the Company's receipt of written notice thereof
from TCI. Termination of this entire Agreement pursuant to Clause (a) of this
Section 8.14 shall terminate all obligations of the parties hereto except for
the obligations under Sections 8.1, 8.6, 8.11 and 8.13 and Articles VI and VII;
provided that termination of this Agreement pursuant to this Section 8.14 (other
- --------
than clause (b) of the first sentence of this Section 8.14) shall not relieve a
defaulting or breaching party hereunder from any liability to the other parties
hereto resulting from the default or breach hereunder of such defaulting or
breaching party occurring prior to the date of termination.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series E
Preferred Stock Purchase Agreement as of the date first above written.
THE COMPANY: INTEK INFORMATION, INC.
By:/S/ TIMOTHY C. O'CROWLEY
----------------------------------------
Timothy C. O'Crowley
Chief Executive Officer and President
31
<PAGE>
THE INVESTORS: U.S. INFORMATION TECHNOLOGY
FINANCING, L.P.
By: /S/ SHOZO OKUDA
--------------------------------------------
Name: Shozo Okuda
------------------------------------------
Title: Managing Director
-----------------------------------------
Address: 777 108th Ave., NE, Ste. 2300
---------------------------------------
Bellevue, WA 98004
-----------------------------------------------
Telecopy: (425) 468-3901
--------------------------------------
State or Country of Organization: Washington
--------------
State or Country of Residence: Washington
-----------------
Shares Purchased: 931,677
-----------------------------
Purchase Price: $1.61
-----------------------------
ENCOMPASS GROUP, INC.
By: /S/ YASUKI MATSUMOTO
-------------------------------------------
Name: Yasuki Matsumoto
------------------------------------------
Title: President
-----------------------------------------
Address: 777 108th Ave., NE, Ste. 2300
---------------------------------------
Bellevue, WA 98004
-----------------------------------------------
Telecopy: (425) 468-3901
--------------------------------------
State or Country of Organization: Washington
--------------
State or Country of Residence: Washington
-----------------
Shares Purchased: 1,242,246
------------------------------
Purchase Price: $1.61
------------------------------
TRANS COSMOS USA, INC.
By:/S/ YASUKI MATSUMOTO
--------------------------------------------
Name: Shozo Okuda
------------------------------------------
Title: President
-----------------------------------------
Address: 777 108th Ave., NE, Ste. 2300
---------------------------------------
Bellevue, WA 98004
-----------------------------------------------
Telecopy: (425) 468-3901
--------------------------------------
State or Country of Organization: Washington
--------------
State or Country of Residence: Washington
-----------------
Shares Purchased: 310,559
-----------------------------
Purchase Price: $1.61
-------------------------------
Series E Preferred Stock Purchase Agreement
32
<PAGE>
THE INVESTOR: RVCF IV, L.P.
By: J.W. Path Associates, LLC,
its General Partner
By: Brinson Venture Management, LLC,
its Attorney-in-fact
By: Brinson Partners, Inc.,
its Managing Member
By: /S/ THOMAS D. BERMAN
---------------------
Thomas D. Berman
Executive Director
Address: 209 S. LaSalle Street
Chicago, IL 60604-1295
Telecopy: (312) 220-7110
State or Country of Organization: Delaware
State or Country of Residence: Illinois
Shares Purchased: 3,755,869
Purchase Price: $8,000,000
TILE HAMILTON COMPANIES, LLC
By: /S/ FREDERIC C. HAMILTON
----------------------------------------
Address:
-----------------------------------
-----------------------------------
Fax:
-----------------------------------
State or Country of Organization:
-----------
State or Country of Residence:
--------------
Shares Purchased: 469,484
Purchase Price: $1,000,000
------------------------------
By:
----------------------------------------
Address:
-----------------------------------
-----------------------------------
Fax:
-----------------------------------
State or Country of Organization:
-----------
State or Country of Residence:
--------------
Shares Purchased:
---------------------------
33
<PAGE>
--------------------------------------------
By:
----------------------------------------
Address:
-----------------------------------
-----------------------------------
Fax:
-----------------------------------
State or Country of Organization:
-----------
State or Country of Residence:
--------------
Shares Purchased:
---------------------------
Purchased Price:
---------------------------
Purchased Price:
---------------------------
--------------------------------------------
By:
----------------------------------------
Address:
-----------------------------------
-----------------------------------
Fax:
-----------------------------------
State or Country of Organization:
-----------
State or Country of Residence:
--------------
Shares Purchased:
---------------------------
Purchased Price:
---------------------------
34
<PAGE>
Exhibit 4.9
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
by and among
INTEK INFORMATION, INC.
and
BVCF IV, L.P.
and
The Other Named Parties Hereto
Dated as of November 19, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
I. Issuance and Sale of Securities............................................................................................... 1
1.1. The Closing........................................................................................................... 1
II. Representations and Warranties of the Company................................................................................ 3
2.1. Organization and Good Standing; Power and Authority; Qualifications................................................... 3
------------------------------------------------------------------
2.2. Authorization of the Documents........................................................................................ 3
------------------------------
2.3. Capitalization........................................................................................................ 4
2.4. Authorization and Issuance of Capital Stock........................................................................... 5
-------------------------------------------
2.5. Reservation of Shares................................................................................................. 5
---------------------
2.6. Financial Statements.................................................................................................. 6
--------------------
2.7. Absence of Undisclosed Liabilities.................................................................................... 6
----------------------------------
2.8. Absence of Material Changes........................................................................................... 6
---------------------------
2.9. No Conflict........................................................................................................... 7
-----------
2.10. Agreements............................................................................................................ 8
2.11. Patents, Trademarks, etc.............................................................................................. 8
------------------------
2.12. Equity Investments; Subsidiaries...................................................................................... 9
--------------------------------
2.13. Corporate Minute Books................................................................................................ 9
----------------------
2.14. Suitability........................................................................................................... 9
-----------
2.15. Assets................................................................................................................ 9
------
2.16. Employee Benefit Plans............................................................................................... 10
2.17. Labor Relations; Employees........................................................................................... 13
--------------------------
2.18. Litigation; Orders................................................................................................... 13
------------------
2.19. Compliance with Laws; Permits........................................................................................ 13
-----------------------------
2.20. Offering Exemption................................................................................................... 14
------------------
2.21. Related Transactions................................................................................................. 14
--------------------
2.22. Disclosure........................................................................................................... 14
----------
2.23. Taxes................................................................................................................ 15
-----
2.24. Environmental Protection............................................................................................. 16
------------------------
2.25. Consents............................................................................................................. 18
--------
2.26. Insurance............................................................................................................ 18
---------
2.27. Brokers.............................................................................................................. 18
-------
2.28. Use of Proceeds...................................................................................................... 19
---------------
2.29. Previous Issuances Exempt............................................................................................ 19
-------------------------
2.30. Real Property........................................................................................................ 19
-------------
2.31. Accounts Receivable.................................................................................................. 20
-------------------
2.32. Investment Banking Services.......................................................................................... 20
---------------------------
2.33. Registration Rights.................................................................................................. 20
-------------------
2.34. Material............................................................................................................. 20
--------
III. Representations and Warranties of the Investor............................................................................. 20
3.1. Investment Representations........................................................................................... 20
--------------------------
3.2. Due Authorization, Etc............................................................................................... 21
----------------------
IV. Certain Covenants........................................................................................................... 22
4.1. Operation of the Business Prior to the Closing....................................................................... 22
----------------------------------------------
4.2. Third Party Consents Prior to the Closing............................................................................ 23
-----------------------------------------
4.3. Access to Records Prior to the Closing............................................................................... 23
--------------------------------------
4.4 Use of Proceeds...................................................................................................... 23
---------------
V. Survival of Representations, Warranties, Agreements and Covenants, Etc....................................................... 23
VI. Expenses.................................................................................................................... 24
VII. Indemnification............................................................................................................ 24
7.1. General Indemnification............................................................................................... 24
-----------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.2. Indemnification Principles............................................................................................ 24
--------------------------
7.3. Claim Notice.......................................................................................................... 25
------------
7.4. Claim Procedure....................................................................................................... 25
---------------
VIII. Miscellaneous............................................................................................................. 27
8.1. Remedies.............................................................................................................. 27
--------
8.2. Transfer Taxes........................................................................................................ 27
--------------
8.3. Further Assurances.................................................................................................... 27
------------------
8.4. Successors and Assigns; Assignment.................................................................................... 27
----------------------------------
8.5. Entire Agreement...................................................................................................... 28
----------------
8.6. Notices............................................................................................................... 28
-------
8.7. Amendments............................................................................................................ 29
----------
8.8. Counterparts.......................................................................................................... 29
------------
8.9. Headings.............................................................................................................. 29
--------
8.10. Nouns and Pronouns.................................................................................................... 29
------------------
8.11. Governing Law......................................................................................................... 29
-------------
8.12 Severability.......................................................................................................... 29
------------
8.13. Knowledge............................................................................................................. 30
---------
8.14. Termination........................................................................................................... 30
-----------
</TABLE>
ii
<PAGE>
Exhibits
A - Legal Opinion
B - Amended and Restated Certificate of Incorporation
C - Bylaws
D - Amended and Restated Shareholders' and Voting Agreement
E - Investor Registration Rights Agreement
F - Amendments to Registration Rights Agreements
iii
<PAGE>
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
SERIES F PREFERRED STOCK PURCHASE AGREEMENT, dated as of November __, 1999,
by and among INTEK INFORMATION, INC., a Delaware corporation (the "Company") and
-------
BVCF IV, L.P., a Delaware limited partnership, ("Brinson") and each of those
-------
other persons and entities whose names are set forth on the Schedule of
Investors attached hereto (with Brinson, the "Investors") and persons who are
---------
added to such Schedule (the "Additional Investors" and each an "Additional
-------------------- ----------
Investor."
- --------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company wishes to sell to the Investors and the Additional
Investors and the Investors and the Additional Investors wish to purchase from
the Company, shares of Series F Convertible Preferred Stock, par value $.001 per
share (the "Series F Preferred Stock");
------------------------
WHEREAS, Brinson wishes to invest up to $8,000,000 and the Investors in
total (separately, not jointly), in the aggregate, may invest up to $5,000,000
in the Company by the purchase of Series F Preferred Stock;
WHEREAS, the Company in the future wishes to sell to other qualified
investors shares of Series F Preferred Stock in accordance with the terms and
conditions of this Agreement, each of whom is an Additional Investor.
ACCORDINGLY, the parties hereto hereby agree as follows:
I. Issuance and Sale of Securities
1.1. The Closing
-----------
(a) At the Closing (as defined in Section 1.1(b)), Brinson shall purchase
from the Company and the Company shall sell to Brinson 3,755,869 shares of
Series F Preferred Stock (the "Purchase") for U.S. $8,000,000 (the "Purchase
-------- --------
Price") and to any other Investors such number of shares of Series F Preferred
- -----
Stock as shown on the signature pages hereto. The per share purchase price to
be paid by each Investor for the Series F Preferred Stock purchased by it at the
Closing is $2.13.
(b) The closing of the Purchase (the "Closing") shall take place at the
-------
offices of Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder, CO
80302 on a date (the "Closing Date") as soon as practicable following the
------------
satisfaction or waiver of each of the closing conditions set forth herein. The
parties will use their respective best efforts to have the Closing occur on or
before November 19, 1999.
(c) At the Closing: (i) Chrisman, Bynum & Johnson, P.C., counsel to the
Company, shall deliver to each Investor its opinion substantially in the form of
Exhibit A attached hereto,
<PAGE>
(ii) the Company shall deliver to each Investor copies of the Company's
Certified (by the Delaware Secretary of State) Amended and Restated Certificate
of Incorporation ("Restated Certificate") substantially in the form of Exhibit
--------------------
B attached hereto, the Company's By-Laws substantially in the form of Exhibit C
attached hereto, and resolutions of the Company's Board of Directors approving
the transaction contemplated hereby, each certified by the Assistant Secretary
of the Company as true, correct and complete and in effect as of the Closing,
(iii) the Company, each Investor and certain other equity holders of the Company
shall deliver duly executed counterparts to the Amended and Restated
Shareholders' and Voting Agreement in the form of Exhibit D hereto (the
"Shareholders' Agreement"), (iv) the Investor and the Company shall deliver duly
-----------------------
executed counterparts to the Registration Rights Agreement by and among the
Company and the Investor in the form of Exhibit E hereto (the "Investor
--------
Registration Rights Agreement"), (v) the necessary parties shall deliver
- -----------------------------
executed counterparts to the Amendments (as defined in Section 2.1) and (vi) the
Company will deliver the Management Rights Letter to Brinson in the form
previously delivered by Brinson.
(d) At the Closing, the Company shall deliver to each Investor a
certificate ("CEO Certificate"), dated the Closing Date and executed by the
---------------
Chief Executive Officer of the Company, certifying to the effect that (i) each
of the representations and warranties of the Company set forth in this Agreement
are accurate in all material respects on and as of the Closing Date as if made
on and as of the Closing Date and (ii) each of the covenants and obligations
that the Company is obligated to perform or to comply with pursuant to this
Agreement at or prior to the Closing has been duly performed and complied with
in all material respects.
(e) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series F Preferred Stock purchased by it,
registered in the name of each Investor. Delivery of such certificate to each
Investor shall be made against receipt at the Closing by the Company from each
Investor of the Purchase Price, which shall be paid by wire transfer to an
account designated at least one business day prior to the Closing by the
Company.
(f) The Company may, at any time and from time to time prior to December 1,
1999, without obtaining the signature, consent or permission of the Investors or
any other party hereto, offer and sell to Additional Investors (who may already
be holders of securities of the Company), at a price of $2.13 per share, up to
an additional 2,347,418 shares of Series F Preferred Stock (the "Additional
----------
Shares"). At the closing of any such sale of Additional Shares (each a
- ------
"Subsequent Closing"), each such Additional Investor shall deliver to the
- ----------- -------
Company a duly executed counterpart to this Agreement (certifying in particular
the accuracy of the representations and warranties in Article III hereof as
applied to such Additional Investor), the Shareholders' Agreement and the
Investor Registration Rights Agreement. At each Subsequent Closing, the Company
shall deliver to each Additional Investor participating in such Subsequent
Closing (i) a CEO Certificate dated the date of the Subsequent Closing, and (ii)
a certificate representing the shares of Series F Preferred Stock purchased by
it, registered in the name of the Additional Investor. Delivery of such
certificate to each Additional Investor shall be made against receipt at the
Subsequent Closing by the Company from such Additional Investor of the purchase
price therefor, which shall be paid by wire transfer to an account designated at
least
2
<PAGE>
one business day prior to the Subsequent Closing by the Company. Any such
Additional Shares purchased by such Additional Investors, and such Additional
Investors, shall be subject to all of the terms and conditions of this Agreement
and the other Documents.
II. Representations and Warranties of the Company
The Company hereby represents and warrants to each Investor as follows as
of the date hereof and as of the Closing Date, and hereby represents and
warrants to the Additional Investors as follows as of the date hereof and as of
the date of the relevant Subsequent Closing (subject to additional disclosures
made in the CEO Certificate for each such Subsequent Closing):
2.1. Organization and Good Standing; Power and Authority; Qualifications.
-------------------------------------------------------------------
The Company and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, (b) has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as presently conducted and as proposed to be conducted
and (c) has all requisite power and authority to enter into and carry out the
transactions contemplated by (i) this Agreement, (ii) the Restated Certificate,
(iii) the Shareholders' Agreement, (iv) the Investor Registration Rights
Agreement, (v) Amendment No. 3 to the Registration Rights Agreement between the
Company and Conning Insurance Capital Limited Partnership V, in the form of
Exhibit F-1 hereto, (vi) Amendment No. 4 to the Registration Rights Agreement
among the Company, Frank Richards, Bain & Company, Inc., and Squam Lake
Investors II, L.P., in the form of Exhibit F-2 hereto, (vii) Amendment No. 5 to
the Registration Rights Agreement among the Company, Resource Bancshares
Corporation and Timothy C. O'Crowley, in the form of Exhibit F-3 hereto, (viii)
Amendment No. 5 to the Registration Rights Agreement between the Company and The
Beacon Group III - Focus Value Fund, L.P., in the form of Exhibit F-4 hereto,
(ix) Amendment No. 3 to the Registration Rights Agreement among the Company,
Trans Cosmos USA, Inc. in the form of Exhibit F-5 hereto, and (x) Amendment No.
1 to the Registration Rights Agreement among the Company, the former
shareholders of Acorn Information Systems, Inc., and Prospero LLC in the form of
Exhibit F-6 hereto (the foregoing amendments to registration rights agreements
are collectively defined as the "Amendments," and all of the foregoing documents
----------
in this subpart (c) are collectively defined as the "Documents"). The Company
---------
and each Subsidiary is qualified to transact business as a foreign corporation
in, and is in good standing under the laws of, those jurisdictions listed on
Schedule 2.1, which jurisdictions constitute all of the jurisdictions wherein
- ------------
the character of the property owned or leased or the nature of the activities
conducted by it makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified and in good standing would
not, individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of the
Company (a "Material Adverse Effect").
-----------------------
2.2. Authorization of the Documents ___. The execution, delivery and
------------------------------
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the
3
<PAGE>
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by principles of equity,
bankruptcy, insolvency or other similar laws affecting rights of persons
generally and relating to equitable principles of general application.
2.3. Capitalization
--------------
(a) The authorized capitalization of the Company immediately following
the Purchase will consist of:
(i) Preferred Stock. 79,000,000 shares of Preferred Stock, par
value $.001 per share ("Preferred Stock"), of which (A) 26,000 shares have been
---------------
designated Series A Preferred Stock, (B) 22,000,000 shares have been designated
Series B Convertible Preferred Stock, (C) 11,500,000 shares have been designated
Series C Convertible Preferred Stock, (D) 15,800,000 shares have been designated
Series D Convertible Preferred Stock, (E) 8,300,000 shares have been designated
Series E Convertible Preferred Stock, (F) 9,160,000 shares have been designated
Series F Convertible Preferred Stock and (G) 12,214,000 shares of "blank check"
preferred stock that have no designation and none of which have been issued or
are outstanding. All of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock have been validly issued and are outstanding, fully
paid and nonassessable and free and clear of all mortgages, judgments, claims,
liens, security interests, pledges, escrows, charges or other encumbrances of
any kind or character whatsoever ("Encumbrances") other than: (i) those created
------------
by the Documents; (ii) those listed on Schedule 2.3(a); and (iii) those created
--------------
by, or as a result of actions of the shareholder and which are not known to an
executive officer of the Company.
(ii) Common Stock. 170,000,000 shares of Common Stock, par value
$.0001 per share ("Common Stock"). All of the outstanding shares of Common
------------
Stock have been validly issued, and are outstanding, fully paid and
nonassessable and free and clear of all Encumbrances except for (i) those
created by the Documents; (ii) those listed on Schedule 2.3(a); and (iii) those
---------------
created by, or as a result of actions of the shareholder and which are not known
to an executive officer of the Company.
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of
---------------
record of capital stock of the Company, including the number of shares of
capital stock held by each such holder, and (ii) all outstanding warrants,
options, agreements, convertible securities or other commitments pursuant to
which the Company is or may become obligated to issue any shares of the capital
stock or other securities of the Company, which names all persons entitled of
record to receive such shares or other securities, the shares of capital stock
or other securities required to be issued thereunder as of the date hereof and
the price per share, if any, payable with respect to the issuance of any share
of capital stock issuable thereunder. In addition to those securities listed on
Schedule 2.3(b), The Beacon Group III - Focus Value Fund, L.P. holds Warrant NB-
1 which, in effect, grants it weighted average antidilution protection in
respect of its Series B Convertible Preferred Stock, and the Company is
contingently obligated to issue up to
4
<PAGE>
approximately 2,100,000 shares of Common Stock in connection with the
acquisition of Acorn Information Services, Inc. ("Acorn" and the "Acorn
Transaction"). Except as set forth on Schedule 2.3(b), the Company has no
knowledge of the names of any beneficial owners of shares of capital stock of
the Company who are not otherwise holders of record. Except as set forth on
Schedule 2.3(a) or as contemplated by the Documents there is, and immediately
after the Closing there will be, no agreement, restriction or encumbrance (such
as a preemptive or similar right, right of first refusal, right of first offer,
proxy, voting agreement, voting trust, registration rights agreement,
stockholders' agreement, warrant, etc.,) (i) with respect to which the Company
is a party and (ii) with respect to the best knowledge of the Company, to which
the Company is not a party with respect to the purchase, sale or voting of any
shares of capital stock or other securities of the Company pursuant to any
provision of law, the Restated Certificate or By-laws of the Company, any
agreement or otherwise. Except as contemplated by the Documents or except for
the right to vote its shares of capital stock of the Company for the election of
directors, no person has the right to nominate or elect one or more directors of
the Company. Subject to the closing, the Board of Directors of the Company has
approved a $600,000 loan to Timothy C. O'Crowley which will be secured by
600,000 shares of his Common Stock.
2.4. Authorization and Issuance of Capital Stock. The authorization,
-------------------------------------------
issuance, sale and delivery of the Series F Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Common Stock issuable upon conversion of the Series F Preferred Stock issued
pursuant to this Agreement (the "Conversion Shares") have been duly authorized
-----------------
by all requisite corporate action on the part of the Company, and when issued,
sold and delivered in accordance with this Agreement, the Series F Preferred
Stock and the Conversion Shares will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof, free and clear of any Encumbrances, other than Encumbrances under the
Documents and those, if any, arising as a result of actions taken by any of the
Investors or any of the Additional Investors, and, except as set forth in the
Shareholders' Agreement, not subject to preemptive or similar rights of the
stockholders of the Company or others. The terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of any series of Preferred
Stock of the Company are as stated in the Company's Restated Certificate and the
Documents. The Consent and Waiver (regarding, among other things, pre-emptive
rights) in the form provided by Brinson has been signed by the listed
signatories thereto and delivered to the Company.
2.5. Reservation of Shares. The Company has reserved a sufficient
---------------------
number of shares of Common Stock for issuance to the Investors upon the
conversion of the Series F Preferred Stock issued to the Investors on the date
of the Closing and the Subsequent Closing in accordance with this Agreement and
for issuance to each Additional Investor upon the conversion of the Series F
Preferred Stock issued to it on the date of any Subsequent Closing in accordance
with this Agreement, plus an additional 7,042,253 shares of Common Stock to
provide for conversion of a limited number of additional shares of Series F
Preferred Stock upon a "Series F PIK Election" as defined in the Restated
---------------------
Certificate and for the Series F Additional Adjustments (as defined in the
Restated Certificate). The Company has reserved
5
<PAGE>
3,051,643 additional shares of Series F Preferred Stock for issuance upon such a
Series F PIK Election and 2,347,418 for sale to Investors and Additional
Investors other than Brinson (which 2,347,418 shares may be used for a Series F
PIK Election if not so sold).
2.6. Financial Statements. The Company has furnished to each Investor
--------------------
the audited statements of income, stockholders' equity and cash flows of the
Company for the 12 month period ending December 31, 1998, and the consolidated
audited balance sheet of the Company as of December 31, 1998, and the
consolidated unaudited statements of income, stockholders' equity and cash flows
of the Company for the nine-month period commencing on January 1, 1999, through
September 30, 1999, and the consolidated unaudited balance sheet of the Company
as of such date (the "Balance Sheet Date" and all such financial statements, the
------------------
"Company Financial Statements"). The Company Financial Statements (i) are in
----------------------------
accordance with the books and records of the Company and the Subsidiaries, (ii)
have been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (except that the financial statements for the
----
nine-month period ended September 30, 1999 and the balance sheet as of such
date do not include all of the footnotes required under GAAP and do not include
customary year-end adjustments) and (iii) fairly and accurately present the
financial position of the Company and its consolidated subsidiaries as of
September 30, 1999, and the results of its operations and cash flows for the
periods are set forth in such statements. Schedule 2.7 sets forth additional
potential liabilities not contained in such statements.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on
----------------------------------
Schedule 2.7, the Company and the Subsidiaries have no liabilities or
- ------------
obligations (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known, whether due or to become due and regardless of when
asserted) other than (i) liabilities or obligations reserved against or
otherwise disclosed in the Company Financial Statements, (ii) other liabilities
or obligations that were incurred after the Balance Sheet Date in the ordinary
course of business consistent (in amount and kind) with past practice (none of
which is a liability resulting from breach of contract, breach of warranty,
tort, infringement, claim or lawsuit) and that do not exceed $100,000 in the
aggregate, (iii) liabilities or obligations under Contracts listed in the
Schedules to this Agreement or under Contracts that are not required to be
disclosed therein (but not liabilities for breaches thereof), (iv) liabilities
and obligations incurred in connection with the Acorn Transaction, and (v)
obligations and liabilities incurred in connection with the spin-off of Spider
Technologies, Inc. to the Company's shareholders ("Spider" and the "Spider Spin
------ -----------
Off").
- ---
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8,
--------------------------- ------------
since the Balance Sheet Date, the Company (which term includes each Subsidiary
for purposes of this Section) has conducted its business in the ordinary course,
consistent with past practice and there has not been (a) any Material Adverse
Effect or any event or condition (other than events or conditions affecting the
Company's industry generally and which have been publicly reported) which could
reasonably be expected to have such a Material Adverse Effect, (b) any waiver or
cancellation of any material right of the Company, or the cancellation of any
material debt or claim held by the Company, (c) any payment, discharge or
satisfaction of any claim, liability or obligation of the Company other than in
the ordinary course of business, (d) any Encumbrance upon the assets of the
Company other than any Permitted Encumbrance (as
6
<PAGE>
defined in Section 2.30), (e) any declaration or payment of dividends on, or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company other than distribution of Capital
Stock of Spider, (f) any issuance of any stock, bonds or other securities of the
Company other than pursuant to the Acorn Transaction, (g) any sale, assignment
or transfer of any tangible or intangible assets of the Company except in the
ordinary course of business or transfers to Spider pursuant to the Spider Spin
Off, (h) any loan by the Company to any officer, director, employee, consultant
or shareholder of the Company (other than advances to such persons in the
ordinary course of business in connection with travel and travel related
expenses), (i) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the assets, property, financial
condition or results of operations of the Company, (j) any increase, direct or
indirect, other than in the ordinary course of business, in the compensation
paid or payable to any officer or director of the Company other than the salary
increase to Mr. O'Crowley and Mr. Richards approved by the Board of Directors in
October, 1999, (k) any change in the accounting or tax methods, practices or
policies, or of any material tax election of the Company, (l) any indebtedness
incurred for borrowed money by the Company other than in the ordinary course of
business, (m) any amendment to or termination of any material agreement to which
the Company is a party other than the expiration of any such agreement in
accordance with its terms, (n) any change of which either (i) the Company has
received notice or (ii) otherwise has knowledge with respect to the regulation
of the Company or its activities by any administrative agency or governmental
body to the extent such change has had or could reasonably be expected to have a
Material Adverse Effect, (o) any material change in the manner of business or
operations of the Company (including, without limitation, any accelerations or
deferral of the payment of accounts payable or other current liabilities or
deferral of the collection of accounts or notes receivable), (p) any capital
expenditures or commitments therefor by the Company that aggregate in excess of
$100,000, (q) except for the amendment on November 3, 1999 to the Company's
Certificate of Incorporation, and any amendments to the Company's certificate of
incorporation and by-laws required in connection with the transactions
contemplated by this Agreement, any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company, (r)
other than the Acorn Transaction and the Spider Spin Off, any transaction
entered into by the Company other than in the ordinary course of business or any
other material transaction entered into by the Company whether or not in the
ordinary course of business, or (s) any agreement or commitment (contingent or
otherwise) by the Company to do any of the foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
-----------
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery by
the Company of the Series F Preferred Stock and the Conversion Shares) will not
(a) (relying, in part, upon the representations and warranties of the Investors
and the Additional Investors in Article III) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it or the Subsidiaries, or any of their respective properties or assets; (b)
except as listed on Schedule 2.9 conflict with or result in any breach of any of
------------
the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or
7
<PAGE>
acceleration) under, or result in the creation of any Encumbrance upon any of
its or the Subsidiaries' properties or assets under, any Contract to which it or
the Subsidiary is a party; or (c) violate its or the Subsidiaries' certificate
of incorporation or by-laws or other organizational documents.
2.10. Agreements
----------
(a) Except as set forth on Schedule 2.10, the Company (which term
-------------
includes the Subsidiaries for purposes of this Section) is not a party to any
contract, agreement, indenture, mortgage, guaranty, lease, license or
understanding, written or oral (a "Contract"), other than any Contract which (i)
--------
pursuant to its terms, has expired, been terminated or fully performed by the
parties, and in each case, under which the Company has no liability, contingent
or otherwise, or (ii) involves monthly payments to or from the Company (as
opposed to an indemnity agreement or similar contract under which the Company
has any contingent liability) which monthly payments do not aggregate on an
annual basis to $100,000 or more, and in each case, is not material to the
business or financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been made available to each Investor. Each of such Contracts is,
as of the date hereof, and will continue to be at and after the Closing, a
legal, valid, and binding obligation of, enforceable against, and in full force
and effect against, the Company and, to the best knowledge of the Company, the
other parties thereto. There is no breach, violation or default by the Company
and no event (including, without limitation, the consummation of the
transactions contemplated by the Documents except as listed on Schedule 2.9)
which, with notice or lapse of time or both, would (i) constitute a breach,
violation or default by the Company under any such Contract or (ii) give rise to
any lien or right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration against the Company under any
such Contract. To the best of the Company's knowledge, except as set forth on
Schedule 2.10, no other party to any of such Contracts is in arrears in respect
of the performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts, no waiver or indulgence has
been granted by any of the parties thereto and no party to any of such Contracts
has repudiated any provision thereof.
2.11. Patents, Trademarks, etc. To the Company's best knowledge, the
------------------------
Company and the Subsidiaries own, possess or have the right to use pursuant to
license, sublicense, agreement or permission all patents, inventions,
trademarks, service marks, trade names, whether registered or otherwise,
together with all goodwill associated therewith, copyrights, licenses,
information, proprietary rights, and processes, including the TelWeb Customer
Communications Data System, as listed on Schedule 2.11, necessary for the lawful
-------------
conduct of their business as now conducted, without any infringement of or
conflict with the rights of others. The TelWeb Customer Communications Data
System is licensed by the Company from Spider pursuant to a non-exclusive
license. Except as set forth in Schedule 2.11, there are no outstanding
options, licenses, or agreements of any kind relating to the foregoing
intellectual property rights, nor is the Company or any Subsidiary bound by or a
party to any options,
8
<PAGE>
licenses, or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. Except as set
forth on Schedule 2.11, the Company and the Subsidiaries have not received any
communications alleging that the conduct of the Company's or any Subsidiaries'
business infringes or conflicts with the rights of others under patents,
trademarks, copyrights and trade secrets. To the best of the Company's
knowledge, except as set forth in Schedule 2.11, the Company's and each
Subsidiary's business as now conducted and as proposed to be conducted will not
infringe or conflict with the rights of others, including rights under patents,
trademarks, copyrights and trade secrets. The Company's computer systems and
software are "year 2000 compliant" in all material respects.
2.12. Equity Investments; Subsidiaries. Except as set forth in
--------------------------------
Schedule 2.12, the Company has no Subsidiaries and has never owned, and does not
- -------------
presently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any company, association, trust,
partnership, joint venture or other entity. For purposes of this Agreement, the
term "Subsidiary" means, with respect to any person, any company, partnership or
-----------
other entity (a) of which shares of capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such company, partnership or other entity are at
the time owned or controlled, directly or indirectly, by such person or (b) the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries by such person.
2.13. Corporate Minute Books. The corporate records of the Company are
----------------------
correct and complete except that certain minutes have not been prepared
reflecting all the option grants shown on Schedule 2.3(a) and the complete
minutes of the meeting of the Board of Directors in October 1999, have not been
prepared. True and correct copies of all minutes of meetings or other actions
by the directors, stockholders or incorporators of the Company since its
inception have previously been made available to the Investors.
2.14. Suitability. To the best knowledge of the Company, none of the
-----------
events described in Item 401(f) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), has occurred during the last five years
--------------
with respect to any director or officer of the Company.
2.15. Assets
------
(a) The Company (which term includes each Subsidiary for purposes of
this Section) has good and marketable title, or a valid leasehold interest in or
contractual right to use, all of its assets and properties, free and clear of
any Encumbrances except (i) as disclosed in Schedule 2.15(a) or Section 2.30,
----------------
(ii) Encumbrances for taxes not yet due and payable, (iii) Encumbrances set
forth on Schedule 2.15(a) for taxes and charges and other claims, the validity
of which the Company is contesting in good faith, (iv) Permitted Encumbrances
and (v) Spider's right of first refusal on certain equipment in the Company's
San Diego, California offices. The assets and properties owned by, or leased
to, the Company are sufficient for the
9
<PAGE>
conduct of the business and operation of the Company as presently conducted and
as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings,
----------------
facilities, machinery, equipment, furniture, leasehold and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property owned by, or leased to the Company, as of the date hereof, (i) are to
the Company's best knowledge without investigation, in good operating condition
and repair (normal wear and tear excepted) and (in the case of buildings or
structures located on the Real Properties (as defined in Section 2.31)) free of
any structural or engineering defects and (ii) to the Company's best knowledge,
are suitable for their current use.
(c) Except as set forth on Schedule 2.15(c), the Company has not
----------------
received notice of, and has no knowledge of, any pending, threatened or
contemplated condemnation proceeding or similar taking affecting the assets of
the Company (including the Real Properties).
2.16. Employee Benefit Plans
----------------------
(a) Schedule 2.16 hereto contains a true and complete list of (i) each
-------------
plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefore, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is now or previously has been sponsored, maintained, contributed to or required
to be contributed to by the Company (which includes each Subsidiary for purposes
of this Section) or pursuant to which the Company has any liability, contingent
or otherwise, including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (each, a "Company Benefit Plan"); and (ii) each
----- --------------------
management, employment, bonus, option, equity (or equity related), severance,
consulting, non compete, confidentiality or similar agreement or contract,
pursuant to which the Company has any liability, contingent or otherwise,
between the Company and any current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Company (an
"Employee") (each, an "Employee Agreement"). Except as identified on Schedule
- --------- ------------------
2.16, neither the Company nor any ERISA Affiliate (as defined in 2.16(b))
currently sponsors, maintains, contributes to, or is required to contribute to,
nor has the Company ever sponsored, maintained, contributed to or been required
to contribute to, or incurred any liability to, (i) any "multiemployer plan" (as
defined in ERISA Section 3(37)) or (ii) any Company Benefit Plan which provides,
or has any liability to provide, life insurance, medical, severance or other
employee welfare benefits to any Employee upon his or her retirement or
termination of employment, except as required by Section 4980B of the Internal
Revenue Code ("Code"). Neither the Company nor any of the entities set forth on
----
Schedule 2.16(a) has or has had any ERISA Affiliates other than the Company or
- ----------------
any of such entities, Spider and Acorn.
10
<PAGE>
(b) An "ERISA Affiliate" is defined as any entity that is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with, or
under "common control" with, or a member of an "affiliated service group" with,
or otherwise required to be aggregated with, the Company or any entity listed on
Schedule 2.16(a) as set forth in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(a)(14) of ERISA.
(c) The Company has made available to each Investor current, accurate
and complete copies of all documents embodying or relating to each Company
Benefit Plan and each Employee Agreement, including all amendments thereto,
trust or funding agreements relating thereto (if any), the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), summary annual reports, the most recent determination letter (if any)
received from the Internal Revenue Service ("IRS"), the most recent summary plan
---
description (with all material modifications) (if any), and if the Company
Benefit Plan is funded, the most recent annual and periodic accounting of
Company Benefit Plan assets, and has made available to each Investor all
material communications to any Employee or Employees relating to any Company
Benefit Plan or Employee Agreement.
(d) With respect to each Company Benefit Plan (i) the Company and each
ERISA Affiliate has performed all obligations required to be performed by it
under each Company Benefit Plan and Employee Agreement and neither the Company
nor any ERISA Affiliate is in default under or in violation of, any Company
Benefit Plan, (ii) each Company Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department; (iii) each Company Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code and no circumstances exist which would adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or,
under currently applicable laws and regulations, may subject the Company or any
ERISA Affiliate or any fiduciary to any tax, penalty or other liability, whether
by way of indemnity or otherwise; (vi) there are no actions, proceedings,
arbitrations, suits or claims pending, or to the best knowledge of the Company
and any ERISA Affiliate, threatened or anticipated (other than routine claims
for benefits) against the Company or any ERISA Affiliate or any administrator,
trustee or other fiduciary of any Company Benefit Plan with respect to any
Company Benefit Plan or Employee Agreement, or against any Company Benefit Plan
or against the assets of any Company Benefit Plan; (vii) no event or transaction
has occurred with respect to any Company Benefit Plan that would result in the
imposition of any tax under Chapter 43 of Subtitle D of the Code; (viii) each
Company Benefit Plan can be amended, terminated or otherwise discontinued
without liability to the Company or any ERISA Affiliate; (ix) no Company Benefit
Plan is under audit or investigation by the IRS, the Department or the PBGC, and
to the best knowledge
11
<PAGE>
of the Company and any ERISA Affiliate, no such audit or investigation is
pending or threatened.
(e) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Company
Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or the
Investors to amend or terminate any Company Employee Plan and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. Except as set forth in Schedule
--------
2.16(e), no payment or benefit which will or may be made by the Company or the
- -------
Investors or any of their respective affiliates with respect to any employee of
the Company will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(f) With respect to each Company Benefit Plan (other than a multi-
employer plan) which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan"), (i) no steps have been taken to
-------------
terminate any Pension Plan now maintained or contributed to, no termination of
any Pension Plan has occurred pursuant to which all liabilities have not been
satisfied in full, no liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate which has not been satisfied in full, and no
event has occurred and no condition exists that could reasonably be expected to
result in the Company or any ERISA Affiliate incurring a liability under Title
IV of ERISA or could constitute grounds for terminating any Pension Plan; (ii)
no proceeding has been initiated by the PBGC to terminate any Pension Plan or to
appoint a trustee to administer any Pension Plan; (iii) each Pension Plan which
is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the
Code, has been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such Pension Plan has incurred any "accumulated
funding deficiency," as defined in Section 412 of the Code and Section 302 of
ERISA, whether or not waived; (iv) neither the Company or any ERISA Affiliate
has sought nor received a waiver of its funding requirements with respect to any
Pension Plan and all contributions payable with respect to each Pension Plan
have been timely made; (v) no reportable event, within the meaning of Section
4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA, has
occurred with respect to any Pension Plan; and (vi) the present value of all
accrued benefits of each Pension Plan, determined on a plan termination basis
using the actuarial assumptions established by the PBGC as in effect on the date
of determination, does not as of the date hereof and will not as of the Closing
exceed the fair market value of the assets (which for this purpose shall not
include any accrued but unpaid contributions) of such Pension Plan.
(g) Immediately following the Closing, the Company will be primarily
engaged, directly or through a Subsidiary or Subsidiaries, in the production or
sale of a product or service other than the investment of capital within the
meaning of Department of Labor Regulation (S) 2510.3-101(c), (d) or (e).
12
<PAGE>
2.17. Labor Relations; Employees
--------------------------
(a) Schedule 2.17(a) lists all employees of the Company (which
----------------
term includes each Subsidiary for purposes of this Section) with an annual
salary in excess of $40,000. Except as set forth on Schedule 2.17(a), (i) the
Company is not delinquent in payments to any of its employees, for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by the date hereof or material amounts required to be reimbursed by
them to the date hereof, (ii) the Company is in material compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, (iii) the Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, commitment or arrangement with any labor union, and no labor union
has requested or, to the best knowledge of the Company, has sought to represent
any of the employees, representatives or agents of the Company, (iv) there is no
labor strike, dispute, slowdown or stoppage actually pending, or, to the best
knowledge of the Company, threatened against or involving the Company, and (v)
to the best knowledge of the Company, no salaried key employee has any plans to
terminate his or her employment with the Company. Each of the officers of the
Company, each key employee and each other employee and consultant now employed
or retained by the Company who has access to confidential information of the
Company has executed a confidentiality agreement, and such agreements are in
full force and effect.
(b) Except as set forth on Schedule 2.17(b), the Company is not a
----------------
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To the best knowledge of the Company, there
has been no breach, violation or default by any party under the agreements
listed on Schedule 2.17(b).
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there
------------------ -------------
is no civil, criminal, administrative or regulatory action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, regulator, arbitrator or similar panel, governmental instrumentality
or other agency now pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or the assets or the business of
the Company or any of its Subsidiaries. Except as set forth in Schedule 2.18,
neither the Company nor any of its Subsidiaries is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
2.19. Compliance with Laws; Permits. Except as provided in Schedule
----------------------------- --------
2.19, the Company (which term includes each Subsidiary for purposes of this
- ----
Section) (a) has complied in all material respects with all federal, state,
local and foreign laws, rules, ordinances, codes, consents, authorizations,
registrations, regulations, decrees, directives, judgments and orders applicable
to it and its business (including, without limitation, the Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse
13
<PAGE>
Prevention Act of 1994), and (b) has all federal, state, local and foreign
governmental licenses, permits and authorizations necessary in the conduct of
its business as currently conducted (including, without limitation, any state
teleservice industry registration requirements), such licenses, permits and
qualifications are in full force and effect, and no violations (other than
violations notice of which has not been received by the Company) have been
recorded in respect of any such licenses, permits and qualifications, and no
proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such license, permit or qualification. Schedule 2.19 sets
forth a list of all such licenses, permits and authorizations, and the
expiration dates thereof.
2.20. Offering Exemption. Assuming the accuracy of the representations
------------------
and warranties contained in Section 3 hereof, the offer and sale of the Series F
Preferred Stock to the Investors and the Additional Investors as contemplated
hereby and the issuance and delivery of the Conversion Shares to the Investors
and the Additional Investors upon the conversion of the Series F Preferred Stock
are each exempt from registration under the Securities Act and under applicable
state securities and "blue sky" laws, each as currently in effect.
2.21. Related Transactions
--------------------
(a) Except as set forth on Schedule 2.21(a), or as otherwise
----------------
described herein, no current stockholder, director, officer or employee of the
Company, or any "affiliate" or "associate" (as such terms are defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act")) of any of the foregoing persons or the Company is presently, or during
- ---
the past five years has been, directly or indirectly, a party to any agreement,
transaction or series of similar transactions with the Company or any of its
Subsidiaries, other than in connection with any such person's duties as a
director, officer or employee of the Company or a Subsidiary.
(b) Each ongoing intercompany transaction set forth on Schedule
2.21(a), if any, is on terms that are (i) consistent with the past practice of
the Company and (ii) at least as favorable to the Company or the Subsidiary as
would be available with independent third parties dealing at arms' length.
2.22. Disclosure. Neither this Agreement nor any certificate,
----------
instrument or written statement furnished or made to the Investor or any
Additional Investor by or on behalf of the Company in connection with this
Agreement, when read together, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact which the Company
has not disclosed to the Investor or any Additional Investor or its respective
counsel in writing and of which the Company is aware which materially and
adversely affects or which could reasonably be expected to materially and
adversely affect the business, financial condition, operations, property or
affairs of the Company or the ability of the Company to perform its obligations
under the Documents. All projections delivered to the Investors and the
Additional Investors in connection with this Agreement were prepared in good
faith, but are not guarantees of future performance.
14
<PAGE>
2.23. Taxes
-----
(a) Except as set forth on Schedule 2.23(a), (i) the Company (and for
----------------
each Affiliated Period, each Affiliated Group of which the Company was a member)
has timely filed all Tax Returns (as such terms are defined below) required by
law to have been filed by it and has timely paid all Taxes required to be paid
by it including, without limitation, any Tax for which a notice of assessment or
demand for payment has been received by the Company (and for each Affiliated
Period, each Affiliated Group of which the Company was a member), (ii) all Tax
Returns filed by the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) were complete and correct in all
material respects and (iii) all amounts required to be collected or withheld by
the Company have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are adequate to cover any such liability in accordance
with GAAP. If the Company files its Tax Returns for its taxable year which
includes the date hereof, in conformance with its past practices and tax
reporting, to the best knowledge of the Company, there will be no basis for any
material adverse audit adjustments with respect to the Company under any of the
provisions of the Code, or any provisions of state, local or foreign tax law,
with respect to operations and activities of the Company during the period that
began on January 1, 1999 and ends on the date hereof. "Taxes," for purposes of
-----
this Agreement, means any taxes, assessments, duties, fees, levies, imposts,
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the Company arising under any tax sharing agreement to
which the Company is or has been a party. For purposes of this Agreement, (i)
"Affiliated Group" shall mean any affiliated group within the meaning of the
- -----------------
Code (S) 1504(a) (or any similar group defined under a similar provision of
state, local or foreign law), (ii) "Affiliated Period" shall mean each taxable
-----------------
period during which the Company was a member of an Affiliated Group for all or
part of such period, and (iii) "Return" shall mean any report, return,
------
statement, estimate, declaration, notice, form or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.23(b) contains a list of states, territories and
----------------
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.23(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Tax Returns with
15
<PAGE>
respect to which an audit or examination is in progress or with respect to which
a written notification of intent to audit or examine has been received by the
Company (and for each Affiliated Period, each Affiliated Group of which the
Company was a member) from the IRS or any other taxing authority that relate to
Taxes for which the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) could be liable, (iii) no taxing
authority in a jurisdiction where the Company (and for each Affiliated Period,
each Affiliated Group of which the Company was a member) does not file Tax
Returns has made a claim, assertion or threat that such non-filing entity is or
may be subject to taxation by such jurisdiction, (iv) the Company has not been a
member of a consolidated, combined or unitary group for federal or state income
tax purposes, (v) the Company is not a party to any Tax allocation or sharing
agreement other than with Spider and (vi) the Company does not have any
liability for the Taxes of any person as a transferee or successor or by
contract.
2.24. Environmental Protection. Except as set forth on Schedule
------------------------ --------
2.24(a), the Company (which term includes each Subsidiary for purposes of this
- -------
Section) has been operated at all times, and is, in material compliance with all
applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.24(b), the Company has obtained, is in material compliance with,
----------------
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
---------------------
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.24(c), there are no claims, notices, civil, criminal or
- ----------------
administrative actions, suits, hearings, investigations, inquiries or
proceedings of which the Company has received notice or otherwise should or has
reason to have knowledge pending or, to the knowledge of the Company, threatened
against the Company, and no requests from any governmental authority to perform
any investigatory or remedial activity have been made to the Company, that are
based on or related to any actual or alleged release of Hazardous Substances or
any other Environmental Matters or the failure to have any required
Environmental Permits. Except as set forth on Schedule 2.24(d), there are no
----------------
past or present conditions, events, circumstances, facts, activities, practices,
incidents, actions or omissions of the Company or its predecessors that (i) may
give rise to any liability or other obligation under any past, current or
proposed Environmental Laws that may require the Company to incur any material
Environmental Costs, (ii) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company that may
require the Company to incur any material Environmental Costs, or (iii) may
interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on
Schedule 2.24(e), to the knowledge of the Company there are no (and have never
- ----------------
been any) underground or aboveground storage tanks, incinerators or surface
impoundments at, on, under, about, or within any Owned Real Property or Leased
Real Property. Except as set forth on Schedule 2.24(f), the Company has not
----------------
received any notice (written or oral) or other communication that the Company is
or may be a potentially responsible party or otherwise liable in connection with
any waste disposal site allegedly containing, or other location used for the
disposal of, any Hazardous Substances.
16
<PAGE>
Schedule 2.24(g) contains a list of all sites or locations used by or on behalf
- ----------------
of the Company for the disposal of any waste containing Hazardous Substances.
For the purposes of this Section 2.24, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
-------------------
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including without limitation any actual, punitive
or consequential damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement, arising out of,
relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et
--
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
- ----
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- ---- --
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
- ---
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Clean Water
-- --- -- ---
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
-- ---
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
-- ---
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
-- ----
Transportation Act, 49 U.S.C. (S)(S) 1801, et seq., as any of the above statutes
-- ----
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to environmental matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
"Environmental Matter" shall mean any matter arising out of, relating to,
--------------------
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air (indoor or outdoor), surface water,
groundwater, soil, buildings, facilities, real or personal property or fixtures,
or otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
17
<PAGE>
"Hazardous Substances" shall mean any pollutants, contaminants, substances,
--------------------
materials, wastes, constituents, compounds, chemicals, natural or man-made
elements or forces (including, without limitation, petroleum or any by-products
or fractions thereof, any form of natural gas, lead, asbestos or asbestos-
containing materials ("ACM"), building construction materials and debris,
polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon and other
radioactive elements, electromagnetic field and other types of radiation, sonic
forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the basis of
liability under, any Environmental Laws.
2.25. Consents. Except as set forth on Schedule 2.25, and assuming the
-------- -------------
accuracy and completeness of the representations and warranties of the Investors
and the Additional Investors set forth in Article III hereof, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by the Company of the Documents or any
documentation relating thereto, the consummation by the Company of the
transactions contemplated hereby or thereby, or the issuance, sale or delivery
to the Investors and the Additional Investors of the Series F Preferred Stock
and the Conversion Shares, except for a filing with the Securities and Exchange
Commission of a Form D pursuant to Regulation D of the Securities Act, and
corresponding filings with certain state securities regulatory authorities.
2.26. Insurance. Substantially all of the assets of the Company (which
---------
term includes each Subsidiary for purposes of this Section) that are of
insurable character (including all material assets of the Company that are of
insurable character) are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice and sufficient
in amount to allow it to replace any of its properties which might be damaged or
destroyed. The Company is not in default with respect to its obligations under
any material insurance policy maintained by it. Schedule 2.26 sets forth a list
-------------
of all insurance coverage carried by the Company, the carrier and the terms and
amount of coverage. All such policies and other instruments are in full force
and effect and all premiums with respect thereto have been paid. The Company
has not failed to give any notice or present any claim under any such insurance
policy in due and timely fashion or as required by any of such insurance
policies or has not otherwise, through any act, omission or non-disclosure,
jeopardized or impaired full recovery of any claim under such policies, and
there are no claims by the Company under any of such policies to which any
insurance company is denying liability or defending under a reservation of
rights or similar clause. The Company has not received notice of any pending or
threatened termination of any of such policies or any premium increases for the
current policy period with respect to any of such policies and the consummation
of the transactions contemplated by this Agreement will not result in any such
termination or premium increase.
2.27. Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions
18
<PAGE>
contemplated by this Agreement, except that the Company retained The Wallach
Company and will be responsible solely for the fees owed to it.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as
--------------- -------------
otherwise expressly contemplated by this Agreement, the Company is not required
pursuant to any Contract or otherwise to apply the proceeds received from the
Investors or the Additional Investors pursuant to the transactions contemplated
hereby in any specified manner.
2.29. Previous Issuances Exempt. All shares of capital stock and other
-------------------------
securities issued by the Company prior to the Closing have been issued in
transactions exempt from registration under the Securities Act, and all
applicable state securities or "blue sky" laws. The Company has not violated
the Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
Securities Act.
2.30. Real Property. Schedule 2.30 lists all real property owned or
------------- -------------
leased by the Company (which term includes each Subsidiary for purposes of this
Section). The Company has title to its owned real properties (collectively, the
"Owned Real Properties") in each case, free and clear of all imperfections of
---------------------
title and all Encumbrances, except for (a) those consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of such property or irregularities in title thereto which,
individually and in the aggregate, do not materially impair the use of such
property, (b) warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Encumbrances arising in the ordinary course of business and
securing obligations not yet due and payable, (c) other Encumbrances which arise
in the ordinary course of business and which individually and in the aggregate
do not materially impair its use of such property or its ability to obtain
financing by using such asset as collateral, (d) the liens of Silicon Valley
Bank and Charter Financial for credit extended and to be extended to the Company
(encumbrances referenced in clauses (a), (b), (c) and (d), collectively referred
to as the "Permitted Encumbrances") and (e) Encumbrances listed on Schedule
---------------------- --------
2.30. The Company has leasehold title to its leased real properties
- ----
(collectively, the "Leased Real Properties," together with the Owned Real
----------------------
Properties, the "Real Properties"), and, in each case, has not taken or failed
---------------
to take any action that would result in the creation of any Encumbrance with
respect to any Leased Real Property. To the best knowledge of the Company
without investigation, other than as described on Schedule 2.30, there are no
intended public improvements which will result in any charge being levied
against, or in the creation of any Encumbrances upon, the Leased Real Properties
or any portion thereof. To the best knowledge of the Company without
investigation, there are no options, rights of first refusal, rights of first
offer or other similar rights with respect to the Real Properties other than
Spider's first right of refusal if the Company elects to assign the lease for,
or sublease, the Company's current San Diego, California offices. With respect
to each lease of Real Property to which the Company is a party, so long as the
Company performs all of its obligations under such lease for Real Property
within applicable notice and grace periods, (x) the rights of the Company under
such
19
<PAGE>
lease shall not be terminated and (y) to the best knowledge of the Company, the
Company's possession of such Real Property and the use and enjoyment thereof
shall not be disturbed by any landlord, overlandlord, mortgagee or other
superior party. Except as set forth on the Schedule 2.30, the Company is not
obligated to purchase any Leased Real Property and no leased Real Property is
required to be accounted for under GAAP as a capitalized lease.
2.31. Accounts Receivable. The accounts receivable and notes receivable
-------------------
reflected on the books and records of the Company and each Subsidiary were and
are bona fide accounts receivable and notes receivable created in the ordinary
and usual course of business in connection with bona fide transactions and
consistent with past practice.
2.32. Investment Banking Services. Except as set forth in Schedule 2.32
--------------------------- -------------
and for the engagements of The Wallach Company, neither the Company nor any
Subsidiary is a party to any Contract which grants rights to any third party
with respect to the performance of investment banking services for it,
including, without limitation, with respect to its sale or a public offering,
including an initial public offering, of its securities.
2.33. Registration Rights. Except as required by the Investor
-------------------
Registration Rights Agreement or as set forth on Schedule 2.33, the Company has
-------------
no obligations with respect to registration under the Securities Act of any of
its currently outstanding securities or any of its securities which may
hereafter be issued.
2.34. Material. When the term "material" or "materially" is used in
--------
this Article II, it is in reference to the Company and its Subsidiaries on an
aggregate, consolidated basis.
III. Representations and Warranties of the Investors
Each Investor, severally and not jointly, represents and warrants to the
Company as follows as of the date hereof and the Closing Date and each
Additional Investor, severally but not jointly, represents and warrants to the
Company as follows as of the date of the relevant Subsequent Closing (for
purposes of this Article III, the term "Investor" shall refer to each Investor
and to each Additional Investor, as applicable):
3.1. Investment Representations.
--------------------------
(a) Such Investor is a sophisticated investor with sufficient
financial experience to assess the risks of investing in the Company and
purchasing Series F Preferred Stock, and is acquiring the Series F Preferred
Stock to be purchased by it under this Agreement for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act. Such Investor was not formed for the purpose of acquiring
Series F Preferred Stock or otherwise to invest in the Company.
(b) Such Investor understands that (i) except as provided in the
Investor Registration Rights Agreement applicable to it, the Series F Preferred
Stock has not been, and
20
<PAGE>
that the Conversion Shares will not be, registered under the Securities Act or
any state securities laws, by reason of their issuance by the Company in a
transaction exempt from the registration requirements thereof and (ii) the
Series F Preferred Stock and the Conversion Shares may not be sold unless such
disposition is registered under the Securities Act and applicable state
securities laws or is exempt from registration thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Except as set forth on Schedule 3.1(d), such Investor has not
---------------
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
(f) Such Investor has accurately completed the NASD Questionnaire
provided by the Company and returned it to the Company.
3.2. Due Authorization, Etc.
----------------------
(a) The Investor is validly existing under the laws of the state or
country of its organization (as set forth opposite its name on the signature
pages herein), is resident in the state or country so indicated on such
signature pages and has all power and authority to enter into and perform each
of the Documents to which it is a party. Each of the Documents to which it is a
party has been duly authorized by all necessary action on the part of the
Investor. Each of the Documents to which it is a party constitutes a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, except to the extent that enforceability may be limited by
principles of equity, bankruptcy, insolvency or other similar laws affecting
rights generally.
(b) The execution, delivery and performance by the Investor of each of
the Documents to which it is a party and the consummation by the Investor of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets if such violation would materially
adversely affect the ability of the Investor to consummate the transactions
contemplated thereby or (ii) violate its organizational documents.
21
<PAGE>
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by the Investor of
each of the Documents to which it is a party or any documentation relating
thereto, or the consummation by the Investor of the transactions contemplated
thereby.
IV. Certain Covenants
4.1. Operation of the Business Prior to the Closing. Except as
----------------------------------------------
contemplated by the Documents or the Restated Certificate, during the period
between the date of this Agreement and the Closing, without the prior written
consent of Brinson, the Company shall:
(a) except as otherwise allowed or required pursuant to the terms of
this Agreement, conduct its business and operations only in the ordinary course
in a manner consistent with past practice;
(b) use best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations and goodwill with all material suppliers,
customers, licensers, licensees, landlords, trade creditors, Employees, agents,
and others having material business relationships with the Company or a
Subsidiary;
(c) confer with the Investors concerning operational matters of a
material nature;
(d) maintain in full force and effect the insurance described in
Section 2.26 or insurance providing at least comparable coverage;
(e) maintain all the properties and assets of the business and
operations of the Company and the Subsidiaries in the ordinary course consistent
with past practice;
(f) maintain its books and records in the usual, regular and ordinary
manner, on a basis consistent with prior years;
(g) perform and comply with its and the Subsidiaries' obligations
under all Contracts in the ordinary course of business, consistent with past
practice;
(h) furnish to the Investors copies of all financial statements and
certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity; and
(i) report periodically to the Investors concerning the status and
operation of the business and operations of the Company.
22
<PAGE>
Notwithstanding the foregoing, the provisions of this Section shall in no
event apply after December 1, 1999 even if the Closing has not occurred by that
date for any reason.
4.2. Third Party Consents Prior to the Closing. Prior to the Closing and
-----------------------------------------
to each Subsequent Closing, the Company shall use commercially reasonable
efforts to obtain all consents required from third parties which are party to
Contracts with the Company or its Subsidiaries to the transactions contemplated
by the Documents as to the transactions to occur at that closing.
4.3. Access to Records Prior to the Closing. During the period
--------------------------------------
commencing on the date of this Agreement and continuing through the Closing, the
Company shall (i) afford to each Investor and its representatives full access,
during normal business hours, upon reasonable advance notice, with due regard to
its ongoing operations, to the personnel, properties, contracts, books and
records, and other documents and data of the Company, (ii) furnish each Investor
and its representatives with copies of all such contracts, books and records
(including, but not limited to, Tax Returns), and other existing documents and
data as each Investor and its representatives may reasonably request, and (iii)
furnish each Investor and its representatives such additional financial,
operating, and other data and information as each Investor and its
representatives may reasonably request. No investigation or receipt of
information shall affect any representation or warranty of the Company contained
in this Agreement or the conditions to the obligations of the Investors
specified in this Agreement.
4.4 Use of Proceeds. The Company shall use the proceeds from the sale
---------------
to the Investors of the Series F Preferred Stock hereunder for working capital
purposes and as otherwise disclosed in Schedule 2.8 item (f) and fees of The
Wallach Co. described in Section 2.32.
V. Survival of Representations, Warranties, Agreements and Covenants, Etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 7.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved) and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of the Investor; provided, however, (x) the representations and
-------- -------
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 3.1 and 3.2 and the
final sentence of Section 2.16(a) shall survive the Closing indefinitely and (y)
the representations and warranties set forth in Sections 2.19, 2.20, 2.23, 2.24
and 2.28 shall survive the Closing until the expiration of the applicable
statute of limitations (except to the extent a Claim Notice shall have been
given prior to such date with respect to a breach of a representation and
warranty, in which case such representation and warranty shall survive until
such claim is resolved). All agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
23
<PAGE>
VI. Expenses
Each party hereto shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby; provided that, notwithstanding the foregoing,
the Company shall pay to the Investors (including if the Company fails to Close
the Purchase other than due to a failure of a condition to its obligation to so
Close, or if the Investors do not Close the Purchase due to a breach hereof by
the Company) an amount in cash equal to the lesser of (i) 100% of the Investor'
legal fees and expenses incurred in connection with the Investors' due
diligence review of the Company and the negotiation and execution of the
Documents and the transactions contemplated thereby and (ii) $30,000 (in the
aggregate). At the Company's request, the Investors shall deliver to the
Company an accounting for all costs and expenses for which they seek
reimbursement hereunder.
VII. Indemnification
7.1. General Indemnification. The Company shall, on an after Tax basis,
-----------------------
indemnify, defend and hold the Investor and each Additional Investor, their
affiliates, their respective officers, directors, partners, members, employees,
agents, representatives, successors and assigns (each an "Investor Entity")
---------------
harmless from and against all Losses (as defined below) incurred or suffered by
an Investor Entity (whether incurred or suffered directly or indirectly through
ownership of Common Stock or Preferred Stock) in respect of its purchase of
Series F Preferred Stock under this Agreement arising or resulting from the
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in any certificate or other instrument
delivered by the Company pursuant hereto including, without limitation, the
Documents. Each Investor and each Additional Investor, severally but not
jointly, shall, on an after Tax basis, indemnify, defend and hold the Company,
its affiliates, its respective officers, directors, employees, agents,
representatives, successors and assigns harmless from and against all Losses
arising from the breach of any of its representations, warranties, covenants or
agreements in this Agreement or in any certificate or other instrument delivered
by it pursuant hereto, including, without limitation, the Documents. All claims
for indemnification for Losses arising in connection with certificates,
instruments or Documents shall be governed by and subject to this Article VII.
7.2. Indemnification Principles. For purposes of this Article VII, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses,
- -------
(including, without limitation, losses of earnings of the Company and its
Affiliates) liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, reasonable costs and expenses (including, without limitation,
interest that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts); and (b)
each of the representations and warranties made by any party in this Agreement
or in any certificate or other instrument delivered pursuant hereto, including,
without limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality or knowledge such
as the words
24
<PAGE>
"material adverse affect," "immaterial," "material," "in all material respects"
and "knowledge," "best knowledge" or "knowingly" or words of similar import. Any
indemnification payment by the Company to an Investor or an Additional Investor
pursuant to this Article VII shall include an additional amount so that such
Investor or Additional Investor suffers no Loss in respect of its purchase of
Series F Preferred Stock under this Agreement as a result of any diminution in
the book value of the stockholder's equity related to its investment under the
Agreement as a result of such indemnification payment. Any payment by the
Company to an Investor or an Additional Investor pursuant to this Article VII,
shall be treated for federal income tax purposes as an adjustment to the price
paid by such Investor or Additional Investor for the Series F Preferred Stock
pursuant to this Agreement.
7.3. Claim Notice. A party seeking indemnification under this Article
------------
VII shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each
------------
Claim Notice shall specify the nature of the claim, the applicable provision(s)
of this Agreement or other instrument under which the claim for indemnity
arises, and, if possible, the amount or the estimated amount thereof. No
failure or delay in giving a Claim Notice (so long as the same is given prior to
expiration of the representation or warranty upon which the claim is based) and
no failure to include any specific information relating to the claim (such as
the amount or estimated amount thereof) or any reference to any provision of
this Agreement or other instrument under which the claim arises shall affect the
obligation of the party from whom indemnity is sought except to the extent such
party is materially prejudiced thereby.
7.4. Claim Procedure.
---------------
(a) Procedure for Indemnification with Respect to Third-Party Claims.
----------------------------------------------------------------
If any indemnified party hereunder determines to seek indemnification under this
Article VII with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the indemnified party under this
Section 7.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
shall also have the right to employ its own counsel in any
25
<PAGE>
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless such indemnified party shall reasonably determine
that there is a conflict of interest between or among such indemnified party and
the indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party 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 indemnified party to be indemnified hereunder in
respect of any Losses that may or do result 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, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VII shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party 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 the indemnifying party. Notwithstanding anything in this
Article VII to the contrary, (i) if there is a reasonable probability that a
claim may materially adversely affect such indemnified party, such indemnified
party shall have the right to participate in such defense, compromise, or
settlement and the indemnifying party shall not, without such indemnified
party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any of such claims, 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
indemnified party a release from all liability in respect of such claim. With
respect to any assertion of liability by a third party that results in any claim
for indemnification hereunder, the parties hereto shall make available to each
other all relevant information in their possession material to any such
assertion. Each Investor acknowledges, and each Additional Investor
acknowledges, that a third-party claim may also result in losses to other
holders of Preferred Stock of the Company who hold similar indemnification
rights and rights to assume their defense. The Investors and the Additional
Investors shall act in good faith in such circumstances to coordinate such
defense with such holders requesting such coordination.
(b) Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that an indemnified party asserts the existence of a claim
- ------
with respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 7.4(b), 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 the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. In the event
26
<PAGE>
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.
VIII. Miscellaneous
8.1. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, the Investors and the Additional Investors, with respect to a breach by
the Company, and the Company, with respect to a breach by an Investor or an
Additional Investor, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
8.2. Transfer Taxes. The Company agrees that it will pay, and will hold
--------------
the Investors and the Additional Investors harmless from any and all liability
with respect to any transfer, documentary, stamp or other similar Taxes that may
be determined to be payable in connection with the execution and delivery and
performance of this Agreement, and that it will similarly pay and hold the
Investors harmless from all Taxes in respect of the issuance of the Series F
Preferred Stock and the Conversion Shares to the Investors and the Additional
Investors, as applicable, each as contemplated by this Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to pay or
hold the Investor or any Additional Investor harmless with respect to any
transfer, documentary, stamp or other similar Taxes that may be determined to be
payable in connection with the transfer by the Investor or any Additional
Investor, as applicable, of shares of Series F Preferred Stock or Conversion
Shares to any other person or entity.
8.3. Further Assurances. At any time or from time to time after a
------------------
Closing, the Company, on the one hand, and the Investor and the Additional
Investors, on the other hand, agree to cooperate with each other, and at the
request of the other party, to execute and deliver any further instruments or
documents and to take all such further action as the other party may reasonably
request in order to evidence or effectuate the consummation of the transactions
contemplated hereby relating to the purchases and to otherwise carry out the
intent of the parties hereunder.
8.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, the Investors and the Additional Investors,
and their respective successors, permitted assigns, heirs and personal
representatives. In addition, and whether or not any express assignment has
been made, except as otherwise expressly stated in this Agreement, the
provisions of Articles II, IV, VII, or VIII of this Agreement that are for the
Investors' and the Additional Investors' benefit as a purchaser or holder of
Series F Preferred Stock, are also for the benefit of, and enforceable by, any
subsequent holder of such Series F Preferred Stock and/or Conversion Shares.
Neither this Agreement nor any rights hereunder
27
<PAGE>
may be transferred prior to the Closing Date without the written consent of the
Company and Brinson.
8.5. Entire Agreement. This Agreement and the other writings referred
----------------
to herein or delivered pursuant hereto which form a part hereof contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or in a counterpart hereto (as the case may be) or such other
address as may hereafter be designated in writing by such party to the other
parties:
if to the Company, to:
Intek Information, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Telecopy: (303) 405-8421
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
if to an Investor, to the individual at the
address set forth in the signature pages hereto:
with a copy of notices to Brinson to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
Attention: Mark H. Burnett, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
28
<PAGE>
8.7. Amendments. The terms and provisions of this Agreement may only be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and Brinson,
provided, however, that the addition of new parties to this Agreement in
accordance with the provisions hereof shall not be deemed an amendment hereof
and shall not require the consent of any party hereto.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
8.10. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
8.11. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York, the State of Delaware and of the United
States of America, in each case located in the County of New York or the County
of New Castle, Delaware, as applicable, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
----------
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any Litigation relating thereto except in
such courts). Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of New York, the State of Delaware or the United States of America, in
each case located in the County of New York or the County of New Castle,
Delaware, as applicable, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
Litigation brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES ACKNOWLEDGES THAT THE FOREGOING IS ESSENTIAL TO THE
EFFECTIVE AND EFFICIENT ENFORCEMENT OF THIS AGREEMENT (IN LIGHT OF THE COMPANY'S
OTHER STOCK PURCHASE AGREEMENTS AND THE CHOICE-OF-LAW AND CHOICE-OF-FORUM
PROVISIONS CONTAINED THEREIN), AND THEREFORE AGREES TO BE IRREVOCABLY BOUND BY
THE PROVISIONS OF THIS SECTION 8.11.
8.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
29
<PAGE>
8.13. Knowledge. As used herein, "knowledge of the Company" and similar
---------
phrases shall mean, in addition to actual knowledge of the Company, (a) the
actual knowledge of any officer, director or employee of the Company and (b)
with respect to any such person, knowledge that such person should have or could
reasonably be inferred to have by virtue of such person's activities,
circumstances or relationship with the Company and its business.
8.14. Termination. This Agreement may be terminated by written notice
-----------
given prior to the Closing: (a) by Brinson or the Company, as to the purchase by
Brinson, if the Closing has not occurred by November 22, 1999 (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with such party's obligations under this Agreement), or such later date as
Brinson and the Company may agree in writing, or (b) by an Investor or
Additional Investor as to the purchase of Series F Preferred Stock by it
hereunder, if a material breach of any of the representations, warranties or
covenants of the Company set forth in this Agreement has been committed between
the date hereof and the Closing, and such breach has not been either waived by
the Investor or Additional Investor or cured by the Company within 10 days
after the Company's receipt of written notice thereof from the Investor or
Additional Investor. Termination of this entire Agreement pursuant to Clause (a)
of this Section 8.14 shall terminate all obligations of the parties hereto
except for the obligations under Sections 8.1, 8.6, 8.11 and 8.13 and Articles
VI and VII; provided that termination of this Agreement pursuant to this Section
--------
8.14 (other than clause (b) of the first sentence of this Section 8.14) shall
not relieve a defaulting or breaching party hereunder from any liability to the
other parties hereto resulting from the default or breach hereunder of such
defaulting or breaching party occurring prior to the date of termination.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series F
Preferred Stock Purchase Agreement as of the date first above written.
THE COMPANY: INTEK INFORMATION, INC.
By: /S/ TIMOTHY C. O'CROWLEY
------------------------
Timothy C. O'Crowley
Chief Executive Officer and President
31
<PAGE>
Exhibit 10.1
INTEK INFORMATION, INC.
1997 AMENDED AND RESTATED STOCK OPTION PLAN
I. Purpose
The INTEK INFORMATION, INC. 1997 AMENDED AND RESTATED STOCK OPTION PLAN
("Plan") provides for the grant of Stock Options to employees, directors and
consultants of Intek Information, Inc. (the "Company"), and such of its
subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code")), as the Board of Directors of the Company (the "Board")
shall from time to time designate ("Participating Subsidiaries") in order to
advance the interests of the Company and its Participating Subsidiaries through
the motivation, attraction and retention of key personnel.
II. Incentive Stock Options and Non-Incentive Stock Options
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the
Code; or
b) Nonstatutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422
of the Code.
All Stock Options shall be ISOs only to the extent specified in the Option
Agreement. Subject to the other provisions of the Plan, a Participant may
receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are
clearly designated as such, and the exercise of one does not affect the exercise
of the other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
III. Administration
The Plan shall be administered by the Board, or by a committee composed
solely of two or more directors ("Committee") each of whom is a Non-Employee
Director. The Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and any Stock Options granted thereunder, and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in order to comply with the requirements of the Code or in order that Stock
Options that are intended to be ISOs will be classified as incentive stock
options under the Code, or in order to conform to any regulation or to any
change in any law or regulation applicable thereto. The
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<PAGE>
Board shall have the power to reprice and accelerate the vesting of Stock
Options. The Board may reserve to itself any of the authority granted to the
Committee as set forth herein, and it may perform and discharge all of the
functions and responsibilities of the Committee at any time that a duly
constituted Committee is not appointed and serving. All references in this Plan
to the "Committee" shall be deemed to refer to the Board whenever the Board is
discharging the powers and responsibilities of the Committee, and to any special
committee appointed by the Board to administer particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Committee in good faith (including determinations of Fair Market Value) shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange Act of
1934 (the "Exchange Act") provides that the grant of a stock option to a
director or officer of a company will be exempt from the provisions of Section
16(b) of the Exchange Act if the conditions set forth in that Rule are
satisfied. Unless otherwise specified by the Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall be
made in a manner that satisfies the conditions of that Rule.
IV. Definitions
4.1. "Stock Option." A Stock Option is the right granted under the Plan
------------
to an Employee, director, or consultant to purchase, at such time or times and
at such price or prices ("Option Price") as are determined by the Committee, the
number of shares of Common Stock determined by the Committee.
4.2. "Common Stock." A share of Common Stock means a share of authorized
------------
common stock of the Company.
4.3. "Fair Market Value." If the Common Stock is traded publicly, the
-----------------
Fair Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is listed
on the NASDAQ National System or is listed on a national stock exchange, the
officially quoted closing price on NASDAQ or such exchange, as the case may be,
on the date in question. If the Common Stock is not traded publicly, the Fair
Market Value of a share of Common Stock on any date shall be determined in good
faith by the Committee after such consultations with outside legal, accounting
and other experts as the Committee may deem advisable, and the Committee may
maintain a written record of its method of determining such value.
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<PAGE>
4.4. "Employee." An Employee is an employee of the Company or any
--------
Participating Subsidiary.
4.5. "Participant." A Participant is an Employee, director or consultant
-----------
to whom a Stock Option is granted.
4.6. "Non-Employee Director." A Non-Employee Director is a person who
---------------------
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be amended
from time to time.
4.7 "Corporate Transaction." A Corporate Transaction shall mean one or
---------------------
more of the following transactions unless persons who were holders of
outstanding voting capital stock of the Company which was outstanding
immediately prior to such transaction are immediately after such transaction
holders of 51% or more of the outstanding voting capital stock of the surviving
or acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger, consolidation or acquisition (ii) a share exchange
(with or without a stockholder vote) in which 95% or more of the outstanding
capital stock of the Company is exchanged for capital stock of another
corporation; or (iii) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
4.8 "Securities Act." Securities Act shall mean the Securities Act of
--------------
1933, as amended.
4.9 "Change in Control." Change in Control shall mean any of the
-----------------
following events occurring after March 1, 1997:
A. If any one Person (as defined below), after the date of the
Company's Initial Public Offering, in a single transaction or in a series of
transactions shall purchase or otherwise acquire or become the beneficial owner
of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding voting securities
(including any voting securities issuable upon conversion of convertible
securities of the Company held by such Person).
B. If at any annual or special meeting of Company stockholders
following a contested election the Board of Directors of the Company shall cease
to be an Authorized Board. For purposes of this paragraph, a "contested
election" shall mean (i) an election contest subject to Rule 14a-11 under the
Exchange Act or (ii) an election which would have been subject to Rule 14a-11 if
at the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act.
C. If a change of control of the Company (i) required to be reported
in accordance with Item 6 of Schedule 14A under the Exchange Act, or (ii) which
would be required to be reported in accordance with Item 6 of Schedule 14A if at
the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act, has otherwise
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<PAGE>
occurred, unless a Constitutional Majority of an Authorized Board approves the
change of control and specifically waives the application of this section.
For purposes of this Section 4.9 "Person" shall have the meaning
set forth in Sections 13(d) and 14(d)(2) of the Exchange Act, as in effect on
the date thereof, and shall include, without limitation, any "Affiliate" or
"Associate" of such Person (as those terms are used in Rule 12b-2 under the
Exchange Act); provided, however, that the term "Person" shall not include the
Company or any trustee or other fiduciary holding securities under any employee
benefit plan of the Company. For purposes of this Section 4.9, (i) beneficial
ownership shall be computed in accordance with Rule 13d-3 under the Exchange
Act; and (ii) "Authorized Board" shall mean a Board of Directors of the Company
of which a number of directors equal to a majority of the authorized number of
directors constituting the entire Board, including vacancies (a "Constitutional
Majority"), were either members of the Board of Directors on the date of the
Company's Initial Public Offering or were nominated or elected a director by a
Constitutional Majority at the date of nomination or election of an Authorized
Board.
4.10 "Initial Public Offering". "Initial Public Offering" shall mean the
-----------------------
Company's first offering of securities to the public which is registered
pursuant to the Securities Act.
V. Eligibility and Participation
Grants of ISOs may be made to Employees of the Company or any Participating
Subsidiary. Grants of NSOs may be made to Employees or directors of, or
consultants to, the Company or any Participating Subsidiary. Any director of the
Company or of a Participating Subsidiary who is also an Employee shall also be
eligible to receive ISOs. The Board or Committee shall from time to time
determine the Participants to whom Stock Options shall be granted, the number of
shares of Common Stock subject to each Stock Option to be granted to each such
Participant, and the Option Price of such Stock Options, all as provided in this
Plan. The Option Price of any ISO shall be not less than the Fair Market Value
of a share of Common Stock on the date on which the Stock Option is granted, and
the Option Price of an NSO shall be not less than eighty-five percent (85%) of
the Fair Market Value on the date the NSO is granted. If an ISO is granted to an
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, the Option Price of such ISO shall be at least 110%
of the Fair Market Value of the Common Stock subject to the ISO at the time such
ISOs are granted, and such ISO shall not be exercisable after five years after
the date on which it was granted. Each Stock Option shall be evidenced by a
written agreement ("Option Agreement") containing such terms and provisions as
the Committee may determine, subject to the provisions of this Plan.
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<PAGE>
VI. Shares of Common Stock Subject to the Plan
6.1. Maximum Number. The maximum aggregate number of shares of Common
--------------
Stock that may be made subject to Stock Options shall be 7,022,206 authorized
shares. To the extent the aggregate Fair Market Value (determined as of the time
the ISO is granted) of the stock with respect to which ISOs are exercisable for
the first time by an individual in a particular calendar year exceeds $100,000,
such excess Stock Options shall be treated as NSOs. If any shares of Common
Stock subject to Stock Options are not purchased or otherwise paid for before
such Stock Options expire, such shares may again be made subject to Stock
Options.
6.2. Capital Changes. In the event any changes are made to the shares of
---------------
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in: (i)
the number of shares of Common Stock theretofore made subject to Stock Options,
and in the Option Price of said shares; and (ii) the aggregate number of shares
which may be made subject to Stock Options in the future. If any of the
foregoing adjustments shall result in a fractional share, the fraction shall be
disregarded, and the Company shall have no obligation to make any cash or other
payment with respect to such a fractional share.
VII. Exercise of Stock Options
7.1 Time of Exercise. Subject to the provisions of the Plan, the
----------------
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. Unless
otherwise specified in an Option Agreement, a Stock Option shall become
exercisable (i) with respect to 20% of the shares subject thereto on the
anniversary of the date of grant, and (ii) with respect to 1/48th of the shares
subject thereto at the end of each month after the first anniversary of the date
of grant, (so that all Stock Options are fully vested five (5) years after the
date of grant) subject to continued employment with the Company or a
Participating Subsidiary and Section 7.4 hereof. A Stock Option shall expire, to
the extent not exercised, no later than the tenth anniversary of the date on
which it was granted. The Committee may accelerate the vesting of any
Participant's Stock Option by giving written notice to the Participant. Upon
receipt of such notice, the Participant and the Company shall amend the Option
Agreement to reflect the new vesting schedule. The acceleration of the exercise
period of a Stock Option shall not affect the expiration date of that Stock
Option.
7.2 Exchange of Outstanding Stock. The Committee, in its sole discretion,
-----------------------------
may permit a Participant to (i) surrender to the Company whole shares of Common
Stock previously acquired by the Participant and/or (ii) request that the
Company withhold whole shares of Common Stock issuable upon exercise of the
Stock Option, as part or full payment for the exercise of a Stock Option. Such
surrendered or withheld shares shall be valued at their Fair
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<PAGE>
Market Value on the date of exercise. Shares credited to a Participant shall
again be available for grant under the Plan.
7.3. Use of Promissory Note; Exercise Loans. The Committee may, in its
--------------------------------------
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole discretion, may authorize
the Company to make a loan to a Participant in connection with the exercise of
Stock Options, or authorize the Company to arrange or guarantee loans to a
Participant by a third party. Any loan by the Company or acceptance of a
promissory note shall be made in accordance with the corporate law of the
Company's state of incorporation.
7.4. Termination of Employment before Exercise. If the employment of a
-----------------------------------------
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than the
Participant's death or disability, any Stock Option granted to the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of the Participant's employment for a
period of three (3) months (but not later than the specified expiration date).
If the Participant's employment is terminated because the Participant is
disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option
granted to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of twelve (12) months (but not later than the specified
expiration date). If the Participant dies while employed by the Company or a
Participating Subsidiary, or during the three-month or twelve-month periods
referred to above, his Stock Options may be exercised by the Participant's
estate, duly appointed representative or beneficiary who acquires the Stock
Options by will or by the laws of descent and distribution, to the extent that
they were exercisable on the date of cessation of his employment, but no further
installments of the Participant's Stock Options will become exercisable and each
of the Participant's Stock Options shall terminate on the first anniversary of
the date of the Participant's death (but not later than the specified expiration
dates). If a Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
Notwithstanding the foregoing provisions of this Section 7.4, but subject
to the other provisions of this Plan, the Option Agreement may specify longer
periods for exercise of a NSO or ISO (unless to do so in the case of an ISO
would cause the ISO not to qualify as an incentive stock option pursuant to
Section 422 of the Code) after any such an event.
Upon action of the Committee in its sole discretion, except as provided in
a written employment or consulting agreement of the Company or a Participating
Subsidiary with the Participant, which is referenced in the Option Agreement,
any Stock Option shall terminate immediately, and may not be exercised, and any
exercise for which certificates for the shares have not been delivered to the
Participant shall be void and unwound: (i) if prior to the date of exercise
and/or delivery of such certificate(s) (but in any event not later than five (5)
days after
-6-
<PAGE>
date of exercise) Participant is terminated for cause as an Employee of the
Company or its Participating Subsidiary, or if not an Employee, for cause as a
director or consultant for the Company or its Participating Subsidiary; or (ii)
if subsequent to a Participant's termination and prior to the expiration of the
term of the Stock Option conditions arise or are discovered with respect to a
Participant that would have constituted cause for termination. "Cause" shall
have the meaning given to it in the Participant's written employment, consultant
or director agreement with the Company or Participating Subsidiary. If no such
written agreement exists, "cause" shall mean (i) dishonesty which is not the
result of an inadvertent or innocent mistake with respect to the Company or any
of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty intended to
injure or having the effect of injuring in some material fashion the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or employees; (iii) conviction upon
a charge of any crime involving moral turpitude or a crime other than a vehicle
offense which could reflect in some material fashion unfavorably upon the
Company or any of its subsidiaries; or (iv) willful or prolonged absence from
work by the Participant (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by the Participant to perform his
duties and responsibilities without the same being corrected upon twenty (20)
days prior written notice. In addition, unless specifically provided otherwise
in reference to this Plan in a written employment, consultant or director
agreement with the Company or Participating Subsidiary, "cause" for purposes of
this Section 7.4 shall exist (and termination of the Stock Option may occur even
if not so provided in the written employment, consultant or director agreement
with the Company or Participating Subsidiary) if the Participant materially
breaches any provision of an agreement with the Company or any of its
subsidiaries with respect to obligations regarding non-competition,
confidentiality, non-solicitation of customers, and non-hire of customers and
employees of the Company or a Subsidiary, or if the Participant commits a
material breach of any other obligation to the Company or any of its
subsidiaries under conditions where the existence of this risk of termination of
the Stock Option would not constitute a substantial risk of forfeiture under
Section 83 of the Code if Section 83 of the Code would apply in respect of such
Stock Options in such circumstance and require such Stock Option to be treated
as taxable income to the Participant prior to exercise or transfer of the Stock
Option.
7.5. Disposition of Forfeited Stock Options. Any shares of Common Stock
--------------------------------------
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
7.6. Conditions of Exercise. Notice of exercise shall be in the form
----------------------
attached to the Option Agreement and shall, in the discretion of the Company,
contain a representation, in the form provided by the Company, that the shares
are being purchased for investment only and not for resale or distribution, and
such other representations and agreements as the Company may reasonably require,
and may in addition require as a condition of exercise that the Participant
execute any stockholders agreement which is to be applicable to either: (i)
holders of 70% or more of the capital stock of the Company or (ii) holders of
60% or more of the Stock Options granted under this Plan. The Company may also
require as a condition of exercise that the Participant will agree, if requested
by the Company in connection with a public offering of the
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Company's securities, to adhere to lock-up arrangements between the Company and
an underwriter involved in such public offering.
VIII. No Contract of Employment
Nothing in this Plan shall confer upon the Participant the right to
continue as an employee, consultant or director of the Company or any
Participating Subsidiary, nor shall it interfere in any way with the right of
the Company, or any Participating Subsidiary, to discharge the Participant at
any time for any reason whatsoever, with or without cause. Nothing in this
Article VIII shall affect any rights or obligations of the Company or any
Participant under any written contract of employment.
IX. No Rights as a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in
Section 6.2, no adjustment shall be made in the number of shares of Common Stock
issued to a Participant, or in any other rights of the Participant upon exercise
of a Stock Option by reason of any dividend, distribution or other right granted
to stockholders for which the record date is prior to the date of exercise of
the Participant's Stock Option. The Committee, the Board and the Company have no
continuing duty to provide a Participant with information concerning the
Company.
X. Assignability
No Stock Option granted under this Plan, nor any other rights acquired by
Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution.
Notwithstanding the preceding sentence, the Committee, in its sole discretion,
may permit the assignment or transfer of an NSO and the exercise thereof by a
person other than a Participant, on such terms and conditions as the Committee
in its sole discretion may determine. Any such terms shall be set forth in the
Option Agreement. In the event of a Participant's death, the Stock Option may be
exercised by the personal representative of the Participant's estate or by the
successor or successors in interest determined under the Participant's will or
under the applicable laws of descent and distribution. The terms of any rights
under this Plan in the hands of a transferee or assignee shall be determined as
if held by the Participant and shall be of no greater extent or term than if the
transfer or assignment had not taken place.
XI. Corporate Transactions and Changes in Control
11.1. At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction. The vesting schedules of all Stock Options shall
automatically be accelerated so that the Stock Options shall become exercisable
as to those shares which could be purchased under those vesting schedules 12
months after the date of consummation of the Corporation Transaction. In
addition, at the sole discretion of the Committee, the vesting schedule of some
or all other Stock
-8-
<PAGE>
Options may be accelerated so that all or any portion of Stock Options
outstanding under the Plan immediately prior to the consummation of the
Corporate Transaction shall, for all purposes under this Plan, become
exercisable as of such time. If a Corporate Transaction is to occur, in lieu of
allowing a Participant to exercise the Participant's Stock Options, the Board
may, in its sole discretion, require some or all Participants to accept a cash
payment in consideration for the termination of the Participant's Stock Options.
The termination shall occur immediately prior to the consummation of the
Corporate Transaction and the cash payment shall be equal to the difference
between the price per share of Common Stock in the Corporate Transaction as
determined by the Board and the exercise price of a Participant's Stock Options.
All Stock Options, to the extent not previously exercised, shall terminate upon
the consummation of such Corporate Transaction and cease to be exercisable
unless expressly assumed by the successor corporation or parent thereof.
Provided, however, that if the Corporate Transaction is to be accounted for as a
"pooling-of-interest," then unexercised stock options shall be exchanged for
similar options of the acquiror or surviving entity or voting common stock of
the acquiror or surviving entity based on the value of the options, as and to
the extent required by APB No. 16, accounting pronouncements of the Securities
and Exchange Commission, and other authoritative principles and pronouncements
concerning pooling-of-interest accounting. Notwithstanding the foregoing, the
vesting of a Participant's Stock Options shall not be accelerated (if and to the
extent requested in writing by the Participant) upon a Corporate Transaction if
the participant is a "disqualified individual" as that term is defined in
Section 280G of the Internal Revenue Code.
11.2. The vesting schedules of all Stock Options shall be automatically
accelerated so that the Stock Options shall become exercisable as to all shares
subject to the Stock Options if the Participant's employment is terminated
without cause by the Company within one (1) year following a Change in Control.
"Without cause" means that "cause" did not exist as defined in Section 7.4.
11.3 The employment, consulting or directorship agreement, or the Option
Agreement of a Participant may contain terms which vary from Sections 11.1 and
11.2 upon approval of the Board and the Committee.
XII. Amendment
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified as
incentive stock options under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto; provided, however,
that no such action shall adversely affect the rights and obligations with
respect to Stock Options at any time outstanding under the Plan; and provided
further that no such action shall, without the approval of the stockholders of
the Company, (i) increase the maximum number of shares of Common Stock that may
be made subject to Stock Options (unless necessary to effect the adjustments
required by Section 6.2), (ii) materially modify the requirements as to
eligibility for participation in the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan.
-9-
<PAGE>
XIII. Registration of Optioned Shares
Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act and applicable state securities laws or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Securities Act and
from the registration or qualification requirements of applicable state
securities laws. Any certificates for such shares shall bear such legends as
deemed appropriate by the Committee.
XIV. Withholding Taxes
The Company or Participating Subsidiary may take such steps as it may
deem necessary or appropriate for the withholding of any taxes or funds
(including the withholding of shares of Common Stock otherwise issuable which
have appropriate Fair Market Value) which the Company or the Participating
Subsidiary is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Stock Options.
XV. Brokerage Arrangements
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon the exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and the sale of shares acquired upon exercise.
XVI. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board of Directors may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term or long-term incentive plans.
XVII. Special California Provisions
17.1 Special Provisions. In order for the grant or exercise of a Stock
------------------
Option to be exempt from the securities laws of the State of California: (i)
the total number of shares issuable upon exercise of all outstanding Stock
Options plus the total number of shares issuable under any stock option, stock
bonus or similar plan of the Company may not exceed thirty percent (30%) of the
then outstanding shares of capital stock of the Company, measured on an as
converted to
-10-
<PAGE>
common basis; (ii) the Option Price of all Stock Options shall be at least 110%
of Fair Market Value of a share of Common Stock if the Participant owns more
than ten percent (10%) of the combined voting power of all classes of stock of
the Company; (iii) no Stock Option shall be exercisable more than 120 months
from date of grant; (iv) each Participant located in California shall receive
the annual financial statements of the Company; and (v) each Participant shall
be delivered a copy of this Plan, as amended, with each Option Agreement.
XVIII. Effective Date
The 1997 Stock Option Plan was adopted by the Board and the stockholders of
the Company on February 3, 1997. This Plan was adopted by the Board on October
14, 1999 and by the Company's stockholders on October 21, 1999. The effective
date of this Plan is February 3, 1997. However, if such approval is not obtained
all provisions of this Plan, and all grants hereunder, shall nevertheless be
effective except that all ISOs shall be NSOs. No Stock Options shall be granted
subsequent to ten years after the effective date of the Plan. Stock Options
outstanding subsequent to ten years after the effective date of the Plan shall
continue to be governed by the provisions of the Plan.
-11-
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT
This NON-STATUTORY STOCK OPTION AGREEMENT is made ________, 199___, between
INTEK INFORMATION, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable contributor to the Company
and the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to serve the
Company or its subsidiaries and to increase Optionee's proprietary interest in
the Company, desires to enter into this Agreement containing the terms and
conditions hereinafter set forth and to grant Optionee an option to purchase
shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company
---------------
hereby grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Company's 1997
Amended and Restated Stock Option Plan ("Plan"), _____________________. The
option shall terminate on the tenth anniversary of the date hereof and,
accordingly, may not be exercised after that date. The purchase price to be paid
for such Shares upon exercise of the option shall be $______ per share, being
not less than the percentage of fair market value of the Shares on the date of
this Agreement required under the Plan. This option is granted pursuant to, and
is subject to the terms and conditions of the Plan, a copy of which has been
furnished to Optionee and receipt of which Optionee hereby acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
---------------------------
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The Company shall give the person or persons
entitled to the same at least five (5) days' notice of the time and place for
delivery and for the payment of such purchase price.
-12-
<PAGE>
3. Conditions of Option. The option is subject to the following
--------------------
additional conditions:
(a) The option herein granted to Optionee shall not be transferable
by Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of
the Plan, but only to the extent that Optionee had the right to exercise
such option at the date of termination of the Optionee's service to the
Company.
4. Representation as to Investment. Unless the Option and the shares are
-------------------------------
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Notices. Any notice to be given by Optionee as required by this
-------
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
6. Restriction Against Assignment. Except as otherwise expressly
------------------------------
provided above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
7. Further Agreements. The undersigned agrees, in connection with the
------------------
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the Plan. The
undersigned will, if requested, by the Company in connection with a public
offering of the Company's securities, adhere to lock-up arrangements between the
Company and an underwriter involved in such public offering.
-13-
<PAGE>
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
IN WITNESS WHEREOF, the Company and the Optionee have executed this Non-
Statutory Stock Option Agreement as of the day and year first above written.
ATTEST: INTEK INFORMATION, INC.
By:________________________ By:___________________________
Secretary President
______________________________
______________, Optionee
-14-
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: INTEK INFORMATION, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of INTEK INFORMATION, INC. pursuant to the terms of the
attached Non-statutory Stock Option Agreement, and tenders herewith payment
of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________
(Name)
___________________________
___________________________
___________________________
(Address)
Date: _______________________________
Optionee
-15-
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: INTEK INFORMATION, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
INTEK INFORMATION, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company.
He has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask questions
of, and receive answers from, representatives of the Company concerning its
business operations. Any questions raised by the Purchaser have been
answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability
or value of the Shares. The Purchaser understands that there is currently
no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, and cannot be resold unless they are subsequently
registered under said Act or an exemption from registration is available,
the Purchaser must continue to bear the economic risk of his investment in
the Shares for an indefinite period of time. Specifically, the Purchaser
agrees that the Shares may not be transferred until the Company has
received an opinion of counsel reasonably satisfactory to it that the
proposed transfer will not violate federal or state securities laws unless
the Company receives this requirement. The Company has not agreed or
represented to the Purchaser that the Shares will be purchased or redeemed
from the Purchaser at any time in the future. Further, there have been no
representations, promises, or agreements that the Shares will be registered
under the Securities Act of 1933 at any time in the future or otherwise
qualified for sale under the applicable securities laws. The Purchaser
further understands that a notation will be made on the appropriate records
of the Company and on the Stock Certificate representing the Shares so that
the transfer of Shares will not be effected on those records without
compliance with the restrictions referred to above.
Date: _________________________________________
Purchaser
-16-
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
This INCENTIVE STOCK OPTION AGREEMENT is made ________, 199___, between
INTEK INFORMATION, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable employee of the Company and
the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to remain in
the employment of the Company or its subsidiaries and to increase Optionee's
proprietary interest in the Company, desires to enter into this Agreement
containing the terms and conditions hereinafter set forth and to grant Optionee
an option to purchase shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company
---------------
hereby grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Company's 1997
Amended and Restated Stock Option Plan (the "Plan"), _______________________.
The option shall terminate on the tenth anniversary of the date hereof and,
accordingly, may not be exercised after that date. The purchase price to be paid
for such Shares upon exercise of the option shall be $______ per share, being at
least the fair market value of the Shares on the date of this Agreement. This
option is granted pursuant to, and is subject to the terms and conditions of the
Plan, a copy of which has been furnished to Optionee and receipt of which
Optionee hereby acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
---------------------------
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The Company shall give the person or persons
entitled to the same at least five (5) days' notice of the time and place for
delivery and for the payment of such purchase price.
-17-
<PAGE>
3. Conditions of Option. The option is subject to the following
--------------------
additional conditions:
(a) The option herein granted to Optionee shall not be transferable
by Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of
the Plan, but only to the extent that Optionee had the right to exercise
such option at the date of termination of the Optionee's employment with
the Company.
4. Representation as to Investment. Unless the Option and the shares are
-------------------------------
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Qualification of Option. The option is intended to qualify as an
-----------------------
incentive stock option within the meaning of the Internal Revenue Code of 1986,
as amended, and shall be so construed, provided, however, that nothing herein
shall be deemed to be or interpreted as a representation, guarantee, or other
undertaking on the part of the Company that such option is or will be determined
to be an incentive stock option within that or any other section of the Internal
Revenue Code.
6. Notices. Any notice to be given by Optionee as required by this
-------
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
7. Restriction Against Assignment. Except as otherwise expressly
------------------------------
provided above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
8. Further Agreements. The undersigned agrees, in connection with the
------------------
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the Plan. The
undersigned will, if requested, by the Company in
-18-
<PAGE>
connection with a public offering of the Company's securities, adhere to lock-up
arrangements between the Company and an underwriter involved in such public
offering.
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Incentive Stock Option Agreement as of the day and year first above written.
ATTEST: INTEK INFORMATION, INC.
By:________________________ By:___________________________
Secretary President
______________________________
______________, Optionee
-19-
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: INTEK INFORMATION, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of INTEK INFORMATION, INC. pursuant to the terms of the
attached Incentive Stock Option Agreement, and tenders herewith payment of
the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
________________________________
(Name)
________________________________
________________________________
________________________________
(Address)
Date: _______________________________
Optionee
-20-
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: INTEK INFORMATION, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
INTEK INFORMATION, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company.
He has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask questions
of, and receive answers from, representatives of the Company concerning its
business operations. Any questions raised by the Purchaser have been
answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability
or value of the Shares. The Purchaser understands that there is currently
no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, and cannot be resold unless they are subsequently
registered under said Act or an exemption from registration is available,
the Purchaser must continue to bear the economic risk of his investment in
the Shares for an indefinite period of time. Specifically, the Purchaser
agrees that the Shares may not be transferred until the Company has
received an opinion of counsel reasonably satisfactory to it that the
proposed transfer will not violate federal or state securities laws unless
the Company receives this requirement. The Company has not agreed or
represented to the Purchaser that the Shares will be purchased or redeemed
from the Purchaser at any time in the future. Further, there have been no
representations, promises, or agreements that the Shares will be registered
under the Securities Act of 1933 at any time in the future or otherwise
qualified for sale under the applicable securities laws. The Purchaser
further understands that a notation will be made on the appropriate records
of the Company and on the Stock Certificate representing the Shares so that
the transfer of Shares will not be effected on those records without
compliance with the restrictions referred to above.
Date: _________________________________________
Purchaser
-21-
<PAGE>
EXHIBIT 10.2
INTEK INFORMATION, INC.
RESTATED
1998 STOCK OPTION PLAN
I. Purpose
The INTEK INFORMATION, INC. RESTATED 1998 STOCK OPTION PLAN ("Plan")
provides for the grant of Stock Options to employees, directors and consultants
of Intek Information, Inc. (the "Company"), and such of its subsidiaries (as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code")), as the Board of Directors of the Company (the "Board") shall from time
to time designate ("Participating Subsidiaries") in order to advance the
interests of the Company and its Participating Subsidiaries through the
motivation, attraction and retention of key personnel.
II. Incentive Stock Options and Non-Incentive Stock Options
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOs") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the
Code; or
b) Nonstatutory Stock Options ("NSOs") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422
of the Code.
All Stock Options shall be ISOs only to the extent specified in the Option
Agreement. Subject to the other provisions of the Plan, a Participant may
receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are
clearly designated as such, and the exercise of one does not affect the exercise
of the other. All Stock Options shall be NSOs unless the Board determines
otherwise.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
III. Administration
The Plan shall be administered by the Board, or by a committee composed
solely of two or more directors ("Committee") each of whom is a Non-Employee
Director. The Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and any Stock Options granted thereunder, and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in
1-
<PAGE>
order to comply with the requirements of the Code or in order that Stock Options
that are intended to be ISOs will be classified as incentive stock options under
the Code, or in order to conform to any regulation or to any change in any law
or regulation applicable thereto. The Board shall have the power to reprice and
accelerate the vesting of Stock Options. The Board may reserve to itself any of
the authority granted to the Committee as set forth herein, and it may perform
and discharge all of the functions and responsibilities of the Committee at any
time that a duly constituted Committee is not appointed and serving. All
references in this Plan to the "Committee" shall be deemed to refer to the Board
whenever the Board is discharging the powers and responsibilities of the
Committee, and to any special committee appointed by the Board to administer
particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Committee in good faith (including determinations of Fair Market Value) shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange Act
of 1934 (the "Exchange Act") provides that the grant of a stock option to a
director or officer of a company will be exempt from the provisions of Section
16(b) of the Exchange Act if the conditions set forth in that Rule are
satisfied. Unless otherwise specified by the Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall be
made in a manner that satisfies the conditions of that Rule.
IV. Definitions
4.1. "Stock Option." A Stock Option is the right granted under the Plan
to an Employee, director, or consultant to purchase, at such time or times and
at such price or prices ("Option Price") as are determined by the Committee, the
number of shares of Common Stock determined by the Committee.
4.2. "Common Stock." A share of Common Stock means a share of authorized
common stock of the Company.
4.3. "Fair Market Value." If the Common Stock is traded publicly, the
Fair Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is listed
on the NASDAQ National System or is listed on a national stock exchange, the
officially quoted closing price on NASDAQ or such exchange, as the case may be,
on the date in question. If the Common Stock is not traded publicly, the Fair
Market Value of a share of Common Stock on any date shall be determined in good
faith by the Committee after such consultations with outside legal, accounting
and other experts as the Committee may deem
2-
<PAGE>
advisable, and the Committee may maintain a written record of its method of
determining such value.
4.4. "Employee." An Employee is an employee of the Company or any
Participating Subsidiary.
4.5. "Participant." A Participant is an Employee, director or consultant
to whom a Stock Option is granted.
4.6. "Non-Employee Director." A Non-Employee Director is a person who
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be amended
from time to time.
4.7 "Corporate Transaction." A Corporate Transaction shall mean one or
more of the following transactions unless persons who were holders of
outstanding voting capital stock of the Company which was outstanding
immediately prior to such transaction are immediately after such transaction
holders of 51% or more of the outstanding voting capital stock of the surviving
or acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger, consolidation or acquisition (ii) a share exchange
(with or without a stockholder vote) in which 95% or more of the outstanding
capital stock of the Company is exchanged for capital stock of another
corporation; or (iii) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
4.8 "Securities Act." Securities Act shall mean the Securities Act of
1933, as amended.
4.9 "Change in Control." Change in Control shall mean any of the
following events occurring after March 1, 1997:
A. If any one Person (as defined below), after the date of the
Company's Initial Public Offering, in a single transaction or in a series of
transactions shall purchase or otherwise acquire or become the beneficial owner
of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding voting securities
(including any voting securities issuable upon conversion of convertible
securities of the Company held by such Person).
B. If at any annual or special meeting of Company stockholders
following a contested election the Board of Directors of the Company shall cease
to be an Authorized Board. For purposes of this paragraph, a "contested
election" shall mean (i) an election contest subject to Rule 14a-11 under the
Exchange Act or (ii) an election which would have been subject to Rule 14a-11 if
at the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act.
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C. If a change of control of the Company (i) required to be reported
in accordance with Item 6 of Schedule 14A under the Exchange Act, or (ii) which
would be required to be reported in accordance with Item 6 of Schedule 14A if at
the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act, has otherwise occurred, unless a Constitutional
Majority of an Authorized Board approves the change of control and specifically
waives the application of this section.
For purposes of this Section 4.9 "Person" shall have the meaning
set forth in Sections 13(d) and 14(d)(2) of the Exchange Act, as in effect on
the date thereof, and shall include, without limitation, any "Affiliate" or
"Associate" of such Person (as those terms are used in Rule 12b-2 under the
Exchange Act); provided, however, that the term "Person" shall not include the
Company or any trustee or other fiduciary holding securities under any employee
benefit plan of the Company. For purposes of this Section 4.9, (i) beneficial
ownership shall be computed in accordance with Rule 13d-3 under the Exchange
Act; and (ii) "Authorized Board" shall mean a Board of Directors of the Company
of which a number of directors equal to a majority of the authorized number of
directors constituting the entire Board, including vacancies (a "Constitutional
Majority"), were either members of the Board of Directors on the date of the
Company's Initial Public Offering or were nominated or elected a director by a
Constitutional Majority at the date of nomination or election of an Authorized
Board.
4.10 "Initial Public Offering." "Initial Public Offering" shall mean the
Company's first offering of securities to the public which is registered
pursuant to the Securities Act.
V. Eligibility and Participation
Grants of ISOs may be made to Employees of the Company or any Participating
Subsidiary. Grants of NSOs may be made to Employees or directors of, or
consultants to, the Company or any Participating Subsidiary. Any director of
the Company or of a Participating Subsidiary who is also an Employee shall also
be eligible to receive ISOs. The Board or Committee shall from time to time
determine the Participants to whom Stock Options shall be granted, the number of
shares of Common Stock subject to each Stock Option to be granted to each such
Participant, and the Option Price of such Stock Options, all as provided in this
Plan. The Option Price of any ISO shall be not less than the Fair Market Value
of a share of Common Stock on the date on which the Stock Option is granted, and
the Option Price of an NSO shall be not less than fifty percent (50%) of the
Fair Market Value on the date the NSO is granted. If an ISO is granted to an
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, the Option Price of such ISO shall be at least 110%
of the Fair Market Value of the Common Stock subject to the ISO at the time such
ISOs are granted, and such ISO shall not be exercisable after five years after
the date on which it was granted. Each Stock Option shall be evidenced by a
written agreement ("Option Agreement") containing such terms and provisions as
the Committee may determine, subject to the provisions of this Plan.
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VI. Shares of Common Stock Subject to the Plan
6.1. Maximum Number. The maximum aggregate number of shares of Common
Stock that may be made subject to Stock Options shall be 6,257,665 authorized
shares. To the extent the aggregate Fair Market Value (determined as of the
time the ISO is granted) of the stock with respect to which ISOs are exercisable
for the first time by an individual in a particular calendar year exceeds
$100,000, such excess Stock Options shall be treated as NSOs. If any shares of
Common Stock subject to Stock Options are not purchased or otherwise paid for
before such Stock Options expire, such shares may again be made subject to Stock
Options.
6.2. Capital Changes. In the event any changes are made to the shares of
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in:
(i) the number of shares of Common Stock theretofore made subject to Stock
Options, and in the Option Price of said shares; and (ii) the aggregate number
of shares which may be made subject to Stock Options in the future. If any of
the foregoing adjustments shall result in a fractional share, the fraction shall
be disregarded, and the Company shall have no obligation to make any cash or
other payment with respect to such a fractional share.
VII. Exercise of Stock Options
7.1 Time of Exercise. Subject to the provisions of the Plan, the
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. Unless
otherwise specified in an Option Agreement, a Stock Option shall become
exercisable (i) with respect to 20% of the shares subject thereto on the
anniversary of the date of grant, and (ii) with respect to 1/48th of the shares
subject thereto at the end of each month after the first anniversary of the date
of grant, (so that all Stock Options are fully vested five (5) years after the
date of grant) subject to continued employment with the Company or a
Participating Subsidiary and Section 7.4 hereof. A Stock Option shall expire,
to the extent not exercised, no later than the tenth anniversary of the date on
which it was granted. The Committee may accelerate the vesting of any
Participant's Stock Option by giving written notice to the Participant. Upon
receipt of such notice, the Participant and the Company shall amend the Option
Agreement to reflect the new vesting schedule. The acceleration of the exercise
period of a Stock Option shall not affect the expiration date of that Stock
Option.
7.2 Exchange of Outstanding Stock. The Committee, in its sole
discretion, may permit a Participant to (i) surrender to the Company whole
shares of Common Stock previously acquired by the Participant and/or (ii)
request that the Company withhold whole shares of Common Stock issuable upon
exercise of the Stock Option, as part or full payment for the exercise of a
Stock Option. Such surrendered or withheld shares shall be valued at their Fair
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Market Value on the date of exercise. Shares credited to a Participant shall
again be available for grant under the Plan.
7.3. Use of Promissory Note; Exercise Loans. The Committee may, in its
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole discretion, may
authorize the Company to make a loan to a Participant in connection with the
exercise of Stock Options, or authorize the Company to arrange or guarantee
loans to a Participant by a third party. Any loan by the Company or acceptance
of a promissory note shall be made in accordance with the corporate law of the
Company's state of incorporation.
7.4. Termination of Employment before Exercise. If the employment of a
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than the
Participant's death or disability, any Stock Option granted to the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of the Participant's employment for a
period of three (3) months (but not later than the specified expiration date).
If the Participant's employment is terminated because the Participant is
disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option
granted to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of twelve (12) months (but not later than the specified
expiration date). If the Participant dies while employed by the Company or a
Participating Subsidiary, or during the three-month or twelve-month periods
referred to above, his Stock Options may be exercised by the Participant's
estate, duly appointed representative or beneficiary who acquires the Stock
Options by will or by the laws of descent and distribution, to the extent that
they were exercisable on the date of cessation of his employment, but no further
installments of the Participant's Stock Options will become exercisable and each
of the Participant's Stock Options shall terminate on the first anniversary of
the date of the Participant's death (but not later than the specified expiration
dates). If a Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
Notwithstanding the foregoing provisions of this Section 7.4, but subject
to the other provisions of this Plan, the Option Agreement may specify longer
periods for exercise of a NSO or ISO (unless to do so in the case of an ISO
would cause the ISO not to qualify as an incentive stock option pursuant to
Section 422 of the Code) after any such an event.
Upon action of the Committee in its sole discretion, except as provided in
a written employment or consulting agreement of the Company or a Participating
Subsidiary with the Participant, which is referenced in the Option Agreement,
any Stock Option shall terminate immediately, and may not be exercised, and any
exercise for which certificates for the shares have not been delivered to the
Participant shall be void and unwound: (i) if prior to the date of
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exercise and/or delivery of such certificate(s) (but in any event not later than
five (5) days after date of exercise) Participant is terminated for cause as an
Employee of the Company or its Participating Subsidiary, or if not an Employee,
for cause as a director or consultant for the Company or its Participating
Subsidiary; or (ii) if subsequent to a Participant's termination and prior to
the expiration of the term of the Stock Option conditions arise or are
discovered with respect to a Participant that would have constituted cause for
termination. "Cause" shall have the meaning given to it in the Participant's
written employment, consultant or director agreement with the Company or
Participating Subsidiary. If no such written agreement exists, "cause" shall
mean (i) dishonesty which is not the result of an inadvertent or innocent
mistake with respect to the Company or any of its subsidiaries; (ii) willful
misfeasance or nonfeasance of duty intended to injure or having the effect of
injuring in some material fashion the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or employees; (iii) conviction upon a charge of
any crime involving moral turpitude or a crime other than a vehicle offense
which could reflect in some material fashion unfavorably upon the Company or any
of its subsidiaries; or (iv) willful or prolonged absence from work by the
Participant (other than by reason of disability due to physical or mental
illness) or failure, neglect or refusal by the Participant to perform his duties
and responsibilities without the same being corrected upon twenty (20) days
prior written notice. In addition, unless specifically provided otherwise in
reference to this Plan in a written employment, consultant or director agreement
with the Company or Participating Subsidiary, "cause" for purposes of this
Section 7.4 shall exist (and termination of the Stock Option may occur even if
not so provided in the written employment, consultant or director agreement with
the Company or Participating Subsidiary) if the Participant materially breaches
any provision of an agreement with the Company or any of its subsidiaries with
respect to obligations regarding non-competition, confidentiality, non-
solicitation of customers, and non-hire of customers and employees of the
Company or a Subsidiary, or if the Participant commits a material breach of any
other obligation to the Company or any of its subsidiaries under conditions
where the existence of this risk of termination of the Stock Option would not
constitute a substantial risk of forfeiture under Section 83 of the Code if
Section 83 of the Code would apply in respect of such Stock Options in such
circumstance and require such Stock Option to be treated as taxable income to
the Participant prior to exercise or transfer of the Stock Option.
7.5. Disposition of Forfeited Stock Options. Any shares of Common Stock
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
7.6. Conditions of Exercise. Notice of exercise shall be in the form
attached to the Option Agreement and shall, in the discretion of the Company,
contain a representation, in the form provided by the Company, that the shares
are being purchased for investment only and not for resale or distribution, and
such other representations and agreements as the Company may reasonably require,
and may in addition require as a condition of exercise that the Participant
execute any stockholders agreement which is to be applicable to either: (i)
holders of 70% or more of the capital stock of the Company or (ii) holders of
60% or more of the Stock Options
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granted under this Plan. The Company may also require as a condition of exercise
that the Participant will agree, if requested by the Company in connection with
a public offering of the Company's securities, to adhere to lock-up arrangements
between the Company and an underwriter involved in such public offering.
VIII. No Contract of Employment
Nothing in this Plan shall confer upon the Participant the right to
continue as an employee, consultant or director of the Company or any
Participating Subsidiary, nor shall it interfere in any way with the right of
the Company, or any Participating Subsidiary, to discharge the Participant at
any time for any reason whatsoever, with or without cause. Nothing in this
Article VIII shall affect any rights or obligations of the Company or any
Participant under any written contract of employment.
IX. No Rights as a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in Section
6.2, no adjustment shall be made in the number of shares of Common Stock issued
to a Participant, or in any other rights of the Participant upon exercise of a
Stock Option by reason of any dividend, distribution or other right granted to
stockholders for which the record date is prior to the date of exercise of the
Participant's Stock Option. The Committee, the Board and the Company have no
continuing duty to provide a Participant with information concerning the
Company.
X. Assignability
No Stock Option granted under this Plan, nor any other rights acquired
by Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution.
Notwithstanding the preceding sentence, the Committee, in its sole discretion,
may permit the assignment or transfer of an NSO and the exercise thereof by a
person other than a Participant, on such terms and conditions as the Committee
in its sole discretion may determine. Any such terms shall be set forth in the
Option Agreement. In the event of a Participant's death, the Stock Option may be
exercised by the personal representative of the Participant's estate or by the
successor or successors in interest determined under the Participant's will or
under the applicable laws of descent and distribution. The terms of any rights
under this Plan in the hands of a transferee or assignee shall be determined as
if held by the Participant and shall be of no greater extent or term than if the
transfer or assignment had not taken place.
XI. Corporate Transactions and Changes in Control
11.1. At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction. The vesting schedules of all Stock
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Options shall automatically be accelerated so that the Stock Options shall
become exercisable as to those shares which could be purchased under those
vesting schedules 12 months after the date of consummation of the Corporation
Transaction. In addition, at the sole discretion of the Committee, the vesting
schedule of some or all other Stock Options may be accelerated so that all or
any portion of Stock Options outstanding under the Plan immediately prior to the
consummation of the Corporate Transaction shall, for all purposes under this
Plan, become exercisable as of such time. If a Corporate Transaction is to
occur, in lieu of allowing a Participant to exercise the Participant's Stock
Options, the Board may, in its sole discretion, require some or all Participants
to accept a cash payment in consideration for the termination of the
Participant's Stock Options. The termination shall occur immediately prior to
the consummation of the Corporate Transaction and the cash payment shall be
equal to the difference between the price per share of Common Stock in the
Corporate Transaction as determined by the Board and the exercise price of a
Participant's Stock Options. All Stock Options, to the extent not previously
exercised, shall terminate upon the consummation of such Corporate Transaction
and cease to be exercisable unless expressly assumed by the successor
corporation or parent thereof. Provided, however, that if the Corporate
Transaction is to be accounted for as a "pooling-of-interest," then unexercised
stock options shall be exchanged for similar options of the acquiror or
surviving entity or voting common stock of the acquiror or surviving entity
based on the value of the options, as and to the extent required by APB No. 16,
accounting pronouncements of the Securities and Exchange Commission, and other
authoritative principles and pronouncements concerning pooling-of-interest
accounting. Notwithstanding the foregoing, the vesting of a Participant's Stock
Options shall not be accelerated (if and to the extent requested in writing by
the Participant) upon a Corporate Transaction if the participant is a
"disqualified individual" as that term is defined in Section 280G of the
Internal Revenue Code.
11.2. The vesting schedules of all Stock Options shall be automatically
accelerated so that the Stock Options shall become exercisable as to all shares
subject to the Stock Options if the Participant's employment is terminated
without cause by the Company within one (1) year following a Change in Control.
"Without cause" means that "cause" did not exist as defined in Section 7.4.
11.3 The employment, consulting or directorship agreement, or the Option
Agreement of a Participant may contain terms which vary from Sections 11.1 and
11.2 upon approval of the Board and the Committee.
XII. Amendment
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified as
incentive stock options under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto; provided, however,
that no such action shall adversely affect the rights and obligations with
respect to Stock Options at any time outstanding under the Plan; and provided
further that no such action shall, without the approval of the stockholders of
the Company, (i) increase the maximum
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number of shares of Common Stock that may be made subject to Stock Options
(unless necessary to effect the adjustments required by Section 6.2), (ii)
materially modify the requirements as to eligibility for participation in the
Plan, or (iii) materially increase the benefits accruing to Participants under
the Plan.
XIII. Registration of Optioned Shares
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act and applicable state securities laws or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Securities Act and
from the registration or qualification requirements of applicable state
securities laws. Any certificates for such shares shall bear such legends as
deemed appropriate by the Committee.
XIV. Withholding Taxes
The Company or Participating Subsidiary may take such steps as it may
deem necessary or appropriate for the withholding of any taxes or funds
(including the withholding of shares of Common Stock otherwise issuable which
have appropriate Fair Market Value) which the Company or the Participating
Subsidiary is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Stock Options.
XV. Brokerage Arrangements
The Committee, in its discretion, may enter into arrangements with one
or more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon the exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and the sale of shares acquired upon exercise.
XVI. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board of Directors may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term or long-term incentive plans.
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XVII. Effective Date
The 1998 Stock Option Plan was adopted by the Board and by the
Company's stockholders on May 7, 1998, and this Plan was restated by the Board
and the Company's stockholders on October 22, 1999. The effective date of this
Plan is May 7, 1998. No Stock Options shall be granted subsequent to ten years
after the effective date of the Plan. Stock Options outstanding subsequent to
ten years after the effective date of the Plan shall continue to be governed by
the provisions of the Plan.
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NON-STATUTORY STOCK OPTION AGREEMENT
This NON-STATUTORY STOCK OPTION AGREEMENT is made ________, 199___, between
INTEK INFORMATION, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable contributor to the Company
and the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to serve the
Company or its subsidiaries and to increase Optionee's proprietary interest in
the Company, desires to enter into this Agreement containing the terms and
conditions hereinafter set forth and to grant Optionee an option to purchase
shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company hereby
grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Company's
Amended and Restated 1998 Stock Option Plan (the "1998 Plan"),
______________________. The option shall terminate on the tenth anniversary of
the date hereof and, accordingly, may not be exercised after that date. The
purchase price to be paid for such Shares upon exercise of the option shall be
$______ per share, being not less than the percentage of fair market value of
the Shares on the date of this Agreement required under the 1998 Plan. This
option is granted pursuant to, and is subject to the terms and conditions of the
1998 Plan, a copy of which has been furnished to Optionee and receipt of which
Optionee hereby acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The
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Company shall give the person or persons entitled to the same at least five (5)
days' notice of the time and place for delivery and for the payment of such
purchase price.
3. Conditions of Option. The option is subject to the following
additional conditions:
(a) The option herein granted to Optionee shall not be transferable by
Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of
the 1998 Plan, but only to the extent that Optionee had the right to
exercise such option at the date of termination of the Optionee's service
to the Company.
4. Representation as to Investment. Unless the Option and the shares are
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Notices. Any notice to be given by Optionee as required by this
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
6. Restriction Against Assignment. Except as otherwise expressly provided
above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
7. Further Agreements. The undersigned agrees, in connection with the
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the 1998 Plan.
The undersigned will, if requested, by the
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Company in connection with a public offering of the Company's securities, adhere
to lock-up arrangements between the Company and an underwriter involved in such
public offering.
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
IN WITNESS WHEREOF, the Company and the Optionee have executed this Non-
Statutory Stock Option Agreement as of the day and year first above written.
ATTEST: INTEK INFORMATION, INC.
By:________________________ By:___________________________
Secretary President
______________________________
______________, Optionee
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EXHIBIT 1
NOTICE OF EXERCISE
TO: INTEK INFORMATION, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of INTEK INFORMATION, INC. pursuant to the terms of the
attached Non-statutory Stock Option Agreement, and tenders herewith payment
of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
---------------------------------------
---------------------------------------
---------------------------------------
(Address)
Date: _______________________________
Optionee
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EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: INTEK INFORMATION, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
INTEK INFORMATION, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company.
He has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask
questions of, and receive answers from, representatives of the Company
concerning its business operations. Any questions raised by the Purchaser
have been answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability
or value of the Shares. The Purchaser understands that there is currently
no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, and cannot be resold unless they are subsequently
registered under said Act or an exemption from registration is available,
the Purchaser must continue to bear the economic risk of his investment in
the Shares for an indefinite period of time. Specifically, the Purchaser
agrees that the Shares may not be transferred until the Company has
received an opinion of counsel reasonably satisfactory to it that the
proposed transfer will not violate federal or state securities laws unless
the Company receives this requirement. The Company has not agreed or
represented to the Purchaser that the Shares will be purchased or redeemed
from the Purchaser at any time in the future. Further, there have been no
representations, promises, or agreements that the Shares will be registered
under the Securities Act of 1933 at any time in the future or otherwise
qualified for sale under the applicable securities laws. The Purchaser
further understands that a notation will be made on the appropriate records
of the Company and on the Stock Certificate representing the Shares so that
the transfer of Shares will not be effected on those records without
compliance with the restrictions referred to above.
Date: _____________________________________
Purchaser
16-
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
This INCENTIVE STOCK OPTION AGREEMENT is made ________, 199___, between
INTEK INFORMATION, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable employee of the Company and
the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to remain in
the employment of the Company or its subsidiaries and to increase Optionee's
proprietary interest in the Company, desires to enter into this Agreement
containing the terms and conditions hereinafter set forth and to grant Optionee
an option to purchase shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company hereby
grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Company's
Amended and Restated 1998 Stock Option Plan, (the "1998 Plan")
________________________. The option shall terminate on the tenth anniversary
of the date hereof and, accordingly, may not be exercised after that date. The
purchase price to be paid for such Shares upon exercise of the option shall be
$______ per share, being at least the fair market value of the Shares on the
date of this Agreement. This option is granted pursuant to, and is subject to
the terms and conditions of the 1998 Plan, a copy of which has been furnished to
Optionee and receipt of which Optionee hereby acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The Company shall give the person or persons
17-
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entitled to the same at least five (5) days' notice of the time and place for
delivery and for the payment of such purchase price.
3. Conditions of Option. The option is subject to the following
additional conditions:
(a) The option herein granted to Optionee shall not be transferable by
Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of
the 1998 Plan, but only to the extent that Optionee had the right to
exercise such option at the date of termination of the Optionee's
employment with the Company.
4. Representation as to Investment. Unless the Option and the shares are
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Qualification of Option. The option is intended to qualify as an
incentive stock option within the meaning of the Internal Revenue Code of 1986,
as amended, and shall be so construed, provided, however, that nothing herein
shall be deemed to be or interpreted as a representation, guarantee, or other
undertaking on the part of the Company that such option is or will be determined
to be an incentive stock option within that or any other section of the Internal
Revenue Code.
6. Notices. Any notice to be given by Optionee as required by this
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
7. Restriction Against Assignment. Except as otherwise expressly provided
above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
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<PAGE>
8. Further Agreements. The undersigned agrees, in connection with the
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the 1998 Plan.
The undersigned will, if requested, by the Company in connection with a public
offering of the Company's securities, adhere to lock-up arrangements between the
Company and an underwriter involved in such public offering.
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Incentive Stock Option Agreement as of the day and year first above written.
ATTEST: INTEK INFORMATION, INC.
By:________________________ By:___________________________
Secretary President
______________________________
______________, Optionee
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<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: INTEK INFORMATION, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of INTEK INFORMATION, INC. pursuant to the terms of the
attached Incentive Stock Option Agreement, and tenders herewith payment of
the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
---------------------------------------
---------------------------------------
---------------------------------------
(Address)
Date: _______________________________
Optionee
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<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: INTEK INFORMATION, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
INTEK INFORMATION, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company.
He has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask
questions of, and receive answers from, representatives of the Company
concerning its business operations. Any questions raised by the Purchaser
have been answered to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability
or value of the Shares. The Purchaser understands that there is currently
no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, and cannot be resold unless they are subsequently
registered under said Act or an exemption from registration is available,
the Purchaser must continue to bear the economic risk of his investment in
the Shares for an indefinite period of time. Specifically, the Purchaser
agrees that the Shares may not be transferred until the Company has
received an opinion of counsel reasonably satisfactory to it that the
proposed transfer will not violate federal or state securities laws unless
the Company receives this requirement. The Company has not agreed or
represented to the Purchaser that the Shares will be purchased or redeemed
from the Purchaser at any time in the future. Further, there have been no
representations, promises, or agreements that the Shares will be registered
under the Securities Act of 1933 at any time in the future or otherwise
qualified for sale under the applicable securities laws. The Purchaser
further understands that a notation will be made on the appropriate records
of the Company and on the Stock Certificate representing the Shares so that
the transfer of Shares will not be effected on those records without
compliance with the restrictions referred to above.
Date: ___________________________________
Purchaser
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<PAGE>
Exhibit 10.4
INTEK INFORMATION, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE: CONDITION TO EFFECTIVENESS
The INTEK INFORMATION, INC. Employee Stock Purchase Plan (the "Plan") is
intended to provide a method whereby employees of INTEK INFORMATION, INC. and
its Subsidiary Corporations (hereinafter referred to, unless the context
otherwise requires, as the "Company") will have an opportunity to acquire a
proprietary interest in the Company through the purchase of shares of the Common
Stock of INTEK INFORMATION, INC. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that Section of the Code.
This Plan shall become effective upon and contingent upon the closing of
initial public offering of the Stock pursuant to a registration statement filed
pursuant to the Securities Act of 1933 and a registration statement under such
Act registering the Stock included within this Plan ("Offering Condition").
ARTICLE II
DEFINITIONS
2.1 Base Pay means the regular straight-time earnings excluding payments for
--------
overtime, shift premium, bonuses and other special payments, commissions
and other marketing incentive payments. In the case of a part-time hourly
employee, base pay shall be determined by multiplying such employee's
hourly rate of pay in effect on the Offering Commencement Date by the
number of regularly scheduled hours of work for such employee during such
Offering.
2.2 Board means the Board of Directors of Intek Information, Inc.
-----
2.3 Code means the Internal Revenue Code of 1986, as amended.
----
2.4 Committee means the individuals described in Article XI.
---------
2.5 Employee means any person who is customarily employed on a full-time or
--------
part-time basis by the Company and is regularly scheduled to work more than
twenty (20) hours per week and customarily works for more than five (5)
months per year. A person who is employed by a "temporary agency" and
works off or on the premises of the Company is not an Employee.
<PAGE>
2.6 Stock means the common stock of the Company, par value $0.001.
-----
2.7 Subsidiary Corporation means any present or future corporation which (i)
-----------------------
would be a "subsidiary corporation" of Intek Information, Inc. as that term
is defined in Section 424 of the Code and (ii) is designated as a
participant in the Plan by the Board or the Committee (and by adoption of
this Plan by the Board, Intek Teleservices, Inc., Brokerage Administrators
Corporation, Acorn Information Services, Inc., and Intek Insurance, Inc.
are so designated).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Initial Eligibility. Any employee who shall have completed six (6) months
-------------------
of continuous employment and shall be employed by the Company on the date
her or his participation in the Plan is to become effective shall be
eligible to participate in offerings under the Plan which commence on or
after such six month period has concluded.
3.2 Leave of Absence. For purposes of participation in the Plan, a person on
----------------
leave of absence shall be deemed to be an employee for the first 90 days of
such leave of absence and such employee's employment shall be deemed to
have terminated at the close of business on the 90th day of such leave of
absence unless such employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on
such 90th day. Termination by the Company of any employee's leave of
absence, other than termination of such leave of absence on return to full
time or part time employment, shall terminate an employee's employment for
all purposes of the Plan and shall terminate such employee's participation
in the Plan and right to exercise any option.
3.3 Restrictions on Participation. Notwithstanding any provisions of the Plan
-----------------------------
to the contrary, no Employee shall be granted an option to participate in
the Plan:
3.3.1 if, immediately after the grant, such Employee would own stock,
and/or hold outstanding options to purchase stock, possessing five
percent (5%) or more of the total combined voting power or value of
all classes of stock of the Company (for purposes of this
paragraph, the rules of Section 424(d) of the Code shall apply in
determining stock ownership of any employee); or
3.3.2 which permits her or his rights to purchase stock under all
employee stock purchase plans of the Company and its Subsidiary
Corporations and parents (as provided in Code Section 4231(b)(8))
and to accrue at a rate which exceeds the lesser of 1,500 shares of
Stock or $25,000 in fair market value of the stock of the Company
and its Subsidiary Corporations and parents (determined at the time
such option is granted) for each calendar year in which such option
is outstanding.
2
<PAGE>
3.4 Commencement of Participation. An eligible employee may become a
-----------------------------
participant by completing an authorization for a payroll deduction on the
form provided by the Company ("Authorization") and filing it with the
office of the Treasurer of the Company on or before the date set therefor
by the Committee, which date shall be prior to the Offering Commencement
Date for the Offering (as such terms are defined below). Payroll deductions
for a participant shall commence on the applicable Offering Commencement
Date when her or his Authorization becomes effective and shall end on the
Offering Termination Date of the Offering to which such Authorization is
applicable, unless sooner terminated by the participant as provided in
Article VIII.
ARTICLE IV
OFFERINGS
4.1 Semi-Annual Offerings. The Plan will be implemented in eight offerings of
---------------------
the Company's Stock (the "Offerings"), or, if less, in such number of
offerings in which options are exercised to purchase the maximum number of
shares of Stock reserved for the Plan by the Company pursuant to this
Section. The first Offering under the Plan shall commence on the 1st day
of the month after both: (i) approval of the Plan by a majority of the
stockholders of the Company, and the Offering Condition has been met, or
subject to any requirements of the Code such later date as the Board may at
its discretion determine, and shall terminate six (6) or fewer months
thereafter, at the Board's discretion. Each subsequent Offering shall
commence on the first business day after the termination of the prior
Offering and shall terminate six (6) months thereafter ("Offering Period").
The maximum number of shares of Stock reserved by the Company for the Plan
shall be 858,000 shares and the maximum number of shares of Stock issued in
each respective Offering Period shall be 107,250 shares plus unissued
shares, if any, from the prior Offerings, whether offered or not.
As used in the Plan, "Offering Commencement Date" means the day on which
the particular Offering begins and "Offering Termination Date" means the
day on which the particular Offering terminates.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 Amount of Deduction. At the time a participant files her or his
-------------------
Authorization for payroll deduction, she or he shall elect to have
deductions made from her or his pay on each payday during the time he is a
participant in an Offering at the rate of up to ten percent (10%) of her or
his Base Pay in effect at the Offering Commencement Date of such Offering
("Contribution Rate"). A participant may not authorize payroll deductions
for an amount less than $10.00 per month.
3
<PAGE>
5.2 Participant's Account. All payroll deductions made for a participant shall
---------------------
be credited to her or his account under the Plan. A participant may not
make any separate cash payment into such account except when on leave of
absence and then only as provided in Section 5.4.
5.3 Changes in Payroll Deductions. A participant may discontinue her or his
-----------------------------
participation in the Plan as provided in Article VIII, but no other change
can be made during an Offering and, specifically, a participant may not
alter the amount of her or his payroll deductions for that Offering.
5.4 Leave of Absence. If a participant goes on a leave of absence, such
----------------
participant shall have the right to elect: (a) to withdraw the balance in
her or his account pursuant to Section 7.2, (b) to discontinue
contributions to the Plan but remain a participant in the Plan, or remain a
participant in the Plan during such leave of absence, authorizing
deductions to be made from payments by the Company to the participant
during such leave of absence and undertaking to make cash payments to the
Plan at the end of each payroll period to the extent that amounts payable
by the Company to such participant are insufficient to meet such
participant's authorized Plan deductions.
ARTICLE VI
GRANTING OF OPTION
6.1 Number of Option Shares. On the Commencement Date of each Offering, and
-----------------------
subject to the limitations in Article III herein, a participating employee
shall be deemed to have been granted an option to purchase a maximum number
of shares of Stock in an amount equal to that participant's Contribution
Rate multiplied by her or his Base Pay during the Offering Period and
divided by the Option Price (as defined in Section 6.2 herein).
6.1.1 An Employee's Base Pay during a six-month Offering Period shall be
determined by multiplying her or his normal weekly rate of pay (as in
effect on the last day prior to the Commencement Date of the
particular offering) by 26 or the hourly rate by 1,040, (and for any
Offering Period of less than six months a pro rata adjustment shall
be made), provided that, in the case of a part time hourly Employee,
the Employee's base pay during the period of an Offering shall be
determined by multiplying such Employee's hourly rate by the number
of regularly scheduled hours of work for such Employee during such
Offering.
6.2 Option Price. Unless the Board or Committee determines at its discretion a
------------
higher price to apply to all participants during the Offering Period (but
not more than 100% of the closing or fair market value prices described
below), the option price of stock purchased with payroll deductions made
during an Offering Period for a participant therein shall be the lesser of:
4
<PAGE>
6.2.1 85% of the closing price of the stock on the Offering Commencement
Date, or the nearest prior business day on which trading occurred on
the NASDAQ National Market System; or
6.2.2 85% of the closing price of the stock on the Offering Termination
Date, or the nearest prior business day on which trading occurred on
the NASDAQ National Market System.
If the Common Stock of Intek Information, Inc. is not admitted to trading on the
NASDAQ National Market System any of the aforesaid dates for which closing
prices of the stock are to be determined, then reference shall be made to the
fair market value of the stock on that date, as determined on such basis as
shall be established or specified for the purpose by the Board of Directors or
the Committee.
ARTICLE VII
EXERCISE OF OPTION
7.1 Automatic Exercise. Unless a participant gives written notice to the
------------------
Company as hereinafter provided, her or his option for the purchase of
Stock made during any Offering pursuant to this Plan will be deemed to have
been exercised automatically on the Offering Termination Date of such
Offering for the purchase of the number of full shares of Stock which the
accumulated payroll deductions in her or his account at that time will
purchase at the applicable Option Price (but not in excess of the number of
shares for which options have been granted to the employee pursuant to
Section 6.1), and any excess funds in her or his account at that time will
be returned to her or him.
7.2 Withdrawal of Account. By written notice to the Offices of the Treasurer
---------------------
of the Company, at any time prior to the Offering Termination Date for any
Offering, a participant may elect not to exercise her or his options under
the Plan and to withdraw the accumulated payroll deductions in her or his
account at such time.
7.3 Fractional Shares. Fractional shares will not be issued under the Plan and
-----------------
any accumulated payroll deductions which would have been used to purchase
fractional shares will be returned to any employee promptly following the
termination of an Offering, without interest.
7.4 Transferability of Option. During a participant's lifetime, any and all
-------------------------
options held by such participant shall be exercisable only by that
participant and may not be sold, assigned, transferred, or otherwise
disposed of to any other person or entity, except by will or the laws of
descent and distribution. Any such transfer or assignment of options held
by participants under the Plan in violation of this Section shall have no
effect and shall be null and void.
5
<PAGE>
7.5 Delivery of Stock. As promptly as practicable after the Offering
-----------------
Termination Date of each Offering, the Company will issue and deliver to
each participant, as appropriate, stock certificates for Stock purchased
under the Plan, which at the Board's direction may bear a legend stating
certain resale restrictions provided for in Article XII herein.
ARTICLE VIII
WITHDRAWAL
8.1 In General. As provided in Section 7.2, a participant may withdraw payroll
----------
deductions credited to her or his account under the Plan at any time by
giving written notice to the Offices of the Treasurer of the Company. All
of the participant's payroll deductions credited to her or his account will
be paid to her or him promptly after receipt of her or his notice of
withdrawal, and no further payroll deductions will be made from her or his
pay during such Offering. The Company may, at its option, treat any
attempt by an Employee to borrow on the security of her or his accumulated
payroll deductions as an election, under Section 7.2, to withdraw such
deductions.
8.2 Effect on Subsequent Participation. A participant's withdrawal from any
----------------------------------
Offering will not have any effect upon her or his eligibility to
participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company.
8.3 Termination of Employment. Upon termination of the participant's
-------------------------
employment for any reason, including retirement (but excluding death while
in the employ of the Company or continuation of a leave of absence for a
period beyond 90 days), the payroll deductions credited to her or his
account will be returned to her or him, or, in the case of her or his death
subsequent to the termination of her or his employment, to the person or
persons entitled thereto under Section 13.1.
8.4 Termination of Employment Due to Death. Upon termination of the
--------------------------------------
participant's employment because of her or his death, her or his
beneficiary (as defined in Section 13.1) shall have the right to elect, by
written notice given to the Offices of the Treasurer of the Company prior
to the earlier of the Offering Termination Date or the expiration of a
period of sixty (60) days commencing with the date of the death of the
participant, either:
8.4.1 to withdraw all of the payroll deductions credited to the
participant's account under the Plan, or
8.4.2 to exercise the participant's option for the purchase of stock on the
Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares of
stock which the accumulated payroll deductions in the participant's
account at the date of the participant's death will
6
<PAGE>
purchase at the applicable Option Price, and any excess in such
account will be returned to said beneficiary, without interest.
In the event that no such written notice of election shall be duly received
by the Offices of the Treasurer of the Company, the beneficiary shall
automatically be deemed to have elected, pursuant to Section 8.4.2, to
exercise the participant's option.
8.5 Leave of Absence. A participant on leave of absence shall, subject to the
----------------
election made by such participant pursuant to Section 5.4, continue to be a
participant in the Plan so long as such participant is on continuous leave
of absence. A participant who has been on leave of absence for more than
90 days and who therefore is not an employee for the purpose of the Plan
shall not be entitled to participate in any offering commencing after the
90th day of such leave of absence. Notwithstanding any other provisions of
the Plan, unless a participant on leave of absence returns to regular full-
time or part-time employment with the Company at the earlier of: (a) the
termination of such leave of absence or (b) three months from the 90th day
of such leave of absence, such participant's participation in the Plan
shall terminate on whichever of such dates first occurs.
ARTICLE IX
INTEREST
9.1 No Payment of Interest. No interest will be paid or allowed on any money
----------------------
paid into the Plan or credited to the account of any participant Employee.
ARTICLE X
STOCK
10.1 Maximum Shares. The maximum number of shares which shall be issued under
--------------
the Plan, subject to adjustment upon changes in capitalization of Intek
Information, Inc. as provided in Section 13.4 shall not exceed 3,000,000
pre-split shares for all Offerings under the Plan (375,000 pre-split shares
in each of the eight semi-annual Offering Periods plus all unissued shares
from prior Offerings). If the total number of shares for which options are
exercised on any Offering Termination Date in accordance with Article VI
exceeds the maximum number of shares for the applicable offering, the
Company shall make a pro rata allocation of the shares available for
delivery and distribution in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable, and the balance of
payroll deductions credited to the account of each participant under the
Plan shall be returned to her or him as promptly as possible.
10.2 Participant's Interest in Option Stock. The participant will have no
--------------------------------------
interest in stock covered by her or his option until such option has been
exercised.
7
<PAGE>
10.3 Registration of Stock. Stock to be delivered to a participant under the
---------------------
Plan will be registered on the books of the Company in the name of the
participant, or, if the participant so directs by written notice to the
Treasurer of the Company prior to the Offering Termination Date applicable
thereto, in the names of the participant and one such other person as may
be designate by the participant, as joint tenants with rights of
survivorship or as tenants by the entireties, to the extent permitted by
applicable law.
10.4 Restrictions on Exercise. The Board may, in its discretion, require as
------------------------
conditions to the grant or exercise of any option that the shares of Common
Stock reserved for issuance upon the exercise of the option shall have been
duly listed, upon official notice of issuance, upon a stock exchange or the
NASDAQ trading system, and that a Registration Statement under the
Securities Act of 1933, as amended, with respect to said shares shall be
effective and all state securities laws shall be complied with.
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Committee. The Board may at its discretion appoint a
------------------------
committee (the "Committee") to administer the Plan, which shall consist of
no fewer than three members of the Board. No member of the Committee shall
be eligible to purchase stock under the Plan.
11.2 Authority of Committee. Subject to the express provisions of the Plan, the
----------------------
Board or the Committee, if one is appointed, shall have plenary authority
in its discretion to interpret and construe any and all provisions of the
Plan, to adopt rules and regulations for administering the Plan, and to
make all other determinations deemed necessary or advisable for
administering the Plan. If no committee is appointed, the Board shall
constitute the "Committee." The Committee's determination on the foregoing
matters shall be conclusive.
11.3 Rules Governing the Administration of the Committee. The Board may from
---------------------------------------------------
time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee may select one of its members as
its Chairman and shall hold its meetings at such times and places as it
shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. The Committee may correct any
defect or omission or reconcile any inconsistency in the Plan, in the
manner and to the extent it shall deem desirable. Any decision or
determination reduced to writing and signed by a majority of the members of
the Committee shall be as fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint
a secretary and shall make such rules and regulations for the conduct of
its business as it shall deem advisable.
8
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ARTICLE XII
LIMITATIONS ON SALE OF STOCK PURCHASED
UNDER THE PLAN; TAX MATTERS
12.1 Resale Restrictions. Each participant who is subject to Section 16(a)
-------------------
promulgated under the Securities Exchange Act of 1934 (e.g., officers,
employee directors, and employees holding 10% or more of any class of stock
of the Company), will agree upon entering the Plan to hold the Stock for a
period of six (6) months after its acquisition. All other participants
will agree upon entering the Plan to hold the Stock for a period of two (2)
months after its acquisition. Because of certain federal tax law
requirements, each participant will agree upon entering the Plan, promptly
to give the Chief Financial Officer of the Company notice of any Stock
disposed of within two (2) years after the Offering Commencement Date or
one (1) year after the Offering Termination Date (the "Holding Period").
The Employee understands that disposing of the Stock during the Holding
Period may have adverse tax consequences to the Employee. The Employee
assumes the risk of any fluctuations in the price of such Stock.
12.2 Satisfaction of Withholding Obligations. The Company may take such steps
---------------------------------------
as it may deem necessary or appropriate for the withholding of any taxes or
funds which the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with any Company stock received
hereunder (collectively, "Withholding Obligations"). Such steps may
include, by way of example only and not limitation, (i) requiring a
participant to remit to the Company in cash an amount sufficient to satisfy
such Withholding Obligations; (ii) allowing the participant to tender to
the Company shares of Company stock, the fair market value of which at the
tender date the Committee determines to be sufficient to satisfy such
Withholding Obligations; (iii) withholding shares of Company stock
otherwise issuable upon the exercise of a stock option and which have a
fair market value at the Offering Termination Date sufficient to satisfy
such Withholding Obligations; (iv) allowing the participant to authorize
the Company to make payroll deductions; or (v) any combination of the
foregoing.
12.3 Notification of Inquiries and Agreements. Each participant shall notify
----------------------------------------
the Company in writing within ten (10) days after the date such participant
(i) first obtains knowledge of any Internal Revenue Service inquiry, audit,
assertion, determination, investigation, or question relating in any manner
to the value of Company stock or options purchased or granted hereunder;
(ii) includes or agrees (including, without limitation, in any settlement,
closing or other similar agreement) to include in gross income with respect
to any Company stock or option received under this Plan (A) any amount in
excess of the amount reported on Form 1099 or Form W-2 to such participant
by the Company, or (B) if no such Form was received, any amount; (iii)
sells, disposes of, or otherwise transfers an option acquired pursuant to
this Plan; or (iv) sells, disposes of, or otherwise transfers,
9
<PAGE>
within the Holding Period, Stock acquired under the Plan. Upon request, a
participant shall provide to the Company any information or document
relating to any event described in the preceding sentence which the Company
(in its sole discretion) requires in order to calculate and substantiate
any change in the Company's tax liability or withholding obligations as a
result of such event.
ARTICLE XIII
MISCELLANEOUS
13.1 Designation of Beneficiary. A participant may file a written designation
--------------------------
of a beneficiary who is to receive any stock and/or cash. Such designation
of beneficiary may be changed by the participant at any time by written
notice to the Treasurer of the Company. Upon the death of a participant
and upon receipt by the Company of proof of identity and existence at the
participant's death of a beneficiary validly designated by her or him under
the Plan, the Company shall deliver such stock and/or cash to such
beneficiary. In the event of the death of a participant and in the absence
of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the company shall deliver such stock
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such stock and/or cash to the spouse or to any one or more dependents of
the participant as the Company may designate. No beneficiary shall, prior
to the death of the participant by whom he has been designated, acquire any
interest in the stock or cash credited to the participant under the Plan.
13.2 Transferability. Neither payroll deductions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to
receive stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other than by will or
the laws of descent and distribution. Any such attempted assignment,
transfer, pledge or other disposition shall be without effect, except that
the Company may treat such act as an election to withdraw funds in
accordance with Section 7.2.
13.3 Use of Funds. All payroll deductions received or held by the Company under
------------
this Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such payroll deductions.
13.4 Adjustment Upon Changes in Capitalization. (a) If, while any options are
-----------------------------------------
outstanding, the outstanding shares of Common Stock of Intek Information,
Inc. have increased, decreased, changed into, or been exchanged for a
different number or kind of shares or securities of Intek Information, Inc.
through reorganization, merger, recapitalization, reclassification, stock
split, reverse stock split, stock dividend paid on Stock in the form of
Stock, or similar transaction, appropriate and proportionate adjustments
may be made
10
<PAGE>
by the Board or by the Committee in the number and/or kind of shares which
are subject to purchase under outstanding options and on the option
exercise price or prices applicable to such outstanding options. In
addition, in any such event, the number and/or kind of shares which may be
offered in the Offerings described in Article IV and Section 3.3.2 hereof
shall also be proportionately adjusted. For the purposes of this Paragraph,
any distribution of shares to stockholders in an amount aggregating 20% or
more of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding shares
shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of Intek Information, Inc., or upon
a reorganization, merger or consolidation of Intek Information, Inc. with
one or more corporations as a result of which Intek Information, Inc. is
not the surviving corporation, or upon a sale of substantially all of the
property or stock of Intek Information, Inc. to another corporation, the
holder of each option then outstanding under the Plan will thereafter be
entitled to receive at the next Offering Termination Date upon the exercise
of such option for each share as to which such option shall be exercised,
as nearly as reasonably may be determined, the cash, securities and/or
property which a holder of one share of the Common Stock was entitled to
receive upon and at the time of such transaction. The Board shall take
such steps in connection with such transactions as the Board shall deem
necessary to assure that the provisions of this Section 13.4 shall
thereafter be applicable, as nearly as reasonably may be determined, in
relation to the said cash, securities and/or property as to which such
holder of such option might thereafter be entitled to receive. Without
limiting any other right of the Company, and subject to any requirements of
the Code, the Board or Committee may terminate an Offering early at or
within 90 days before the expected effective date of such a transaction.
13.5 Amendment and Termination. The Board shall have complete power and
-------------------------
authority to terminate or amend the Plan at any time; provided, however,
that the Board shall not, without the approval of the stockholders of the
Company (i) increase the maximum number of shares which may be issued under
any Offering (except pursuant to Section 13.4); or (ii) amend the
requirements as to the class of employees eligible to purchase stock under
the Plan or permit the members of the Committee to purchase stock under the
Plan. No termination, modification, or amendment of the Plan may, without
the consent of an Employee then having an option under the Plan to purchase
stock, adversely affect the rights of such Employee under such then
outstanding option.
13.6 Effective Date. The Plan shall become effective upon the approval of the
--------------
Plan by a majority of the stockholders of the Company entitled to vote,
which approval must occur within twelve (12) months after the date the Plan
is adopted by the Board. Anything to the contrary notwithstanding, no
Stock may be issued under the Plan until such stockholder approval is
obtained.
11
<PAGE>
13.7 No Employment Rights. The Plan does not, directly or indirectly, create
--------------------
any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the
Company's right to terminate, or otherwise modify, an employee's
employment at any time. This Plan shall not be deemed to be a contract for
employment between an Employee and the Company or to be a consideration or
an inducement for the employment of any participant or Employee. Nothing
in this Plan shall be deemed to give any participant or Employee the right
to be retained in the service of the Company or to interfere with the
right of the Company to discharge any participant or Employee at any time
regardless of the effect such discharge shall have upon her or him or her
as a participant in the Plan. The participation by Employees is not an
indication that the Company does not anticipate layoffs.
13.8 Effect of Plan. The provisions of the Plan shall, in accordance with its
--------------
terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation,
such Employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Employee.
13.9 Governing Law. The law of the State of Delaware, notwithstanding the
-------------
choice of law rules therein, will govern all matters relating to this Plan
except to the extent it is superseded by the laws of the United States.
13.10 No Liability. No liability whatsoever shall attach to or be incurred by
------------
any past, present or future stockholders, officers, employees, advisors,
or directors of the Company under or by reason of any of the terms,
conditions or agreements contained in this Plan, or implied therefrom. Any
and all liabilities of, and any and all rights and claims against, the
Company or any stockholder, officer, employee, advisor, or director of the
Company, whether arising at common law or in equity or created by statute
or constitution or otherwise, pertaining to this Plan, are hereby
expressly waived and released by every participant as a part of the
consideration for any benefits by the Company under this Plan. This
specifically includes participant not receiving any expected tax treatment
in regards to her or his participation.
13.11 Government Regulation. The Company's obligation to sell and deliver
---------------------
shares of Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization,
issuance or sale of such stock.
13.12 Notice. Any notice required or permitted to be given under this Plan must
------
be in writing and may be delivered in person, by facsimile capable of
confirming receipt, or by deposit with the U.S. Postal Service, postage
prepaid, to the following address:
12
<PAGE>
Intek Information, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Attn: Offices of the Treasurer
or at such other address as the Company may specify in writing from time
to time. Such notice will be deemed effective on the day of receipt if
personally delivered, on the next business day if sent by facsimile, or
three (3) business days after deposit with the U.S. Postal Service,
postage prepaid and properly addressed.
13
<PAGE>
INTEK INFORMATION, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
AUTHORIZATION
The undersigned Employee of Intek Information, Inc. (the "Company"), or a
Subsidiary Corporation of the Company, pursuant to the Company's 1999 Stock
Purchase Plan (the "Plan"), hereby agrees to purchase from the Company shares of
its Common Stock, par value $0.001, in each Offering Period in accordance with
the terms of the Plan.
In accordance with the provisions of Article III of the Plan, the
undersigned authorizes:
(1) The following deduction in each
payroll period $____________________
or
(2) I elect NOT to participate in the Plan __________
(Note: This amount must be an even dollar amount not less than $10.00 per month
or more than 10% of the undersigned's regular base pay in each payroll period).
The name or names in which stock purchased for me pursuant to the Plan
shall be issued is as follows (please print):
_______________________________________ _____________________
(Full Name) (Social Security No.)
_______________________________________ _____________________
(Name of one other person of legal (Social Security No.)
age, as joint tenant or tenants by the
entirety, if desired)
________________________________________________________________________________
(Address of Employee)
I acknowledge that I have received a copy of the Plan, and that this
document shall constitute my authorization for participation in the Plan and
shall supersede any previous authorizations for participation in the Plan. I
agree to the requirements of me as stated in the Plan, and I agree to indemnify
the Company for any tax or withholding obligations arising as a result of a
disposition prior to the dates permitted by the Plan of shares acquired by me
under the Plan.
This Authorization shall be effective in accordance with the Plan on
___________, _____.
___________________ ___________________________
Date Signature
This document must be delivered to the offices of the Treasurer of the
Company at least ten (10) days prior to the Offering Commencement Date for the
first Offering in which you desire to participate.
14
<PAGE>
INTEK INFORMATION, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
WITHDRAWAL NOTICE
The undersigned Employee of Intek Information, Inc. (the "Company"), or a
Subsidiary Corporation of the Company, in accordance with the provisions of
Article VIII of the Company's 1999 Employee Stock Purchase Plan (the "Plan"),
hereby withdraws from participation in the Plan.
The undersigned understands that, upon filing this Withdrawal Notice with
the offices of the Treasurer of the Company, payroll deductions from her or his
regular Base Pay pursuant to the Plan will be discontinued, effective
immediately, and the entire balance of the account containing such deductions
not theretofore used to purchase the Company's Common Stock, par value $0.001,
pursuant to the Plan will be paid to the undersigned as promptly as practicable.
_______________________________________ _________________________
Full Name (please print) Social Security Number
_______________________________________ _________________________
Date Signature
<PAGE>
Exhibit 10.6
DISTRIBUTION PLAN
In connection with the spin-off described in the resolutions to which this
Distribution Plan is attached, Spider Technologies, Inc. ("Spider") has issued
shares of its capital stock (the "Spider Stock") to Intek Information, Inc.
("Intek"). The Spider Stock constitutes all of the currently issued and
outstanding shares of the capital stock of Spider. Effective as of the close of
business on November 5, 1999, the Spider Stock shall be distributed to the
stockholders of Intek in accordance with the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Spider Technologies, Inc. Intek Information, Inc.
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
One share of Spider's Common Stock shall be ... Each share of Intek's Common Stock
distributed on...
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
229 shares of Spider's Series A Preferred Stock shall ... Each share of Intek's Series A Preferred Stock
be distributed on...
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1.145 shares of Spider's Series A Preferred Stock shall ... Each share of Intek's Series B Preferred Stock
be distributed on...
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1.145 shares of Spider's Series A Preferred Stock shall ... Each share of Intek's Series C Preferred Stock
be distributed on...
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1.145 shares of Spider's Series A Preferred Stock shall ... Each share of Intek's Series D Preferred Stock
be distributed on...
- ---------------------------------------------------------------------------------------------------------------
1.10 shares of Spider's Series A Preferred Stock shall ... Each share of Intek's Series E Preferred Stock
be distributed on...
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Except for the right to receive the Spider Stock in accordance with the
foregoing, none of the rights or obligations that a stockholder of Intek may
have or be subject to by virtue of holding shares of the capital stock of Intek
will attach to the Spider Stock received by such stockholder hereunder,
including, without limitation, any contractual or statutory rights or
obligations that such stockholder may have or be subject to under Intek's
charter documents, the Amended and Restated Shareholders' and Voting Agreement
dated as of April 16, 1999, as amended, or any registration rights agreements
with Intek.
Each stockholder of Intek will be obligated to pay all taxes and other
governmental charges that may be imposed with respect to the issue or delivery
of Spider Stock to such stockholder hereunder.
No stock options to acquire securities of Spider arise or exist by virtue
of or in respect of compensatory options to purchase securities of Intek.
<PAGE>
The foregoing ratios result in the issuance of the number of shares of
Spider's Series A Preferred Stock that would have been issued if the full
possible PIK Election for Intek Series A, B, C, D and E Preferred Stock provided
for in the Amended and Restated Certificate of Incorporation of Intek adopted at
or about the date of adoption of this Distribution Plan, had been made
immediately prior to the record date for this distribution. Such calculation
took into account that each share of Intek Series A Preferred Stock is
convertible into 200 shares of Intek common stock and the distribution of Spider
Series A Preferred Stock is effectively calculated on an "as-converted to
common" basis.
<PAGE>
Exhibit 10.7.1
PROMISSORY NOTE
(Timothy C. O'Crowley)
$28,700.00 Denver, Colorado
October ____, 1999
FOR VALUE RECEIVED, the undersigned ("Maker"), for itself, its successors and
assigns, promises to pay to the order of INTEK INFORMATION, INC., a Delaware
corporation ("Intek"), its successors and assigns, at 5619 DTC Parkway, 12th
Floor Englewood, CO 80111, the full sum of Twenty-eight Thousand Seven Hundred
and 00/100 ($28,700.00) plus interest as hereinafter provided.
The outstanding principal balance hereof shall bear interest prior to maturity
at the simple interest rate equal to seven and three-fourths percent (7.75%).
The outstanding principal balance, together with any accrued and unpaid
interest, shall be due and payable in full on September 1, 2001 (the "Maturity
Date"); provided, however, that in the event that Maker is employed by Intek as
of September 1, 2000 (approximately the first anniversary of the date of this
Note), and has been continuously employed since the date of this Note, then the
lesser of (i) one-half of the original principal balance of this Note, or (ii)
the outstanding principal balance of this Note, shall be forgiven and shall not
be due from Maker. In the event that Maker is employed by Intek as of the
Maturity Date (approximately the second anniversary of the date of this Note),
then the remaining outstanding principal balance of this Note, and any unpaid
interest thereon, shall be forgiven and shall not be due from Maker.
Notwithstanding any provision in this Note to the contrary, in the event that
- -----------------------------------------------------------------------------
Maker is no longer an employee of Intek, all amounts outstanding under this Note
- --------------------------------------------------------------------------------
shall become immediately due and payable in full and to the extent permitted by
- -------------------------------------------------------------------------------
law, Intek may offset any payment Intek may owe Maker and apply such offset
- ---------------------------------------------------------------------------
towards payment of this Note. Notwithstanding any provision of this Note to the
- ----------------------------
contrary, including the above provisions on forgiveness of any amount, Maker
shall pay to Intek on November 1, 2000 a principal amount, and accrued interest
thereon, equal to the excess of the original principal amount of this Note over
the amount of federal, state and local income taxes paid or payable by Maker in
respect of the distribution to Maker by Intek of stock of Spider Technologies,
Inc. ("Spider Stock") in the "spin off" of Spider Stock to stockholders of
Intek. The Spider Stock will be deemed taxed at 25% (20% federal, 6% Colorado
state, with a corresponding reduction in federal taxes) for long term capital
gains purposes and at the highest marginal federal, state and local income tax
rate in fact paid by the Maker as to short term gain and ordinary income. Maker
will certify such tax rates to Intek.
Interest which accrues hereunder shall be paid in full on the Maturity Date. If
not paid when due, the interest shall be added to the principal balance and
shall thereafter accrue interest at the rate provided herein. Payments
hereunder shall be applied first to outstanding and unpaid interest, and then to
principal.
If any payment on this Note is not paid when due, whether maturing by lapse of
time or by reason of the failure of the Maker hereof to pay when due or because
of a default in the
<PAGE>
Promissory Note -- Page 2
performance of any of the covenants contained in this Note, this Note shall
thereafter bear simple interest at the rate of fifteen percent (15%) per annum
until paid in full.
This Note, at the option of Maker, may be prepaid in whole or in part at any
time without additional interest or penalty, with any such prepayment being
applied first to outstanding and unpaid interest, and then applied to principal
in the inverse order of maturity.
Maker and any guarantors or endorsers hereof severally waive presentment,
demand, protest, notice of nonpayment and of protest and agreement to any
extension of time for payment, the acceptance of any partial payments before, at
or after maturity, and if this note, or any interest due thereunder, is not paid
when due, or a suit is brought thereon, Maker agrees to pay all costs of
collection, including, without limitation, reasonable attorneys' fees.
This note shall be governed by and construed in accordance with the laws of the
State of Colorado, without regard to its choice of law rules.
Maker acknowledges that in the event amounts due hereunder are forgiven, as set
- -------------------------------------------------------------------------------
forth above, then such forgiven amounts will be taxable to Maker as ordinary
- ----------------------------------------------------------------------------
income.
- -------
MAKER:
/s/ TIMOTHY C. O'CROWLEY
------------------------------
Timothy C. O'Crowley
<PAGE>
Exhibit 10.7.3
PROMISSORY NOTE
$600,000.00 Denver, Colorado
November 23, 1999
FOR VALUE RECEIVED, the undersigned ("Maker"), for itself, its successors and
assigns, promises to pay to the order of INTEK INFORMATION, INC., a Delaware
corporation ("Intek"), its successors and assigns, at 5619 DTC Parkway, 12th
Floor Englewood, CO 80111, the full sum of Six Hundred Thousand and 00/100
dollars ($600,000.00) plus interest as hereinafter provided. The outstanding
principal balance hereof shall bear interest prior to maturity at the simple
interest rate equal the prime rate as published in the Wall Street Journal on
-------------------
the date of this Note plus two percentage points. The prime rate as of the date
hereof is 8.5%. The outstanding principal balance, together with any accrued and
unpaid interest, shall be due and payable in full on November 23, 2000 (the
"Maturity Date"). Payments hereunder shall be applied first to outstanding and
unpaid interest, and then to principal.
If any payment on this Note is not paid when due, whether maturing by lapse of
time or by reason of the failure of the Maker hereof to pay when due or because
of a default in the performance of any of the covenants contained in this Note,
the outstanding unpaid amount under this Note shall thereafter bear simple
interest at the rate of fifteen percent (15%) per annum until paid in full.
This Note, at the option of Maker, may be prepaid in whole or in part at any
time without additional interest or penalty, with any such prepayment being
applied first to outstanding and unpaid interest, and then applied to principal
in the inverse order of maturity.
The failure to exercise any rights upon the default of this Note or any
instrument securing, governing or evidencing the loan evidenced by this Note
shall not constitute a waiver of the right of the holder of this Note to
exercise the same or any other option at that time or at any subsequent time
with respect to such default or any other event of default hereunder or any
instrument securing, governing or evidencing the loan evidenced by this Note.
The remedies of the holder hereof, as provided in this Note or in any instrument
securing, governing or evidencing the loan evidenced hereby, shall be cumulative
and concurrent and may be pursued separately, successively or together, as often
as occasion therefor shall arise, at the sole discretion of the holder hereof.
The acceptance by the holder hereof of any payment under this Note which is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the rights of the holder to exercise the
foregoing option or any other option granted to the holder in this Note or in
any other instrument securing, governing or evidencing the loan evidenced
hereby, at that time or at any subsequent time, or nullify any prior exercise of
any such option.
This Note is secured by a pledge of shares held by Maker in Intek pursuant to a
Pledge Agreement of even date hereof. Maker and any guarantors or endorsers
hereof severally waive presentment, demand, protest, notice of nonpayment and of
protest and agreement to any extension of time for payment, the acceptance of
any partial payments before, at or after maturity, and if this note, or any
interest due thereunder, is not paid when due, or a suit is brought thereon,
Maker agrees to pay all costs of collection, including, without limitation,
reasonable attorneys' fees.
<PAGE>
This note shall be governed by and construed in accordance with the laws of the
State of Colorado, without regard to its choice of law rules.
MAKER:
/S/ TIMOTHY C. O'CROWLEY
------------------------
Timothy C. O'Crowley
2
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is entered into on November 23, 1999 between
Timothy C. O'Crowley (the "Debtor"), and Intek Information, Inc., a Delaware
corporation (the "Secured Party").
Section 1. Grant of Security Interest. The Debtor hereby grants and
--------------------------
conveys to Secured Party a first priority security interest in six hundred
thousand (600,000) shares of the common stock of Secured Party, all of which
shares are now owned by the Debtor (the "Stock"), and all proceeds of the
foregoing. The Debtor hereby delivers to the Secured Party, all stock
certificates representing the Stock to be held pursuant to the terms and
conditions of this Agreement and a stock power in blank executed by the Debtor
evidencing the Stock.
The Debtor hereby agrees:
(a) not to transfer, sell or assign, all or any part of the Stock
without the prior written consent of Secured Party;
(b) to keep his interest in the Stock free and clear of all liens and
encumbrances other than the Amended and Restated Shareholders Voting Agreement
dated November 19, 1999 ("Stockholders Agreement") to which the Debtor is also a
party; and
(c) at the Debtor's sole cost and expense, to appear and defend any
action or proceeding arising under, growing out of, or in any manner connected
with the Stock.
Section 2. Liabilities Secured. The security interest herein granted
-------------------
and conveyed shall be security for the performance of, and the timely payment of
Six Hundred Thousand and 00/100 Dollars ($600,000.00) due under a Promissory
Note dated November 23, 1999 payable by the Debtor to the Secured Party (the
"Indebtedness").
Section 3. Transfer of Securities. Debtor hereby appoints the Secretary
----------------------
of Secured Party as his attorney-in-fact to arrange for the transfer of the
Stock on the books of the Secured Party. Except as otherwise provided herein,
the Secured Party may exercise all of the rights and privileges in connection
with the Stock to which a transferee may be entitled as the record holder
thereof.
Section 4. Dividends. Unless there is a default under this Agreement,
---------
all dividends paid or payable on the Stock shall be the property of the Debtor.
Section 5. Voting Rights. During the term of this Agreement, Debtor
-------------
shall have the right, where applicable, to vote the Stock on all corporate
questions, and the Secured Party shall execute due and timely proxies in favor
of Debtor for this purpose.
3
<PAGE>
Section 6. Further Documentation, etc. The Debtor promises and agrees
--------------------------
to provide the Secured Party with any further, additional or corrected
documents, instruments or agreements reasonably required by the Secured Party to
secure and perfect the security interest granted hereby in the Stock, or in any
proceeds thereof.
Section 7. Default. Nonpayment when due of any of the Indebtedness or
-------
the occurrence of any other event of default under the Note shall constitute a
default under this Agreement.
Section 8. Rights on Default. In the event of default in any promise of
-----------------
the Debtor made herein, the Secured Party may treat the Indebtedness as matured,
due and payable. Secured Party may then exercise any and all of the rights and
remedies granted to a secured party upon default under the Uniform Commercial
Code as adopted in the State of Colorado, in addition to any other rights and
remedies which it may have. The Debtor shall pay to the Secured Party on demand
any and all expenses and reasonable attorney's fees, incurred or paid by the
Secured Party in protecting and enforcing its rights hereunder, and all such
expenses shall constitute a part of the Indebtedness.
Section 9. Relation to Other Documents. The provisions of this
---------------------------
Agreement shall be in addition to those of the Indebtedness or any other
evidence of any liability held by the Secured Party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
/S/ TIMOTHY C. O'CROWLEY
------------------------
Timothy C. O'Crowley
4
<PAGE>
Exhibit 10.8
SUBLEASE AND RESOURCE SHARING AGREEMENT
This Sublease and Resource Sharing Agreement (this "Agreement") is made and
entered into as of this First day of October, 1999 ("Effective Date") by Spider
Technologies, Inc., a Delaware corporation ("Spider"), and Intek Information,
Inc., a Delaware corporation ("Intek"). Capitalized terms not defined herein
have the meanings specified in the Separation Agreement between the parties of
even date herewith (the "Separation Agreement").
WHEREAS, pursuant to this Agreement, Intek has agreed to sublet to Spider
certain office space located in San Diego, California and, in conjunction
therewith, to allow Spider the use of certain equipment and supplies of Intek
and to make available, as appropriate, certain personnel, including clerical and
other personnel to perform services for a period of time in excess of a
transition period to facilitate Spider's operation of the business acquired
from Intek (the "TelWeb Business") pursuant to the Separation Agreement and the
Related Agreements;
WHEREAS, this Agreement is one of the Related Agreements referred to in the
Separation Agreement; and
WHEREAS, the obligations of the parties to consummate the transactions
contemplated by the Separation Agreement was conditioned on, among other things,
the execution and delivery of this Agreement by the parties.
NOW, THEREFORE, the parties agree as follows:
1.0 SUBLEASE.
--------
1.1 Sublease. Intek hereby subleases to Spider, and Spider subleases
--------
from Intek, that portion of the premises located at 1455 Frazee Road, San Diego,
California, as is described on Exhibit A, which will be attached hereto within
---------
sixty (60) days after the Effective Date and represent that space actually
necessary for the use of Spider personnel (the "Subleased Premises"), from the
Effective Date hereof for the balance of the current lease term of such space
(the "Sublease Term"). The Subleased Premises constitute approximately 40% of
the Premises (as defined below).
1.2 Rent. Spider agrees to pay a percentage of the rent and all
----
associated charges and costs (including common area charge, insurance, property
taxes and other occupancy costs owing pursuant to the M&S Lease to M&S or
others) (the "Spider Rent") required by the Lease Agreement, executed in June,
1997, between Intek and M&S California Fund, L.P. ("M&S"), as amended by a First
Amendment dated March 19, 1998 (the "M&S Lease") (the M&S Lease is attached
hereto as Exhibit B), or otherwise incurred in the occupancy of the Premises,
---------
and falling
<PAGE>
due within, or payable in respect of, the Sublease Term, directly to Intek on
the same terms and conditions as set forth in the M&S Lease except that Spider
will make all such payments a minimum of five (5) days before such payment
(including to third parties other than M&S) becomes due under the M&S Lease or
is otherwise due. The entire premises covered by the M&S Lease is referred to as
the "Premises." The percentage of the rent and associated charges to be borne by
Spider as the Spider Rent shall be determined by mutual agreement of Intek and
Spider and evidenced by a writing dated not later than sixty (60) days after the
Effective Date. The percentage will be based upon the ratio of the Subleased
Premises to the Premises and any occasional use by Spider of the Premises not a
part of the Subleased Premises such as restrooms.
1.3 Insurance. Spider shall at all times while Intek's guaranty of
---------
the M&S Lease is in place maintain in connection with the Premises broad form
liability coverage typical of similar operations, and in any event at least the
insurance required by the M&S Lease and at least $2,000,000 of coverage for
possible injury or death per occurrence ($4,000,000 aggregate).
1.4 Responsibility. Spider shall be responsible for the performance
--------------
of the covenants and conditions contained in the M&S Lease as they relate to
the Subleased Premises.
1.5 Nonassignability. This Sublease may not be assigned by Spider,
----------------
nor the Subleased Premises subleased, without the written consent of Intek.
1.6 Expiration of Sublease. At the expiration of the Sublease Term
----------------------
or any sooner termination of this Sublease, Spider shall quit and surrender the
premises in as good order and condition as when received, reasonable wear and
tear excepted.
1.7 Subject to M&S Lease. This Sublease is expressly made subject to
--------------------
all of the terms, conditions, and limitations contained in the M&S Lease.
1.8 Intek's Obligations. So long as Spider is not in default
-------------------
hereunder, Intek will not:
(a) Terminate the M&S Lease prior to its scheduled expiration
date of approximately August 1, 2003 (excluding renewal terms) without at least
180 days notice to Spider (and at the end of such 180 days notice to Spider the
provisions of Sections 2, 3, 4 and 5 hereof shall end); or
(b) Assign or sublease the M&S Lease or space subject thereto
(other than to a purchaser of all or substantially all the business of Intek
conducted at the Premises or to an affiliate of Intek (collectively a "Permitted
Transferee")) without giving Spider 20 days written notice thereof and offering
to assign or sublease (as applicable) the M&S Lease or space subject thereto to
Spider on the same terms, so long as Spider is not a credit risk which Intek, in
its discretion, finds unacceptable.
2
<PAGE>
2.0 EQUIPMENT.
---------
2.1 Shared Furniture, Fixtures and Equipment. For so long as Spider
----------------------------------------
shall sublet the Subleased Premises from Intek, Intek shall allow Spider the use
of the furniture, fixtures and equipment of Intek currently located on the
Premises and such additional furniture, fixtures and equipment as may be
mutually agreed upon in writing from time to time (the "Intek Equipment") on the
terms and conditions set forth in this Agreement.
2.2 Base Fees For Use of Intek Equipment. Spider shall pay a monthly
------------------------------------
fee for the use of the Intek Equipment (the "Base Fee"). Such Base Fee shall be
determined by mutual agreement of Intek and Spider, to be evidenced by a writing
dated not later than sixty (60) days after the Effective Date.
2.3 Maintenance, Repair and Replacement Fees. Spider shall be
----------------------------------------
responsible for a percentage of all costs incurred in connection with the
maintenance, repair, or replacement of any item of Intek Equipment (the
"Maintenance Fees"). The percentage of Maintenance Fees to be borne by Spider
shall be determined by mutual agreement of Intek and Spider, to be evidenced by
a writing dated not later than sixty (60) days after the Effective Date.
2.4 Payment of Base Fees and Maintenance Fees. By the twentieth
-----------------------------------------
(20/th/) day of each month, Intek shall send to Spider an itemized invoice for
the Base Fee and any Maintenance Fees payable for use of the Intek Equipment for
the preceding month. The monthly invoice of fees and expenses is due and
payable ten days after its receipt by Spider.
2.5 Payment of Fees Upon Termination of Agreement. If this Agreement
---------------------------------------------
is terminated in accordance with Section 9 or 1.8(a) on a day other than the
last day of a month, the Base Fee for the use of the Intek Equipment will be
pro rated based on the number of days in the month on and before, and the number
of days in the month after, the day when this Agreement is terminated. Spider
shall reimburse and pay to Intek all Maintenance Fees incurred (whether or not
yet billed by or to Intek) by Intek pursuant to this Agreement up to and
including the date of termination.
2.6 Right of Purchase. Intek will not sell or sublease any items of
-----------------
Intek Equipment of an aggregate value in excess of $20,000 during any 12 month
period, except to a Permitted Transferee, without offering in writing to sell or
sublease such Intek Equipment in excess of $20,000 to Spider on the same terms,
so long as Spider is not a credit risk which Intek, in its discretion, finds
unacceptable.
3.0 UTILITIES AND OPERATING EXPENSES.
--------------------------------
3.1 Non-Lease Utilities and Miscellaneous Operating Expenses. Spider
--------------------------------------------------------
shall be responsible for payment of a percentage of all costs associated with
provision of utilities and
3
<PAGE>
miscellaneous operating expenses, beginning as of the Effective Date, which are
not otherwise incorporated into the Spider Rent as contemplated in the M&S Lease
and the Spider Sublease, including, but not limited to, local and long distance
telephone service, postage, internet access fees, software license and support
fees, cleaning, and other expenses agreed upon, in writing, by Intek and Spider
and not otherwise addressed in a Related Agreement ("Miscellaneous Expenses").
The percentage of costs associated with the Miscellaneous Expenses to be borne
by Spider shall be determined by mutual agreement of Intek and Spider, to be
evidenced by a writing dated not later than sixty (60) days after the Effective
Date. All Miscellaneous Expenses will be itemized and invoiced by Intek to
Spider and payable by Spider in the same manner as is provided for invoicing of
Base and Maintenance Fees as set forth in Section 2 herein. Should Intek be
prohibited by any applicable laws or regulations from allowing Spider the shared
use of any utilities or other services or property, Spider will be solely
responsible for securing its own such utility and other services and property,
and Spider further agrees that it will indemnify and hold Intek harmless from
and against any claims arising out of or resulting from Spider's unauthorized
use of utility and other services and property.
3.2 Software Licenses. Spider hereby agrees that, in the event any
-----------------
Intek software license agreement under which Intek is the licensee prohibits
the use of the subject software by or for the benefit of Spider, Spider will be
solely responsible for securing such software and/or licenses to use such or
comparable software. Spider further agrees that it will indemnify and hold
Intek harmless from and against any claims arising out of or resulting from
Spider's unauthorized use of software licensed to Intek. This Section 3.1 does
not apply to the software which is the subject of the Software Assignment and
Grant-Back License, Maintenance and Support Agreement, dated as of Nov. 4, 1999,
between Intek and Spider (the "TelWeb License").
4.0 INVENTORY AND SUPPLIES.
----------------------
4.1 Use of Inventory and Supplies. Spider shall reimburse Intek for
-----------------------------
all inventory and/or supplies used or consumed by Spider. Intek shall invoice
Spider, at cost plus 5 percent, for such inventory and/or supplies on a monthly
basis in the manner provided for invoicing of Base and Maintenance Fees set
forth in Section 2 hereof and Spider will pay such invoices in accordance with
Section 2. Spider may order its own inventory and supplies, and Intek has no
obligation under this Section 4 to purchase inventory or supplies for Spider.
Intek and Spider will establish a system to reasonably allocate such use and
consumption.
5.0 EMPLOYEES AND INTELLECTUAL PROPERTY.
-----------------------------------
5.1 Shared Employees. As of the Effective Time, the clerical and
----------------
other employees of Intek listed on Exhibit C ("Shared Employees") shall allocate
---------
the specified percentage of their time to Spider ("Spider Time"). The Shared
Employees shall remain employees of Intek and thus shall be paid their salary by
Intek and receive their benefits directly from Intek. Spider shall reimburse
Intek for the Shared Employees' out-of-pocket expenses while performing work for
4
<PAGE>
Spider, so long as those expenses and documentation thereof are in accordance
with Spider's reasonable policies as reported by Spider to Intek from time to
time. If Intek finds those policies unreasonable, Intek and Spider will arrange
for direct payment by Spider of all expenses incurred on Spider work. By the
twentieth (20/th/) day of each month, Intek shall send to Spider an invoice for
monthly aggregate charges for the Shared Employees (if any) not listed as "Fixed
Charge" employees on Exhibit C ("Aggregate Charges") which shall equal one-
twelfth (1/12) of the aggregate of each Shared Employee's fully loaded total
annual cost of employment including salary, benefits and overhead (but excluding
stock options or stock grants) to Intek multiplied by the Spider Time provided
on Exhibit C. On a quarterly basis beginning January 1, 2000, Intek and Spider
---------
shall review the Spider Time and if the actual costs for salary, benefits and
overhead on an aggregate basis for the Shared Employees are more or less than
ten percent (10%) of the Aggregate Charges, or the Spider Time has been changed,
but not previously adjusted, the Aggregate Charges shall be appropriately
adjusted on a prospective basis to reflect the actual future costs. The amount
of Fixed Charges for Shared Employees is set forth in a separate letter
agreement.
5.2 Inventions. Shared Employees may be authoring or creating
----------
intellectual property for both Spider and Intek at the same time, and both
Spider and Intek may have agreements with a Shared Employee whereby the Shared
Employee assigns rights to intellectual property. As between Intek and Spider:
(i) if the intellectual property was created while working for a party (whether
Intek or for Spider even though employed by Intek), that party will be the owner
of the intellectual property; (ii) if it is not clear that the intellectual
property was created in the course of work for one party or another, the
intellectual property will be jointly owned by Spider and Intek and either party
may freely deal with the property (including selling or licensing) with no duty
to account for any sums to, or seek any permission from, the other party;
provided, however, that this Section 5.2 is subject and subordinate to any
- --------- -------
allocation of rights to intellectual property created in the future as provided
for in the TelWeb License.
5.3 Quarterly Meeting on Shared Employees. Intek and Spider will
------------------------------------
meet within 20 days after each calendar quarter end to discuss the amount of
Spider Time for each Shared Employee. If the parties cannot agree, then the
Shared Employee will continue working for the current calender quarter at the
Spider Time in effect during the preceding calender quarter, and at the end of
that period the Shared Employee will work full time for Spider if the Spider
Time is 50% or more and for Intek if the Spider Time is less than 50%. If the
Shared Employee is Paul Tartre, Mr. Tartre will continue working in accordance
with the Spider Time for 3 months longer than provided for other Shared
Employees in the preceding sentence.
5.4 Employment After Termination. During the term of this Agreement,
-----------------------------
Spider will not directly or indirectly solicit or incent any Shared Employee to
terminate his or her employment. If the Spider Time of a Shared Employee at the
time of termination of this Agreement is less than 25%, for one year after such
termination Spider will not, directly or indirectly solicit or incent the Shared
Employee to terminate his or her employment with Intek. If the Spider Time of
the Shared Employee is more than 75%, for one year after termination of this
Agreement Intek will
5
<PAGE>
not attempt to retain or solicit the employment of the employee if employee
wishes to accept employment with Spider. After termination, all other Shared
Employees may be hired or retained by either Spider or Intek.
5.5 Time for Performance. Intek and Spider on-site management will
---------------------
coordinate and mutually agree upon the specific times a Shared Employee will
perform work for Spider and perform work for Intek. If on-site management
cannot agree, senior management of both companies will attempt to agree. If
such agreement does not occur, the Shared Employee will work each day for each
company in accordance with the Spider Time.
5.6 Termination of Shared Employee. Nothing in this Agreement
------------------------------
requires Intek to retain any person in the service of Intek or hire a person to
perform the services of any person who is no longer an Intek employee. If Intek
decides to terminate a Shared Employee, it will so notify Spider if the Shared
Employee agrees to that notice.
6.0 TERM; PERIODIC MEETING.
----------------------
6.1 Term. This Agreement shall commence on the Effective Date and
----
continue in effect until (i) as to Section 1.0 the termination of the M&S Lease;
(ii) as to Section 2.0 for a term of one year after the Effective Date; (iii) as
to Section 3.1 for the term of Section 1.0 as to costs of physical occupancy of
the subleased Premises and for the term of Section 2.0 as to costs related to
Sections 2.0 or 4.0 goods and services; (iv) as to Section 4.0 for the term of
Section 2.0, unless in each case renewed or earlier terminated in accordance
with this Agreement. All references in this Agreement to the "term of this
Agreement" include a renewal term of this Agreement, if a renewal term is
mutually agreed upon in writing. Notwithstanding the expiration of all or part
of this Agreement pursuant to this Section, the duties, obligations, and
responsibilities of Spider and Intek (and the agents, officers, directors,
employees, subcontractors, and representatives of Spider and Intek, if any)
under Sections 5.2, 5.4, 7, 8, and 10 will survive following the expiration of
this Agreement.
6.2 Semi-Annual Meeting. Intek and Spider will meet at least once
-------------------
every six months after the Effective Date to discuss and adjust, in good faith,
any changes provided for herein to reflect actual usage, costs and charges.
7.0 RELATIONSHIP BETWEEN PARTIES.
----------------------------
7.1 Relationship Between Parties. The relationship between Spider
----------------------------
and Intek created by this Agreement is that of an independent contractor, and
nothing in this Agreement, whether express or implied, shall be deemed to create
an association, partnership, joint venture, or employee-employer relationship
between Spider and Intek. By virtue of this Agreement, no agent, officer,
director, employee, or, representative of Spider is, will be, or will be deemed
to be, an agent, officer, director, employee, or representative of Intek.
Spider shall not have the right to make any
6
<PAGE>
contracts or commitments for, or on behalf of, Intek without Intek's prior
written approval. Conversely, no agent, officer, director, employee, or
representative of Intek is, will be, or will be deemed to be, an agent, officer,
director, employee, or representative of Spider. Intek shall not have the right
to make any contracts or commitments for, or on behalf of, Spider without
Spider's prior written approval. Intek may not direct the activities of Shared
Employees during Spider Time.
8.0 INDEMNIFICATION.
---------------
8.1 Indemnification of Intek. Spider shall indemnify Intek, its
------------------------
subsidiaries and their respective agents, officers, directors, employees, owners
and representatives, from any cost, loss, expense, or liability incurred by
Intek or its subsidiaries, or their respective agents, officers, directors,
employees, owners, or representatives, arising out of a breach of any covenant
made or to be performed by Spider or its subsidiaries pursuant to this
Agreement.
8.2 Indemnification of Spider. Intek shall indemnify Spider, its
-------------------------
subsidiaries and their respective agents, officers, directors, employees, owners
and representatives from any cost, loss, expense, or liability incurred by
Spider or its subsidiaries, or their respective agents, officers, directors,
employees, owners, or representatives arising out of a breach of any covenant
made or to be performed by Intek pursuant to this Agreement
9.0 TERMINATION OF AGREEMENT.
------------------------
9.1 Termination by Intek. Intek unilaterally may terminate this
--------------------
Agreement before the expiration of its stated term, without further liability or
obligation to Spider, if any of the following events occurs:
(a) Spider defaults under any of its monetary obligations under
this Agreement and does not cure such default within twenty (20) days of notice
of such default, or fails to undertake reasonable steps to cure any nonmonetary
default under this Agreement within five (5) days after it receives notice from
Intek of any such default (and fails to cure any such non-monetary default
within twenty (20) days following the effective date of the notice of default);
(b) The initiation of an action or proceeding for the
dissolution, termination, or liquidation of Spider;
(c) Spider sells, leases, exchanges, distributes, liquidates, or
otherwise transfers all or substantially all its assets;
(d) Six (6) months following the closing of an initial public
offering of Spider's stock registered pursuant to the Securities Act of 1933, as
amended; or
7
<PAGE>
(e) Spider files (or a creditor files against Spider) a petition
seeking relief or reorganization under any bankruptcy, insolvency, or debtor
relief law or gives notice to any creditor of a proposed general assignment for
the benefit of its creditors; or a trustee, receiver, or custodian is appointed
for Spider generally or for all or substantially all its assets.
Termination of this Agreement in accordance with subsections (a)
through (e) above will be effective, unless otherwise provided, when notice of
termination is given to Spider. If this Agreement is terminated in accordance
with this Section, neither party to this Agreement will have any additional
right or obligation with respect to the other party to this Agreement, except
Spider shall remain liable and pay for the services rendered and costs incurred
by Intek to Spider pursuant to this Agreement through the effective date of
termination and additionally, the duties, liabilities, obligations, and
responsibilities of the respective parties set forth in Sections 1.4, 3.1, 5.2,
5.4, 7, 8, and 10 will survive following the termination of this Agreement.
9.2 Termination by Spider. Spider unilaterally may terminate this
---------------------
Agreement before the expiration of its stated term, without further liability or
obligation to Intek, if any of the following events occurs:
(a) Intek defaults under any of its monetary obligations under
this Agreement and does not cure such default within ten (10) days of notice of
such default, or fails to undertake reasonable steps to cure any non-monetary
default under this Agreement within five (5) days after it receives notice from
Spider of any such default (and fails to cure any such nonmonetary default
within fifteen (15) days);
(b) The initiation of an action or proceeding for the
dissolution, termination, or liquidation of Intek;
(c) Intek sells, leases, exchanges, distributes, liquidates, or
otherwise transfers all or substantially all its assets;
(d) Six (6) months following the closing of an initial public
offering of Intek's stock registered pursuant to the Securities Act of 1933, as
amended; or
(e) Intek files (or a creditor files against Intek) a petition
seeking relief or reorganization under any bankruptcy, insolvency, or debtor
relief law or gives notice to any creditor of a proposed general assignment for
the benefit of its creditors; or a trustee, receiver, or custodian is appointed
for Intek generally or for all or substantially all its assets.
Termination of this Agreement in accordance with subsections (a)
through (e) above will be effective, unless otherwise provided, when notice of
termination is given to Intek. If this Agreement is terminated in accordance
with this Section, neither party to this Agreement will have any additional
right or obligation with respect to the other party to this Agreement, except
Spider
8
<PAGE>
shall remain liable and pay for the services rendered and costs incurred by
Spider to Intek pursuant to this Agreement through the effective date of
termination and, additionally, the duties, liabilities, obligations, and
responsibilities of the respective parties set forth in Sections 1.4, 3.1, 3.2,
5.2, 5.4, 7, 8 and 10 will survive following the termination of this Agreement.
10.0 MISCELLANEOUS.
-------------
10.1. Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
10.2. Waiver and Modification. An extension, amendment,
-----------------------
modification, cancellation, or termination of this Agreement will be valid and
effective only if it is in writing and signed by each party to this Agreement.
In addition, a waiver of any duty, obligation, or responsibility of a party
under this Agreement will be valid and effective only if it is evidenced by
writing signed by, or on behalf of, the party against whom the waiver or
discharge is sought to be enforced. The waiver by either party of a breach of a
provision of this Agreement will not constitute as waiver of a succeeding breach
of the provision or a waiver of the provision itself.
10.3. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or in a counterpart hereto (as the case may be) or such
other address as may hereafter be designated in writing by such party to the
other parties:
if to the Intek, to:
Intek Information, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
9
<PAGE>
if to the Spider, to:
Spider Technologies, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
E* Law Group
3555 West 110/th/ Place
Westminster, CO 80031
Telecopy: (303) 410-0468
Attention: Jeremy W. Makarechian
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
10.4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
10.5. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
10.6. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
10.7 Dispute Resolution. Any and all disputes or claims arising under
------------------
or related to this Agreement (including by a Spider Indemnified Party or Intek
Indemnified Party) shall be promptly submitted to arbitration before the
American Arbitration Association ("AAA") before a single arbitrator. The
arbiter shall be selected by the arbitration service on the basis, if possible,
of his or her expertise in the subject matter(s) of the dispute. The decision
of the arbitrator shall be final, nonappealable and binding upon the parties,
and it may be entered in any court of competent jurisdiction. The arbitration
shall take place in Denver, Colorado. The arbitration shall be conducted under
the Commercial Arbitration Rules of the AAA. The arbitrator shall have the
power to grant equitable relief where applicable under Colorado law. The
arbitrator shall issue a written opinion setting forth his or her decision and
the reasons therefor within thirty (30) days after the arbitration proceeding is
concluded. The obligation of the parties to submit any dispute arising under or
related to this Agreement to arbitration as provided in this Section shall
survive the expiration or earlier
10
<PAGE>
termination of this Agreement. Notwithstanding the foregoing, either party may
seek and obtain an injunction or other appropriate relief from a court to
preserve the status quo with respect to any matter pending conclusion of the
arbitration proceeding, but no such application to a court shall in any way be
permitted to stay or otherwise impede the progress of the arbitration
proceeding. Each party hereto, and in order to be entitled to indemnification
hereunder each Intek Indemnified Party and Spider Indemnified Party, submits
itself to the jurisdiction of the AAA in Denver, Colorado.
In the event of any arbitration or litigation being filed or instituted between
the parties concerning this Agreement, the prevailing party will be entitled to
receive from the other party or parties its reasonable attorneys' fees, witness
fees, costs and expenses, court costs and other reasonable expenses, whether or
not such controversy, claim or action is prosecuted to judgment or other form of
relief.
10.8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Colorado without giving
effect to the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of Colorado and of the United States of America, in each
case located in the County of Denver, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any Litigation relating thereto except in
such courts). Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of Colorado or the United States of America, in each case located in the
County of Denver, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such Litigation brought
in any such court has been brought in an inconvenient forum.
10.9. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
10.10. Rights of Third Parties. Nothing in this Agreement, whether
-----------------------
express or implied, is intended or should be construed to confer or grant to any
person, except Spider and Intek, and the parties listed in Section 8 hereof as
entitled to indemnification, and their respective assignees and successors, any
claim, right, remedy, or privilege under, or because of, this Agreement or any
provision of it.
10.11. Assignment; Binding Effect. A party to this Agreement (whether
--------------------------
by operation of law or otherwise) shall not assign its rights or delegate its
duties, obligations, and responsibilities under this Agreement without the
advance written consent of the other party to this Agreement, and any assignment
or delegation without the advance written consent of the other party will be
invalid
11
<PAGE>
and ineffective against the nonconsenting party. Such consent will not be
unreasonably withheld. This Agreement is binding on, and inures to the benefit
of, any successor or approved assignee of a party to this Agreement.
10.12 Further Assurances. The parties will from time to time take
------------------
such additional reasonable actions as necessary to carry out the intent and
purpose of this Agreement, provided no party need incur or discharge significant
additional performance or monetary obligations to fulfill its duties under this
Section 10.12.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sublease and
Resource Sharing Agreement as of the date first above written.
Intek: INTEK INFORMATION, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------
Its:_________________
Spider: SPIDER TECHNOLOGIES, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------
Its:_________________
13
<PAGE>
EXHIBIT A
SUBLEASED PREMISES
14
<PAGE>
EXHIBIT B
M&S LEASE
15
<PAGE>
EXHIBIT C
LIST OF SHARED Employees
Percentage of Time
Shared Employee Devoted to Spider
--------------- -----------------
Paul Tartre (Fixed Charge) 40%
Jayne Guardiano (Fixed Charge) 40%
16
<PAGE>
Exhibit 10.9.1
INTELLECTUAL PROPERTY
SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT ("Security Agreement"), is
made as of November 5, 1999, {being the actual date of spin off, not an earlier
"as of" date} by SPIDER TECHNOLOGIES, INC., a Delaware corporation (the
"Grantor"), in favor of INTEK INFORMATION, INC., a Delaware corporation (the
"Secured Party").
RECITALS:
--------
WHEREAS, Secured Party has transferred to Grantor certain Software
described further on Schedule A hereto pursuant to the terms of that certain
Software Assignment and Grant-Back License, Maintenance and Support Agreement of
even date herewith between Grantor and Secured Party (the "Assignment
Agreement");
WHEREAS, Grantor desires to grant to Secured Party a security interest in
the Collateral to secure the payment of the Obligations.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the premises and to induce Secured
Party to enter into the Assignment Agreement, Grantor hereby agrees with Secured
Party, as follows:
1. Defined Terms. The following terms shall have the following meanings:
"Collateral" has the meaning assigned to it in Section 2 of this Security
Agreement.
"Documentation" means engineers' notes, manuals, documentation and similar
written (in any medium) materials related to or explaining the development or
operation of the Software.
"Event of Default" means (i) a breach of this Agreement or any Obligation
that is not cured within twenty (20) days after notice thereof by Secured Party;
(ii) termination of the Assignment Agreement by Secured Party due to a material
breach thereof by Grantor; (iii) a failure to pay the Royalties (as defined
therein) then due under the terms of the Assignment Agreement within twenty (20)
days after written notice from Secured Party; (iv) termination of the Sublease
and Resource Sharing Agreement or the Transition Support Agreement, each between
the Grantor and Secured Party and dated as of October 1, 1999, due to a breach
by Grantor, if Grantor has not within 20 days
<PAGE>
after such termination paid the monetary damages resulting to Secured Party as a
result of such breach and termination.
"Existing Liens" has the meaning assigned to it in Section 3 of this
Security Agreement.
"Intellectual Property Rights" means patent applications, patents,
trademark applications, trademarks (and associated goodwill), copyrights,
copyright applications, and copyright registrations, and trade secrets for
the Software and Documentation, including but not limited to U.S. Copyright
Registration Number TX4-935-066 Telweb v. 2.0 and U.S. Copyright Registration
Number TX4-946-000 TelWeb v.2.0a.
"Obligations" means (a) the Royalties (as defined in the Assignment
Agreement) owing under the terms of the Assignment Agreement, (b) the
liabilities, expenses and damages incurred by Secured Party as a result of
Grantor's breach of the Sublease and Resource Sharing Agreement or Transition
Support Agreement, each between the parties and dated as of October 1, 1999 and
(c) all attorney's fees, court costs and expenses of whatever kind incident to
the collection or performance of any of the foregoing and the enforcement and
protection of the security interest created under this Security Agreement.
"Permitted Liens" means any lien, charge, assignment, non-exclusive
licenses granted by Grantor for the Collateral as contemplated in Section 14, or
other encumbrance that arises by operation of law with respect to obligations of
Grantor that are not yet due and payable or governmental liens, charges,
assignments or other encumbrances that are being contested in good faith by
appropriate proceedings.
"Security Agreement" means this Intellectual Property Security Agreement,
as amended, supplemented or otherwise modified from time to time in accordance
with its terms.
"Software" means the "TelWeb" software developed or owned by Secured Party
and transferred by Secured Party to Grantor by way of the Assignment (further
described in the attached Schedule A), and software owned by Grantor which is
----------
based upon any evolution or upgrade thereof or derivative work thereon, but does
not include software licensed from third parties that is used in connection with
that Software.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the State of California.
"USPTO Filing" has the meaning assigned to it in Section 4 of this Security
Agreement.
2. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance when due of the Obligations, Grantor hereby
grants to Secured Party for the benefit of Secured Party a security interest in
all of Grantor's right, title and interest in and to the Software,
2
<PAGE>
the Documentation and the Intellectual Property Rights, and rights of Grantor
incident thereto necessary for the enjoyment of the foregoing, now owned or
hereafter acquired by Grantor or in which Grantor now has or at any time in the
future may acquire any right, title or interest (collectively, the
"Collateral"), including all Proceeds and products of any and all of the
foregoing. (collectively, the "Collateral").
3. Representations and Warranties Concerning the Intellectual Property.
Grantor represents and warrants that except for Permitted Liens, and except for
those liens, charges, mortgages, pledges, assignments or other encumbrances or
security interests, if any, to which the Collateral may be subject at the time
of conveyance to Grantor pursuant to the Assignment Agreement ("Existing
Liens"), Grantor has not executed and/or delivered any assignment, transfer or
conveyance of any of the Collateral, recorded or unrecorded.
4. Covenants. Grantor covenants and agrees with Secured Party that,
from and after the date of this Security Agreement until the Obligations are
paid in full:
(a) From time to time, upon the written request of Secured
Party, and at the sole expense of Grantor, Grantor will promptly and
duly execute and deliver such further instruments and documents and
take such further action as Secured Party may reasonably request for
the purpose of obtaining or preserving the full benefits of this
Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or
continuation statements under the UCC in effect in any jurisdiction
with respect to the liens created hereby or filings in the United
States Patent and Trademark Office or United States Copyright Office
to record or perfect Secured Party's security interest in respect of
filed Intellectual Property Rights (collectively, "USPTO Filings").
Grantor also hereby authorizes Secured Party to file any such
financing or continuation statement or any USPTO Filing without the
signature of Grantor to the extent permitted by applicable law. A
carbon, photographic or other reproduction of this Security Agreement
shall also be sufficient as a financing statement for filing in any
jurisdiction.
(b) Grantor will not create, incur or permit to exist, will
take all commercially reasonable actions to defend the Collateral
against, and will take such other commercially reasonable action as
is necessary to remove, any lien or claim on or to the Collateral,
other than the liens created hereby, Permitted Liens, or Existing
Liens, and will take all commercially reasonable actions to defend
the right, title and interest of Secured Party in and to any of the
Collateral against the claims and demands of all persons whomsoever
except with respect to Existing Liens.
(c) Grantor will not grant any exclusive license for, sell or
transfer, but may otherwise license or sub-license the Collateral, as
contemplated in Section 14.
3
<PAGE>
(d) Grantor will advise Secured Party, its successors and
assigns, promptly, in reasonable detail, of any lien on, or claim
asserted against, the Collateral.
(e) Whenever Grantor shall file an application for any patent
or for the registration of any copyright with the United States
Patent and Trademark Office, the United States Copyright Office, or
any similar office or agency in the United States, in respect of the
Collateral, Grantor shall report such filing to Secured Party within
ten days after such filing occurs. Upon request of Secured Party,
Grantor shall execute and deliver any and all reasonably necessary
agreements, instruments, documents, and papers as Secured Party may
request to evidence and perfect Secured Party's security interest in
any such newly filed patent or copyright and the goodwill relating
thereto or represented thereby, and Grantor hereby appoints Secured
Party its attorney-in-fact to execute and file all such writings for
the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest and
being irrevocable until the Obligations are discharged in full.
5. Performance by Secured Party of Grantor's Obligations. If Grantor
fails to perform or comply with any of its agreements contained herein and
Secured Party, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, then the expenses of Secured Party incurred in connection with
such performance or compliance, shall be payable by Grantor to Secured Party on
demand and shall constitute Obligations secured hereby.
6. Remedies Upon Default. Upon an Event of Default, Secured Party
may pursue any or all of the following remedies, without any notice to Grantor
except as required below:
(a) Secured Party may give written notice of default to
Grantor, following which Grantor shall not dispose of, conceal,
transfer, sell or encumber any of the Collateral (including, but not
limited to, cash proceeds) without Secured Party's prior written
consent, even if such disposition is otherwise permitted hereunder in
the ordinary course of business. Secured Party may obtain a temporary
restraining order or other equitable relief to enforce Grantor's
obligation to refrain from so impairing Secured Party's Collateral.
(b) Secured Party may take possession of any or all of the
Collateral. Grantor hereby consents to Secured Party's entry into any
of Grantor's premises to repossess Collateral, and specifically
consents to Secured Party's forcible entry thereto as long as Secured
Party causes no significant damage to the premises in the process of
entry (drilling of locks, cutting of chains and the like do not in
themselves
4
<PAGE>
cause "significant" damage for the purposes hereof) and provided that
Secured Party accomplishes such entry without a breach of the peace.
(c) Secured Party may dispose of the Collateral at private or
public sale. Any required notice of sale shall be deemed commercially
reasonable if given at least five (5) days prior to sale. Secured
Party may adjourn any public or private sale to a different time or
place without notice or publication of such adjournment, and may
adjourn any sale either before or after offers are received. The
Collateral may be sold in such lots as Secured Party may elect, in
its sole discretion. Secured Party may take such action as it may
deem necessary to repair, protect, or maintain the Collateral pending
its disposition.
(d) Secured Party may exercise its lien upon and right of
setoff against any monies, items, credits, deposits or instruments
that Secured Party may have in its possession and that belong to
Grantor or to any other person or entity liable for the payment of
any or all of the Obligations.
(e) Secured Party may exercise any right that it may have
under any other document evidencing or securing the Obligations or
that is otherwise available to Secured Party at law or equity.
7. Limitation on Duties Regarding Preservation of Collateral. Secured
Party's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as Secured Party would
deal with similar property for its own account. Neither Secured Party nor any of
its partners, directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of Grantor or otherwise.
8. Release. At such time as Grantor shall have paid and performed in
full the Obligations, Secured Party shall execute and deliver to Grantor all
assignments and other instruments as may be reasonably necessary or proper to
terminate the Secured Party's security interest in the Collateral.
9. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10. No Waiver: Cumulative Remedies. Secured Party shall not by any act
(except by a written instrument pursuant to the "Notices" Section hereof),
delay, indulgence, omission or
5
<PAGE>
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by Secured Party of any right or remedy hereunder on any occasion shall
not be construed as a bar to any right or remedy which Secured Party would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law or equity.
11. Waivers and Amendments; Successors and Assigns. None of the terms or
provisions of this Security Agreement may be waived or modified except by a
written instrument executed by Grantor and Secured Party. This Security
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of Grantor and Secured Party.
12. Notices. Any and all notices, elections or demands permitted or
required to be made under this Security Agreement shall be in writing, signed by
the party giving such notice, election or demand and shall be delivered
personally, telecopied, or sent overnight via nationally recognized courier
service (such as Federal Express), to the other party at the address set forth
below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery or
telecopy or the next business day after delivery to such courier service), as
the case may be, shall be the date of such notice, election or demand. For the
purposes of this Security Agreement:
The Address of Grantor is: Spider Technologies, Inc.
5619 DTC Parkway, 12th Floor
Englewood, Colorado 80111-3017
Fax No.: 303-323-4213
with a copy to: E* Law Group
3555 West 110/th/ Place
Westminster, CO 80031
Telecopy No.: (303) 410-0468
Attention: Jeremy Makarechian
The Address of Secured Party is: Intek Information, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111-3017
Attention: Timothy C. O'Crowley
Telecopy No.: (303)323-4213
6
<PAGE>
with a copy to: Chrisman, Bynum & Johnson, P.C.
1900 15/th/ Street
Boulder, CO 80302
Attention: G. James Williams, Jr.
Telecopy No.: (303) 449-5426
13. Governing Law. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California, without regard to its conflict of law provisions.
14. Quiet Enjoyment by Licensees. Secured Party, its successors and
assigns, upon exercise of its rights hereunder shall not disturb a licensee's
rights in respect of the Collateral pursuant to a non-exclusive license granted
by the Grantor for the Collateral, provided, however, that Secured Party, its
successors and assigns, shall have no obligation to perform any maintenance,
support or other work thereunder, and no provision of any such license shall be
binding upon Secured Party, its successors and assigns, other than the
obligation to license such Collateral. Without limitation, no right of first
refusal or purchase right shall be binding upon Secured Party, its successors
and assigns.
7
<PAGE>
Intellectual Property Security Agreement (continued)
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered as of the date first above written.
GRANTOR:
SPIDER TECHNOLOGIES, INC.,
a Delaware corporation
By: /S/ TIMOTHY C. O'CROWLEY
----------------------------
Title: ____________________________
SECURED PARTY:
INTEK INFORMATION, INC.,
a Delaware corporation
By: /S/ TIMOTHY C. O'CROWLEY
------------------------------
Title: ____________________________
8
<PAGE>
SCHEDULE A
(ATTACHED IS ADDITIONAL DESCRIPTION OF THE "TELWEB" SOFTWARE
FROM ASSIGNMENT AGREEMENT
<PAGE>
EXHIBIT A
(ADDITIONAL DESCRIPTION OF THE "TELWEB" SOFTWARE
FROM SOFTWARE ASSIGNMENT AGREEMENT)
Software Description
Modules & Sections
<TABLE>
<CAPTION>
<S> <C>
Application Manager Reporting Manager (RM)
Event Manager ----------------------
Exchange Manager . Reporting Library
Program Manager . Scheduling
Process Manager . Distribution
Reporting Manager
Order Inventory Order Inventory (OI)
Scripting & Data Capture --------------------
. Orders
Application Manager (AM) . Order Entry (OE)
- ------------------------ . Shipping (SH)
. Installation Manager . Taxation (TX)
. Configuration Manager . Payment (PA)
. User Manager Authorization
. Users & Groups Settlement
. Message Manager . Inventory (IN)
. User Interface . Invoicing (IV)
. Screen Manager . Products & Suppliers
. Screens & Menues . Products (PR)
. Security Suppliers
Shipping
Event Manager (EM) Pricing
- ------------------
. Event Types Scripting & Data Capture (SD)
. Queues ----------------------------
. Scheduler . Scripting Engine
. Script building tool
Exchange & Process Manager (XM) . Script validation and verification
- -------------------------------
. Data Import and Export
. EDI
Program Manager (PM)
- --------------------
. Customers & Prospects
. Programs & Projects
. Events & Event Logging
</TABLE>
<PAGE>
Exhibit 10.10
TRANSITION SUPPORT AGREEMENT
This Transition Support Agreement (this "Agreement") is made and entered
into as of this 4 day of November, 1999 ("Effective Date") by Spider
Technologies, Inc., a Delaware corporation ("Company"), and Intek Information,
Inc., a Delaware corporation ("Provider"). Capitalized terms not defined herein
have the meaning specified in the Separation Agreement between the parties of
even date herewith (the "Separation Agreement").
WHEREAS, pursuant to this Agreement, Intek has agreed to provide, as
appropriate, certain administrative and other services for a limited period of
time to facilitate the Company's operation of the business acquired from
Provider (the "TelWeb Business") pursuant to the Separation Agreement and the
Related Agreements;
WHEREAS, this Agreement is one of the Related Agreements referred to in the
Separation Agreement; and
WHEREAS, the obligations of the parties to consummate the transactions
contemplated by the Separation Agreement was conditioned on, among other things,
the execution and delivery of this Agreement by the parties.
NOW, THEREFORE, in consideration of the premises and promises set forth in
this Agreement, the parties agree as follows:
1. Operational Support. Provider shall render to Company during the term
-------------------
of this Agreement the support services, as described on the attached Exhibit A
---------
(the "Support Services") on the terms and conditions set forth in this Agreement
and in the attached exhibits. Provider agrees to use its best efforts and due
care to maintain substantially the same level and quality of such support
services that it rendered for itself while it was operating the TelWeb Business,
and to cooperate with Company in the rendition of the Support Services.
Company may request Provider from time to time to render support services
that are not described in, or contemplated by, the attached Exhibit A. Provider
---------
and Company shall arrange a mutually convenient time to meet and discuss, in
good faith, the proposed additional support services and the fees payable for
those additional support services. (Any additional support services that
Provider agrees to provide to Company pursuant to this section then will
constitute part of the "Support Services" for purposes of this Agreement.) If
Provider agrees to render additional support services requested by Company,
Provider shall modify Exhibits A and B accordingly and the rendition of, and
---------- -
payment for, those support services will begin as of the date Provider and
Company select. If Provider declines to render additional support services
requested by Company
<PAGE>
notwithstanding its discussions with Company, the Support Services rendered by
Provider will remain the same as they were immediately before Company's request.
2. Payroll Support Services. Company authorizes Provider to withhold the
------------------------
appropriate amounts for each employee for state and federal taxes, social
security, employee benefits and any other purposes of which Provider advises
Company. Provider shall deposit and remit to the appropriate tax jurisdiction
returns for each of the following: state income tax withholdings, state
unemployment, and unemployment compensation tax. Provider shall prepare
applicable federal and state quarterly and year end reports. Company shall
execute documents as Provider requests to authorize Provider to receive copies
of notices, correspondence and transcripts regarding employment tax returns
Provider prepares.
3. Fees For Support Services. Company shall pay a monthly fee, plus any
-------------------------
applicable sales or use taxes incurred or payable by Provider, for the Support
Services in accordance with the schedule of fees for the Support Services that
is attached as Exhibit B (the "Fee Schedule"), whether or not a particular
---------
Support Service is rendered by Provider or used by Company during any given
month so long as the particular Support Service is available for Company's use
during that period of time and subject to Company's right to terminate a
particular Support Service as provided in this section. Provider and the
Company will amend Exhibit B from time to time to reflect any additional support
services that Provider agrees to render pursuant to Section 1. In addition,
Company shall reimburse Provider for all pre-approved out-of-pocket expenses
(the nature of which are described and identified on the attached Exhibit D)
---------
that are incurred by Provider (or the agents, officers, directors, employees, or
representatives of Provider, if any) during any given month in connection with
the rendition of the Support Services.
The payment by Company for the rendition of the Support Services during any
given month shall constitute conclusive evidence that the Support Services were
satisfactory to Company, unless Company notifies Provider of any objection to
the Support Services rendered within 30 days of the date payment for those
Support Services is received by Provider. If Company notifies Provider within
the foregoing 30 day period of any reasonable objection that Company has as to
the quality of the Support Services, or the manner in which Support Services
were rendered, Provider shall cure any such objection as soon as reasonably
practicable, but in no event more than 30 days from the date of Company's notice
of objection. Additionally, Provider shall make reasonable efforts to alleviate
any written objections that Company has as to the quality of the Support
Services, or manner in which the Support Services are rendered in the future.
However, this paragraph does not expand Provider's responsibilities beyond those
set forth in the second sentence of the first paragraph of Section 1.
If this Agreement is terminated in accordance with Section 9 on a day other
than the last day of a month, the monthly fee for the Support Services will be
pro rated based on the number of days in the month on and before, and the number
of days in the month after, the day when this Agreement is terminated. Company
shall reimburse and pay to Provider all out-of-pocket expenses incurred
2
<PAGE>
(whether or not yet billed by or to Provider) by Provider pursuant to this
Agreement up to and including the day of termination.
4. Payment for Support Services. By the twentieth (20/th/) day of each
----------------------------
month, Provider shall send to Company an invoice for fees payable for the
Support Services for the preceding month, accompanied by a statement of the out-
of-pocket expenses incurred by Provider during the previous month in connection
with the rendition of the Support Services. The monthly invoice of fees and
expenses is due and payable upon its receipt by Company, and a late charge of
ten percent (10%) per annum is payable by Company to Provider, on demand, on any
statement balance that is not paid within twenty (20) days of the fee statement
date. Upon request, Provider shall submit to Company appropriate evidence and
itemization of any out-of-pocket expenses listed on the monthly invoice of fees
and expenses.
Notwithstanding any other provision of this Agreement, in the event that
Company determines, in its sole discretion, that it desires to cease to receive
any one or more of the Support Services, Company shall so notify Provider,
describing the Support Services to be terminated and the effective date of
termination of the described Support Services which shall be at least forty-five
(45) days after the date of the notice. Upon such effective date, the monthly
fees payable under this Agreement shall be appropriately reduced with respect to
each type of category of Services that has been terminated, which reductions
shall be prorated for the number of days remaining in such month.
5. Shared Executives. As of the Effective Time, the marketing and sales
-----------------
executives of Intek listed on Exhibit C ("Shared Executives") shall allocate a
--------- -----------------
specified percentage of their time to Company ("Spider Time"). The Shared
-----------
Executives shall remain employees of Provider and thus shall be paid their
salary by Provider and receive their benefits directly from Provider. Company
shall reimburse Provider for the Shared Executives' out-of-pocket travel and
entertainment expenses while performing work for Company, so long as those
expenses and documentation thereof are in accordance with Company's policies as
reported by Company to Provider from time to time. If Provider finds those
policies unreasonable, Provider and Company will arrange for direct payment by
Company of all expenses. By the twentieth (20/th/) day of each month, Provider
shall send to Company an invoice for monthly aggregate charges for the Shared
Executives ("Aggregate Charges") which shall equal one-twelfth (1/12) of the
aggregate of each Shared Executive's fully loaded total annual cost of
employment including salary, benefits and overhead (but excluding stock options
or stock grants) to Provider multiplied by the Spider Time provided on
Exhibit C. On a quarterly basis beginning January 1, 2000, Provider and Company
- ---------
shall review the Spider Time and if the actual costs for salary, benefits and
overhead on an aggregate basis for the Shared Executives are more or less than
ten percent (10%) of the Allocated Charges, the Allocated Charges shall be
appropriately adjusted to reflect the actual costs.
Nothing in this Agreement requires the Company to retain any Shared
Executives in the service of Intek or hire a person to perform the services of
any Shared Executive who is no longer a Company Employee.
3
<PAGE>
6. Term. This Agreement shall commence on the Effective Date and
----
continue in effect until one year from the Effective Date ("Initial Expiration
------------------
Date"), unless renewed or earlier terminated in accordance with this Agreement.
- ----
This Agreement will renew automatically for one additional term of three months,
unless Company notifies Provider at least forty-five (45) days before the
Initial Expiration Date, of its intent not to renew this Agreement. All
references in this Agreement to the "term of this Agreement" include a renewal
term. Notwithstanding the expiration of this Agreement pursuant to this
section, the duties, obligations, and responsibilities of Company and Provider
(and the agents, officers, directors, employees, subcontractors, and
representatives of Company and Provider, if any) under Sections 7, 8, and 10
will survive following the expiration of this Agreement.
7. Relationship Between Parties. The relationship between Company and
----------------------------
Provider created by this Agreement is that of an independent contractor, and
nothing in this Agreement, whether express or implied, shall be deemed to create
an association, partnership, joint venture, or employee-employer relationship
between Company and Provider. By virtue of this Agreement, no agent, officer,
director, employee, or, representative of Company is, will be, or will be deemed
to be, an agent, officer, director, employee, or representative of Provider.
Company shall not have the right to make any contracts or commitments for, or on
behalf of, Provider without Provider's prior written approval. Conversely, no
agent, officer, director, employee, or representative of Provider is, will be,
or will be deemed to be, an agent, officer, director, employee, or
representative of Company. Provider shall not have the right to make any
contracts or commitments for, or on behalf of, Company without Company's prior
written approval.
8. Indemnification.
---------------
8.1 Indemnification of Provider. Company shall indemnify Provider,
---------------------------
its subsidiaries and their respective agents, officers, directors, employees,
owners, and representatives from any cost, loss, expense, or liability incurred
by Provider or its subsidiaries, or their respective agents, officers, director,
employees, owners, or representatives arising out of a breach of any covenant
made or to be performed by Company or its subsidiaries, or their respective
agents, officers, directors, employees, owners, or representatives pursuant to
this Agreement.
8.2 Indemnification of Company. Provider shall indemnify Company,
--------------------------
its subsidiaries and their respective agents, officers, directors, employees,
owners and representatives from any cost, loss, expense, or liability incurred
by Company, or its subsidiaries or their respective agents, officers, directors,
employees, owners or representatives arising out of a breach of any covenant
made or to be performed by Provider pursuant to this Agreement.
4
<PAGE>
9. Termination of Agreement.
------------------------
9.1 Termination by Provider. Provider unilaterally may terminate
-----------------------
this Agreement before the expiration of its stated term, without further
liability or obligation to Company, if any of the following events occurs:
(a) Company defaults under any of its monetary obligations under this
Agreement and does not cure such default within twenty (20) days of notice of
such default, or fails to undertake reasonable steps to cure any nonmonetary
default under this Agreement within five (5) days after it receives notice from
Provider of any such default (and fails to cure any such non-monetary default
within twenty (20) days following the effective date of the notice of default);
(b) The initiation of an action or proceeding for the dissolution,
termination, or liquidation of Company;
(c) Company sells, leases, exchanges, distributes, liquidates, or
otherwise transfers all or substantially all its assets;
(d) Thirty (30) days following the closing of a public offering of
the Company's stock registered pursuant to the Securities Act of 1933, as
amended; or
(e) Company files (or a creditor files against Company) a petition
seeking relief or reorganization under any bankruptcy, insolvency, or debtor
relief law or gives notice to any creditor of a proposed general assignment for
the benefit of its creditors; or a trustee, receiver, or custodian is appointed
for Company generally or for all or substantially all its assets.
Termination of this Agreement in accordance with subsections (a) through
(e) above will be effective, unless otherwise provided, when notice of
termination is given to Company. If this Agreement is terminated in accordance
with this Section, neither party to this Agreement will have any additional
right or obligation with respect to the other party to this Agreement, except
Company shall remain liable and pay for the services rendered and costs incurred
by Provider to Company pursuant to this Agreement through the effective date of
termination and additionally, the duties, liabilities, obligations, and
responsibilities of the respective parties set forth in Sections 7, 8, and 10
will survive following the termination of this Agreement.
9.2 Termination by Company. Company unilaterally may terminate this
----------------------
Agreement before the expiration of its stated term, without further liability or
obligation to Provider, if any of the following events occurs:
(a) Provider defaults under any of its monetary obligations under
this Agreement and does not cure such default within ten (10) days of notice of
such default, or fails to undertake reasonable steps to cure any non-monetary
default under this Agreement within five (5) days after
5
<PAGE>
it receives notice from Company of any such default (and fails to cure any such
nonmonetary default within fifteen (15) days);
(b) The initiation of an action or proceeding for the dissolution,
termination, or liquidation of Provider;
(c) Provider sells, leases, exchanges, distributes, liquidates, or
otherwise transfers all or substantially all its assets;
(d) Thirty (30) days following the closing of a public offering of
the Provider's stock registered pursuant to the Securities Act of 1933, as
amended;
(e) Provider files (or a creditor files against Provider) a petition
seeking relief or reorganization under any bankruptcy, insolvency, or debtor
relief law or gives notice to any creditor of a proposed general assignment for
the benefit of its creditors; or a trustee, receiver, or custodian is appointed
for Provider generally or for all or substantially all its assets; or
(f) At any time upon sixty (60) days prior written notice by Company
to Provider of its intent to terminate this Agreement.
Termination of this Agreement in accordance with subsections (a) through
(f) above will be effective, unless otherwise provided, when notice of
termination is given to Provider. If this Agreement is terminated in accordance
with this Section, neither party to this Agreement will have any additional
right or obligation with respect to the other party to this Agreement, except
Company shall remain liable and pay for the services rendered and costs incurred
by Company to Provider pursuant to this Agreement through the effective date of
termination and, additionally, the duties, liabilities, obligations, and
responsibilities of the respective parties set forth in Sections 7, 8 and 10
will survive following the termination of this Agreement.
10. Miscellaneous.
-------------
10.1. Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
10.2. Waiver and Modification. An extension, amendment,
-----------------------
modification, cancellation, or termination of this Agreement will be valid and
effective only if it is in writing and signed by each party to this Agreement.
In addition, a waiver of any duty, obligation, or responsibility of a party
under this Agreement will be valid and effective only if it is evidenced by
writing signed by, or on behalf of, the party against whom the waiver or
discharge is sought to be
6
<PAGE>
enforced. The waiver by either party of a breach of a provision of this
Agreement will not constitute as waiver of a succeeding breach of the provision
or a waiver of the provision itself.
10.3. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or in a counterpart hereto (as the case may be) or such
other address as may hereafter be designated in writing by such party to the
other parties:
if to the Provider, to:
Intek Information, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
if to the Company, to:
Spider Technologies, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
E* Law Group
3555 West 110/th/ Place
Westminster, CO 80031
Telecopy: (303) 410-0468
Attention: Jeremy W. Makarechian
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Transition
Support Agreement as of the date first above written.
PROVIDER: INTEK INFORMATION, INC.
By: /S/ TIMOTHY C. O'CROWLEY
----------------------------------
Its: Chairman/CEO
---------------------------------
COMPANY: SPIDER TECHNOLOGIES, INC.
By: /S/ TIMOTHY C. O'CROWLEY
----------------------------------
Its:_________________________________
10
<PAGE>
EXHIBIT A
SUPPORT SERVICES
Finance and Accounting. Provider shall provide to Company the following types
- ----------------------
of finance and accounting services that it rendered for itself while it was
operating the TelWeb Business: financial accounting, tax accounting, payroll
services, cash and treasury management, corporate secretarial services and
strategic planning and development. Such services include the following:
(1) Financial Reporting
(a) Preparation of quarterly and annual financial statements and
compliance reporting for credit, regulatory and other purposes
(b) Preparation of financial projections
(2) Operations
(a) Administration of computerized accounting systems
(i) General ledger
(ii) Fixed assets
(iii) Accounts payable
(iv) Expense budgets
(b) Accounts payable and receivable processing
(c) Assistance in development of accounting policies and procedures
(3) Tax
(a) Preparation and filing of income and franchise returns and reports
(i) Preparation and filing of sale and use tax returns, refund
claims and reports
(ii) Consultation, review and maintenance of income, franchise and
sales and use tax audits
<PAGE>
(4) Treasury
(a) Initiation of electronic transfers
(b) Analysis of cash requirements and positioning of cash
(c) Investment of surplus funds
(d) Preparation of management/accounting reports
(e) Review of account analysis statements
(f) Execution of foreign currency transactions
The following types of services are not included: preparation of audited
financial statements and other non-standard finance and accounting services.
Human Resources. Provider shall provide to Company the following types of human
- ---------------
resource services that it rendered for itself while it was operating the TelWeb
Business: human resource administration, benefits planning and
administration, communication plans, and strategic planning and development.
Such services include the following:
(1) Administration of employee benefits
(a) Enrollment
(b) Interface with payroll department
(c) Pension (but not serving as trustee)
(d) Long term disability
(e) Medical and dental claims
(f) Life insurance
(2) Preparation and filing of regulatory reports related to benefit plans
(3) Assistance with recruitment
(4) Consultation regarding labor relations and other employment matters
<PAGE>
(5) Assistance in the development of human resources policies and
procedures
The following types of services are not included: administration of retirement
benefit plans presently done by outside services, employment and benefit related
disputes, and other non-standard human resource services.
Insurance and Risk Management
- -----------------------------
(1) Negotiation and procurement of insurance (including property, business
interruption, boiler and machinery, workers' compensation, employer
liability, general liability, auto, excess liability, and crime)
(2) Claims management of workers' compensation and other losses
(3) Support regarding insurance and exposure issues
<PAGE>
EXHIBIT B
FEE SCHEDULE
Finance and Accounting; Insurance and Risk Management. Seventy-Five Thousand
- -----------------------------------------------------
Dollars ($75,000) annually shall be paid in monthly installments of Six Thousand
Two Hundred Fifty Dollars ($6,250) beginning October 1, 1999 and thereafter.
Human Resources. Fifty Thousand Dollars ($50,000) annually shall be paid in
- ---------------
monthly installments of Four Thousand One Hundred Sixty-Six and 67/100 Dollars
($4,166.67).
If the aggregate level of services required by the Company from Provider exceeds
140% of the level of services that would have been predicted based upon the
financial forecasts of the Company delivered to Provider by the Company prior to
the date hereof, the Company and Provider will mutually agree to appropriate
adjustments in compensation. This provision is intended to address unpredicted
growth at the Company by acquisition or otherwise.
<PAGE>
EXHIBIT C
LIST OF SHARED EXECUTIVES
Percentage of Time
Shared Executive Devoted to Spider
---------------- -------------------
Timothy Hardin 5%
Patrick O'Neal 20%
Frank Richards 15%
Mark Sherman 67%
In addition, Timothy O'Crowley shall enter into an employment agreement with
Spider which will specify his arrangements with Spider, and Paul Tartre's and
Jayme Guardiano's shared time is addressed in the Sublease and Resource Sharing
Agreement.
<PAGE>
EXHIBIT D
OUT-OF-POCKET EXPENSES
Delivery cost related to the Support Services.
Hourly charges of third party consultants and advisors agreed to in writing by
the parties.
Insurance expenses of the Company if advanced by the Provider.
Other expenses agreed to in writing by the parties.
<PAGE>
Exhibit 10.11
SEPARATION AGREEMENT
This Separation Agreement ("Separation Agreement") is made and entered into
--------------------
as of this first day of October, 1999 by and among Intek Information, Inc., a
Delaware corporation ("Intek") and Spider Technologies, Inc., a Delaware
-----
corporation ("Spider").
------
RECITALS
A. Intek is the sole stockholder of Spider;
B. Intek's Board of Directors has approved a distribution of all the
Spider stock held by Intek as of the date of the distribution (the
"Distribution"). Such shares are anticipated to be distributed on or about
------------
October 15, 1999. The actual date of such distribution is referred to as the
"Distribution Date." The effective time of the Distribution for purposes hereof
- ------------------ --- -------- ------
is 12:01 A.M. Denver, Colorado time, on October 1, 1999 ("Effective Time").
--------------
C. Intek and Spider wish to enter into this Agreement to govern the
relationships between the parties after the Distribution Date and the Effective
Time, it being understood that this Agreement is null and void if the
Distribution does not occur.
D. Intek and Spider have entered into a Contribution Agreement,
Transition Support Agreement, Software Assignment and Grant-Back License,
Maintenance, and Support Agreement ("Software Agreement"), Tax Separation
------------------
Agreement, Sublease and Resource Sharing Agreement, Landlord's Consent to
Sublease (regarding Suites 200 and 210, 1455 Frazee Road, San Diego),
Intellectual Property Security Agreement, and other agreements related to the
Distribution and the relationship between the parties after the Distribution
(collectively, the "Related Agreements").
------------------
E. Spider is by way of this Separation Agreement and the Related
Agreements acquiring the information technology and software business of Intek
other than the Integration Business as defined in the Contribution Agreement
(the "Business").
--------
TERMS AND CONDITIONS
In consideration of the mutual covenants herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
<PAGE>
ARTICLE I
CAPITALIZATION OF INTEK AND SPIDER
1.1 Pre- and Post-Distribution Outstanding Capitalization of Intek.
--------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Common Stock/1/ 7,475,890
Series A Preferred Stock 15,000 (3,000,000 as converted)
Series B Preferred Stock/2/ 12,306,142
Series C Preferred Stock 6,371,913
Series D Preferred Stock 8,841,911
Series E Preferred Stock/3/ 2,510,691
1.2 Pre-Distribution Outstanding Capitalization of Spider.
-----------------------------------------------------
Common 7,475,890
Series A Preferred 37,707,124
1.3 Post-Distribution Capitalization of Spider.
------------------------------------------
Common to Intek 7,475,890
Series A Preferred to Intek 37,707,124/4/
Total Option Pool (Including Outstanding 11,000,000
unexercised options shown below and
5,600,000 exercised grants shown below
as outstanding)
Outstanding Options to Purchase Common 2,563,500
Warrant to Intek to Purchase Common for
Acorn Transaction 1,000,000
Common held by others (Key Employee
Grants) 5,600,000
______________
</TABLE>
/1/ Reflects stock option exercise for 3,541 shares in July, 1999.
/2/ Reflects return of shares of Series B Preferred by Protocall
Shareholders.
/3/ Reflects purchase of a total of 26,219 shares of Series E by Jon,
Richard and Loretta Yellen.
/4/ Equals number to reflect theoretical PIK Election dividend at Intek
to date of distribution as provided in attached Distribution Plan. Calculation
is as follows:
Intek Common 7,475,890 Spider Common 7,475,890
Series A 3,000,000 (as converted)
plus 435,000 (14.5%) Spider Series A 3,435,000
Series B 12,306,142
plus 1,784,391 (14.5%) Spider Series A 14,090,533
Series C 6,371,913
plus 923,927 (14.5%) Spider Series A 7,295,840
Series D 8,841,911
plus 1,282,077 (14.5%) Spider Series A 10,123,988
Series E 2,510,691
plus 251,069 (10%) Spider Series A 2,761,760
TOTAL SPIDER COMMON 7,475,890 TOTAL SPIDER SERIES A 37,707,121
ADDITIONAL 3 SHARES NECESSARY FOR ROUNDING CALCULATIONS SO TOTAL SPIDER SERIES A
IS 37,707,124
2
<PAGE>
ARTICLE II
PLAN OF DISTRIBUTION
2.1 Shares of Spider. The capital stock of Spider described above as "to
----------------
Intek" ("Distribution Stock") will be distributed to the holders of capital
stock of Intek in accordance with the Distribution Plan attached as Exhibit 2.1.
-----------
2.2 Conditions to Distribution.
--------------------------
2.2.1 The obligations of each party to close the transactions
contemplated hereby are conditioned upon the following:
(i) the Closing occurring prior to November 1, 1999,
(ii) the simultaneous execution and delivery, and if
performance is required at such time, performance, of
each of the following:
(a) this Agreement
(b) Software Assignment and Grant-Back License,
Maintenance, and Support Agreement;
(c) Tax Separation Agreement;
(d) Contribution Agreement;
(e) Intellectual Property Security Agreement and
related UCC-1 Financing Statements;
(f) Transition Support Agreement;
(g) Warrant to Purchase Common Stock (1,000,000
shares);
(h) Satisfactorily prepared TelWeb copyright filing
and related U.S. Copyright Office security
interest filings;
(i) Sublease and Resource Sharing Agreement; and
(j) Landlord's Consent to Sublease.
(iii) the receipt of the necessary consents of the
stockholders of Intek;
(iv) Consent of the San Diego landlord unless waived by
Intek and
3
<PAGE>
Spider;
(v) Consent of Silicon Valley Bank, N.A. and Charter
Financial;
(vi) the Closing not having a material adverse effect on
Intek or Spider, or the capital structures of either
party.
2.2.2. The obligation of Intek to close the transactions contemplated
hereby is conditioned upon amendments in form satisfactory to Intek to its
organizational documents and agreements with its shareholders including: (i) an
Amended and Restated Certificate of Incorporation; and (ii) an Amended and
Restated Shareholders and Voting Agreement.
2.3 Closing. The Closing of the transactions contemplated hereby and in
-------
the Related Agreements will occur at the offices of the Company, with this
Agreement and each Related Agreement being considered effective simultaneously
with the other except as logic may otherwise dictate or as a particular document
may otherwise state. At the time of the Closing the Distribution Stock shall be
deemed issued and the transfers and assumptions of assets, rights, liabilities
and obligations as provided in the Related Agreements and herein shall occur
except as provided otherwise herein or in a Related Agreement.
2.4 Asset Transfers: Assets will be transferred from Intek to Spider at
---------------
the Closing as provided in the Related Agreements and herein.
ARTICLE III
DIVISION OF ASSETS
3.1 Sublease. The parties acknowledge that they may enter into a mutually
--------
agreed upon sublease on an arms length basis for a portion of the space Intek
anticipates leasing at the Denver Technology Center provided consent of the
landlord can be readily obtained.
3.2 Negotiation Rights Agreement. Pursuant to the Negotiation Rights
----------------------------
Agreement between Intek and Trans Cosmos Inc. dated April 16, 1999 ("TC
--
Agreement"), Intek and Spider are to determine which Opportunities (as defined
- ---------
in the TC Agreement) involving Trans Cosmos Inc. as the Initiator (as defined in
the TC Agreement) shall be allocated to Intek and which to Spider. Intek and
Spider allocate such Opportunities as follows:
(a) Spider shall be allocated the following Opportunities:
Opportunities primarily involving the creation, modification, distribution,
sale, licensing, or sublicensing of software, or provision of software support
or information technology support services.
(b) Intek shall be allocated the following Opportunities: all other
Opportunities including the "Integration Business" as defined in the
Contribution Agreement.
4
<PAGE>
3.3 Call Center Services Agreements. The subcontracted performance by
-------------------------------
Spider of certain obligations of Intek constituting part of the Business for
Intek call center customers shall be governed by the terms of the Software
Agreement and Spider will indemnify Intek for claims or liabilities based upon
Spider's failure to properly perform such subcontracted work.
3.4 Allocated Employees. As of the Distribution Date, the employees and
-------------------
leased employees of Intek or its subsidiaries (other than Spider) listed on
Schedule 3.4 shall become employees of Spider ("Allocated Employees"). Intek
- ------------ -------------------
shall not be responsible for the insurance, employee benefits and other related
benefits of the Allocated Employees which accrued after the Distribution Date
except as provided in the Transition Support Agreement. Spider shall be
responsible for all costs associated with Allocated Employees from and after the
Effective Date. Intek shall not be responsible for any COBRA benefit, or
unemployment or worker's compensation benefits, of an employee or leased
employee whose employment ends, or whose injury or death occurs, while an
employee of Spider. Spider shall reimburse Intek if Intek has to make any
payment in respect thereof, including as a result of adjustment to its insurance
rates or government fund payment obligations. Spider will credit Allocated
Employees for their service time at Intek and its subsidiaries for purposes of
Spider benefit plans (unless prohibited by law) and Spider health and life
insurance will not exclude pre-existing conditions.
3.6 Stock Options. The stock options of Allocated Employees to purchase
-------------
stock of Intek shall be amended in the manner determined by Intek.
3.7 Performance of Contracts. Pursuant to a Contribution Agreement
------------------------
between Intek and Spider of even date, certain contracts, related intangibles,
obligations, commitments, debts and accounts payable of Intek were assigned and
transferred to Spider (collectively the "Contracts"). Spider shall perform all
---------
obligations under the Contracts which first accrue or become performable (as to
non-monetary obligations) after the Effective Date.
3.8 Accounts Payable and Accounts Receivable. All accounts payable of the
----------------------------------------
Business accrued prior to the Effective Time are the sole responsibility of
Intek and all accounts receivable of the Business accrued prior to the Effective
Time are owned by Intek. All accounts payable of the Business accrued after the
Effective Time are the sole responsibility of Spider and all accounts receivable
of the Business accrued after the Effective Time are owned solely by Spider.
Spider shall be responsible for payments for ordinary course items, whether
accrued before or after the Effective Time, if Spider is the beneficiary thereof
(e.g., supplies ordered before the Effective Time, but received after the
Effective Time if not subject to the Sublease and Resource Sharing Agreement).
If Intek or Spider receives any correspondence or payment related to an
obligation, liability or asset of the other, the receiving party shall promptly
forward it to the other party.
If a payment is received from a person which owes funds to both Intek and
Spider, the following procedures shall be followed:
5
<PAGE>
A. If the payment indicates it relates to a particular invoice or is
otherwise designated for payment in a particular manner (other
than only the name of the payee), it shall be applied in that
manner.
B If the payor does not indicate how payment is to be applied, as
between the parties hereto it shall be applied first to
obligations owed by the payor to the person to whom the payment
is made, and then to obligations owed to the other party hereto.
The parties will cooperate to properly inform persons owing obligations to
both of them as to the proper method of payment.
3.9 Allocations from Effective Time to Distribution Date. From and after
----------------------------------------------------
the Effective Time, all revenues of the Business (including in respect of the
assets which are held by Spider as of the Distribution Date) shall be the income
and property of Spider, and all liabilities and obligations of the Business
(including in respect of the assets which are held by Intek immediately before
the Distribution Date) shall be the liabilities and obligations of Spider. All
financial reporting and tax reporting shall be consistent with this principle.
3.10 Insurance. Spider acknowledges that the insurance policies of Intek
---------
will not provide coverage for Spider, its assets or employees, on and after the
Distribution Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Spider.
----------------------------------------
Spider represents and warrants to Intek as follows:
(a) Organization and Good Standing. Spider is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware.
(b) Authority and Status. Spider has full power and authority to
--------------------
execute and deliver this Agreement and the Related Agreements, to perform its
obligations hereunder and under the Related Agreements, and to consummate the
transactions contemplated hereby and under the Related Agreements without the
necessity of any act or consent of any other person. Spider has taken all
necessary and appropriate corporate action, including obtaining all necessary
board and shareholder consents, with respect to the execution, delivery and
performance by Spider of this Agreement and of the Related Agreements. This
Agreement and the Related Agreements to be executed, delivered and performed by
Spider in connection herewith, constitute or will, when executed and delivered,
constitute the valid and legally binding obligations of Spider, enforceable
against it in accordance with their respective terms, except as enforceability
may be limited by applicable equitable principles or by bankruptcy, insolvency,
6
<PAGE>
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally.
(c) Litigation. To the knowledge of Spider, there is no claim,
----------
litigation, action, suit or proceeding, administrative or judicial, pending or
threatened against Spider or relating to the Business, the assets transferred
pursuant to the Contribution Agreement (the "Assets"), this Agreement, or the
------
transactions contemplated hereunder, at law or in equity, before any federal,
state, local or foreign court, or regulatory agency, or other governmental
authority, which could result in the institution of legal proceedings to
prohibit or restrain the consummation or performance of this Agreement or the
transactions contemplated hereby, or claim damages as a result of this Agreement
or the transactions contemplated hereby, or have a material adverse effect on
the Business or Assets.
(d) No Conflict. Neither the execution and delivery of this Agreement
-----------
nor compliance with the terms and provisions hereof, including, without
limitation, the consummation of the transactions contemplated hereby, will
conflict with or result in the breach of any term, condition, or provision of
Spider's Certificate of Incorporation or Bylaws.
(f) San Diego Lease. It is not anticipated that as of the
---------------
Distribution Date the landlord of the San Diego, California real estate will
have formally consented to the sublease of the property.
4.2 Representations and Warranties of Intek.
---------------------------------------
Intek represents and warrants to Spider as follows:
(a) Organization and Standing. Intek is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of Delaware.
(b) Authority and Status. Intek has full power and authority to
--------------------
execute and deliver this Agreement and the Related Agreements, to perform its
obligations hereunder and under the Related Agreements, and (subject to the
limitations of Section 5.4) to consummate the transactions contemplated hereby
and under the Related Agreements without the necessity of any act or consent of
any other person. Intek has taken all necessary and appropriate corporation
action, including obtaining all necessary board and shareholder consents with
respect to the execution, delivery and performance by Intek of this Agreement
and of the Related Agreements. This Agreement and the Related Agreements to be
executed, delivered and performed by Intek in connection herewith, constitute or
will, when executed and delivered, constitute the valid and legally binding
obligation of Intek, enforceable against it in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally.
7
<PAGE>
(c) Title to the Assets. Except as set forth on Schedule 4.2 attached
------------------- ------------
hereto and except for Permitted Encumbrances, to the Knowledge of Intek, Intek
has good and marketable title to the tangible personal property assets
transferred pursuant to the Contribution Agreement free and clear of any
pledges, liens, or security interests (collectively, the "Liens"). The term
-----
"Permitted Encumbrances" shall mean liens for current taxes not due and payable
----------------------
and liens securing obligations assumed by Spider. Any and all Liens set forth
on Schedule 4.2, with the exception of Permitted Encumbrances, shall be
terminated as of the Closing Date, and Intek shall transfer the Assets to Spider
free and clear of all such Liens. By virtue of the deliveries made on the
Closing Date, Spider will obtain good and marketable title to the Assets, free
and clear of all Liens except for Permitted Encumbrances.
"Knowledge of Intek" means the actual conscious knowledge of a senior
------------------
officer of Intek, but excludes senior officers of Intek (other than Timothy C.
O'Crowley) who become employees of Spider at or about the time of the
Distribution.
(d) Litigation. To the Knowledge of Intek, there is no claim,
----------
litigation, action, suit, or proceeding, administrative or judicial, pending or
threatened against Intek relating to the Business, the Assets, this Agreement,
or the transactions contemplated hereunder, at law or in equity, before any
federal, state, local, or foreign court, or regulatory agency, or other
governmental authority, which could result in the institution of legal
proceedings to prohibit or restrain the consummation or performance of this
Agreement or the transactions contemplated hereby, or claim damages as a result
of this Agreement or the transactions contemplated hereby, or have a material
adverse effect on the Business or Assets.
(e) No Conflict. Neither the execution and delivery of this Agreement
-----------
nor compliance with the terms and provisions hereof, including without
limitation, the consummation of the transactions contemplated hereby, will
conflict with or result in the breach of any term, condition, or provision of
Intek's Certificate of Incorporation or Bylaws.
(f) San Diego Lease. It is not anticipated that as of the
----------------
Distribution Date the landlord of the San Diego, California real estate will
have formally consented to the sublease of the property.
ARTICLE V
LIABILITY
5.1 Performance. Except as specifically provided otherwise herein or in a
-----------
Related Agreement, Spider agrees from and after the effective date of the
Contribution Agreement, to perform and observe all the terms, conditions,
covenants and agreements of the agreements, commitments and contracts
("Contracts") assigned to Spider by way of the Contribution Agreement or a
---------
Related Agreement, which Intek as a party thereunder was required to perform and
observe, all with the same force and effect as if Spider had signed the Contract
in place of Intek. This obligation of performance does not change the
obligation of Spider to bear the financial burden thereof from and after the
Effective Time.
8
<PAGE>
5.2 Prorations. Except as specifically provided otherwise herein or in a
----------
Related Agreement, the parties agree that all rent, taxes, lease payments,
merchant association fees, common area expenses, utilities, telecommunication
services, maintenance, software license or maintenance, and other similar
amounts (whether expense or income) under each Contract, or other obligations
incurred in the ordinary course of the Business, if any, shall be prorated
between Intek and Spider as of the Effective Time.
5.3 Indemnity. Except as specifically provided otherwise herein or in a
---------
Related Agreement, Spider shall defend, indemnify and hold Intek (its
successors, assigns, subsidiaries, owners, officers and directors) ("Intek
-----
Indemnified Parties") harmless from any and all losses, claims, damages and
- -------------------
liabilities accruing under the Contracts, or the operation of the Business from
and after the Effective Time, from any breach of the representations and
warranties in Section 4.1 or a covenant of Spider herein, and all reasonable
costs, including reasonable attorneys' fees, incurred by the Intek Indemnified
Parties in connection therewith. Except as specifically provided otherwise
herein or in a Related Agreement, Intek shall defend, indemnify and hold Spider
(its successors, assigns, subsidiaries, owners, officers and directors ("Spider
------
Indemnified Parties") harmless from any and all losses, claims, damages and
- -------------------
liabilities accruing under the Contracts or the operation of the Business prior
to the Effective Time, from any breach of the representations and warranties in
Section 4.2 or a covenant of Intek herein.
5.4 Assigned Contracts. The parties acknowledge that there are certain
------------------
contracts to which Intek is a party that will be affected by the transactions
described herein. One category consists of agreements with call center
customers of Intek for the provision of call center services and information
technology support, which are the subject of a portion of the Software
Assignment and are not assigned to Spider. A second category consists of other
agreements to which Intek is a party which are assigned to Spider as provided in
the Contribution Agreement, which include various agreements under which Intek
licenses software used with the TelWeb software. INTEK HAS NO LIABILITY
WHATSOEVER TO SPIDER IF ANY AGREEMENT DESCRIBED IN THIS SECTION IS TERMINATED OR
BREACHED AS A RESULT OF THE TRANSACTIONS CONTEMPLATED HEREBY, THE RIGHTS TO
PERFORMANCE THEREOF IN ANY RESPECT NOT BEING ABLE TO BE SUBCONTRACTED TO SPIDER,
OR SUCH AGREEMENT IS NOT ASSIGNABLE TO SPIDER. In addition, Spider has certain
responsibilities regarding software and other assets as described in the
Sublease and Resource Sharing Agreement.
ARTICLE VI
RELATED MATTERS
6.1 Access to Information.
---------------------
9
<PAGE>
(a) From and after the Distribution Date, Intek and its subsidiaries
shall afford Spider and its authorized employees and representatives reasonable
access (including access to persons or firms possessing relevant information and
records) and reasonable duplicating rights during normal business hours to, or,
at Intek's option, copies of, all records, books, contracts, instruments, data
and other information (collectively, "Information") within Intek's or its
-----------
subsidiaries' possession, insofar as such access or copies are reasonably
required by Spider.
(b) Spider and its subsidiaries shall afford to Intek and its
authorized employees and representatives reasonable access (including access to
persons or firms possessing relevant information and records) and reasonable
duplicating rights during normal business hours to, or, at Spider's option,
copies of, all Information within Spider's or its subsidiaries' possession,
insofar as such access or copies are reasonably required by Intek.
(c) Except as otherwise specifically provided for herein, a party
providing Information or witnesses to the other hereunder shall be entitled to
receive from the recipient, upon the presentation of appropriate invoices
therefor, payments for such amounts relating to supplies, disbursements, and
such other costs, employee time, and out-of-pocket expenses, or which may be
reasonably incurred in providing such Information or witnesses. Invoices shall
be due and payable within thirty (30) days of receipt. Interest shall accrue on
any unpaid amount at the rate of ten percent (10%) per annum.
6.2 Confidentiality. Each of Intek and its subsidiaries and Spider and
---------------
its subsidiaries shall hold, and cause each of their respective officers,
directors, employees, agents, consultants and advisors to hold, in strict
confidence, all non-public Information concerning the other party furnished it
by such other party or its representatives pursuant to this Agreement or the
Related Agreements or prior to the date hereof, unless compelled to disclose
such Information by judicial or administrative process or, in the opinion of
counsel, by the requirements of law (in which case such party shall promptly
notify the other party so that the other party may seek a protective or other
appropriate remedy), each party shall not release or disclose such Information
to any other person, except its auditors, attorneys, financial advisors,
bankers, subcontractors, and other consultants and advisors who shall be bound
by the provisions of this Section 6.2. Each party shall be deemed to have
satisfied its obligations hereunder with respect to confidential Information
supplied by the other party if it exercises the same care as it does with
respect to preserving the confidentiality of its own similar information. In
addition, a party shall not use Information except for the purpose for which it
is delivered.
6.3. Litigation. Without limiting the generality of the foregoing, Intek
----------
and Spider agree that Intek shall be responsible for any monetary or other award
against Intek or Spider, and shall be entitled to any monetary or other
recovery, in the litigation currently ongoing between Intek and Davox
Corporation in the District Court, City and County of Denver, State of Colorado
(Civil Action No. 98-CV-4824) or related to the facts forming the basis of that
litigation ("Davox Litigation").
----------------
10
<PAGE>
6.4 Indemnification. Neither party shall be liable for indemnification
---------------
with respect to any claim for which indemnification may result hereunder unless
the indemnified person hereunder ("Indemnitee") indemnification notifies the
----------
other party in writing of the nature of the claim, in as much detail as is
feasible, within a reasonable time after the facts giving rise to it are known
to the Indemnitee. The party requested to make indemnification shall be
entitled to participate at its own expense in the defense, or if it so elects by
a writing delivered to the Indemnitee within thirty (30) days after receipt of
such notice, to assume at its own expense the defense of the matter giving rise
to the claim for indemnification or of any suit brought in connection with it.
If the party to make indemnification elects to assume the defense and is
reasonably creditworthy or carries insurance so as to make it reasonable to
expect it will be able to discharge an adverse judgment, the defense shall be
conducted by counsel, chosen by it. If the Indemnitee elects to assume the
defense of any such claim or suit and retain such counsel, the Indemnitee shall
bear the fees and expenses of its own counsel arising out of any legal service
thereafter performed by that counsel. In the event the Indemnitee elects to
defend against any such claim, the will, so long as the party to make
indemnification is actively engaged in defense of the claim, refrain from paying
or compromising the claim and will extend its cooperation and assistance to the
party to make indemnification in its defense against the claim. Each party and
Indemnitee will cooperate in the defense of any claim.
If the parties hereto or an Indemnitee are unable to agree upon or settle
any claim for indemnity, either party or an Indemnitee may submit the indemnity
claim to binding arbitration as provided herein.
Notwithstanding anything else herein except for provisions stating a
particular matter is governed by another agreement, neither party need reimburse
or indemnify the other for a breach of a representative or warranty herein until
the amount to be reimbursed or indemnified exceeds $50,000 and then only as to
the amounts in excess of $50,000.
6.5 Taxes. Intek and Spider have entered into a Tax Separation Agreement
-----
(as amended, supplemented or otherwise modified, the "Tax Separation
--------------
Agreement"), regarding their respective rights and obligations with respect to
- ---------
taxes of Intek and Spider for all periods and certain other tax-related matters.
In the event of a conflict between the terms of the Tax Separation Agreement and
the terms of this Agreement, the terms of the Tax Separation Agreement shall
govern.
6.6. Technology Transfer Agreement. Intek and Spider have entered into a
-----------------------------
Software Assignment and Grant-Back License, Maintenance and Support Agreement,
and certain other agreements (as amended, supplemented or otherwise modified,
the "Technology Agreements"), setting forth the arrangements between the parties
---------------------
with respect to certain technology including TelWeb. In the event of a conflict
between the Technology Agreements and the terms of this Agreement, the terms of
the Technology Agreements shall govern.
11
<PAGE>
6.7 Expenses. Except as otherwise provided in this Agreement or a Related
--------
Agreement, all out of pocket expenses in connection with the Distribution up to
the date of the Distribution, shall be borne by Intek.
6.8 Non-solicitation. Except as provided otherwise in the Sublease and
----------------
Resource Sharing Agreement, before, during, and for twelve (12) months after the
later of the date hereof and the termination of the Transition Support Agreement
of even date herewith between the parties, Intek and Spider shall not, directly
or indirectly, offer, induce, recruit, solicit, influence, or attempt to
influence any employee or any leased employee of the other or any of its
subsidiaries to terminate his or her employment for the purpose of working for
the other (without the prior written consent of other party). Provided,
however, that this Section 6.8 shall not apply to prohibit Intek actions as to:
(i) Spider employees or leased employees if there has been an "Abandonment" as
defined in Section 3.7 of the Software and Grant Back License, Maintenance and
Support Agreement; or (ii) Shared Executives of Intek. If a party hereto is
acquired by another entity with assets valued for balance sheet purposes as of
the preceding fiscal year end, or gross revenues in the preceding fiscal year,
of more than $500,000,000, this prohibition shall be limited to direct
solicitations of employment other than solicitations conducted by "help wanted"
or similar public advertisements.
ARTICLE VII
MISCELLANEOUS
7.1 Survival. All of the provisions of this Agreement shall survive
--------
the Distribution Date. The representations and warranties in Sections 4.1 and
4.2 shall survive for a period of one year. Sections 3.1, 3.2 and 3.3 shall
terminate eight (8) years after the date hereof, except as to matters as to
which a claim has been brought by one party hereto against the other party
hereto as of such termination date.
7.2 Entire Agreement. This Agreement and the other writings referred to
----------------
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
7.3. Waiver and Modification. An amendment or modification of this
-----------------------
Agreement will be valid and effective only if it is in writing and signed by
each party to this Agreement. In addition, a waiver of any duty, obligation, or
responsibility of a party under this Agreement will be valid and effective only
if it is evidenced by writing signed by, or on behalf of, the party against whom
the waiver or discharge is sought to be enforced. The waiver by either party of
a breach of a provision of this Agreement will not constitute as waiver of a
succeeding breach of the provision or a waiver of the provision itself.
7.4. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified
12
<PAGE>
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or in a counterpart hereto (as the case may be) or such
other address as may hereafter be designated in writing by such party to the
other parties:
if to Intek, to:
Intek Information, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
if to Spider, to:
Spider Technologies, Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Telecopy: (303) 323-4214
Attention: Chief Executive Officer
with a copy to:
E/*/ Law Group
3555 West 110/th/ Place
Westminster, CO 80031
Telecopy: (303) 410-0468
Attention: Jeremy W. Makarechian
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
7.5. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
13
<PAGE>
7.6. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
7.7. Nouns and Pronouns. Whenever the context may require, any pronouns
------------------
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
7.8. Dispute Resolution. Any and all disputes or claims arising under or
------------------
related to this Agreement (including by a Spider Indemnified Party or Intek
Indemnified Party) shall be promptly submitted to arbitration before the
American Arbitration Association ("AAA") before a single arbitrator. The
---
arbiter shall be selected by the AAA on the basis, if possible, of his or her
expertise in the subject matter(s) of the dispute. The decision of the
arbitrator shall be final, nonappealable and binding upon the parties, and it
may be entered in any court of competent jurisdiction. The arbitration shall
take place in Denver, Colorado. The arbitration shall be conducted under the
Commercial Arbitration Rules of the AAA. The arbitrator shall have the power to
grant equitable relief where applicable under Colorado law. The arbitrator
shall issue a written opinion setting forth his or her decision and the reasons
therefor within thirty (30) days after the arbitration proceeding is concluded.
The obligation of the parties to submit any dispute arising under or related to
this Agreement to arbitration as provided in this Section shall survive the
expiration or earlier termination of this Agreement. Notwithstanding the
foregoing, either party may seek and obtain an injunction or other appropriate
relief from a court to preserve the status quo with respect to any matter
pending conclusion of the arbitration proceeding, but no such application to a
court shall in any way be permitted to stay or otherwise impede the progress of
the arbitration proceeding. Each party hereto, and in order to be entitled to
the benefits hereunder each Intek Indemnified Party and Spider Indemnified
Party, submits itself to the jurisdiction of the AAA in Denver, Colorado.
In the event of any arbitration or litigation being filed or instituted between
the parties concerning this Agreement, the prevailing party will be entitled to
receive from the other party or parties its reasonable attorneys' fees, witness
fees, costs and expenses, court costs and other reasonable expenses, whether or
not such controversy, claim or action is prosecuted to judgment or other form of
relief.
7.9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the jurisdiction of the courts of the
State of Colorado and of the United States of America, in each case located in
the County of Denver, for any action, proceeding or investigation in any court
or before any governmental authority ("Litigation") arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any Litigation relating thereto except in such courts unless consented
to by the other party hereto or unless such courts do not have subject matter
jurisdiction over the primary subject of the Litigation). Each of the parties
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any
14
<PAGE>
Litigation arising out of this Agreement or the transactions contemplated hereby
in the courts of the State of Colorado or the United States of America, in each
case located in the County of Denver, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Litigation brought in any such court has been brought in an
inconvenient forum.
7.10. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
7.11. Rights of Third Parties. Nothing in this Agreement, whether
-----------------------
express or implied, is intended or should be construed to confer or grant to any
person, except the parties hereto, Spider Indemnified Parties and Intek
Indemnified Parties, and their respective assignees and successors, any claim,
right, remedy, or privilege under, or because of, this Agreement or any
provision of it.
7.12. Assignment; Binding Effect. A party to this Agreement (whether
--------------------------
by operation of law or otherwise) shall not assign its rights or delegate its
duties, obligations, and responsibilities under this Agreement without the
advance written consent of the other party to this Agreement, and any assignment
or delegation without the advance written consent of the other party will be
invalid and ineffective against the nonconsenting party. Such consent will not
be unreasonably withheld. This Agreement is binding on, and inures to the
benefit of, any successor or approved assignee of a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Separation
Agreement as of the date first above written.
INTEK INFORMATION, INC.
By: /S/ TIMOTHY C. O'CROWLEY
-------------------------------
Its: Chairman/CEO
-------------------------------
SPIDER TECHNOLOGIES, INC.
By: /S/ TIMOTHY C. O'CROWLEY
------------------------------
Its: ______________________________
15
<PAGE>
EXHIBIT 2.1
DISTRIBUTION PLAN
See Tab 9
16
<PAGE>
SCHEDULE 3.5(a)
ALLOCATED EMPLOYEES
Spider Employee
CTO Will Bechtel
AM Vine Erceg None
OI David Gilbreath Sony
SD Tanja Lawson Sega
TW Judy Morgan None
QA Kathy Prokop None
TM Tom Dinwiddie SDM/DI
SDM Craig Snyder SDM
Prog Tom Laska Amex
Prog Latha Krishnamorthy
Admin Dawn Nelson Admin
Prog. Dev. Dan Parks
Prog. Dev. Richard Schultze
Prog. Dev. Don Van Meter
17
<PAGE>
SCHEDULE 4.2
LIENS
Silicon Valley Bank, N.A.
Charter Financial
18
<PAGE>
Exhibit 10.12
TAX SEPARATION AGREEMENT
This Tax Separation Agreement (this "Agreement") is made and entered into
---------
as of this first day of October 1999, by Spider Technologies, Inc., a Delaware
corporation ("Spider"), and Intek Information, Inc., a Delaware corporation
------
("Intek"), to allocate certain tax benefits and burdens realized by each of
-----
them.
Recitals
1. The parties have entered into that certain Contribution Agreement of
even date herewith (the "Contribution Agreement"), pursuant to which
----------------------
Intek will contribute certain assets to Spider in exchange for all of
its capital stock (the "Contribution").
------------
2. The parties contemplate that Intek will distribute all or
substantially all of the Spider stock to Intek's stockholders (the
"Distribution") effective as of November 5, 1999 (the "Distribution
------------ ------------
Date").
3. Intek has incurred and will incur certain expenses related to (i) the
organization of Spider, (ii) the transfer of assets to Spider, and
(iii) the Distribution.
4. For the period after the Contribution through and including the
Distribution Date, Spider will be a member of the Intek Group and its
income or loss will be included on the Intek Group's Consolidated Tax
Period federal income tax returns and the Intek Group's Consolidated
State or Local Income Tax Returns.
5. The parties wish to allocate the tax benefits and burdens of their
operations before and after the Contribution and Distribution.
Definitions
"Code" means the Internal Revenue Code of 1986, as amended and in effect
----
from time to time.
"Consolidated State or Local Income Tax Returns" means consolidated,
----------------------------------------------
unitary, or combined state or local income, franchise, single business, gross
receipts, or other state or local Tax Returns, based or measured in whole or in
part by reference to gross receipts, gross income, or net income, and means
consolidated, unitary or combined capital or net worth Tax Returns. Tax returns
with respect to telecommunications, gross receipts transactional taxes and sales
and use taxes or other similar types of transactional taxes shall not be
considered "Consolidated State or Local Income Tax Returns" for purposes of this
Agreement.
"Consolidated Tax Period" means any tax period of the Intek Group during
-----------------------
which Spider is a member of the Intek Group.
<PAGE>
"Final Determination" has the same meaning as the definition of
-------------------
"determination" set forth in Section 1313(a) of the Code or similar provisions
of State law.
"Intek Group" means Intek and all corporations which, from time to time,
-----------
join with Intek in filing a consolidated federal or consolidated state or local
income tax return with Intek as the common parent of such group.
"Post-Distribution Consolidated Tax Period" means, with respect to the
-----------------------------------------
Consolidated Tax Period including the Distribution, the portion of such
Consolidated Tax Period which does not include the Pre-Distribution Consolidated
Tax Period.
"Post-Distribution Period" means, with respect to any taxable period
------------------------
including the Distribution, the portion of such taxable period which does not
include the Pre-Distribution Period.
"Pre-Distribution Consolidated Tax Period" means the portion of the
----------------------------------------
Consolidated Tax Period including the Distribution which begins on the first day
of such Consolidated Tax Period and ends on the Distribution Date.
"Pre-Distribution Period" means the portion of a taxable period including
-----------------------
the Distribution which begins on the first day of such taxable period and ends
on the Distribution Date.
"Regulations" means the regulations promulgated under the Code, as in
-----------
effect from time to time.
"Separate Return Tax Period" means any tax period of Spider not included in
--------------------------
a Consolidated Tax Period.
"Separate Spider Tax Liability" means the hypothetical federal income tax
-----------------------------
liability or the hypothetical state income, franchise or other income-based tax
liability of Spider for a Consolidated Tax Period, determined as of the end of
such Consolidated Tax Period in accordance with Section 1.1502-1, et. seq. of
the Regulations or in accordance with State law and State regulations, as if
Spider were filing a separate federal and state income-based Tax Returns,
provided however, that for the Consolidated Tax Period including the
- -------- -------
Distribution, the Separate Spider Tax Liability shall be determined pursuant to
Section 10 hereof.
"Tax" or "Taxes" means any (A) federal, state, local or foreign income,
--- -----
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profit, environmental, customs,
duties, real property, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee or other withholding, or
other tax, of any kind whatsoever, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing; (B)
liability for the payment of any amounts of the type described in clause (A)
arising as a result of being (or ceasing to be) a member of any Affiliated Group
(or being included (or
2
<PAGE>
required to be included) in any Tax Return relating thereto); and (C) liability
for the payment of any amounts of the type described in clause (A) as a result
of any express or implied obligation to indemnify or otherwise assume or succeed
to the liability of any other person.
"Tax Returns" means returns, declarations, reports, claims for refund,
-----------
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
Agreement
1. Post-Distribution Periods of Spider. Except as otherwise specifically
-----------------------------------
provided herein, (i) Spider shall not be required to make any payment to the
Intek Group in connection with the liability of the Intek Group for Taxes for
any period or portion thereof beginning after the Distribution Date, and (ii)
Spider shall defend and indemnify the Intek Group against and hold the Intek
Group harmless from, any liability of Spider for Taxes for any period or portion
thereof beginning after the Distribution Date.
2. Post-Distribution Periods of Intek Group. Except as otherwise
----------------------------------------
specifically provided herein, (i) the Intek Group shall not be required to make
any payment to Spider in connection with Spider's liability for Taxes for any
period or portion thereof beginning after the Distribution Date, and (ii) the
Intek Group shall defend and indemnify Spider against and hold Spider harmless
from, any liability of the Intek Group for Taxes for any period or portion
thereof beginning after the Distribution Date.
3. Pre-Distribution Periods of Intek Group. Except as otherwise provided
---------------------------------------
herein and in the Regulations and state and local tax laws, (i) the Intek Group
will bear all Taxes, expenses and costs of any claims by taxing authorities, and
receive all Tax refunds and benefits, relating to the business and assets of
Spider attributable to all periods or portions thereof ending on or before the
Distribution Date and (ii) the Intek Group shall defend and indemnify Spider
against and hold Spider harmless from, any liability for Taxes for any period or
portion thereof ending on or before the Distribution Date. Except for the Tax
attributes specific to and inherent in the assets contributed to Spider in the
Contribution, no Tax attributes of Intek shall be transferred to Spider in
connection with the Contribution.
4. Payment of Separate Spider Tax Liability. Not later than the due date
----------------------------------------
(including extensions) for filing the Intek Group consolidated federal income
tax return or Consolidated State or Local Income Tax Returns for any
Consolidated Tax Period, Spider shall pay to Intek the Separate Spider Tax
Liability (if any) for such Consolidated Tax Period. If any item of income,
gain, loss, expense, deduction or credit that enters into the computation of the
Separate Spider Tax Liability is changed or adjusted by the Internal Revenue
Service or by a state or locality, and such change or adjustment is part of a
Final Determination, Spider shall make such payments to Intek, or Intek shall
3
<PAGE>
make such payments to Spider as may be necessary to adjust the payment that
would have been made pursuant to the first sentence of this Section 4. A
payment required pursuant to the immediately preceding sentence shall be due and
payable twenty (20) calendar days following the date that one party gives notice
to the other party that a payment is due.
5. Carryback of Items From Separate Return Tax Periods.
---------------------------------------------------
5.1 With respect to carrybacks by Spider of net operating losses, net
capital losses, unused tax credits and other deductible or creditable tax
attributes to a Consolidated Tax Period from a Separate Return Tax Period which
would be permitted under the Code and the Regulations (or State law) based on
the Consolidated Tax Period income tax returns actually filed, and taking into
consideration the separate return limitation year rules, whenever permitted to
do so by the Code, the Regulations or State law, Spider shall elect to
relinquish any carryback period which would include any Consolidated Tax Period.
In cases where Spider cannot relinquish the carryback period, or if the parties
otherwise agree, Intek shall cooperate with Spider in seeking tax refunds from
the appropriate taxing authority, at Spider's expense, and Spider shall be
entitled to such refund, including interest paid by the taxing authority in
connection with such refund; provided however, that Spider shall indemnify and
-------- -------
hold Intek harmless from and against any and all collateral tax consequences
arising from or caused by the carryback of deductible or creditable tax
attributes by Spider from a Separate Return Tax Period to a Consolidated Tax
Period, including, but not limited to tax attributes of Intek that expire unused
(including tax attributes that expire during a tax period subsequent to the tax
period during which the Spider tax attribute carried back was generated) and
which would have been used but for Spider's carryback. The amount of such
indemnity shall be limited to the actual tax benefit to which the Intek Group
would have been entitled in the absence of the carryback of the deductible or
creditable tax attribute of Spider. Intek shall only be entitled to
indemnification under this Section 5 if Intek has used its reasonable best
efforts to avoid such collateral tax consequence.
5.2 In the event that (i) Spider has filed a refund claim with a
taxing authority for a Consolidated Tax Period as contemplated by this Section
5, (ii) the refund claim has been allowed, and (iii) the taxing authority has
applied the refund to an amount owed by Intek, then Intek shall pay Spider the
amount of the refund, including the amount of interest that would otherwise have
been paid by the taxing authority to Spider.
6. Periodic Taxes. In the case of any Taxes that are imposed on a
--------------
periodic basis and are payable for a taxable period that includes (but does not
end on) the Distribution Date ("Periodic Taxes"), Intek shall bear the portion
--------------
of such Periodic Taxes which relates to the portion of such taxable period
ending on the Distribution Date (hereinafter, "Pre-Distribution Taxes"). Spider
----------------------
shall be responsible for the portion of such Periodic Taxes which Intek does not
bear pursuant to the preceding sentence. For purposes of this paragraph (e),
Pre-Distribution Taxes shall (x) in the case of any Periodic Taxes other than
Periodic Taxes based upon or related to income or receipts, be deemed to be the
amount of such Periodic Tax for the entire taxable period multiplied by a
fraction the numerator of which is the number of days in the taxable period
ending on the Distribution Date
4
<PAGE>
and the denominator of which is the number of days in the entire taxable period,
and (y) in the case of any Periodic tax based upon or related to income or
receipts, be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Distribution Date. For purposes of this paragraph,
in the case of any Tax credit relating to a taxable period that begins before
and ends after the Distribution Date, the portion of such tax credit which
relates to the portion of such taxable period ending on the Distribution Date
shall be the amount which bears the same relationship to the total amount of
such tax credit as the amount of Pre-Distribution Taxes bears to the total
amount of taxes for such taxable period. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
Intek's prior practice.
7. Organizational Expenses. Expenses related to the organization of
-----------------------
Spider (whether or not amortizable under Code Section 248) which are paid by
Intek (whether before or after the Distribution Date) shall be treated by both
parties as a contribution to the capital of Spider by Intek and shall not be
reimbursed by Spider. To the extent such expenses are amortizable in accordance
with Code Section 248, Spider shall be entitled to elect to amortize such
expenses in its discretion.
8. Asset Transfer Fees. Non-Tax expenses related to the transfer of
-------------------
assets by Intek to Spider (including, without limitation, transfer-related
attorneys' fees, accounting fees, and valuation expenses) which are paid by
Intek shall be added to the tax basis of the related assets (thereby increasing
the amount deemed contributed by Intek to the capital of Spider) and shall not
be reimbursed by Spider.
9. Transfer Taxes. Intek shall pay all transfer, documentary, sales,
--------------
use, stamp, registration and other such taxes and fees (including any penalties
and interest) incurred in connection with the Distribution and Intek will, at
its own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other taxes and fees, and, if required by applicable law, Spider will join in
the execution of any such Tax Returns and other documentation.
10. Ratable Allocation of Final Consolidated Tax Period Items. For the
---------------------------------------------------------
Consolidated Tax Period that includes the Distribution, each party agrees to
make the election under Regulations Section 1.1502-76(b)(2)(ii)(D) to ratably
allocate items of Spider's taxable income, gain, loss, deduction and credit
between the Pre-Distribution Consolidated Tax Period and the Post-Distribution
Consolidated Tax Period in accordance with Regulations Section 1.1502-
76(b)(2)(ii).
11. Pre-Distribution Tax Elections. With respect to all Consolidated Tax
------------------------------
Periods, all elections that are available to the Intek Group under the
Regulations relating to the filing of consolidated federal income tax returns or
Consolidated State and Local Income Tax Returns shall be made by Intek in its
sole discretion. All tax return filing positions for all Consolidated Tax
Periods shall be made by Intek in its sole discretion.
12. Post-Distribution Tax Elections. With respect to Tax periods
-------------------------------
beginning after the Distribution Date, and except as otherwise provided herein,
each party shall be entitled to make all
5
<PAGE>
available Tax elections with respect to it and its assets and business which it,
in its discretion, deems necessary and appropriate after the Distribution Date,
provided that such election is in accordance with the Code, Regulations and
State tax laws.
13. Cooperation With Respect to Tax Matters. Each party shall cooperate
---------------------------------------
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. Each
party agrees (A) to retain all books and records with respect to tax matters
pertinent to the Intek Group relating to any taxable period beginning before the
Distribution Date until the expiration of the statute of limitations and to
abide by all record retention agreements entered into with any taxing authority,
and (B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if Intek so requests,
Spider shall allow Intek to take possession of such books and records.
14. Interest. If any payment required by this Agreement is not timely
--------
made, interest shall be payable on the unpaid amount at a rate per annum equal
to the base rate established from time to time by Citibank, N.A., or a
comparable institution mutually selected by Intek and Spider, plus three percent
(3%), but in no event to exceed the maximum rate of interest allowed by
applicable law.
15. Governmental Certificates. Each party further agrees, upon request,
-------------------------
to use its best efforts to obtain any certificate or other document from any
governmental authority or any other person as may be necessary to mitigate,
reduce or eliminate any tax that could be imposed on either of them (including,
but not limited to, with respect to the transactions contemplated hereby).
16. Confidentiality. Any information obtained by either party under this
---------------
Agreement shall be kept confidential, except as may be necessary in connection
with the filing of Tax Returns or claims for refund or in connection with an
audit, dispute, proceeding, suit or action concerning any issues or matters
addressed in this Agreement, or unless a party is compelled to disclose
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law. In the event that either party has
received a subpoena or other demand for disclosure of any information of the
other party obtained under this Agreement, such party shall provide immediate
notice to the other party of such demand and give the other party a reasonable
opportunity to intervene in opposition to such subpoena or demand at the other
party's own expense.
17. Transfer Pricing Adjustments. If, in connection with any transaction
----------------------------
between the parties after the Distribution Date, the tax liability of a party
hereto (the "Adjusted Party") is increased pursuant to an adjustment (an
--------------
"Adjustment") under Section 482 of the Code, the other party (the "Other Party")
---------- -----------
shall pay to the Adjusted Party an amount equal to the Correlative Tax Benefit
of the Other Party, provided however, that the Other Party shall have no
obligation to pay any amount to the Adjusted Party until such time as the
Correlative Tax Benefit produces a
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recognized tax savings for the Other Party by reducing the Other Party's
liability for a specific amount of tax currently due and payable. The Other
Party's "Correlative Tax Benefit" means the actual dollar value of any
-----------------------
reduction in income tax currently due and payable by the Other Party resulting
directly from any deduction, credit or decrease in the taxable income of the
Other Party attributable to a correlative adjustment under Code Section 482 made
in connection with the Adjustment.
18. Miscellaneous.
-------------
18.1. Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
18.2. Waiver and Modification. An extension, amendment,
-----------------------
modification, cancellation, or termination of this Agreement will be valid and
effective only if it is in writing and signed by each party to this Agreement.
In addition, a waiver of any duty, obligation, or responsibility of a party
under this Agreement will be valid and effective only if it is evidenced by
writing signed by, or on behalf of, the party against whom the waiver or
discharge is sought to be enforced. The waiver by either party of a breach of a
provision of this Agreement will not constitute as waiver of a succeeding breach
of the provision or a waiver of the provision itself.
18.3. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or in a counterpart hereto (as the case may be) or such
other address as may hereafter be designated in writing by such party to the
other parties:
if to Intek, to:
Intek Information, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Telecopy: (303) 449-5426
Attention: G. James Williams, Jr.
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if to Spider, to:
Spider Technologies, Inc.
5619 DTC Parkway, 12th Floor
Englewood, CO 80111
Telecopy: (303) 323-4213
Attention: Chief Executive Officer
with a copy to:
E* Law Group
3555 West 110/th/ Place
Westminster, CO 80031
Telecopy: (303) 410-0468
Attention: Jeremy W. Makarechian
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
18.4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
18.5. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
18.6. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
18.7 Dispute Resolution. Any dispute concerning this agreement or
------------------
its termination or amendment shall be resolved by arbitration in Denver,
Colorado, pursuant to the rules and procedures of the American Arbitration
Association. The decision in the arbitration proceeding shall be final and
binding and shall not be subject to appeal. The arbitrator shall act strictly in
accordance with Colorado law, as if a resolution of the dispute was being
determined by a Colorado court. The arbitrator shall award attorneys fees and
expert witness fees to the prevailing party on any claim. The arbitrator or
arbitrators shall have no authority or jurisdiction to award punitive or
exemplary damages, or treble damages which may be claimed under any legal
theory. In connection with this agreement to resolve any dispute by arbitration,
the parties agree to submit to personal jurisdiction in Denver, Colorado.
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18.8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Colorado without giving
effect to the principles of conflicts of law.
18.9. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
18.10. Rights of Third Parties. Nothing in this Agreement, whether
-----------------------
express or implied, is intended or should be construed to confer or grant to any
person, except the Intek Group and Spider and their respective assignees and
successors, any claim, right, remedy, or privilege under, or because of, this
Agreement or any provision of it.
18.11. Assignment; Binding Effect. A party to this Agreement (whether
--------------------------
by operation of law or otherwise) shall not assign its rights or delegate its
duties, obligations, and responsibilities under this Agreement without advance
written notice to the other party to this Agreement, and any assignment or
delegation without advance written notice to the other party will be invalid and
ineffective against the nonconsenting party. This Agreement is binding on, and
inures to the benefit of, any successor or approved assignee of a party to this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Tax Separation
Agreement as of the date first above written.
INTEK INFORMATION, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------------
Its: Chairman / CEO
-----------------------------
SPIDER TECHNOLOGY, INC.
By: /s/ TIMOTHY C. O'CROWLEY
-------------------------------
Its:______________________________
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EXHIBIT 10.16
BUILDING LEASE
This is a legally binding contract, if not understood, consult an attorney.
THIS LEASE IS MADE AND ENTERED INTO BETWEEN The City of Fort Scott, Kansas
("Landlord") and Intek, Inc. ("Tenant") on the 8th day of March, 1999 which is
the Effective Date of this Agreement.
WITNESSETH:
In consideration of the obligation of Tenant to pay rent and in consideration of
the other terms, covenants and conditions hereof, Landlord hereby demises and
leases to Intek, Inc. the Premises to have and to hold for the lease term
specified herein, all upon the terms and conditions set forth in this Lease.
BASIC PROVISIONS
1. The following basic provisions shall be construed in conjunction with, and
limited by, reference thereto in other provisions of this Lease:
a. "Landlord" - The City of Fort Scott, Kansas
------------------------------
Address of Landlord: P. O. Box 151, Fort Scott, Kansas 66701
----------------------------------------
b. "Tenant" - Intek, Inc.
-----------
c. "Premises": A building located on Lots 6 & 7, Fort Scott Industrial Park.
-------------------------------------------------------------
d. "Lease Term": A period of 10 years commencing on June 15, 1999, (the
"Commencement Date") and ending on June 14, 2009, (the "Expiration Date"),
unless sooner terminated in accordance with the provisions of this agreement.
e. "Base Rent": $2,625,000, payable in monthly installments in advance,
during the Lease Term according to the following schedule:
Months 1 to 120: $21,875
-------------------------
Rent shall be paid to the Landlord at Fort Scott City Hall, P. O. Box 151, 3rd
----------------------------------------
and National, Fort Scott, Kansas 66701, or at such other place as Landlord
- ----------------------------------------
shall designate.
f. "Additional Rent" shall be Tenant's Percentage of the increase in operating
and maintenance expenses as defined in Section 11.
g. "Pre-Paid Rental": $21,875 representing payment of the first monthly
---------
installment of rent.
h. "Security Deposit": $10,000
---------
PAYMENT OF RENT
2. Tenant agrees to pay Base Rent in monthly installments in advance on the
first day of each and every month during the term, with proration for any
partial month's occupancy, without demand, setoff, or deduction except Tenant
shall pay the first monthly installment along with the security deposit no later
than the first date of occupancy. Any rent payment not received by Landlord
within ten (10) days after its due date shall be subject to a delinquency charge
of five percent (5%) of the amount due each full or partial calendar month the
rent remains unpaid. Failure by Tenant to pay the late charge within thirty
(30) days after receipt of notice from Landlord that it is due shall, in
addition to any other default, constitute a default of this Lease by Tenant.
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POSSESSION
3. Landlord shall use due diligence to deliver possession of the Premises to
Tenant as nearly as possible at the beginning of the term of this Lease. In the
event Landlord cannot deliver possession to Tenant at the Commencement Date, or
if Landlord's work is not completed by the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting from such failure, but, except as provided in Section 4, Tenant
shall not be liable for any rent except for the prepaid rental until such time
as Landlord can and does deliver possession. The Expiration Date shall be
extended for a period equal to the delay in delivery of possession, plus the
number of days necessary to end the term on the last day of a month. Landlord
and Tenant shall execute an amendment to this Lease setting forth revised
Commencement and Expiration Dates. In the event Landlord is unable to deliver
possession by July 1, 1999, the Lease shall be null and void and Tenant's pre-
paid rental and the Security Deposit shall be promptly returned to Tenant. If
permission is given to Tenant to enter into possession of the Premises prior to
the Commencement Date, Tenant agrees at date of occupancy to be responsible for
payment of Base Rent in advance at the rate of 1/30th of the Base Monthly Rent
for each day of occupancy prior to the Commencement Date.
QUIET ENJOYMENT
4. Landlord hereby covenants that Tenant, upon paying rent as provided, and
performing all covenants and agreements contained in this Lease to be performed
by Tenant, shall and may peacefully and quietly have, hold and enjoy the
Premises. Nothing in this section shall prevent Landlord from performing
alterations or repairs on other portions of the building, nor shall performance
of such alterations or repairs be construed as a breach of this covenant by
Landlord. Said alterations and/or repairs shall be in such a way and at such a
time as to not unreasonably disrupt Tenant's normal business.
ASSIGNMENT-SUBLETTING
5. Except as herein set forth, Tenant shall not sublet, assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest herein or
any portion hereof, or permit or suffer any other person (the employees, agents,
servants and invitees of Tenant excepted) to occupy or use the Premises, or any
portion thereof, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. In lieu of granting its consent to a
subletting or assignment, Landlord may, at its sole option, terminate this Lease
by notice to Tenant given within five (5) business days from the receipt of
request for permission to sublet or assign. Such termination shall be effective
on the same date as the commencement date of the proposed subletting or
assignment. Tenant shall have the right to negate any such termination by
withdrawing its request within ten (10) days after receipt of Landlord's notice
of termination, in which event the Lease shall remain in full force and effect.
Permission is, however, granted Tenant to assign this Lease and also to sublet
to any subsidiary corporation of Tenant, or parent corporation of Tenant, upon
giving Landlord written notice. In the event of any assignment or subletting,
Tenant shall remain the principal obligor under all covenants of this Lease, and
by accepting any assignment or subletting, as assignee or subtenant shall
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become bound by and shall perform and shall become entitled to the benefit of
all of the terms, conditions and covenants by which the Tenant is bound. A
consent to any such assignment, subletting, occupation or use by any other
person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. Any such assignment or
subletting without such consent shall be void, and shall, at the option of the
Landlord, constitute a default under the Lease.
With prior approval by the Landlord of the proposed sub-tenant, Tenant may
sublet a portion of the premises, any subletting or assignment consented to by
Landlord shall be evidenced only in writing and in form acceptable to Landlord.
It is contemplated that the tenant may sublet a portion of the facility for
daycare services for its employees. In the event this is done the parties agree
to sign the appropriate documents and lease modifications to allow the same and
include all necessary insurance requirements for the protection of the parties.
USE
6. Tenant shall use and occupy the Premises for general office purposes
which will include a call center and for no other purpose without the Landlord's
prior written consent. Tenant agrees to maintain the Premises in a clean,
orderly, healthful condition and to comply with all laws, ordinances, rules and
regulations of all governmental agencies. Tenant will not use the Premises for
any unlawful, disreputable, or extra-hazardous purpose; or any public or private
nuisance; or disturb the quiet enjoyment of any other tenant; or permit any
operation which might emit offensive odors into other portions; or use any
apparatus which might make undue noise or set off vibrations; or permit anything
which would increase the fire insurance rate or other insurance rates on the
building or contents. Tenant will not permit the Premises to be used for any
purpose which, in Landlord's opinion, impairs the reputation or character of the
building. Tenant shall not permit the installation of any signs in or upon the
Premises which are visible from the exterior hereof without the written consent
of Landlord. Tenant shall not obstruct or use the sidewalks, entries, passages,
vestibules, halls, elevators, or stairways of the building for any purpose other
than ingress or egress to and from the Premises, or throw, or sweep, or put
anything out of the windows or doors, or in the passages or corridors of the
building.
REPAIRS AND IMPROVEMENTS
7. Tenant has improved the plans for the building and understands the nature
and extent of the construction to be accomplished by the Landlord. Tenant
acknowledges that there have been no representations, agreements or promises to
decorate, alter, repair or improve the premises either before or after the
execution of this Lease. Upon termination or expiration of this Lease Tenant
will surrender the Premises to Landlord, ordinary wear and tear excepted. Any
damage to the Premises or building, not covered by the proceeds from Landlord's
fire and extended coverage insurance, resulting from acts or neglect of Tenant,
his employees, agents, servants, invitees or guests, shall be repaired or
replaced at Tenant's sole expense. Landlord shall be responsible for outside
walls, roof, grounds and parking lot.
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ALTERATIONS
8. Tenant shall not alter or change the Premises without prior written consent
of Landlord, and, unless otherwise provided in writing, all work shall be done
by or under the direction of Landlord at Tenant's reasonable expense by a
contractor employed by Tenant. Any alteration shall be of a quality equal to or
exceeding the building standard. Landlord reserves the right to require any
contractor to provide lien waivers or payment or performance bonds and liability
insurance and such other instruments as may be necessary to protect Landlord
against any loss, as shall be determined by Landlord in its sole discretion. Any
alterations, physical additions or improvements, except movable office
furniture, shall at once become property of Landlord and shall be surrendered to
Landlord upon termination of this Lease. Landlord, at Landlord's option, may
require Tenant to restore the Premises to its original condition at the
termination of this Lease, normal wear and tear excepted. Notwithstanding
anything herein to the contrary, any increase in ad valorem taxes or insurance
premiums resulting from such improvements shall be the sole responsibility of
Tenant.
SERVICES
9. Landlord agrees to furnish to the building hot and cold water at points of
supply provided for general use, heated and refrigerated air conditioning in
season at reasonable temperatures, and in reasonable amounts, seven days a week
24 hours per day. Janitor services shall be provided by Tenant.
All utility service will be in the name of the Tenant and all costs
associated therewith will be paid by the Tenant.
Landlord shall not be liable for damage to Tenant for failure to perform
any of the covenants in this paragraph, nor shall temporary stoppages, temporary
failures, or interruptions of any of the services to be supplied by Landlord
under this paragraph be construed as an eviction of Tenant or an abatement of
rent or relieve Tenant from any covenant or agreement. Landlord agrees to
diligently restore any services obligated to be provided by Landlord hereunder
when temporary failures, stoppages or interruptions. In the event of Landlord's
failure to deliver any of the above causes Tenant to temporarily cease
operations, Tenant shall have no obligation to pay rent for any days operations
are interrupted until said condition is rectified. Tenant shall promptly notify
Landlord of the need of any repairs or maintenance for which the Landlord is
obligated in this Lease and Landlord shall have reasonable time after receipt of
such notice to complete such repairs.
ENTRY
10. Landlord, its officers, agents and representatives shall have the right to
enter into and upon the Premises, at reasonable times during office hours to
inspect same or clean or make repairs or alterations or additions as Landlord
may deem necessary, or for any purpose whatsoever relating to the safety,
protection or preservation of the building, and Landlord may and shall at all
time, have master keys or pass keys to the Premises. Tenant shall not change any
locks or install locks in the doors of the Premises, or install other devices or
systems which would restrict access to the Premises, without Landlord's prior
written consent. If Tenant shall not be present to open and permit entry into
the Premises at any time, Landlord may enter the same by master key or pass key
or may forcibly enter the same. Should such force be used in entering the
building, any damage
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resulting therefrom shall be repaired to Tenant's satisfaction so long as
Tenant's negligence did not lead to the need for forcible entry, provided that
during such entry Landlord shall take reasonable care of Tenant's property.
Landlord shall have the right at any time for the purposes of inspection,
maintenance, adjustment and balancing the controls of the HVAC systems, repair
environmental audits or abatement to erect, use, maintain, repair, replace or
relocate pipes, ducts, wiring conduits and similar devices in and through the
Premises and to enter upon the Premises for the purpose of the performance of
any such work whether same are used in the supply of services to the Tenant or
the other occupants of the building. Nothing contained above shall be deemed to
impose upon the Landlord, any obligation, responsibility or liability whatsoever
for the care, supervision or repair of the building or the Premises or any part
thereof, and Tenant shall be entitled to no abatement of rent or reduction of
rent by reason thereof. Landlord shall further have the right to enter the
Premises at reasonable hours to exhibit same to prospective purchasers, lenders
or tenants and to inspect the Premises to see that Tenant is complying with all
of its obligations hereunder, or to make repairs or modifications to any
adjoining space or to the building.
ADDITIONAL RENT
11. During the term of this Lease and any extension or renewal thereof, Tenant
shall pay, as Additional Rent, any increase in real estate property taxes in the
event they exceed the $56,000 budget figure which is used for the taxes once the
project is completed.
Such adjustment, if any, shall be determined by Landlord as soon as
reasonably possible after the end of each calendar year and the amount of such
adjustment shall be due and payable by Tenant within thirty (30) days following
receipt of the notice of the amount. The adjustment for the calendar year
during which occupancy commenced or could have commenced shall be prorated based
on the number of calendar months of occupancy, or when occupancy could have
commenced as compared to the full calendar year. Any adjustment for the
calendar year in which the Lease expired, or was renewed or extended, shall be
prorated based on the number of calendar months of occupancy during the calendar
year and shall be paid by Tenant on or before the date of expiration, renewal or
extension.
OPERATING AND MAINTENANCE COSTS
12. The term "operating and maintenance costs" shall be defined as the sum of
any and all costs, expenses, and disbursements of every kind and character which
Landlord shall incur, pay or become obligated to pay in any calendar year in
connection with the ownership, operation, maintenance, repair, replacement, and
security of the building and land upon which the building is located, and or all
related improvements and appurtenances thereto. The expenses shall include but
not be limited to the following: real estate taxes and assessments; rent taxes,
gross receipts taxes, water and sewer charges; insurance premiums; license,
permit and inspection charges; utilities; service contracts; labor; building
management; air conditioning and heating; supplies; maintenance to all other
parts of the building; security; garbage service; maintenance and upkeep costs
of all parking areas, drives, lawns, trees, shrubbery and common areas; and the
cost of contesting by appropriate proceedings increases in real estate taxes and
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assessments and the applicability to, or the validity of, any statute,
ordinance, rule or regulation affecting the building or land which might
increase operating expenses.
The term "real estate taxes" shall mean all general and special,
levied or assessed on the land and the building improvements of which the
Premises is a part, and on any land and/or improvements now or hereafter owned
by Landlord that provide the building on the Premises with parking or other
services.
Operating and maintenance costs shall not include the cost of capital
improvement, except capital improvements for energy conservation, the cost of
which may, in Landlord's sole reasonable judgment, be recovered from savings in
utility charges; expenses for repairs, replacements, and general maintenance
paid by proceeds of insurance or by Tenant or other third parties; alterations
attributable solely to tenants of the building other than Tenant; principal and
interest payments made by Landlord on mortgages on the building; depreciation;
and leasing commissions and other non-operating debts of Landlord.
Tenant, at its expense, shall have the right once per calendar year
following prior written notice to Landlord, to audit Landlord's books and
records relating to operating and maintenance costs during the year preceding
such audit. In the event such an audit demonstrates Additional Rent collected
for such preceding year to be higher or lower than the amount of Additional Rent
actually due pursuant to this paragraph, then within ten (10) days of such
determination Landlord shall refund any over-payment, or Tenant shall pay any
under-payment.
CONDEMNATION
13. Should the Premises or the building be taken or condemned in whole or in
part under the power of eminent domain, or sold or disposed of under threat of
condemnation, then Landlord shall receive the entire award for such taking or
shall receive the entire payment made in lieu of condemnation, and Tenant shall
have no claim thereto; provided, however, Landlord shall not be entitled to any
award made directly to Tenant for loss of Tenant's business, depreciation to and
cost of removal of stock and office furniture. In the event of total
condemnation or conveyance in lieu thereof, the Lease term shall terminate on
the date the condemning authority takes possession of the building, and in the
event of a partial taking or conveyance in lieu thereof the Landlord may, at its
option, terminate the Lease Term as of the date of the taking of possession or
the partial taking by the condemning authority.
CASUALTY
14. If the building or the Premises are made partially or substantially
untenantable by fire or other casualty, Landlord may elect either to (a)
terminate this Lease as of the date of such fire or other casualty by delivery
of notice of termination to Tenant within sixty (60) days after said date, or
(b) without termination of this Lease, proceed with due diligence to repair,
restore or rehabilitate the building or the Premises, other than leasehold
improvements installed by Tenant or paid for by Tenant. In the event such fire
or other casualty is due to an act of negligence by Tenant, its employees,
agents, servants, invitees or guests, such repair, restoration or rehabilitation
of the building or the Premises or both shall be paid for by Tenant to the
extent that Landlord's receipt of proceeds from its fire and extended coverage
insurance policies are insufficient to complete such repair,
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restoration or rehabilitation. If Landlord elects not to repair, and the
building or the Premises, or both, have been damaged by casualty due to the act
or neglect of Tenant, his employees, agents, servants, invitees or guests, the
Tenant shall pay to the Landlord upon demand the difference between the proceeds
received by Landlord from its fire and extended coverage insurance, if any, and
the fair market value of the building or the Premises, or both. If all or any
part of the Premises are rendered substantially untenantable, by fire or other
casualty not due to an act of negligence of Tenant, its employees, agents,
servants, invitees or guests, and this Lease is not terminated, rent shall abate
for all or the part of the Premises which are untenantable on a per diem basis
from and after the date of the fire or other casualty, and until the Premises
are repaired and restored. Tenant's rent abatement, in the event of partial
untenantability of the Premises, shall be calculated based upon that portion of
the total rent which the amount of square foot area in the Premises that cannot
be occupied to the total square foot area of all the Premises.
LIABLITY
15. Landlord shall not be liable to Tenant for any loss or damage to any person
or property, including the person and property of Tenant, its employees, agents,
servants, invitees or guests, occasioned by theft, the acts of any other tenant
or the acts of any employee or agent of any other tenant, leaks, casualty,
rain, water, condensation, fire, acts of God, public enemy, injunction, riot,
strike, insurrection, picketing, mob action, bombing, explosion, war, court
order, laten defects of the building, requisition or order of government
authority, the construction, repair, maintenance or alteration of any part,
improvement of the building as a whole, or any other cause not due to Landlord's
willful act or gross negligence. Tenant shall indemnify Landlord and save it
harmless from all suits, actions, damages, liability and expense in connection
with loss of life, bodily or personal injury or property damage arising from, or
out of, any occurrence in, upon, at, or from the Premises or the occupancy or
use by Tenant of the Premises or any part thereof, or occasioned wholly or in
part by any action or omission of Tenant, its employees, agents, servants,
invitees or guests. If Landlord shall be made a party to any action commenced
against Tenant, the Tenant shall protect and hold Landlord harmless and shall
pay all costs, expenses and attorneys' fees incurred by Landlord.
Landlord shall, throughout the term of this Lease, maintain fire and
extended coverage insurance on the Premises in an amount equal to the full
insurable value thereof, subject to any allowances for coinsurance rating
provisions utilized by Landlord. Landlord shall also carry owner's public
liability and property damage insurance coverage on the Premises with limits not
less than $1,000,000 combined single limits. Subject to the provisions hereof,
all such insurance shall be the sole benefit of the Landlord and under its sole
control.
Tenant, at Tenant's cost and expense, shall maintain comprehensive general
liability insurance with contractual and cross liability coverage protecting and
indemnifying Landlord and Tenant against any and all claims of liability for
injury or damage to person or property or for the loss of life or of property
occurring upon, in, or about the Premises, and the public portions of the
building caused by, or resulting from, any act or omission (in whole or in part)
of Tenant, its employees, agents, servants, invitees or guests; such insurance
to afford minimum protection during the term of this
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lease, of not less than $1,000,000 for personal injury to any one person,
including death, and $1,000,000 for personal injury including death to more than
one person arising out of any one occurrence and not less than $500,000 with
respect to property damage. All such insurance shall be effected under valid and
enforceable policies; shall be issued by insurers of recognized responsibility
and authorized to do business in the state; shall name the Landlord as an
additional insured and shall contain a provision whereby the insurer agrees not
to cancel without thirty (30) days prior written notice to Landlord. On or
before the Commencement Date, Tenant shall furnish Landlord with certificates
evidencing the aforesaid insurance coverage, together with evidence of payment
of the premium, and renewal policies or certificates therefore shall be
furnished to Landlord at least thirty (30) days prior to the expiration date of
each policy for which a certificate was therefore furnished.
Notwithstanding the fact that any liability of Tenant to Landlord may be
covered by Tenant's insurance, Tenant's liability shall in no way be limited by
the amount of its insurance recovery.
Landlord hereby waives all claims for recovery from Tenant for any loss or
damage to Landlord or its property insured under valid and collectible insurance
policies to the extent of the proceeds collected under such insurance policies;
provided, however, that his waiver shall be effective only as allowed by the
applicable insurance policy of Landlord. All merchandise and property in or
about the Premises shall be at Tenant's risk and Tenant does hereby now and
forever release Landlord from any claims for damages thereto or any of same
however caused.
HOLDING OVER
16. If Tenant retains possession of the Premises after the expiration of the
Lease Term or any extension thereof by lapse of time or otherwise, Tenant shall
pay Landlord rent at a rate equal to 125% of the rate payable for the month
immediately preceding the expiration or termination of the Lease Term, including
any Additional Rent, computed on a per-month basis for each month or part
thereof without reduction for any such partial month that Tenant remains in
possession. In addition thereto, Tenant shall pay Landlord all damages,
consequential as well as direct, for all attorneys' fees and expenses incurred
by Landlord in enforcing its rights hereunder, sustained by reason of Tenant's
retention of possession. Such retention of possession shall constitute a month-
to-month lease. The provisions of this section shall not exclude Landlord's
right of re-entry or any other right hereunder. If Landlord has not elected to
renew this Lease, nothing herein contained shall preclude Landlord from
terminating such retention of possession by service of thirty (30) days notice
as provided by laws. The acceptance by Landlord of any payment of rent
subsequent to the commencement of such retention of possession by Tenant shall
not be deemed to constitute a waiver by Landlord of any of the provisions of
this section.
RIGHTS RESERVED AND RETAINED BY THE LANDLORD
17. Landlord retains and reserves unto itself all rights not expressly granted
to tenant in this Lease. In addition, Landlord or Landlord's Agent reserves the
following rights exercised without liability to Tenant for (I) damage or injury
to property, person or business; (ii) causing an actual or constructive
eviction, from the Premises; or (iii) disturbing Tenant's use or possession of
the Premises:
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(a) To name the building and project and to change the name or street
address of the building of project, and to compensate Tenant for the cost of
reprinting letterhead, business cards, Websites, etc. if the change of name or
street address is at the sole arbitration of the Landlord and not at the request
of an administrative office for the purpose of improving emergency vehicle
response time;
(b) To install and maintain all signs on the exterior and interior of
the building and project.
(c) To grant utility easements or other easements in, or re-plat,
subdivide or make other changes in the legal status of the land underlying the
building or the project as Landlord shall deem appropriate in its sole
discretion, provided such changes do not substantially interfere with Tenant's
use of the Premises for the permitted purpose.
SUBORDINATION AND ATTORNMENT
18. Tenant hereby subordinates all of Tenant's rights, title and interest under
this Lease to the lien of any existing and all future mortgages and deeds of
trust on the building. Tenant agrees to execute and deliver promptly such
agreement and other documents as Landlord may request to confirm and acknowledge
the foregoing subordination agreement, and Tenant hereby appoints Landlord as
Tenant's Agent to execute and deliver all such agreements and other documents
for and in behalf of Tenant. In the event the lien of any such mortgage or deed
of trust is foreclosed or title to the building is conveyed in lieu of
foreclosure, Tenant hereby agrees to attorn to the purchaser of the building at
any foreclosure sale and the grantee of any such deed and to confirm this lease
and recognize such purchaser or grantee as the Landlord hereunder. So long as
Tenant is not in default, this Lease shall remain in full force and effect for
the full term hereof.
ESTOPPEL CERTIFICATE
19. Tenant shall within ten (10) days after written request by Landlord,
deliver to Landlord in writing an executed statement certifying that his Lease
is unmodified and in full force and effect, or in the case of lease
modifications, that the Lease as modified is in full force and effect, the dates
to which rent or other charges have been paid, the amount, if any, of prepaid
rent and deposits paid by Tenant to Landlord, the nature and kind of
concessions, rental or otherwise, if any, which Tenant has received or is
entitled to receive, and that Landlord is not in default under any provision of
this Lease, or if in default, a detailed description hereof. Tenant hereby
appoints Landlord as Tenant's attorney-in-fact with full power and authority to
execute and deliver in the name of Tenant any such certificate in the event
Tenant fails to do so on request.
INTEREST
20. All unpaid amounts of Base Rent and Additional Rent due to Landlord under
this Lease shall be subject to a delinquency charge each month at the rate of
five percent (5%) per annum from the due date until paid. All other amounts due
to Landlord under this Lease shall be considered as additional rent, and if
unpaid when due shall be subject to a delinquency charge each month at the rate
of five percent (5%) per annum from the date due until paid.
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DEFAULT AND REMEDIES
21. In the event: (a) Tenant fails to comply with any term, provision,
condition, or covenant of this Lease including the payment of all monies due;
(b) Tenant deserts or vacates the Premises for 30 consecutive days or more
without notice to Landlord and without making the current rental payment; (c)
Any petition is filed by or against Tenant under any Section or Chapter of the
Federal Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any state thereof; (d) Tenant becomes insolvent or makes a
transfer in fraud of creditors; (e) Tenant makes an assignment for benefit of
creditors; or (f) a receiver is appointed for Tenant or any of the assets of
Tenant; then in any of such events, Tenant shall be in default and Landlord
shall have the option to do any one or more of the following: (1) Upon ten (10)
days prior written notice, excepting the payment of rent or additional rent for
which no demand or notice shall be necessary, in addition to, and not in
limitation of, any other remedy permitted by law; to enter upon the Premises or
any part thereof, either with or without process of law, and to expel, remove
and put out Tenant or any other persons who might be thereon, together with all
personal property found therein; or (2) Landlord may terminate this Lease, or it
may from time to time, without terminating this Lease, relet said Premises or
any part thereof for such term or terms and at such rent and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable, with
the right to repair, renovate, remodel, redecorate, alter and change said
Premises. At the option of Landlord, rents received by Landlord from such
reletting shall be applied first to the payment of any indebtedness from Tenant
to Landlord other than rent and additional rent due hereunder, second to the
payment of any cost and expenses of such reletting, including, but not limited
to, attorney's fees, advertising fees and real estate brokerage fees, and to the
payment of any repairs, renovations, remodeling, redecorations, alterations and
changes in the Premises; third to the payment of rent and additional rent due
and payable hereunder and interest thereon, and if after applying said monies
there is any deficiency in the rent and additional rent and interest to be paid
by Tenant under this Lease, Tenant shall pay any such deficiency to Landlord and
such deficiency shall be calculated and collected by Landlord monthly. No such
re-entry or taking possession of said Premises shall be construed as an election
on Landlord's part to terminate this Lease unless a written notice be given to
Tenant.
If Tenant vacates or abandons the Premises, any property that Tenant leaves
on the Premises shall be deemed to have been abandoned and may either be
retained by Landlord as the property of Landlord or may be disposed of at public
or private sale in accordance with applicable law as Landlord shall determine in
its sole discretion. The proceeds of any public or private sale of Tenant's
property, or the then current fair market value of any property retained by
Landlord, shall be applied by Landlord against (I) the expenses of Landlord for
removal, storage or sale of the property; (ii) the arrears of rent or future
rents payable under this Lease; and (iii) any other damages to which Landlord
may be entitled hereunder.
Notwithstanding, any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach and
default. Should Landlord at any time terminate this Lease by reason of any
default, in addition to any other remedy it may have, it may recover from Tenant
the amount at the time of such termination of the excess of the amount of rent
and additional rent reserved in this Lease
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for the balance of the term hereof over the then reasonable rental value of the
Premises for the same period. Landlord shall have the right and remedy to seek
redress in the courts at any time to correct or remedy any default of Tenant by
injunction or otherwise, without such resulting or being deemed a termination of
this Lease, and Landlord, whether this Lease has been or is terminated or not,
shall have the absolute right by court action or otherwise to collect any and
all amounts of unpaid rent or unpaid additional rent or any other sums due from
Tenant to Landlord under this Lease which were or are unpaid at the date of
termination. In case it should be necessary for Landlord to bring any action
under this Lease, to consult or place said Lease or any amount payable by Tenant
thereunder with an attorney concerning or for the enforcement of any of
Landlord's rights hereunder, then Tenant agrees in each and any such case to
reimburse Landlord for its reasonable attorney's fees. All other remedies herein
provided shall be cumulative to all other rights or remedies herein given to
Landlord by law. A waiver by Landlord of any default by Tenant in the
performance of any of the covenants, terms or conditions hereof shall not be
considered or treated as a waiver of any subsequent or other default as to the
same or any other matter. If Tenant shall default in the performance of any
covenant, agreement, provision or condition herein contained, Landlord, without
thereby waiving such default, may perform the same for the account and at the
expense of Tenant, without notice in the case of emergency. Bills for any
expense incurred by Landlord in connection with any such performance by Landlord
for the account of Tenant, as well as bills for any property, materials, labor
or services provided, furnished or rendered, or caused to be provided, furnished
or rendered, by Landlord to Tenant may be sent by Landlord to Tenant monthly, or
immediately, at Landlord's option and shall be due and payable by Tenant upon
notice of the amount or amounts and the amount or amounts thereof shall be
deemed to be Additional Rent under this Lease. Tenant shall promptly give to
Landlord notice as herein provided of any defects in the Premises including the
failure of Landlord to do anything required to be done by law or by the terms of
this Lease or the doing or permitting to be done anything prohibited by law or
by the terms of this Lease. Unless Tenant has given said notice and Landlord has
failed to commence to cause the cure of said defect within ten (10) days after
receipt of said notice, Tenant shall have no right to terminate the said Lease
or to declare a forfeiture and in no event shall rent abate except as in this
Lease specifically provided. Landlord shall not be obligated to notify Tenant of
the due date of rent nor demand payment thereof on its due date, the same being
expressly waived by Tenant. The acceptance of any sums of money from the Tenant
that is less than the actual amount owed is considered a partial payment and
does not relieve Tenant from the full amount that is owed Landlord.
SECURITY DEPOSIT
22. Tenant at the time of execution of this Lease has deposited with Landlord a
Security Deposit to be held by Landlord to guarantee the faithful performance by
Tenant of all of the terms and covenants to be kept and performed by Tenant.
Said deposit may be co-mingled with other funds and any interest earned shall be
the property of the Landlord. Unless and until Tenant is in default with respect
to any provision hereof, the Security Deposit shall be the property of Tenant.
In the event Tenant is in default and after any necessary notice thereof,
Landlord shall apply the whole or any part of such
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Security Deposit toward the payment of any such amount which Landlord may expect
or may be required to expend by reason of default or any damage, expenses or
liability caused by default (including, but not limited to, the payment of any
rent in default). Tenant shall pay to Landlord on demand the amount necessary in
order to restore the Security Deposit to its original amount. Failure of Tenant
to restore the Security Deposit within ten (10) days from demand by Landlord,
shall constitute an act of default under this Lease. In the event that Tenant
shall faithfully and fully comply with all the terms, provisions, covenants and
conditions of this Lease, the Security Deposit shall be promptly returned to
Tenant within thirty (30) days of the end of the term and upon the surrender of
the Premises. In the event of any transfer of the building, Landlord may pay
over the Security Deposit to the transferee to be held under the terms of this
Lease. Under no circumstances shall the Security Deposit be interpreted in any
way or manner as being applied to any rental payment due by Tenant hereunder.
SURVIVAL OF OBLIGATION
23. The obligation of Tenant with respect to the payment of rent accrued and
unpaid during the term of obligation of the Lease shall survive the expiration
or earlier termination of the Lease.
HEADINGS
24. The titles and headings in the Lease are used only to facilitate reference,
and in no way to define or limit the scope or intent of any of the provisions
of this Lease.
ENTIRE AGREEMENT-AMENDMENTS
25. This Lease constitutes the entire agreement between the parties with
respect to the Premises and this Lease covers, merges and includes all
agreements, oral or written, between the parties hereto whether made prior to or
contemporaneous with the execution of this Lease. This Lease cannot be modified
or changed by any verbal statement, promise or agreement and no modification,
change nor amendment shall be binding on the parties unless it shall have been
agreed to in writing. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as the identity of
the person or persons may require.
SEVERABILITY
26. In the event any provisions of this Lease by officially found to be
contrary to law, or void as against public policy or otherwise, such provisions
shall be either modified to conform to the law or considered severable with the
remaining provisions hereof continuing in full force and effect.
SUCCESSORS AND ASSIGNS
27. It is agreed that all the covenants, agreements and conditions herein
contained shall extend to, and be binding upon, the respective successors,
heirs, executors, administrators, assigns, receivers or other personal
representatives of the parties to this Lease.
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NOTICES
28. Any and all notices required or permitted to be given hereunder shall be
served either personally or by United States Mail, postage prepaid (and if
permitted by law, by Registered, Certified, or Express Mail) at the following
Addresses:
To Landlord: At the address as set forth on Page 1, or at such other
address as Landlord shall designate by written notice.
To Tenant: At the Premises or at such other address as Tenant shall
designate by written notice to Landlord.
Each such notice shall be deemed given as of the date it is so deposited in
the United States Mail.
TIME OF THE ESSENCE
29. Time is of the essence of this Lease Agreement.
SUPPLEMENTAL PROVISIONS
30. Landlord and Tenant further agree as follows:
a. No payment by Tenant or receipt by Landlord of a lesser amount than the
rent provided for in this Lease shall be deemed to be other than on account of
the earliest due rent. Nor shall any endorsement or statement on any check or
letter accompanying any check or payment as rent be deemed in accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
provided for in this Lease. In connection with the foregoing, Landlord shall
have the absolute right in its sole discretion to apply any payment received
from Tenant to any amount or other payment of Tenant then not current and due or
delinquent. The receipt and acceptance by Landlord of delinquent rent shall not
constitute a waiver of any other default, but, shall constitute only a waiver of
timely payment for the particular payment involved. Any waiver by Landlord of
any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.
b. If any provision contained in an addendum to this Lease is inconsistent
with any other provision herein, the provision contained in the addendum shall
control, unless otherwise provided in the addendum.
c. Attorney's Fees. If any action or proceeding is brought by either party
against the other party to or arising out of this Lease, the finally prevailing
party shall be entitled to recover all costs and expenses, including reasonable
attorney's fee incurred on account of such action or proceeding.
d. Landlord may from time to time seek from one or more financial
institutions some part or all of the funds to finance the improvements on the
property of which the Premises are a part. Neither Landlord nor Tenant shall
unreasonably withhold its consent to changes or amendments to the Lease
requested by the financing institution on Landlord's interest, so long as these
changes do not alter the basic business terms of this Lease or otherwise
materially diminish any rights or any obligations of the party from whom consent
to such change or amendment is requested.
The parties agree to promptly sign all changes or amendments reasonably
requested to give effect to the provisions of this Lease.
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e. This Lease shall be construed and enforced in accordance with the laws
of the State of Kansas.
f. Notwithstanding anything contained in the Lease to the contrary, Tenant
shall have no claim or hereby waives the right to any claims against Landlord
for money damages by reason of any refusal, withholding or delaying by the
Landlord or any consent, approval or statement of satisfaction, and in such
event, Tenant's only remedies shall be an action for specific performance,
injunction or declamatory judgment to enforce any right to such consent, etc.
g. The Tenant is a corporation and each individual signing this Lease on
behalf of the Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of the corporation and this Lease is
binding on Tenant in accordance with its terms. Tenant shall, at Landlord's
request, deliver a certified copy of a Resolution of its Board of Directors
authorizing such execution.
h. Recording: Recording of this Lease may be done by either party by
---------
recording a Memorandum of Lease, however, the Memorandum shall not include
information pertaining to rental amounts paid.
IN WITNESS WHEREOF, Landlord and Tenant, acting herein by duly authorized
individuals, have caused this instrument to be executed in ______________
originals, on the 8/th/ day of March, 1999.
LANDLORD: City of Fort Scott TENANT: Intek, Inc.
------------------ -----------
/s/ Kenneth D. [illegible] /s/ Patrick O'Neal
- ------------------------------ -------------------------------
DATE: 3-8-99 TIME: 11:25am DATE: 3-8-99 TIME: 4:00pm
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EXHIBIT 10.16.1
ADDENDUM NO. 1 TO BUILDING LEASE
This Addendum is to a certain Building Lease dated March 8, 1999 between
The City of Fort Scott, Kansas ("Landlord") and Intek, Inc. ("Tenant") and is
upon the request of the Landlord for the addition of certain language that was
not included in the lease through inadvertence.
The additional language is as follows:
Civil Rights Provision:
- -----------------------
Discrimination in Employment. The Tenant shall not discriminate against any
qualified employee or applicant for employment because of race, color, religion,
sex, national origin, age, or physical or mental disability. The City of Fort
Scott should take affirmative action to ensure that applicants are employed and
that employees are treated without regard to their race, color, religion, sex,
national origin, age, or disability. Such action shall included but may not be
limited to the following: Employment, upgrading, demotion or transfers;
recruitment or recruitment advertising; lay-off or termination; rates of pay or
other forms of compensation; and selection for training, including an
apprenticeship. The Tenant agrees to post notices setting forth the provisions
of the non-discrimination clause in conspicuous places so as to be available to
employees.
The parties agree that the foregoing addendum shall be construed as a basic
provision of the Building Lease previously executed by the parties on the 8/th/
day of March, 1999.
IN WITNESS WHEREOF, Landlord and Tenant, acting herein by duly authorized
individuals, have caused this instrument to be executed in _________ originals,
on the _____ day of ______________, 1999.
LANDLORD: City of Fort Scott TENANT: Intek, Inc.
------------------ -----------
_____________________________ /s/ Patrick O'Neal, Managing Director
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EXHIBIT 10.17
OFFICE BUILDING LEASE
SUNROAD PLAZA EAST
This Lease is dated as of June 17, 1997, between Landlord and Tenant (as defined
below), who agree as follows:
1. FUNDAMENTAL INFORMATION:
a. Landlord is M&S California Fund, L.P.
b. Tenant is INTEK Information, Inc.
c. Lease term commences on the Commencement Date and shall continue for
five (5) years and zero (0) months plus the portion of any month
during which the term commences which is not a full calendar month.
d. Monthly rent (as of the Commencement Date) is $ SEE ADDENDUM
------------
e. Commencement Date is the first to occur of the following:
i) the date on which Tenant takes possession of or commences
business operations in the Premises (Tenant agreeing to do so as
soon as possible);
ii) the date on which the Tenant Improvements (as defined in
paragraph 4.a. below) are substantially complete (as defined in
paragraph 4.a. below); or
iii) September 1, 1997 (which date is referred to herein as the
"Latest Commencement Date").
f. Landlord's address for notices: Maier & Siebel
Wood Island, 4th Floor
80 E. Sir Francis Drake Blvd.
Larkspur, CA 94939
g. Tenant's address for notices: To the Premises
h. Premises are those outlined on Exhibit A attached hereto and by this
reference made a part hereof, consisting of approximately 8,308
rentable square feet, located on the second floor of the building
located at 1455 Frazee Road, San Diego, California 92108 ("Building"),
and designated as Suite No. 200.
i. Direct Operating Expense Base calendar year 1998.
j. Tenant's Percentage 3.81%.
k. Tenant's security deposit is $12,046.60.
l. The specified use of the Premises is: general office and
administration.
m. Tenant shall be entitled to use thirty (30) non-reserved parking
spaces twenty-two (22) of which are non-reserved and eight (8) of
which are reserved and free during the initial term of this lease.
n. Improvements to be installed are set forth on Exhibit B attached
hereto and by this reference made a part hereof.
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o. Number of Exercise Facility Passes: Ten (10).
p. Brokers are: John Burnham & Company represents the Landlord and John
Burnham & Company and Glaze Commercial represent the Tenant.
2. PREMISES
Landlord leases the Premises to Tenant, and Tenant hereby leases the
Premises from Landlord. The Premises are located within the Building
indicated in paragraph l.h. of this Lease. Landlord reserves the right,
exercisable without notice and without liability, to change the name and
street address of the Building. This Lease is subject to the provisions
herein set forth. Landlord makes no representations, express or implied,
with respect to the legality, fitness, or desirability of the Premises for
Tenant's Intended use. Tenant shall conduct its own investigation to its
satisfaction with respect to zoning, local codes and regulations, and other
matters affecting Tenant's ability to use the Premises for Tenant's
intended use.
3. RELOCATION OF PREMISES
If Landlord requires the Premises for use in conjunction with another suite
or other reasons connected with the Building planning program, upon
notifying Tenant in writing, Landlord shall have the right to move Tenant
to other space in the Building subject to the following terms and
conditions:
a. The new premises shall be substantially the same in size, dimensions,
and configuration (including a double door entry onto the elevator
lobby) as the Premises described in this Lease, and if the relocations
occurs after the Commencement Date, shall be placed in that condition
by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises
shall take place on a weekend and shall be completed before the
following Monday. If the physical relocation has not been completed in
that time, base rent shall abate in full from the time the physical
relocation commences to the time it is completed. Upon completion of
such relocation, the new premises shall become the "Premises" under
this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, base rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this
Lease setting forth relocation of the Premises and the reduction of
base rent, if any.
4. POSSESSION
a. Landlord shall substantially complete the improvements to the Premises
to be provided by Landlord pursuant to paragraph 11.a. of this Lease
(the "Tenant Improvements"), and deliver the Premises to Tenant on or
before September 1, 1997 (the "Estimated Delivery Date"), subject to
extension as provided in this paragraph 4. If the improvements in the
Premises are not substantially complete on or before the Estimated
Delivery Date, this Lease shall remain in full force and effect,
provided that if such failure is not due to Tenant's Delay (as defined
below), the Latest Commencement Date shall be extended to reflect the
delay occasioned by such failure, and provided further, that in the
event the improvements to the Premises are not substantially complete
by December 1, 1997 (the "Delivery Deadline"), Tenant may thereupon
terminate this Lease by written notice to Landlord before the date
that is ten (10) days thereafter, in which event Landlord shall have
no other or further liability or obligation hereunder to Tenant. In no
event shall
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Landlord have any liability to Tenant due to delay in completing the
Premises. If there is any delay in substantial completion of the
improvements to the Premises due to (a) Tenant's failure to timely
perform its obligations under the Work Letter Agreement referenced in
paragraph 11.a. of this Lease, (b) Tenant's changes to the space plan
or the final plans after Tenant's initial approval thereof, (c) any
failure by Tenant to pay any construction costs for which it is
responsible under the terms of this Lease or the Work Letter
Agreement, (d) any work performed by Tenant in the Premises, or (e)
any other delay to the extend requested or caused by Tenant
(collectively, "Tenant's Delay"), the Estimated Delivery Date and the
Delivery Deadline shall each be extended by one day for each day of
Tenant's Delay. No base rent (as referenced in paragraph 5 of this
Lease) or additional rent shall accrue prior to the Commencement Date.
If any delay in substantially completing the improvements to the
Premises is occasioned by Tenant's Delay, the Latest Commencement Date
shall be September 1, 1997. "Substantially complete" means that the
Improvements to the Premises have been completed in accordance with
the final plans agreed upon by Landlord and Tenant pursuant to the
Work Letter Agreement, even though minor details, adjustments or
punchlist items that do not materially interfere with Tenant's use or
occupancy of the Premises for normal business operations may remain to
be completed.
b. Notwithstanding the foregoing, should Landlord tender possession of
the Premises to Tenant prior to September 1, 1997, and Tenant elects
to accept such prior tender, such occupancy shall be subject to all of
the provisions of this Lease including the monthly rent as set forth
in Subparagraph l.d. above, payable as of the date Tenant accepts such
tender. If Tenant or its contractors, employees, agents, or other
licensees or invitees should otherwise enter, use, or occupy the
Premises prior to September 1, 1997, such entering, occupancy and use
shall be subject to all of the provisions of this Lease.
c. Tenant agrees, that by taking possession of the Premises, it
acknowledges that it has inspected the Premises, that they are in good
condition, and that it accepts the Premises in their then current
condition, except that any latent defects in the construction and/or
workmanship of the Tenant Improvements shall be repaired and/or
replaced at no cost to the Tenant during the first twelve (12) months
of the term of this Lease. In addition, if Tenant takes possession of
the Premises prior to completion of the Tenant Improvements, this
paragraph 4.c. shall not apply until the Tenant Improvements are
substantially complete, provided that Tenant's acceptance of the
Premises at such time shall be subject to the completion of any
reasonable punchlist items.
5. RENT
a. Effective as of the Commencement Date (as accelerated if applicable)
Tenant shall pay to Landlord the monthly base rent specified in
subparagraph l.d., in advance, without offset, deduction, prior
notice, or demand, and subject to adjustment as per subparagraph 4.b.,
on or before the first day of each month during the term. Base rent
for any period during the term which is for less than one month shall
be prorated based upon a thirty (30) day month.
b. Upon the execution hereof, Tenant shall pay to Landlord the monthly
base rent due and payable for the first full calendar month of the
term and if the Commencement Date is not on the first day of a
calendar month, then within five (5) days of the Commencement Date,
Tenant shall pay to Landlord the prorated base rent for the first
partial month of the Lease.
c. All rent payable hereunder shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America
which shall be legal tender at the time of payment at the Office of
the Building or to such other person or at such other place as
Landlord may from time to time designate in writing.
6. DIRECT OPERATING EXPENSES
a. For purposes hereof:
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i) For purposes of this Paragraph 6, Parking Structure shall mean the
Parking Structure adjacent to the Building as more particularly
described in that certain Declaration of Covenants, Conditions and
Restrictions for Parking Facility made as of January 26, 1987 by
Landlord as Declarant, which was recorded on February 19, 1987, as
document number 87-089650 of the Official Records of San Diego County,
California.
ii) "Direct Operating Expenses" means and includes all costs of owning,
operating and maintaining of the Building and the land upon which it
is located and fifty per cent (50%) of all costs of owning, operating,
and maintaining of the Parking Structure and the land upon which it is
located, including, without limitation, the following costs:
a) Property tax costs consisting of real, possessory interest and
personal property taxes, and general and special assessments
imposed by any governmental authority or agency, any non-
progressive tax on or measured by gross rentals, or any other
costs levied, assessed or imposed by, or at the direction of, or
resulting from statutes or regulations, or interpretations
thereof, promulgated by any federal, state, regional, municipal
or local government authority in connection with the use of
occupancy or the Building, and any expenses, including cost of
attorneys or experts, reasonably incurred by Landlord in seeking
reduction by the taxing authority of the above-referenced taxes,
less tax refunds obtained as a result of an application for
review thereof;
b) Operating costs consisting of costs incurred by Landlord in
maintaining and operating the Building and the Parking Structure
including (without limiting the generality of the foregoing) the
following: cost of maintaining and operating the common areas
inside and outside the Building and the Parking Structure
including, without limitation, the lobby, restrooms, elevators,
stairways, passageways, hallways, walkways, gardens, waterfalls,
sidewalks and grounds; utilities, supplies, casualty and
liability and such other insurance as Landlord may deem
appropriate (including such endorsements as Landlord may elect to
obtain); cost of reasonable and customary property management
services (which may be performed by an affiliate of Landlord),
the fair rental value of the Building office and the cost of
compensation (including employment taxes and fringe benefits) of
all persons who perform duties connected with the management,
operation, maintenance and repair of the Building and the Parking
Structure including, without limitation, engineers, janitors,
foremen, floor waxers, window washers, watchmen and gardeners;
and
c) Amortization of such items or improvements as Landlord may have
installed for the purpose of (1) reducing operating costs, to the
extent reductions in cost are realized, or (2) compliance with
governmental rules or regulations promulgated after completion of
the Building. Capital improvements shall be amortized over their
estimated useful life.
iii) Notwithstanding the foregoing, "Direct Operating Expenses" shall not
include the following:
a) advertising, marketing and promotional expenses;
b) penalties, fines, late payment charges or interest incurred as a
result of the late payment of any Direct Operating Expenses,
including taxes, to the extent such penalties, fines, late
payment charges or interest result from the actions or negligence
of Landlord;
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c) costs of goods and/or services supplied by Landlord (including
overhead and/or profit charged in connection therewith), to the
extent that the resulting cost of such goods and/or services
exceeds the cost of similar goods and services in comparable
buildings in the San Diego business district when rendered by
unaffiliated third parties on a competitive basis;
d) depreciation, interest and amortization on mortgages or other
debt costs or ground lease payments, if any;
e) legal fees in connection with leasing, tenant disputes or
enforcement of leases;
f) real estate brokers' leasing commissions;
g) leasing concessions, including, without limitation, rent
abatements, and improvements and alterations to tenant spaces;
h) the cost of providing any service directly to and paid directly
by, any tenant;
i) costs of any items to the extent Landlord receives reimbursement
from insurance proceeds or from a third party (such proceeds to
be deducted from Direct Operating Expenses in the year in which
received);
j) capital expenditures, including payments under revenue bonds
issued with respect to capital improvements, except those capital
expenditures made primarily to reduce Direct Operating Expenses,
or to comply with any laws or other governmental requirements;
and
k) costs and expenses unrelated to the Building.
b. If the Direct Operating Expenses paid or incurred by Landlord exceed the
Direct Operating Expense Base, Tenant shall pay Tenant's Percentage of such
excess as additional rent pursuant to this subparagraph b. If the Direct
Operating Expense Base is determined by adjustment to a certain percentage
occupancy of the Building, then the actual Direct Operating Expenses in
each year shall be adjusted to the same percentage occupancy for the
purposes of this paragraph. Landlord shall furnish Tenant a statement
showing, in reasonable detail, an estimate of the amount, if any, by which
Landlord expects actual Direct Operating Expenses for the current year to
exceed the Direct Operating Expense Base ("Landlord's Estimate"). Tenant
shall pay together with its payments of monthly rent, an amount equal to
one-twelfth (1/12) of Tenant's Percentage of Landlord's Estimate for the
current year. Landlord shall, as soon as reasonably possible after each
calendar year, deliver to Tenant a statement showing, in reasonable detail,
the actual Direct Operating Expenses for the previous year, along with a
calculation of Tenant's Percentage of the amount, if any, by which the
actual Direct Operating Expenses exceed the Direct Operating Expense Base.
If Tenant's obligation for Direct Operating Expenses for the prior year
exceeds the amount of estimated payments made by Tenant during such prior
year, Tenant shall pay Landlord the amount of such excess within thirty
(30) days after Landlord submits a statement of the amount due. If Tenant's
obligation for Direct Operating Expenses for any year is less than the
amount paid by Tenant therefor during such year, the amount of such
overpayment shall be credited against monthly installments of Direct
Operating Expenses and/or rent next coming due. If any such overpayment
remains unreimbursed at the termination of this Lease, Landlord shall apply
such amount to any amounts which may be owing by Tenant to Landlord, and
the remainder shall be promptly refunded to Tenant. Notwithstanding
anything to the contrary contained in this subparagraph b., Tenant shall be
entitled to no credit, refund or reduction in rent if actual Direct
Operating Expenses are less than the Direct Operating Expenses Base. If
this Lease commences or terminates on any day other than January lst, any
additional payment or credit for any initial or final partial year shall be
determined by pro rating such amount according to a three hundred sixty
(360) day year.
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c. If Tenant or its employees, agents, guests, or invitees cause Landlord
to incur costs of any kind in excess of standard routine maintenance
and upkeep of the Building or the Parking Structure, Landlord may
require Tenant to pay such costs directly to Landlord. If Landlord
receives an insurance recovery with respect to any such cost, then
Tenant shall pay to Landlord the amount of any deductible, along with
the amount, if any, by which the actual cost exceeds the insurance
proceeds immediately upon written demand by Landlord. Certain types of
Tenant Improvements will increase the cost of maintenance and upkeep
of the Premises to be incurred by Landlord (e.g., light fixtures which
use unusually expensive bulbs or short-life bulbs, equipment requiring
periodic maintenance not generally supplied by Landlord to its
Tenants, equipment with unusual security needs, etc.). Tenant shall
reimburse Landlord for any such increased costs, at such time or times
as may be requested by Landlord. In addition, Landlord may at any
time, at its option, cease performance of any such items of
maintenance or upkeep of the Premises. Amounts collected from Tenant
or other tenants shall not be charged back to Tenant as a Direct
Operating Expense.
d. Within thirty (30) days after Tenant's request, Landlord shall provide
a written response to any questions that Tenant may have concerning
the calculation of the Direct Operating Expenses for the immediately
preceding calendar year. In the event of any reasonable good faith
dispute or uncertainty as to said amounts, Tenant shall have the
right, at its own expense, to conduct an audit of Landlord's books and
records relating to the determination of Direct Operating Expenses,
upon reasonable notice, during normal business hours for the
immediately preceding year of the term of this Lease. Notwithstanding
any such dispute or uncertainty, Tenant shall pay all base rent and
all additional rent in accordance with the terms of this Lease. If
Tenant, reasonably and in good faith, challenges Landlord's
computations of the Direct Operating Expenses for the immediately
preceding year, Tenant shall notify Landlord in writing of its
objections. If Tenant's audit indicates that Tenant has been
overcharged for the Direct Operating Expenses, Landlord shall revise
its records and billings accordingly; provided, however, that if
Landlord disputes the findings of Tenant's audit, then Landlord and
Tenant shall mutually agree upon a nationally recognized firm of
certified public accountants, and, if necessary, real estate
consultants, which shall conduct an independent audit, and the
findings of such firm shall be binding on the parties hereto. Within
thirty (30) days after resolution of such dispute, the party which
owes money to the other shall remit the sum owed. Tenant shall be
responsible for the cost of its own audit and also for the cost of any
audit by an independent accounting firm; provided, however, that if
Tenant's audit or the audit conducted by the independent accounting
firm, as the case may be, determines that Tenant has been overcharged
by five percent (5%) or more for the Direct Operating Expenses for the
immediately preceding year of the term of this Lease, then Landlord
shall pay for or reimburse Tenant for the reasonable cost of Tenant's
audit, and if an audit by an independent accounting firm was also
conducted in accordance with the foregoing provisions of this Section
6.d, Landlord shall also pay for the cost of such independent audit;
and provided further that if an independent audit is conducted and
such audit determines that Tenant has been overcharged by five percent
(5%) or more, but less than ten percent (10%) for the Direct Operating
Expenses for the immediately preceding year of the term of this Lease,
then Landlord and Tenant shall each pay one-half of the cost of such
independent audit.
7. SECURITY DEPOSIT
a. Concurrently with the execution of the Lease, Tenant shall deliver to
Landlord the amount set forth in subparagraph l.k. This amount shall
be held by Landlord as a Security Deposit for the faithful performance
of all of the provisions and conditions of this Lease to be kept and
performed by Tenant hereunder. Landlord's obligation with respect to
the Security Deposit is that of a debtor and not as a trustee. The
Security Deposit may be commingled with rental receipts or other funds
of Landlord or dissipated entirely, and no interest shall accrue
thereon.
b. If Tenant defaults with respect to the payment of rent or any other
covenant contained herein, Landlord may use or retain all or any part
of the Security Deposit for the payment of any rent or
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any other sum in default, or for the payment of any amount which
Landlord may spend or become obligated to spend by reason of Tenant's
default. Landlord may also apply the security deposit toward costs
incurred to repair damages to the Premises or to clean the Premises
upon termination of this Lease. If any portion of the Security Deposit
is so applied or used, Tenant shall, within five (5) days after
written notice thereof, deposit an additional amount with Landlord
sufficient to restore the Security Deposit to the amount set forth
above, and Tenant's failure to do so shall constitute a breach of this
Lease.
8. TENANT'S PROPERTY TAXES
Tenant shall pay, before delinquency, all taxes levied against, imposed
upon, measured by, or resulting from or with respect to (a) any personal
property or trade fixtures placed by Tenant in or about the Premises; (b)
any improvements to the Premises in excess of Building standard
improvements, whether owned by Landlord or Tenant; (c) the possession,
lease, operation, management, maintenance, alteration, improvement, repair,
use or occupancy of the Premises or any portion thereof; (d) this
transaction or any document to which Tenant is a party creating or
transferring any interest or estate in the Premises; (e) the cost and
expenses of contesting the amount or validity of any of the foregoing
taxes. If any such taxes are levied against Landlord or Landlord's
property, and if Landlord pays the same, which Landlord shall have the
right but not obligation to do regardless of the validity of such levy,
Tenant shall, immediately upon demand, repay to Landlord the taxes so
levied against Landlord
9. USE
Tenant shall use the Premises only for the specified use set forth in
subparagraph 1.l., above, and shall not use or permit the Premises to be
used for any other purposes. Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which will
in any way increase the existing rate of or affect any fire or other
insurance upon the building or any of its contents or cause cancellation of
any insurance policy covering said Building or any part thereof or any of
its contents. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful, or
objectionable purpose; nor shall Tenant cause, maintain, or permit any
nuisance in, on, or about the Premises. Tenant shall not commit or suffer
to be committed any waste in or upon the Premises.
10. COMPLIANCE WITH LAW
Tenant shall not use the Premises or permit anything to be done in or about
the Premises which will in any way conflict with any law, statute,
ordinance, or government rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances, and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted
relating to or affecting the condition, use, or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's
improvements or acts. The judgment of any court of competent jurisdiction
or the admission of Tenant in any action against Tenant, whether Landlord
be a party thereto or not, that Tenant has violated any law, statute,
ordinance, or governmental rule, regulation, or requirement, shall be
conclusive of that fact as between Landlord and Tenant.
11. ALTERATIONS AND ADDITIONS
a. Landlord shall make certain improvements to the Premises as set forth
in Exhibit B attached hereto. Said improvements shall proceed in
accordance with the provisions of the certain "Work Letter Agreement"
attached hereto, and executed by Landlord and Tenant.
b. Tenant shall not make or suffer to be made any alterations, additions
or improvements (collectively, "Alterations") to or on the Premises or
any part thereof without the prior written consent of Landlord, which
consent shall not be unreasonably withheld provided that the
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Alterations do not affect the Building's structure, safety, systems or
aesthetics or cause the release of Hazardous Materials. Any
Alterations to or on the Premises or any part thereof, including, but
not limited to, wall covering, paneling, and built-in cabinet work,
but excepting moveable furniture and trade fixtures, shall, upon the
expiration of the term, become part of the realty, become the property
of Landlord, and shall be surrendered with the Premises.
c. In the event Landlord consents to the making of any Alterations to or
on the Premises or any part thereof by Tenant, the same shall be made
at Tenant's sole cost and expense. All Alterations to the Premises,
including without limitation the initial Tenant Improvements, shall be
constructed by Landlord or Landlord's contractor.
d. Upon the expiration or sooner termination of the term hereof and upon
written demand by Landlord, Tenant shall, forthwith and with all due
diligence, at Tenant's sole cost and expense, remove any Alterations
made by Tenant and designated for removal by Landlord at the time of
the installation of such Alterations.
12. REPAIRS
a. Tenant shall, at Tenant's sole cost and expense, keep and maintain the
Premises and every part thereof in good condition and repair. Tenant
shall upon the expiration or sooner termination of this Lease
surrender the Premises to Landlord in good condition, ordinary wear
and tear excepted. Landlord shall have no obligation whatsoever to
alter, remodel, improve, repair, decorate or paint the Premises or any
part thereof, and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or
the Building except as specifically herein set forth.
b. Notwithstanding the provisions of paragraph 11.a. above, Landlord
shall repair and maintain the structural portions of the Building
unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault, or omission of any duty by the Tenant, its
agents, servants, employees or invitees, in which case Tenant shall
pay to Landlord the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs
or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in
paragraph 21 hereof, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations,
or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances, and equipment therein. Tenant
waives the right to make repairs at Landlord's expense under any law,
statute, or ordinance now or hereafter in effect.
13. LIENS
Tenant shall keep the Premises and the property in which the Premises are
situated free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Tenant. Landlord may require, at
Landlord's sole option, that Tenant provide to Landlord, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of any improvements, additions, or
alterations to be made to the Premises, to insure Landlord against any
liability for mechanics' and materialmen's liens, and to insure completion
of the work.
14. ASSIGNMENT AND SUBLETTING
a. Tenant shall neither voluntarily nor by operation of law assign, sell,
encumber, pledge, or otherwise transfer all or any part of Tenant's
leasehold estate hereunder, or permit any other person (excepting
Tenant's agents and employees) to occupy the Premises or any portion
thereof, without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Any assignment or other transfer or
subletting proposed by Tenant shall be subject in each instance to the
recapture option of Landlord set forth in subparagraph c. below.
Landlord's consent shall be
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based upon (i) a determination that the same type, class, nature, and
quality of business, services, management, and financial soundness of
ownership shall exist after such assignment or subletting and (ii)
that each and every covenant, condition, and obligation imposed upon
Tenant by this Lease and each and every right, remedy and benefit
afforded Landlord by this Lease and the underlying purpose of this
Lease is not thereby impaired or diminished. The reasonable
determination by Landlord as to whether consent will be granted in any
specific instance may be based on, without limitation, the following
factors: (a) whether the transferee's use of the Premises will be
compatible with the provisions of the Lease and the operation of the
Building as a whole: (b) the extent to which the transferee will
compete with other existing tenants of the Building; (c) the financial
capacity of the transferee; (d) the business reputation of the
transferee; (e) the transferee's intended use of the common areas and
facilities; (f) the quality of the business operations of the
transferee; (g) the business experience of the proposed transferee;
(h) whether the transferee's business is likely to increase the risk
of waste disposal or other environmental problems; and (i) whether the
intended transferee is currently a tenant in the Building or is
currently negotiating with Landlord for the occupancy of other space
within the Building. This list of factors is not intended to be
exclusive, and Landlord may rely on such other reasonable bases for
judgment as may apply from time to time. Landlord shall not at any
time be required to consent to any assignment, subletting, or other
transfer to any party who is or was immediately prior to the transfer
a tenant in the Building. Consent by Landlord to one or more
assignments of this Lease or to one or more sublettings of the
Premises shall not constitute a waiver of Landlord's right to require
consent to any future assignment, subletting, or other transfer. If
Tenant is a corporation, unincorporated association, or partnership,
the transfer, assignment, or hypothecation of any stock or interest in
such corporation, association or partnership in the aggregate in
excess of twenty-five percent (25%) of all outstanding stock or
interests, or liquidation thereof, shall be deemed an assignment
within the meaning and provisions of this paragraph. The foregoing
sentence shall not apply to any corporation or partnership which is a
reporting company under the Securities Exchange Act of 1934. Tenant
shall reimburse Landlord for Landlord's reasonable costs and
attorney's fees incurred in conjunction with the processing and
documentation of any required consent to assignment, subletting,
transfer, change of ownership, or hypothecation of this Lease or
Tenant's interest in and to the Premises.
b. If Tenant desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, it shall first notify Landlord of its
desire to do so and shall submit in writing to Landlord (i) the name
and legal composition of the proposed subtenant or assignee; (ii) the
nature of the proposed subtenant's or assignee's business to be
carried on in the Premises; (iii) the terms and provisions of the
proposed sublease or assignment and all transfer documents relating to
the proposed transfer; and (iv) such reasonable business and financial
information as Landlord may request concerning the proposed subtenant
or assignee. Any request for Landlord's approval of a sublease or
assignment shall be accompanied with a check in such reasonable amount
as Landlord shall advise for the cost of review and preparation,
including reasonable attorney's fees, of any documents relating to
such proposed transfer. The provisions and conditions of any proposed
sublease or assignment must not be inconsistent with any provision of
this Lease, and must address all matters contained in this Lease. In
addition, the transferee must expressly assume all of the obligations
of Tenant under this Lease. Notwithstanding the assumption of the
obligations of this Lease by the transferee, no subletting or
assignment, even with the consent of Landlord, shall relieve Tenant of
its continuing obligation to pay the rent and perform all the other
obligations to be performed by Tenant hereunder. The obligations and
liability of Tenant hereunder shall continue notwithstanding the fact
that Landlord may accept rent and other performance from the
transferee. The acceptance of rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision of
this Lease or to be a consent to any assignment or subletting.
c. At any time within thirty (30) days after Landlord's receipt of the
information specified in subparagraph b. above, Landlord may by
written notice to Tenant elect to either (i) sublease or take an
assignment of the Premises of the portion thereof as shall be
specified in said notice upon the same terms as those offered to the
proposed subtenant or assignee, as the case may be; or (ii) terminate
this Lease as to the portion (including all) of the Premises so
proposed to be subleased
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or assigned with a proportionate abatement in the rent payable
hereunder. Upon the exercise by Landlord of either of the options
provided herein, Landlord is free to lease the Premises or any part
thereof to the proposed subtenant or assignee, or to any other party,
on any terms. If Landlord does not exercise either option within said
thirty (30) day period, but instead notifies Tenant in writing of its
consent to the proposed sublease or assignment, then Tenant may
thereafter within ninety (90) days after receipt of Landlord's written
consent enter into a valid assignment or sublease of the Premises or
portion thereof, to the party and upon the terms and conditions
described in the information required to be furnished by Tenant to
Landlord pursuant to subparagraph b. above. If Landlord takes no
action within the thirty (30) day period, consent to the proposed
assignment or sublease shall be deemed withheld.
d. In no event shall Tenant display on or about the Premises or the
Building any signs for the purpose of advertising the Premises for
assignment, subletting or other transfer of rights.
e. In the event of any assignment or subletting, Tenant shall not collect
more than two months rent at any time in advance, and Tenant shall not
collect a security deposit in excess of the monthly rent then payable
by Tenant to Landlord hereunder. Any consideration paid by the
assignee or subtenant that exceeds one hundred ten percent (110%) of
the monthly rent then payable by Tenant to Landlord hereunder shall be
due, owing and payable from Tenant to Landlord as and when received by
Tenant.
f. Any sale, assignment, mortgage or transfer of this Lease or subletting
which does not comply with the provisions of this paragraph 13. shall
be void and, at the option of Landlord, shall terminate this Lease.
g. If Tenant requests consent to an assignment or sublease, and the
Landlord refuses to give its consent, elects to terminate this Lease,
or takes other action which is later determined by a court or
arbitrator or mediator to be unreasonable or unlawful, Tenant's only
remedy shall be specific enforcement of the right to assign or sublet;
in no event shall Landlord be liable to any party for monetary damages
in connection with its responses to requests for consent to assignment
or subletting.
15. HOLD HARMLESS
a. Tenant shall indemnify, defend, and hold harmless Landlord from and
against any and all claims, demands, liability, loss, or damage,
whether for injury to or death of persons or damage to real or
personal property, arising out of or in connection with the Premises,
Tenant's use of the Premises, any activity, work, or other thing done,
permitted, or suffered by Tenant in or about the Building, or arising
from any reason or cause whatsoever in connection with the use or
occupancy of the Premises by any party during the term of this Lease.
This indemnification by Tenant shall include indemnity for the acts or
omissions of Landlord and its agents, servants, and employees to the
fullest extent allowed by law. Tenant shall further indemnify, defend,
and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease or arising
from any act or negligence of Tenant or any officer, agent, employee,
guest, or invitee of Tenant, and from and against all costs,
attorney's fees, expenses, and liabilities incurred as a result of any
such claim or any action or proceeding brought thereon. In any case,
action, or proceeding brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at
Tenant's expense by counsel reasonably satisfactory to Landlord.
Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons in, upon,
or about the Premises from any cause other than causes solely as a
result of Landlord's negligent or intentional acts or omissions, and
Tenant hereby waives all claims in respect thereof against Landlord.
Tenant's obligation to indemnify under this paragraph shall include
attorney's fees, investigation costs, and other reasonable costs,
expenses, and liabilities incurred by Landlord. If the ability of
Tenant to use the Premises or the Building is interrupted for any
reason, Landlord
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shall not be liable to Tenant for any loss or damages occasioned by
such loss of use, unless said interruption is solely as a result of
Landlord's negligence or intentional misconduct.
b. Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any
property by theft or otherwise, nor for any injury to or damage to
persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, or rain which may leak from any part
of the Building or from the pipes, appliances, or plumbing works
therein or from the roof, street, or subsurface from any other place
resulting from dampness or any other cause whatsoever, unless caused
by or due to, the intentional acts or omissions of Landlord, its
agents, servants, or employees. Landlord, or its agents, shall not be
liable for interference with the light or other incorporeal
hereditament or loss of business by Tenant, nor shall Landlord be
liable for any latent defect in the Premises or in the Building.
Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the Building or of defects therein or
in the fixtures or equipment.
c. Landlord shall indemnity, defend and hold harmless Tenant from and
against any and all claims, demands, liability, loss, or damage,
whether for injury to or death of persons or damage to real or
personal property, arising directly out of the active negligence or
wilful misconduct of Landlord, its agents or employees.
16. SUBROGATION
Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage to any building, structure, or other tangible
property, or any resulting loss of income, or losses under worker's
compensation laws and benefits, even though such loss or damage might have
been occasioned by the negligence of such party, its agents, or employees
if any such loss or damage is covered by insurance benefiting the part
suffering such loss or damage. Landlord and Tenant hereby mutually release
each other from liability and waive all right to recover against each other
or against officers, employees, agents, guests, authorized assignees or
subtenants, or representatives of each other for any loss or damage to any
person or property caused by or resulting from risks insured against under
any insurance policies carried by the parties; provided, however, this
paragraph shall be inapplicable if it would have the effect, but only to
the extent that it would have the effect, of invalidating any insurance
coverage of Landlord or Tenant. The parties shall, to the extent available,
cause each insurance policy obtained by it hereunder to provide a waiver of
subrogation. In the event that the insurance company of Tenant does not
waive the right of subrogation against Landlord and its insurance company,
Tenant shall (i) maintain during the term of this Lease fire legal
liability coverage with respect to the Premises and (ii) pay to Landlord
upon demand Landlord's cost incurred in securing fire legal liability
insurance protecting Landlord in the event of the destruction of Tenant's
property. To the extent applicable, the provisions of this paragraph shall
apply notwithstanding any other provisions set forth in this Lease.
17. TENANT'S INSURANCE
a. Tenant shall procure and maintain in force at all times during the
term of this Lease a policy or policies of fire and extended coverage
insurance (including vandalism, malicious mischief, and sprinkler
leakage) with respect to its fixtures, personal property, any exterior
signage affixed to the building, and equipment located in the Premises
to the extent of at least ninety percent (90%) of their insurance
value. Tenant shall also procure and maintain plate glass coverage
with respect to the Premises. During the term of this Lease, the
proceeds of any such policy or policies of insurance shall be used
solely for the repair and replacement of the fixtures, personal
property, any exterior signage affixed to the building, and equipment,
or glass so insured. The amounts of such fire and extended coverage
insurance shall be reasonably increased from time to time by Tenant,
upon written demand from Landlord.
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b. Tenant shall procure and maintain at all times during the term of this
Lease Workers' Compensation Insurance. Tenant shall also procure and
maintain at all times during the term hereof Combined Single Limit
Bodily Injury and Property Damage Insurance insuring Landlord and
Tenant against any liability arising out of the use, occupancy, or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be in an amount not less than $1,000,000.00 per
occurrence. The amount of such insurance shall be reasonably increased
from time to time by Tenant, upon written demand from Landlord. This
policy shall include broad form contractual liability and indemnity
coverage which shall insure performance by Tenant of the indemnity and
defense provisions in paragraph 14. above. The limits of said
insurance shall not, however, be construed to limit the liability of
Tenant under this Lease.
c. Tenant shall procure and maintain at all times during the term of this
Lease (i) business interruption insurance, (ii) personal injury
insurance with endorsement deleting the employee liability exclusion,
(iii) employee liability insurance, (iv) professional liability or
errors and omissions insurance, (v) liability and bodily injury
insurance covering both landlord and Tenant against any costs or
claims arising in connection with the use of the Sunroad Exercise
Facility by Tenant or its employees, agents, guests, or invitees, and
(vi) during any period of alteration or construction by Tenant,
Builder's all risk insurance which must include completed operations
coverage. Landlord may, from time to time, require Tenant to
reasonably increase the limits of any insurance required to be
maintained by Tenant.
d. The deductible amounts, if any, with respect to all insurance which
Tenant is required to maintain hereunder shall not exceed $5,000 per
claim or occurrence. The amount of the deductibles, if any, within
this limitation shall be a business decision by Tenant; under no
circumstances shall Landlord be required to reimburse Tenant for the
amount of any deductible incurred by Tenant in connection with any
insured event, even if the event resulting in the claim was caused or
contributed to by Landlord or its agents, servants, or employees.
e. All insurance which Tenant is required to maintain hereunder shall be
on an occurrence basis and shall be with financially responsible
insurance companies which companies shall be subject to the reasonable
approval of Landlord. Within five (5) days after the execution of this
Lease, Tenant shall notify Landlord in writing of the name of Tenant's
insurer. Tenant shall deliver to Landlord prior to entry on the
premises by Tenant certificates of insurance evidencing the existence
and amount of such insurance, and showing Landlord as a named insured;
provided that in the event Tenant fails to procure and maintain such
insurance, Landlord may (but shall not be required to) procure same at
Tenant's expense. All policies shall include a "severability of
interest" endorsement with respect to Landlord. No such policy shall
be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to
Landlord by the insurer. Tenant shall, within twenty (20) days prior
to the expiration of such policies furnish Landlord with renewals or
binders, or Landlord may order such insurance and charge the cost to
Tenant, which amount shall be payable by Tenant upon demand. All such
policies shall be written as primary policies, not contributing with
and not in excess of coverage which Landlord may carry, and all
policies shall include Tenant's employees as additional insureds.
Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant provided that such
blanket policies expressly afford coverage to the Premises and to
Tenant as required by this Lease. Tenant shall, upon request from
Landlord, immediately deliver to Landlord copies of all insurance
policies (including the declarations pages) in effect with respect to
Tenant's business and the Premises.
18. SERVICE AND UTILITIES
Landlord will provide electric sub-meter bases for the Premises, which will
be paid for from the Tenant improvement allowance. Tenant shall make all
arrangements for and pay for all electric service to the Premises and for
all connection charges and billing deposits, if any, incurred therewith.
The Building has a heating and air conditioning system (water source heat
pump system) the utility and operating costs of which shall comprise a
portion of the Direct Operating Expenses as hereinbefore defined. Landlord
shall
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make available heating and air conditioning for the Building, including the
Premises, Monday through Friday from 7:00 a.m. to 6:00 p.m., except legal
holidays. The cost of this service shall be a Direct Operating Expense. If
Tenant requests heating or air conditioning service after hours, during
weekends, or on holidays, Landlord shall make available such services to
the Premises for an additional charge of $20.00 per hour of use, or any
part thereof. Landlord may increase such additional hourly charge if the
costs of providing such services increase, provided that such increase
reflects the actual increased cost of the service and does not incorporate
any profit margin for Landlord for providing such additional services.
Tenant shall make arrangements for and pay for all voice and data
communications systems and equipment, including installation, wiring, and
service and use charges. Other services and utilities, unless provided by
Landlord (and the costs of which are included in the Direct Operating
Expenses of the Building) shall be the responsibility of Tenant. Landlord
shall not be responsible or liable to Tenant for interruption or stoppages
of utilities or other services to the Building or the Premises.
19. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and regulations
that Landlord shall from time to time promulgate. Landlord reserves the
right from time to time to make reasonable modifications to said rules and
regulations. The additions and modifications to those rules and regulations
shall be binding upon Tenant upon delivery of a copy of them to Tenant.
Landlord shall not be responsible to Tenant for the nonperformance of any
said rules and regulations by any other tenants or occupants.
20. HOLDING OVER
If Tenant should remain in possession of the Premises (i) after the
expiration of the term of this Lease without executing a new lease, or (ii)
after Landlord has declared a forfeiture by reason of a default by Tenant,
then such holding over shall be construed at the sole option of Landlord as
a tenancy at sufferance from month-to-month (requiring at least 30 days
advance written notice from either party to the other prior to termination)
subject to all the conditions, provisions and obligations of this Lease
insofar as they are applicable to a month-to-month tenancy, except that the
minimum monthly rental shall be one hundred fifty percent (150%) of the
monthly rent last paid due, payable monthly in advance. Notwithstanding the
foregoing, in the event Tenant fails to vacate the Premises and fulfill all
of its obligations hereunder at the end of the term, Tenant shall be liable
for all damages incurred by Landlord by reason of the latter's inability to
deliver possession of the Premises or any portion thereof to any other
person.
21. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right to enter
the Premises, inspect the same, to show said Premises to prospective
purchasers or tenants, to post notices of non-responsibility, and to alter,
improve, or repair the Premises and any portion of the Building of which
the Premises are a part that Landlord may deem necessary or desirable
without abatement of rent and may for that purpose erect scaffolding and
other necessary structures where reasonably required by the character or
the work to be performed, always providing that the entrance to the
Premises shall not be blocked thereby, and further providing that the
business of Tenant shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages or for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and other loss occasioned thereby. For each of
the aforesaid purposes, Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon, and about the Premises,
excluding Tenant's vaults, safes, and files, and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said
doors in an emergency in order to obtain entry to the Premises without
liability to tenant except for any failure to exercise due care for
Tenant's property. Any entry to the Premises obtained by Landlord by any of
said means or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises or an eviction of Tenant from the Premises or any portion thereof.
Notwithstanding the foregoing, Landlord shall provide to Tenant at least
twenty-four (24) hours notice prior to entering the Premises, except in the
case of criminal activity, fire or other emergency, in which case no prior
notice shall be required.
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22. RECONSTRUCTION
a. In the event the Premises or the Building of which the Premises are a
part are damaged by fire or other perils covered by extended coverage
insurance, and the estimated cost of repairs is not in excess of
available insurance proceeds, then Landlord shall forthwith repair the
same and this Lease shall remain in full force and effect.
b. In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils
covered by fire and extended coverage insurance, or the estimated cost
of repairs is in excess of available insurance proceeds, then Landlord
shall forthwith repair the same, provided the extent of the
destruction is less than ten percent (10%) of the then full
replacement cost of the Premises (or if the damage is to the Building,
and the extent of the destruction is less than ten percent (10%) of
the full replacement cost of the Building of which the Premises are a
part). In the event the destruction of the Premises or the Building is
to the extent greater than or equal to ten percent (10%) of the full
replacement cost, then landlord shall have the option to (1) to repair
or restore such damage, this Lease continuing in full force and
effect, or (2) give notice to Tenant at any time within sixty (60)
days after such damage terminating this Lease as of the date specified
in such notice, which date shall be no less than thirty (30) and no
more than sixty (60) days after the giving of such notice. In the
event of giving such notice, this Lease shall expire and all interest
of the Tenant in the Premises shall terminate on the date so specified
in such notice and the rent shall be paid up to date of said such
termination.
c. Notwithstanding anything to the contrary contained in this paragraph,
Landlord shall have no obligation whatsoever to repair, reconstruct,
or restore premises when the damage resulting from any casualty
covered under this paragraph occurs during the last twelve (12) months
of the term of the Lease or any extension thereof. Tenant may
terminate this Lease in the event Landlord does not elect to repair,
reconstruct or restore the Premise during the last twelve (12) months
of the term.
d. Landlord shall not be required to repair any injury or damage by fire
or other cause or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or
any other property installed in the Premises by Tenant.
e. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises,
Tenant's personal property, or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction, or restoration. For
purposes of this paragraph, insurance proceeds shall not be considered
to be "available" if payable to Landlord's lender and such lender will
not release them for repairs.
23. DEFAULT
a. The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant (an "Event of
Default"):
The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder as and when due where such
failure shall continue for a period of three (3) days after written
notice thereof from Landlord to Tenant; provided, however, that any
such notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure (S)1161 regarding
unlawful detainer actions.
b. The failure by Tenant to observe or perform any of the other
covenants, conditions, or provisions of this Lease to be observed or
performed by the Tenant where such failure shall continue for a period
of fifteen days after written notice thereof by Landlord to Tenant.
c. The making by Tenant of any general assignment for the benefit of
creditors; or the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt, or a petition or reorganization or
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arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against Tenant, the same is dismissed within sixty
days); or the appointment of a trustee or a receiver to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is
not restored to Tenant within thirty days; or the attachment,
execution, or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
24. DEFAULT REMEDIES
If an Event of Default exists, in addition to any other rights or remedies
of Landlord at law or in equity, Landlord shall have the following
remedies:
a. Landlord may recover from Tenant the rent as it becomes due and any
other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be
likely to result therefrom, irrespective of whether Tenant shall have
abandoned the Premises. Landlord may sue monthly, annually, or after
such equal or unequal periods as Landlord desires for amounts due
hereunder. The right to collect rent as it becomes due shall terminate
upon the termination by Landlord of Tenant's right to possession.
Tenant's right to possession shall not be terminated unless and until
Landlord delivers to Tenant written notice thereof.
b. In the event Landlord elects not to terminate the Lease, Landlord
shall have the right to attempt to relet the Premises at such rent and
upon such conditions and for such a term as Landlord see fits, and to
do all other acts necessary to maintain or preserve the Premises as
Landlord deems reasonable and necessary, without being deemed to have
elected to terminate the Lease, including removal of all persons and
property from the Premises which property may be removed and stored in
a public warehouse or elsewhere at the cost of and for the account of
Tenant. In the event any reletting of the Premises occurs, such
reletting shall be done for Tenant's account and be subject to the
terms and conditions of subparagraph c. below. Notwithstanding the
fact that Landlord may fail to elect to terminate the Lease initially,
Landlord at any time during the term of this Lease may elect to
terminate this Lease by virtue of any previous uncured default of
Tenant.
c. In the event that Landlord shall elect to reenter upon default by
Tenant as provided above or shall take possession of the Premises
pursuant to legal proceedings or pursuant to any notice by law, then,
if Landlord does not elect to terminate this Lease as provided herein,
Landlord may from time to time, without terminating this Lease, relet
the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord
in its sole discretion may deem advisable. Landlord shall also have
the right to make alterations and repairs to the Premises. In the
event that Landlord shall elect to so relet, then rentals received by
Landlord from such reletting shall be applied: first, to the payment
of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any cost of such reletting; third,
to the payment of the cost of any alterations and repairs to the
Premises: fourth, to the payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment
of future rent as the same may become due and payable hereunder.
Should reletting result in the actual payment of rentals at less than
the rent payable during that month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord from time to time immediately
upon demand therefor by Landlord. Tenant also shall pay to Landlord,
on demand, as soon as ascertained, any costs and expenses incurred by
Landlord in reletting or in making alterations and repairs to the
Premises.
d. Landlord, either as an alternative to or subsequent to exercising the
remedies set forth above, may terminate Tenant's right to possession
of the Premises by and upon delivery to Tenant of written notice of
termination. Landlord may then immediately reenter the Premises and
take Possession thereof pursuant to legal proceedings and remove all
persons and property from the Premises which property may be removed
and stored in a public warehouse or elsewhere at the cost of and
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for the account of Tenant. In the event that Landlord elects to
terminate Tenant's right of possession Landlord may recover all of the
following:
e. The worth at the time of award of the unpaid rent which had been
earned at the time of termination. ("Worth at the time of award" shall
be computed by allowing interest at the maximum rate permitted by law
from the first day a breach occurs);
f. The worth at the time of award of the amount by which the unpaid rent
that would have been earned after the date of termination of this
Lease until the time of the award exceeds the amount of the rental
loss that the Tenant proves could have been reasonably avoided ("Worth
at the time of award" shall be determined by allowing interest at the
maximum rate permitted by law from the first day a breach occurs);
g. The worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount
of such rental loss that the Tenant proves could be reasonably
avoided. ("Worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%)).
h. Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of events
would be likely to result therefrom including, but not limited to,
expenses of reletting, attorney's fees, costs of alterations and
repairs, recording fees, filing fees, and any other expense
customarily resulting from obtaining possession of leased Premises and
releasing; and
i. At Landlord's election, such other amounts in addition to or in lieu
of the foregoing as may be permitted from time to time by applicable
California law.
25. EMINENT DOMAIN
a. If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise
of such power, this Lease shall terminate as to the part so taken as
of the date that the condemning authority takes possession of the
Premises. If more than twenty-five percent (25%) of the Premises is
taken or sold under such threat, either Landlord or Tenant may
terminate this Lease as of the date that the condemning authority
takes possession by delivery of written notice of such election within
twenty (20) days after such party has been notified of the taking or,
in the absence thereof, within twenty (20) days after the condemning
authority shall have taken possession.
b. If this Lease is not terminated by Landlord or Tenant, it shall remain
in full force and effect as to the portion of the Premises remaining,
provided that, the monthly base rent shall be reduced by that
proportion which the floor area of the Premises taken bears to the
gross floor area of the Premises. In such event, Landlord may, at
Landlord's expense, restore the Premises (but not Tenant's
improvements therein) to a complete unit of like quality and
character, except as to size, as existed prior to the date on which
the condemning authority took possession.
c. All awards for the taking of any part of the Premises or proceeds from
the sale made under the threat of the exercise of the power of eminent
domain shall be the property of Landlord, whether made as compensation
for diminution of value of the leasehold estate, for the taking of the
fee, or as severance damages; provided that Tenant shall be entitled
to any award which is made for loss of or damage to Tenant's trade
fixtures and removable personal property.
26. OFFSET STATEMENT
Tenant shall, at any time and from time to time upon not less than five
days' prior written notice from Landlord, execute, acknowledge, and deliver
to Landlord a statement in writing (a) certifying that this
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Lease is unmodified and in full force and effect (or, if modified, is in
full force and effect, and stating the modifications) and the date to which
the rental and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults if
any are claimed. Tenant's failure to deliver such statement to Landlord
within 5 days after receipt of Landlord's notice shall be conclusively
deemed to be Tenant's acknowledgment that the Lease is unmodified, no rent
or other charges have been paid in advance, and that, to Tenant's
knowledge, there are no uncured defaults on the part of Landlord hereunder.
In the event of a failure by Tenant to deliver such a statement to Landlord
within such period Tenant appoints Landlord its attorney in fact to execute
and deliver to interested parties any such statement on Tenant's behalf.
Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the
Premises are a part.
27. PARKING
Tenant shall have the right to use the Parking Structure and the parking
facilities adjacent to the Building and the Parking Structure in common
with other tenants or occupants of the Building and such other persons or
groups as Landlord may specify. Tenant shall have the right to use, on a
non-reserved basis, the number of parking spaces set forth in paragraph
1.m. above at the cost set forth therein. Tenant's use of the parking
facilities shall be subject to the rules and regulations of the City and
County of San Diego and the reasonable rules and regulations for such
parking facilities which may be established or altered by Landlord at any
time or from time to time during the term hereof. Landlord specifically
reserves the right to alter the nature or character of the parking
facilities from time to time. In addition to Landlord's rules and
regulations, Tenant shall abide by the terms and provisions of any recorded
easement, declaration, or other agreement or instrument governing use of
the Parking Structure.
28. AUTHORITY OF PARTIES
a. Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease
on behalf of said corporation in accordance with a duly adopted
resolution of the board of directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease
is binding upon said corporation in accordance with its terms.
b. Limited Partnership. If Landlord herein is a limited partnership, it
is understood and agreed that any claims by Tenant on Landlord shall
be limited to the assets of the limited partnership; and furthermore,
Tenant expressly waives any and all rights to proceed against the
individual partners or the officers, directors, or shareholders of any
corporate partner, except to the extent of their interest in said
limited partnership.
29. EXERCISE FACILITY
a. Landlord agrees to maintain within the Parking Structure an exercise
facility of approximately 900 square feet for non-exclusive use by
Landlord, Tenant and other permitted users, according to such rules
and regulations as Landlord may from time to time promulgate,
throughout the term of the Lease and any extension thereof. Such
facilities shall include exercise equipment of a type and quality
selected by Landlord (which may, but need not necessarily include
rowing machines, exercise bicycles and treadmills) plus separate men's
and women's lockers and showers. Tenant agrees that (i) it will
instruct all of its officers, agents, employees, guests, and invitees
that use or the exercise facilities is at their own risk, and (ii)
Landlord shall not be liable for any injuries of damages resulting
from use of the facility by any party and shall not be subject to any
claims, demands, liabilities or causes of action arising out of such
use of the facility. Tenant shall indemnify, defend, and hold harmless
Landlord from and against any and all claims, demands, liability, loss
or damage arising out of use by the Tenant and its officers, agents,
employees, guests or invitees of the exercise facility. Access to the
facility shall be permitted only in accordance with Landlord's rules
and regulations, and Landlord reserves the right to refuse access to
such facility as a result of any breach or violation of Landlord's
rules and regulations concerning use of
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the facility, or any other default under the terms of this Lease.
Tenant acknowledges that Landlord may require each individual wishing
to use the exercise facility to execute a waiver and indemnification
in favor Landlord. Nothing contained in this numbered paragraph shall
be deemed to limit or quality the scope or effect of such waiver and
indemnification given to Landlord by each such individual in
connection with their use of the exercise facility.
b. Tenant shall be entitled to that number of passes indicated in
subparagraph 1.o. of this Lease. Passes shall consist of building
passcards encoded to permit access to the facility. Only those
employees authorized by Tenant in writing shall have their passcards
so encoded. If an authorized person does not otherwise have a
passcard, a passcard will be provided for a deposit of $25. All users
of the exercise facility shall sign a release and waiver in form
acceptable to Landlord prior to admittance to the exercise facility.
30. HAZARDOUS MATERIALS
a. Tenant shall not:
i) Make, or permit to be made, any use of the Premises, or any
portion thereof, which emits, or permits the emission of dust,
sweepings, dirt, cinders, fumes, or odors into the atmosphere,
the ground, or any body of water, whether natural or artificial;
or
ii) Discharge, leak, or emit, or permit to be discharged, leaked, or
emitted, any liquid, solid, or gaseous matter, or any combination
thereof, into the atmosphere, the ground, or any body of water,
which matter, as reasonably determined by Landlord or any
governmental entity, does, or may, pollute or contaminate the
same, or is, or may become, radioactive or does, or may,
adversely affect (1) the health or safety of persons wherever
located, whether on the Premises or anywhere else, (2) the
condition, use, or enjoyment of the Premises or any other real or
personal property, whether on the Premises or anywhere else, or
(3) the Premises, the Building, or any of the improvements,
including buildings, foundations, pipes, utility lines,
landscaping, or parking areas.
b. Tenant shall not use, store, dispose of, or permit to remain on the
Premises, the Building, or the underlying or adjacent property any
solid, liquid, or gaseous matter, or any combination thereof, which
is, or may become, hazardous, toxic, or radioactive including, but not
limited to, those materials listed in Sections 66680 through 66685 of
Title 22 of the California Administrative Code, Division 4, Chapter 30
(as may be amended from time to time) or any material which, if
discharged, leaked, or emitted or permitted to be discharged, leaked,
or emitted into the atmosphere, the ground, or any body of water, does
or may (i) pollute or contaminate the same, or (ii) adversely affect
(1) the health or safety of persons, whether on the Premises or
anywhere else, (2) the condition, use, or enjoyment of the Premises or
anywhere else, or (3) the Premises, the Building, or any of the
improvements (all of the foregoing collectively referred to herein as
"Hazardous Materials").
c. Tenant shall not keep any trash, garbage, waste, or other refuse on
the Premises except in sanitary containers and shall regularly and
frequently remove the same from the Premises. Tenant shall keep all
incinerators, containers, or other equipment used for the storage or
disposal of such matter in a clean and sanitary condition. Tenant
shall properly dispose of all sanitary sewage and shall not use the
sewage disposal system of the Building (i) for the disposal of
anything except sanitary sewage, or (ii) in excess of the lesser of
the amount (1) reasonably contemplated by the uses permitted under the
Lease or (2) permitted by any governmental entity.
d. Tenant shall, at Tenant's own expense, comply with all existing and
any hereinafter enacted Hazardous Materials laws. Tenant shall, at
Tenant's own expense, make all submissions to, provide all information
to, and comply with all requirements of the appropriate governmental
authority (the "Authority") under all Hazardous Materials laws. In
particular, Tenant shall comply with all laws relating to the storage,
use, and disposal of Hazardous Materials. Should any
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Authority require that a clean up or remediation plan be prepared or
that a clean up or any other remediation action be undertaken because
of any spills or discharges of Hazardous Materials at the premises or
on the underlying or adjacent property that occur during the term of
the Lease, or after expiration of the Lease if as a result of Tenant's
use of the Premises, then Tenant shall, at Tenant's own expense,
prepare and submit the required plans and financial assurances, and
carry out the approved plans. At no expense to Landlord, Tenant shall
promptly provide all information requested by Landlord for preparation
of affidavits required by Landlord or for Landlord's own information,
to determine the applicability of the Hazardous Materials laws to the
Premises and shall sign affidavits promptly when requested to do so by
Landlord.
e. Tenant shall Indemnify, defend, and hold harmless Landlord from and
against any and all claims, demands, judgments, damages, actions,
causes of action, injuries, administrative orders, consent agreements
and orders, liabilities, penalties, costs, and expenses of any kind
whatsoever, including but not limited to claims arising out of loss of
life, injury to persons, property, or business, or damage to natural
resources, in connection with or arising out of any spills or
discharges of Hazardous Materials due to, contributed to, or caused by
the activities of Tenant, its predecessors-in-interest, third parties
who have trespassed on the Premises during this Lease, or parties in
contractual relationship with Tenant, or any of them, that occur
during the term of this Lease; and from all claims, demands,
judgments, damages, actions, causes of action, injuries,
administrative orders, consent agreements and orders, liabilities,
penalties, costs, and expenses of any kind whatsoever, including but
not limited to claims arising out of Tenant's failure to provide all
information, make all submissions, and take all steps required by any
Authority under any Hazardous Materials laws or any other
environmental law. Notwithstanding the expiration or termination of
this Lease, Tenant's obligations and liabilities under this paragraph
shall continue so long as Landlord continues to own the Building or
any portion thereof or otherwise remains responsible for any Hazardous
Materials on the Premises.
f. Tenant shall surrender the Premises at the expiration or termination
of the Lease free of any Hazardous Materials or contamination, and
free and clear of all judgments, liens, or encumbrances and shall, at
its own cost and expense, repair all damage and clean up or perform
any remedial action necessary relating to any Hazardous Materials or
contamination caused by Tenant's operation. Tenant shall, at its sole
cost and expense, remove any alterations or improvements that may be
contaminated or contain Hazardous Materials.
31. GENERAL PROVISIONS
a. PLATS AND RIDERS. Clauses, plats, and riders, if any, signed by
Landlord and Tenant and endorsed on or affixed to this Lease are a
part hereof.
b. WAIVER. The waiver by Landlord of any term, covenant, or condition
herein contained shall not be a waiver of such term, covenant, or
condition on any subsequent breach. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant, or condition of this
Lease, other than the failure of Tenant to pay the particular rental
so accepted, regardless of Landlord's knowledge of such preceding
breach at the time of the acceptance of such rent.
c. NOTICES. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be
in writing. All notices and demands by Landlord to Tenant shall be
sent by United States Mail, postage prepaid, and addressed to Tenant
at the address set forth on page 1., subparagraph 1.g., or to such
other place as Tenant may from time to time designate in a notice to
Landlord. All notices and demands by Tenant to Landlord shall be sent
by United States Mail, postage prepaid, and addressed to Landlord at
the address set forth on page 1, subparagraph l.f., or to such other
person or place as Landlord may from time to time designate in a
notice to Tenant. All notices shall be deemed to be served upon
personal delivery or two (2) days after mailing in the manner required
by this paragraph.
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d. JOINT OBLIGATION. If Tenant hereunder consists of more than one party,
the obligations hereunder imposed upon Tenant shall be joint and
several.
e. MARGINAL HEADINGS. The marginal headings and article titles to the
paragraphs of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretation of any part hereof.
f. TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
g. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators, and assigns of the
parties hereto.
h. RECORDATION. Tenant shall not record this Lease or any other document
relating to this Lease without the prior written consent of Landlord.
Landlord may require Tenant [illegible] to execute a Memorandum of
Lease, and may record one at any time.
i. QUIET POSSESSION. Upon Tenant's paying the rent reserved hereunder and
observing and performing all of the covenants, conditions, and
provisions on Tenant's part to be observed and performed hereunder,
Tenant shall have quiet possession of the Premises for the entire term
hereof, subject to all the provisions of this Lease.
j. LATE CHARGES / RETURNED CHECKS. Tenant hereby acknowledges that late
payment by Tenant to Landlord of rent or other sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting
charges and late charges which may be imposed upon Landlord by terms
of any trust deed covering the Premises. Accordingly, if any
installment of base rent or of any amount due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after
the date that said amount is due, then Tenant shall pay to Landlord a
late charge equal to ten percent (10%) of such overdue amount. The
parties hereby agree that such late charges represent a fair and
reasonable estimate of the cost that Landlord will incur by reason of
the late payment by Tenant. Acceptance of such late charges by the
Landlord shall in no event constitute a waiver of Tenant's default
with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In
addition, all sums due hereunder shall bear interest from the date due
through the date paid in full at a rate equal to the lesser of the
following: (i) ten percent (10%) per annum, or (ii) the maximum rate
then allowed by the California usury law. This paragraph shall not be
construed as creating a grace period for the payment of base rent or
other sums due to Landlord. All sums are due as and when required by
this Lease and upon any default by Tenant, Landlord may immediately
pursue any available remedies. In addition to such late charges,
Tenant shall pay Landlord $25.00 (in addition to other sums owed) if
for any reason a check given by Tenant to Landlord in payment of any
amount owing to Landlord is dishonored.
k. PRIOR AGREEMENTS. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purposes. No provisions of this
Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective successors in
interest. This Lease shall not be effective or binding on any party
until fully executed by both parties hereto.
l. INABILITY TO PERFORM. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because Landlord is unable
to fulfill any of its obligations hereunder or is delayed in doing so
if such inability or delay is caused by reasons of strike, labor
troubles, acts of God, or any other cause beyond the reasonable
control of Landlord.
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m. ATTORNEY'S FEES. If any action or proceeding is brought by either
party against the other under this Lease, the prevailing party shall
be entitled to recover all costs and expenses, including the fees of
its attorneys in such action or proceeding in such amount as the court
may adjudge reasonable as attorney's fees.
n. SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved
of all liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act,
occurrence, or omission occurring after the consummation of such sale;
and the purchaser at such sale or any subsequent sale of the Premises
shall be deemed, without any further agreement between the parties or
their successors in interest or between the parties and any such
purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of Landlord under this Lease.
o. SUBORDINATION, ATTORNMENT. Upon request of Landlord, Tenant will in
writing subordinate its rights hereunder to the lien of any deed of
trust now or hereafter in force against the land and Building of which
the Premises are a part and upon any buildings hereafter placed upon
the land of which the Premises are a part and to all advances made or
hereafter to be made upon the security thereof. In the event any
proceedings are brought for foreclosure, or in the event of the
exercise of the power of sale under any deed of trust made by the
Landlord covering the Premises, Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease. Tenant further agrees to execute any
documents required to effectuate an attornment or a subordination.
Tenant's failure to execute such documents within ten days after
written demand shall constitute a material default by Tenant
hereunder, or, at Landlord's option, Landlord shall execute such
documents on behalf of Tenant as Tenant's attorney-in-fact. Tenant
does hereby make, constitute, and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place, and stead to
execute such documents in accordance with this subparagraph 30.(o).
The provisions of this paragraph to the contrary notwithstanding, and
so long as Tenant is not in default hereunder, this Lease shall remain
in full force and effect for the full term hereof.
p. NAME. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other
than as an address of the business to be conducted by Tenant in the
Premises.
q. SEPARABILITY. Any provision of this Lease which shall prove to be
invalid, void, or illegal shall in no way affect, impair, or
invalidate any other provision hereof and such other provision shall
remain in full force and effect.
r. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
s. CHOICE OF LAW. This Lease shall be governed by the laws of the State
of California. Proper venue for any action shall be in San Diego,
California.
t. SIGNS AND AUCTIONS. Tenant shall not place any sign upon the Premises
or Building or conduct any auction thereon without Landlord's prior
written consent.
u. BROKERS. The parties recognize that the brokers who negotiated this
Lease are the brokers whose names are stated in paragraph 1,
subparagraph l.p. and agree that Landlord shall be solely responsible
for the payment of brokerage commissions to said brokers, and that
Tenant shall have no responsibility therefor. If Tenant has dealt with
any other person or real estate broker with respect to leasing or
renting space in the Building, Tenant shall be solely responsible for
the payment of any fee due said person or firm and Tenant shall hold
Landlord free and harmless against any liability in respect thereto,
including attorney's fees and costs.
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v. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed as creating a partnership, joint venture, or any
other relationship between the parties hereto other than Landlord and
Tenant according to the provisions contained herein, or cause Landlord
to be responsible in any way for the debts or obligations of Tenant,
or any other party.
w. LENDER'S REQUIREMENTS. If, in connection with any future mortgage
financing of Landlord's interest in the Premises or the Building, or
any part thereof or any interest therein, a bank, insurance company,
or other recognized institutional lender or real estate investment
trust requests reasonable modifications of this Lease as a condition
of such financing, Tenant will not unreasonably withhold, delay, or
defer its consent thereto.
x. NO THIRD PARTY BENEFIT. The parties acknowledge and agree that the
provisions of this Lease are for the sole benefit of Landlord and
Tenant, and not for the benefit, directly or indirectly, of any other
person or entity, except as otherwise expressly provided herein.
y. ADDITIONAL RENT. All amounts payable by Tenant to Landlord pursuant to
the terms of this Lease shall be deemed to be additional rent due
hereunder.
z. COMMISSIONS. If, after one year from the commencement of the term of
this Lease or upon the expiration of the term of this Lease, Tenant
either (i) exercises an option (if any) to extend the term of this
Lease, (ii) amends this Lease or enters into a new lease with Landlord
for space anywhere within the Building, or (iii) moves to another
building or location owned by Landlord or an affiliate of Landlord,
then in any such event Landlord shall be responsible for the payment
of a leasing commission to any party employed or engaged by Tenant.
Tenant shall indemnify, defend, and hold Landlord harmless from and
against any other leasing commission or similar costs or expenses
incurred to parties employed or engaged by Tenant or incurred based
upon the actions of Tenant.
aa. This Lease has been negotiated at arms length and between persons
sophisticated and knowledgeable in the matters dealt with in this
Lease. In addition, each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law (including
Civil Code Section 1654) or legal decision that would require
interpretation of any ambiguities in this Lease against the party that
has drafted it is not applicable and is waived. The provisions of this
Lease shall be interpreted in a reasonable manner to effect the
purpose and intent of the parties to this Lease.
THIS LEASE INCLUDES THE PROVISIONS CONTAINED ON THE "ADDENDUM TO LEASE" ATTACHED
HERETO AND INCORPORATED HEREIN BY THIS REFERENCE.
TENANT: LANDLORD:
INTEK INFORMATION, INC. M&S CALIFORNIA FUND, L.P.
By: Maier & Siebel, lnc.
Its: General Partner
By: /s/ Patrick F. O'Neal, Managing Director By: /s/ Kenneth A. Baber
----------------------------------------- ---------------------
Kenneth A. Baber, Principal
Date: June 18, 1997 Date: June 26, 1997
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LANDLORD'S RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, or affixed on or to any part of the outside
or inside of the Building without the written consent of Landlord first had
and obtained, and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name, or notice without notice to and at
the expense of Tenant. All approved signs or lettering on doors shall be
printed, painted, affixed, or inscribed by the Landlord at the expense of
the Tenant. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition, or wall which may appear
unsightly from outside the Premises, provided, however, that Landlord may
furnish and install a Building standard window covering at all exterior
windows. Tenant shall not, without prior written consent of Landlord, cause
or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls. and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein; and the
expense of any breakage, stoppage, or damage resulting from the violation
of this rule shall be borne by the Tenant who or whose employees or
invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight. or equipment of any kind shall be brought into the
Building without prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the times and manner of moving the same in and
out of the Building. Safes or other heavy objects shall, if considered
necessary by Landlord, stand on supports of such thicknesses as is
necessary to properly distribute the weight. Landlord will not be
responsible for loss of or damage to any such sale or property from any
cause, and all damage done to the Building by moving or maintaining any
such safe or other property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or
other occupants of the Building by reason of noise, odors, and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be brought in or kept in
or about the Premises or the Building. No smoking is permitted in or about
the common areas of the Building.
8. No cooking shall be done or permitted by any Tenant on the Premises, nor
shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable, or immoral
purposes. Non-industrial Microwave ovens are permissible for Tenant use on
the Premises.
9. Tenant shall not use or keep in the Premises or Building any kerosene,
gasoline, or inflammable or combustible fluid or material or use any method
of heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Landlord, except as expressly provided
for in the Lease. The location of telephones, call boxes, and other office
equipment affixed to the Premises shall be subject to the approval of
Landlord unless otherwise stated in this Lease.
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11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 7:00 P.M. and 7:00 A.M. the following day, access to the Building,
or to the halls, corridors, elevators, or stairways in the Building, or to
the Premises may be refused unless the person seeking access is known to
the tenant's employee in charge and has a pass or is property identified.
The Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.
Landlord may permit access to the Building by use of an electronic card
system during the periods stated above, in which case Tenant may obtain
security pass cards for its employees from Landlord upon payment of a
$25.00 deposit per card to be refunded upon return of the card. Landlord
reserves the right to refuse to give security cards to any person, or to
revoke security cards from any person. In case of invasion, mob, riot,
public excitement, or other commotion, the Landlord reserves the right to
prevent access to the Building during the continuance of the same by
closing of the doors or otherwise for the safety of the tenants and
protection of property in the Building and the Building,
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under influence
of liquor or drugs or who shall in any manner do any act in violation of
any of the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained, or operated upon the Premises without the written consent of
Landlord.
14. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
15. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
16. Landlord shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
17. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
18. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or
occupants of the Building or by Landlord for noncompliance with this rule.
19. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall not
leave vehicles in the Building parking areas overnight nor park any
vehicles in the Building parking areas other than automobiles, motorcycles,
motor driven or non-motor driven bicycles or four wheeled trucks.
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ADDENDUM
THIS IS ADDENDUM TO THAT CERTAIN OFFICE BUILDING LEASE BY AND BETWEEN SUNROAD
PLAZA EAST AND INTEK INFORMATION, INC., FOR THE PREMISES LOCATED AT 1455 FRAZEE
ROAD, SUITE 200, SAN DIEGO, CA 92108.
1 . Base Rent:
Monthly
Months Rent/RSF Rent
------ -------- ----
09/01/97-11/30/97 $0.00 plus utilities $ 0.00
12/01/97-11/30/98 $1.45 plus utilities $12,046.60
12/01/98-11/30/99 $1.50 plus utilities $12,462.00
12/01/99-11/30/00 $1.55 plus utilities $12,877.40
12/01/00-11/30/01 $1.60 plus utilities $13,292.80
12/01/01-11/30/02 $1.65 plus utilities $13,708.20
2. Operating Expenses: Base Year 1998. Additionally, there shall be an overall
cap of controllable expenses at 8% per annum and there shall not be any
passthroughs of real estate taxes as a result of a sale or refinance of the
Building.
3. Tenant Improvements: Landlord shall provide a "turn key" build-out package
not to exceed $15 per usable square foot based upon a mutually agreed-upon
space plan and finishes.
4. Commission: 6% of the aggregate amount payable as follows:
Landlord's Broker = 2.5%
Tenant's Broker = 3.5%
5. First Right of Refusal: Tenant shall have the first right of refusal to
lease additional space anywhere on the second floor, subject to prior
rights.
6. Option to Renew:
a) Landlord grants to Tenant the option to extend the term of this Lease
(the "Renewal Option") with respect to all of the rentable area of the
Premises leased by Tenant as of the expiration of the initial term of
the Lease for an additional sixty (60) months (the "Renewal Term").
The Renewal Term shall commence immediately following the expiration
of the initial term of the Lease. The Renewal Option shall be
exercised, if at all, by notice to Landlord at any time during the
initial term of this Lease on or before the date that is nine (9)
months prior to the expiration of the initial term of this Lease,
which notice shall be irrevocable by Tenant. Notwithstanding the
foregoing, if an Event of Default exists under this Lease either at
the time Tenant exercises the Renewal Option or at any time thereafter
prior to or upon the commencement of the Renewal Term, Landlord shall
have, in addition to all of Landlord's other rights and remedies under
this Lease, the right to terminate the Renewal Option and to cancel
unilaterally Tenant's exercise of the Renewal Option, in which event
Tenant shall have no further rights under the Lease to renew or extend
the term of the Lease.
b) Renewal Term Rent:
i) The Renewal Term shall be upon and subject to all of the terms,
covenants, and conditions of the Lease; provided, however, that
the base rent for the Renewal Term shall
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be equal to the Prevailing Market Rental for space comparable to
the Premises in the San Diego, California area as of the date of
commencement of the Renewal Term, provided that Tenant shall be
entitled to a refurbishment allowance of $5.00 per usable square
foot of the Premises at the commencement of the Renewal Term. The
term "Prevailing Market Rental" shall mean the base annual rental
for such comparable space, taking into account any additional
rental and all other monetary payments and escalations payable
under the Lease and by tenants under leases of such comparable
space, and any tenant improvements and other concessions granted
to Tenant and tenants under leases of such comparable space. Such
base rent shall be determined by Landlord not later than six (6)
months prior to the commencement of the Renewal Term. If Tenant
disputes Landlord's termination of the Prevailing Market Rental
for the Renewal Term, Tenant shall send to Landlord a notice,
within twenty (20) days after the date of Landlord's notice
setting forth the Prevailing Market Rental for the Renewal Term,
which notice shall state that Tenant either (x) agrees with
Landlord's determination of Prevailing Market Rental for the
Renewal Term or (y) disagrees with Landlord's determination of
Prevailing Market Rental for the Renewal Term and elects to
resolve the disagreement as provided in Paragraph 6.b.ii. below.
Tenant's monthly payments of base rent shall be in an amount not
less than the base rent payable for the twelve (12) month period
immediately preceding the commencement of the Renewal Term.
Within ten (10) business days following the resolution of such
dispute by the parties or the decision of the brokers, as
applicable, Tenant shall pay to Landlord the amount of any
deficiency in the base rent theretofore paid. Notwithstanding
anything to the contrary set forth in this Paragraph 6, in no
event shall the base rent for any Renewal Term be less than the
effective base rent payable for the twelve (12) month period
immediately preceding the commencement of the Renewal Term.
Tenant shall in any event pay all applicable additional charges
with respect to the Premises, in the manner and at the times
provided in this Lease, effective upon the commencement of the
Renewal Term, and notwithstanding any dispute regarding the base
rent for the Renewal Term.
ii) Any disagreement regarding the Prevailing Market Rental as
defined in this Paragraph 6 shall be resolved as follows:
a) Within twenty (20) days after Tenant's response to
Landlord's notice to Tenant of the Prevailing Market Rental,
Landlord and Tenant shall meet no less than two (2) times,
at a mutually agreeable time and place, to attempt to
resolve any such disagreement.
b) If, within the twenty (20) day consultation period, Landlord
and Tenant cannot reach an agreement as to the Prevailing
Market Rental, they shall each select one broker to
determine the Prevailing Market Rental. Each such broker
shall arrive at a determination of the Prevailing Market
Rental and submit their conclusions to Landlord and Tenant
within thirty (30) days after the expiration of the twenty
(20) day consultation period.
c) If only one determination is submitted within the requisite
time period, it shall be deemed to be the Prevailing Market
Rental. If both determinations are submitted within such
time period and such terminations differ, then the two
brokers shall immediately select a third broker and submit
their determinations to such third broker. Such third broker
shall, within thirty (30) days after his or her selection,
determine in writing which determination of the Prevailing
Market Rate is correct or closest to being correct, and such
determination shall be the Prevailing Market Rate. The
determination of such third broker shall be conclusive and
binding on the parties.
iii) All brokers specified pursuant to this Paragraph 6 shall be real
estate brokers licensed and in good standing with the State of
California with not less than ten (10) years experience
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in commercial property leasing in the San Diego, California area.
Each party shall pay the cost of the broker selected by such
party and one-half of the cost of the third broker plus one-half
of any other costs incurred in resolving the disagreement
pursuant to this Paragraph 6.
7. HVAC: Hours of operation free of charge to Tenant:
Monday - Friday: 7:00 a.m. to 6:00 p.m.
Saturdays: 8:00 a.m. to 2:00 p.m.
After hours charges shall be $20.00 per hour. Additionally, Landlord shall
provide Tenant with continuous (twenty-four (24) hours per day, seven (7)
days per week) heating, ventilating and air conditioning, at Landlord's
expense, to the 600-650 square foot computer room on the Premises, such
that a constant temperature of between sixty and sixty-five degrees
Fahrenheit (60-65 degreesF) is maintained in the computer room.
8. Building Signage: Upon Landlord's written approval and subject to CC&Rs,
Tenant, at Tenant's expense, may install its name on the existing monument
sign at the corner of Frazee Road and Murray Canyon Road.
9. Non-Disturbance: Landlord shall use its commercially reasonable best
efforts to provide Tenant with a non-disturbance agreement.
10. Lease Termination: Should Landlord not be able to accommodate Tenant's
future anticipated growth of 125% or more in comparable space within the
Sunroad Plaza project, then Tenant shall be granted the one-time right to
terminate this Lease at the end of the 36th month of the initial lease
term. Tenant must notify Landlord, in writing, of Tenant's intent to
terminate no later than the end of the 30th month of the initial lease
term. Upon Tenant giving Landlord notice of its intent to terminate the
Lease, Tenant shall submit to Landlord an amount equal to all unamortized
(i) tenant improvements, (ii) brokerage commissions, and (iii) rent
differential between the effective rent over the 5-year term and the
average rent paid during the first three (3) years of the term. An annual
interest rate of 12% shall be utilized in calculating the unamortized costs
discussed above.
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EXHIBIT 10.17.1
FIRST AMENDMENT
TO
OFFICE BUILDING LEASE
THIS FIRST AMENDMENT TO OFFICE BUILDING LEASE (this "Amendment") is
made as of March 19, 1998, by and between M&S CALIFORNIA FUND, L.P.
("Landlord"), and INTEK INFORMATION, INC. ("Tenant").
RECITALS
A. Landlord and Tenant are parties to an Office Building Lease dated as of
June 17, 1997 (the "Lease"), with respect to certain premises located
within the Building at 1455 Frazee Road, San Diego, California. All
capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Lease.
B. Tenant now wishes to lease additional space in the Building on the terms of
the Lease, as modified by this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Landlord and Tenant agree as follows:
1. Expansion of Premises.
---------------------
a. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord approximately 4,303 additional rentable square feet (including
3,808 usable square feet) of contiguous space on the second floor to be known as
Suite 210 ("Suite 210") for the entire term of the Lease (which is extended as
provided in Section 4 below) upon and subject to the terms, covenants and
conditions set forth in the Lease, as modified by this Amendment. Landlord shall
deliver Suite 210 to Tenant on the Expansion Date (defined below). The premises
originally demised under the Lease are referred to in this Amendment as "Suite
200." On the Expansion Date the lease shall be deemed modified as follows:
i. Suite 210 shall become a part of the Premises, subject to
all of the terms of the Lease as amended by this Amendment;
ii. the aggregate "Premises" shall be deemed to measure 12,611
rentable square feet of space;
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<PAGE>
iii. the floor plan attached as Exhibit A to this Amendment shall
---------
be added to the floor plan attached to the Lease as Exhibit A; and
iv. Tenant's Percentage shall equal 5.79%.
b. Landlord shall have no obligation whatsoever to construct
leasehold improvements for Tenant or to repair or refurbish Suite 210, except as
specifically set forth in Section 2 of this Amendment. Landlord or Landlord's
agents have made no representations or promises with respect to the Building,
Suite 210 or this Lease except as expressly set forth in the Lease. The taking
of possession of Suite 210 by Tenant shall be conclusive evidence that Tenant
accepts the same "as is" and that Suite 210 is suited for the use intended by
Tenant and was in good and satisfactory condition at the time such possession
was taken. Tenant represents and warrants to Landlord that (a) its sole intended
use of Suite 210 is for general office use which has no special requirements,
including but not limited to, special security requirements, (b) it does not
intend to use Suite 210 for any other purpose, and (c) prior to executing this
Lease it has made such investigations as it deems appropriate with respect to
the suitability of Suite 210 for its intended use and has determined that Suite
210 is suitable for such intended use.
2. Tenant Improvements.
-------------------
a. Landlord shall provide Tenant a "turn-key" build-out package
for improvements to Suite 210 in an amount not to exceed $70,986.70
("Construction Budget") as specified in the "Construction Budget" attached
hereto as Exhibit B.
----------
b. Tenant and Landlord have approved the space plan for Suite
210 (the "Space Plan"), attached hereto as Exhibit C. Within fourteen (14) days
----------
after the date of this Amendment, Landlord shall deliver to Tenant for Tenant's
approval working drawings consisting of a floor plan, reflected ceiling plan,
interior elevations, electrical plan, door schedule and finish schedule for
Suite 210 (the "Working Drawings"), which Working Drawings shall be consistent
with the Space Plan. Tenant shall approve or disapprove the Working Drawings in
writing within three (3) business days after receipt thereof. Tenant shall have
the right to disapprove the Working Drawings only if and to the extent the
Working Drawings are inconsistent with the Space Plan. If Tenant disapproves the
Working Drawings, Tenant shall return the Working Drawings to Landlord with
Tenant's specific requested changes noted thereon. Landlord shall promptly
revise and resubmit the Working Drawings to Tenant for approval (on the same
terms set forth above). Landlord shall be obligated to revise the Working
Drawings only to the extent the Working Drawings are inconsistent with the Space
Plan. The Working Drawings as finally approved by Tenant in writing are referred
to as the "Final Plans."
2
<PAGE>
c. The term "Landlord's Work", as used in this Amendment, means
the improvement work described in the Final Plans. Landlord may, in its sole
discretion, refuse any change in the Final Plans requested by Tenant. Tenant
shall pay any increased costs incurred by Landlord as a result of any changes to
the Final Plans requested by Tenant ("Increased Costs"). Tenant shall pay or
reimburse Landlord within five (5) business days after Landlord's request for
any Increased Costs. Notwithstanding anything to the contrary set forth in this
Amendment, Landlord will, at Landlord's expense, finish and fill in any holes in
the floor of Suite 210 existing as of the date of this Amendment.
d. Landlord shall substantially complete Landlord's work and
deliver Suite 210 to Tenant by August 1, 1998, or as soon as is reasonably
possible after such date. Landlord shall use reasonable efforts to notify Tenant
of the projected date of substantial completion of Suite 210 at least fifteen
(15) days prior thereto. The "Expansion Date" shall be the later of (i) August
1, 1998 or (ii) the date (the "Substantial Completion Date") on which Landlord
substantially completes Landlord's Work and delivers Suite 210 to Tenant.
However, if Landlord is delayed in substantially completing Landlord's Work due
to Tenant's failure to timely approve the Final Plans or due to changes in the
Final Plans requested by Tenant, then the Substantial Completion Date shall be
deemed to be the date the Landlord would have substantially completed Landlord's
Work but for such tenant delay. If Landlord substantially completes Landlord's
Work prior to August 1, 1998, and Tenant elects to take delivery of Suite 210
prior to such date, the Expansion Date shall be the date Tenant accepts delivery
of Suite 210. When the Expansion Date has been ascertained, the parties shall
promptly execute a memorandum (the "Verification Memorandum") confirming the
Expansion Date and the expiration date of the Lease term.
e. Tenant acknowledges and confirms that Landlord has no
obligation to perform or pay for improvements to the Premises other than as
provided in this Section 2.
3. Base Monthly Rent.
-----------------
a. The monthly base rental rate for Suite 210, payable from and
after the Expansion Date, shall be $1.50 per rentable square foot ($6,454.50),
subject to annual increases as provided herein. The monthly base rental rate for
Suite 210 shall increase annually, in increments of five cents ($.05) per
rentable square foot, effective on the first day of the calendar month in which
occurs the anniversary of the Expansion Date (each an "Adjustment Date").
Accordingly, the base rental rate for Suite 210 shall be as follows:
<TABLE>
<CAPTION>
PERIOD RENT/RSF MONTHLY RENT
------ -------- ------------
<S> <C> <C>
Expansion Date - First Adjustment Date $1.50 plus utilities $6,454.50
First Adj. Date - Second Adj. Date $1.55 plus utilities $6,669.65
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Second Adj. Date - Third Adj. Date $1.60 plus utilities $6,884.80
Third Adj. Date - Fourth Adj. Date $1.65 plus utilities $7,099.95
Fourth Adj. Date - Expiration Date $1.70 plus utilities $7,315.10
</TABLE>
b. The monthly base rental rate for Suite 200 shall remain as
originally provided in the Lease until November 30, 2002. From December 1, 2002
until the expiration date of the Lease term, the monthly base rental rate for
Suite 200 shall equal $1.70 per rentable square foot (plus utilities). The rent
schedule for the entire Premises (aggregating Suite 210 and Suite 200 shall be
confirmed in the Verification Notice.
c. Notwithstanding subsection (a), above, no Base Rent is
payable by Tenant with respect to Suite 210 during the first thirty (30) days
after the Expansion Date. Such rent abatement applies only to Base Rent; Tenant
is not relieved from its obligation to pay any other rents and charges during
such period.
4. Extension of Term. The Term of the Lease is hereby extended for a
-----------------
period of five (5) years, commencing on the Expansion Date, and terminating on
the fifth anniversary thereof.
5. Option to Renew the Term. The Renewal Option granted to Tenant in
------------------------
Paragraph 6 of the Addendum to the Lease is expanded apply to both Suite 200 and
Suite 210, provided that the Renewal Term specified therein shall commence at
the end of the Term as extended pursuant to this Amendment, and provided that
Tenant may not exercise the Renewal Option with respect to less than the entire
Premises. The remaining terms and conditions of the Renewal Option are
unaffected by this Amendment.
6. Parking. The number of parking spaces allocated to Tenant
-------
pursuant to Section 1.m. of the Lease is increased from thirty (30) spaces to
forty-three (43) spaces. The number of reserved spaces is increased from eight
(8) to eleven (11).
7. Building Signage. Subject to Landlord's written approval and to
----------------
applicable CC&Rs, Tenant, at Tenant's expense, may remove its existing monument
signage (at the corner of Frazee Road and Murray Canyon Road) and replace it
with "eyebrow" signage.
8. Lease Termination. Addendum Paragraph 10 of the Lease is hereby
-----------------
deleted in its entirety and replaced with the following:
If Landlord is unable to provide Tenant with at least 2,223
additional square feet of comparable space at the Pacific Center project during
the first 30 months of the initial lease term, then Tenant shall be granted the
one-time right to terminate this Lease at the end of the 36th month of the
initial lease term. Tenant must notify Landlord, in writing, of Tenant's intent
to terminate no later than the end of the 30th month of the initial lease term.
Tenant shall include with such notice payment to
4
<PAGE>
Landlord of an amount equal to (x) the sum of all unamortized tenant
improvements, brokerage commissions, rental abatements, and any other Tenant
concessions, less (y) ten thousand dollars ($10,000); provided that such amount
----
shall not be less than zero. An annual interest rate of 12% shall be utilized in
calculating the unamortized costs discussed above.
9. Security Deposit. Upon execution of this Amendment, Tenant shall
----------------
pay to Landlord an additional security deposit equal to one month's rent for
Suite 210 ($6,462), which shall be added to and become a part of the security
deposit held by Landlord under the Lease.
10. Exercise Facility. The number of exercise facility passes
-----------------
available to Tenant as specified in Paragraph 1(o) of the Lease is hereby
increased to a total of 15 passes.
11. Continuing Effectiveness. The Lease, except as amended hereby,
------------------------
remains unamended, and, as amended hereby, remains in full force and effect.
12. Counterparts. This Amendment may be executed in counterparts,
------------
each of which shall constitute an original, and all of which, together, shall
constitute one document.
[Signatures on following page]
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Amendment as
of the date first above written.
LANDLORD:
M&S BALANCED PROPERTY FUND, L.P.,
a California limited partnership
By: Maier & Siebel, Inc.,
a California corporation
By: /s/ Ann K. Stuart
-----------------
Name: Ann K. Stuart
Title: Principal
TENANT:
INTEK INFORMATION, INC.,
a Delaware corporation
By: /s/ Patrick F. O'Neal
---------------------
Name: Patrick F. O'Neal
Title: Managing Director
6
<PAGE>
EXHIBIT 10.18
June 9, 1999
OFFICE LEASE
by and between
WESTMARK TERRACE TOWER II, INC.,
a Delaware corporation,
as Landlord
and
INTEK INFORMATION, INC.,
a Delaware corporation,
as Tenant,
Premises:
5619 DTC Parkway, Twelfth Floor
Englewood, Colorado
<PAGE>
TABLE OF CONTENTS
OFFICE LEASE
Terrace Tower II
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
1. BASIC LEASE PROVISIONS.......................... 1
2. DEMISE.......................................... 2
3. TERM............................................ 3
4. RENT............................................ 3
5. SECURITY DEPOSIT................................ 8
6. USE OF PREMISES; PARKING........................ 9
7. RULES AND REGULATIONS........................... 10
8. SERVICES PROVIDED............................... 10
9. LEASEHOLD IMPROVEMENTS; ALTERATIONS............. 12
10. CONDITION OF PREMISES........................... 13
11. SURRENDER OF THE PREMISES....................... 14
12. DAMAGE OR DESTRUCTION........................... 14
13. EMINENT DOMAIN.................................. 15
14. RELEASE, WAIVER AND INDEMNIFICATION............. 16
15. INSURANCE; WAIVER OF SUBROGATION................ 17
16. LANDLORD'S RIGHT OF ACCESS...................... 18
17. RIGHTS RESERVED TO LANDLORD..................... 19
18. ABANDONMENT..................................... 20
19. TRANSFER OF LANDLORD'S INTEREST................. 20
20. TRANSFER OF TENANT'S INTEREST................... 20
21. DEFAULT; LANDLORD'S RIGHTS AND REMEDIES......... 22
22. WAIVER OF COUNTERCLAIMS AND JURY TRIAL.......... 25
23. HOLDING OVER.................................... 25
24. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE. 26
25. HAZARDOUS MATERIALS............................. 28
26. RELOCATION OF TENANT............................ 29
27. NOTICES AND DEMANDS............................. 29
28. MISCELLANEOUS; TENANT OPTIONS................... 30
SIGNATURE PAGE.................................. 34
</TABLE>
i
<PAGE>
OFFICE LEASE
This Lease is made and executed as of this 9/th/ day of June, 1999, by the
parties hereinafter identified as Landlord and Tenant and upon the following
terms and conditions:
ARTICLE 1
BASIC LEASE PROVISIONS
For purposes of this Lease, the following terms shall have the meanings ascribed
to them in this Article 1:
1.01 Landlord and Address:
Westmark Terrace Tower II, Inc.
c/o CB Richard Ellis Investors, L.L.C.
865 S. Figueroa Street, 35th Floor
Los Angeles, CA 90017
Attn: Asset Manager/5619 DTC Parkway
1.02 Tenant and Address:
Intek Information, Inc.
5619 DTC Parkway, Suite 1200
Englewood, CO 80111
Attn: Annette Gray
1.03 Guarantor(s) and Current Address(es): None.
1.04 Building: That certain building and other improvements located on property
commonly known and numbered as 5619 DTC Parkway, Englewood, Colorado 80111
("Property"). The Building shall be deemed to contain 240,609 rentable square
feet, whether the same be more or less in actuality. The legal description of
the Property on which the Building is located is set forth in Exhibit A hereto.
1.05 Premises: The twelfth floor of the Building, but excluding that area
cross-hatched, as shown on the floor plan attached hereto as Exhibit B.
1.06 Area of Premises: The Premises shall be deemed to contain 15,613 rentable
square feet, whether the same be more or less in actuality. Said 15,613 rentable
square feet is the final agreement of the parties and not subject to adjustment.
1.07 Term: Six (6) years.
1.08 Commencement Date: July 1, 1999.
1.09 Expiration Date: June 30, 2005.
1.10 Total Monthly Base Rent for the Term: Two Million Five Hundred Twenty-Nine
Thousand Three Hundred Six and No/100ths Dollars ($2,529,306.00).
1.11 Monthly Base Rent:
Dates Annual Base Rent Monthly Base Rent
----- ---------------- -----------------
July 1, 1999 through $421,551.00 $35,129.25
June 30, 2005*
*Subject to abatement as set forth in Exhibit F attached hereto.
<PAGE>
Monthly Base Rent is independent of the number of rentable square feet in either
the Premises or Building.
1.12 Tenant's Share: 6.4890%.
1.13 Base Operating Year: Intentionally Omitted
1.14 Base Expenses (including Operating Expenses and Taxes, as defined below):
The sum of Two Million Forty-Five Thousand One Hundred Seventy-Six and 50/100ths
Dollars ($2,045,176.50).
1.15 Base Taxes: Intentionally Omitted
1.16 Security Deposit: See Article 5 below.
1.17 Broker(s) and Address(es):
Landlord's Broker: CB Richard Ellis, Inc.
7979 E. Tufts Avenue Parkway, Suite 600
Denver, Colorado 80237
Tenant's Broker: The Staubach Company
1125 17th Street, Suite 1420
Denver, Colorado 80202
1.18 Landlord's Management Agent and Address:
CB Richard Ellis, Inc. with a copy to:
1050 17th Street, Suite 800 CB Richard Ellis, Inc.
Denver, Colorado 80265 1720 S. Bellaire Street, Suite 201
Attn: Real Estate Manager Denver, Colorado 80222
Attn: Real Estate Manager
or such other Management Agent as Landlord may designate from time to time.
1.19 Rent Payment Address:
Westmark Terrace Tower II, Inc.
P.O. Box 730212
Dallas, TX 75373-0212
1.20 Parking Spaces: Sixty-two (62) parking spaces in the parking facilities
associated with the Building (50 shall be in the covered parking structure and
12 shall be uncovered parking space on the top deck of the parking structure).
All Parking Spaces shall be unassigned, unreserved and on a first come, first
served basis.
1.21 Monthly Parking Rent: $2,500.00 per month for the Parking Spaces
(calculated based on $50.00 per month for each covered unreserved parking space
and $0.00 per month for each uncovered unreserved space) ("Monthly Parking
Rent"), payable as Rent, as defined in Section 4.02 below.
ARTICLE 2
DEMISE
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions set forth in
this Lease. Subject to the provisions of Section 28.18 (Landlord's Contingency)
below, this Lease shall be in full force and effect from the date it is signed
and delivered by Landlord and Tenant. Tenant covenants as a material part of the
consideration for this Lease
2
<PAGE>
to keep and perform each and all of the terms, covenants and conditions by it to
be kept and performed. This Lease is made upon the condition of such
performance. All square footages referenced herein are based on "rentable" (as
opposed to "useable") square feet, unless specifically indicated otherwise. No
such square footages shall be subject to retroactive adjustments under any
circumstances. Tenant hereby accepts the Premises in its current "as is"
condition.
ARTICLE 3
TERM
The term of this Lease shall commence on the Commencement Date and expire on the
Expiration Date unless sooner terminated as provided in this Lease and except as
provided in the Work Letter attached hereto as Exhibit C. If Landlord shall be
unable to deliver possession of the Premises to Tenant on the Commencement Date
for any reason whatsoever, this Lease shall not be void or voidable and Landlord
shall not be subject to any liability for the failure to deliver possession on
said date nor shall such failure to deliver possession on the Commencement Date
affect the validity of this Lease or the obligations of Tenant hereunder.
Immediately following the Commencement Date, Tenant shall execute and deliver to
Landlord a confirmation of certain dates applicable to this Lease substantially
in the form attached hereto as Exhibit D and incorporated herein by this
reference.
ARTICLE 4
RENT
4.01 Definitions. For purposes of this Lease, the following terms shall
-----------
have the meanings ascribed to them in this Section 4.01:
(a) "Adjustment Year" shall mean each calendar year or part thereof
---------------
during the Term.
(b) "Operating Expenses" shall mean and include all amounts, expenses
------------------
and costs of whatever nature that Landlord incurs or pays because of or in
connection with the ownership, control, operation, repair, management,
replacement or maintenance of the Building, all related improvements thereto or
thereon and all machinery, equipment, landscaping, fixtures and other
facilities, including personal property, as may now or hereafter exist in or on
the Building. Operating Expenses shall be determined in accordance with
generally accepted accounting principles consistently applied and shall include,
but shall not be limited to, the following:
(1) Wages, salaries, fees, related taxes, insurance costs,
benefits (including amounts payable under medical, pension and welfare plans and
any amounts payable under collective bargaining agreements) and reimbursement of
expenses of and relating to all personnel engaged in operating, repairing,
managing and maintaining the Property;
(2) All supplies and materials related to the management,
operation, maintenance and repair of the Building, including sales tax imposed
in connection with the purchase thereof;
(3) Legal and accounting fees and expenses related to the
management, operation, maintenance and repair of the Building (except for legal
fees incurred in connection with the negotiation or the collection of amounts
due under leases);
(4) Cost of all utilities for the Building and all premises
therein, including, without limitation, water, sewer, power, fuel, heating,
lighting, air conditioning and ventilating, as well as any and all costs
directly or indirectly associated with changing providers of such utilities;
(5) Fees and other charges payable under or in respect of all
maintenance, repair, janitorial, security and other service agreements for or
pertaining to the Building;
3
<PAGE>
(6) Cost of all insurance, including all deductibles thereunder,
relating to the Building, or the ownership, its occupancy or operations thereof;
(7) Cost of repairs and maintenance of the Building, excluding
only such costs which are paid by the proceeds of insurance, by Tenant or by
other third parties (other than payment by Tenant or other tenants of the
Operating Expenses);
(8) Amortization of the cost (plus interest at the then current
market rate on the unamortized portion of such cost from time to time) of
capital repairs, replacements and improvements, including, without limitation,
those that are for the purpose of reducing costs includible in the definition of
Operating Expenses or that may be required by governmental authority, including
but not limited to, pursuant to the Americans with Disabilities Act. All such
costs shall be amortized over the reasonable useful life of the capital
investment items, with the reasonable useful life and amortization schedule
being determined in accordance with sound management accounting principles;
(9) Reasonable and customary management fees and reimbursed
expenses of Landlord's Management Agent and administrative expenses not borne by
Landlord's Management Agent;
(10) Fees and charges under any declaration of covenants,
easements or restrictions affecting the Building; and
(11) Expenses of a building event, or of a decorative or
community promotional nature, including, without limitation, costs of
Building-wide social events and/or parties, community interest displays, artwork
and seasonal (holiday) decorations; and
(12) Taxes (as defined below).
Notwithstanding the foregoing, Operating Expenses shall not include:
(1) Principal or interest payments with respect to mortgages
against the Building;
(2) Ground lease payments;
(3) Depreciation;
(4) The cost of replacement of capital investment items to the
extent not amortized over the applicable useful life and except as provided in
Section 4.01 (b)(8);
(5) Charges for special items or services billed separately to
(and in addition to Expense Adjustment Statements) and paid by tenants of the
Building; or
(6) Leasing commissions or other expenses solely related to
marketing space in the Building;
(7) Costs associated with the operation of the business of the
ownership or entity which constitutes "Landlord", as the same are distinguished
from the costs of operating the Building including, but not limited to, legal
matters, costs of defending any lawsuits with any mortgagee (except as the
actions of Tenant may be in issue), legal fees incurred in the negotiation and
enforcement of tenant leases (excluding Tenant's Lease) and costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building;
(8) Costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements made for new
tenants in the Building, or incurred in renovating or otherwise improving,
modifying, decorating, painting or redecorating vacant space for
4
<PAGE>
occupancy by tenants or other occupants of the Building, or incurred in the
design, manufacture, and installation of other tenants' signs;
(9) Interest, principal payments, points and fees on debts or
amortization on any mortgage or deed of trust encumbering the Building;
(10) Costs of any items to the extent Landlord receives
reimbursement from insurance proceeds from Landlord's or Tenant's insurance
carriers (such proceeds to be excluded from Operating Expenses in the year in
which received, except that any deductible amount under any insurance policy of
Landlord shall be included within Operating Expenses) or from a third party;
(11) Any bad debt loss, rent loss, or reserves for bad debts or
rent loss;
(12) The cost of providing any service directly to and paid
directly by any tenant (other than through Operating Expense pass through
provisions), and the cost of services provided selectively to one or more
tenants of the Building (other than Tenant) without reimbursement;
(13) The wages of any employee above the grade of building
manager;
(14) Fines, penalties and interest incurred as a result of
Landlord's negligence or willful misconduct;
(15) Landlord's cost of electricity and other services which it
has sold to tenants and for which Landlord has been reimbursed;
(16) The cost of services provided by Landlord's affiliates to
the extent that such costs would exceed the costs of such services rendered by
unaffiliated, qualified third parties on a competitive basis;
(17) Costs arising from Landlord's direct charitable or political
(monetary) contributions;
(18) Costs of any fees or sewer or water connection fees for the
benefit of any particular tenant in the Building;
(19) Any entertainment, dining or travel expenses for any
purpose, except as may be incurred by Landlord's Management Agent in connection
with its management of the Building;
(20) Any expenses incurred by Landlord for use of any portions of
the Building to accommodate private parties or ceremonies;
(21) The cost of any legal or accounting services rendered by
"in-house" legal counsel and/or accountants (exclusive of any legal or
accounting services provided by Landlord's Management Agent in the course of
managing the Building and compensated as a part of management fees and
reimbursed expenses);
(22) Costs incurred by Landlord arising from the violation by
Landlord or any tenant of the terms and conditions of any lease of space in the
Building;
(23) Costs arising from the negligence or fault of other tenants
or Landlord or its agents, or any vendors, contractors, or providers of
materials or services selected, hired or engaged by Landlord or its agents; and
(24) The costs incurred in correcting latent defects in the
foundation or structural members of the Building, except that conditions
resulting from ordinary wear and tear will not be deemed defects for the purpose
of this category.
5
<PAGE>
In the event any facilities, services or utilities in connection with the
Building are provided from resources common with another Building owned or
operated by Landlord, the costs incurred by Landlord in connection therewith
shall be allocated to Operating Expenses of the Building and the other building
by Landlord on a reasonably equitable basis. If at any time the Building is not
fully occupied or Landlord is not supplying services to all rentable areas of
the Building during an entire calendar year, then Landlord may adjust actual
Operating Expenses to Landlord's estimate of that amount which would have been
paid or incurred by Landlord as Operating Expenses had the Building been fully
occupied or serviced, and the Operating Expenses as so adjusted shall be deemed
to be the actual Operating Expenses for such calendar year. If Landlord does not
furnish during any Adjustment Year any particular work or service (the cost of
which, if performed by Landlord, would constitute an Operating Expense) to a
tenant which has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, then Operating Expenses shall be deemed to be
increased by an amount equal to the additional expense which would reasonably
have been incurred during such Adjustment Year by Landlord if it had, at its
cost, furnished such work or service to such tenant. The provisions of the
preceding sentences will apply only to those Operating Expenses that either vary
with occupancy or by reason of one or more tenants not receiving goods or
services, the cost of which constitutes all or part or such Operating Expenses.
Landlord agrees that Landlord will not collect or be entitled to collect
Operating Expenses from all of its tenants in an aggregate amount which is in
excess of one hundred percent (100%) of the Operating Expenses actually accrued
or paid by Landlord in connection with the operation of the Building.
(c) "Taxes" shall mean and include all federal, state and local
government taxes, assessments and charges of any kind or nature, whether
general, special, ordinary or extraordinary, accruing during a calendar year
with respect to the Building; provided, real estate taxes and special
assessments (except as provided below) shall be included in Taxes for a calendar
year only to the extent such taxes and assessments are paid during such calendar
year, regardless of when assessed. In addition, "Taxes" shall include, without
limitation, real estate and transit district taxes and assessments, sales and
use taxes, ad valorem taxes, personal property taxes, any lease or lease
transaction tax and all taxes, assessments and charges in lieu of, substituted
for, or in addition to, any or all of the foregoing taxes, assessments and
charges. Notwithstanding any provision of this Section 4.01(c) to the contrary,
Taxes shall not include any federal, state or local government income,
franchise, capital stock, inheritance or estate taxes, except to the extent such
taxes are in lieu of or a substitute for any of the taxes, assessments and
charges previously described in this Section 4.01 (c). "Taxes" shall also
include the amount of all fees, costs and expenses (including, without
limitation, attorneys' fees and court costs) paid or incurred by Landlord each
calendar year in seeking or obtaining any refund or reduction of Taxes or for
contesting or protesting any imposition of Taxes, whether or not successful and
whether or not attributable to Taxes accrued, assessed, paid or incurred in such
calendar year. If any special assessment payable in installments is levied
against all or any part of the Property, then Taxes for the calendar year in
which such assessment is levied and for each calendar year thereafter shall
include only the amount of any installments of such assessment plus interest
thereon accrued during such calendar year (without regard to any right to pay,
or payment of, such assessment in a single payment). If the Property is not
assessed as fully improved for any calendar year or part thereof, Landlord may
make an adjustment to the amount of Taxes for each such calendar year to reflect
the amount of Taxes which would have been assessed if the Property had been
assessed as fully improved, and the amount of any such adjustment shall be
included on the amount of Taxes for such calendar year. If the Building is not
fully leased and occupied by tenants during all or any portion of a calendar
year, then Landlord may make an adjustment to the amount of Taxes for such
calendar year to reflect the amount of Taxes which would have been assessed if
the Building had been fully leased and occupied by tenants during such calendar
year, and the amount of any such adjustment shall be included in the amount of
Taxes for such calendar year.
4.02 Payment of Rent. Tenant shall pay to Landlord's Management Agent, at
---------------
the address set forth in Article 1 above as the Rent Payment Address or to such
other person or entity and/or at such other place as Landlord may from time to
time direct in writing, all amounts due Landlord from Tenant hereunder,
including, without limitation, Monthly Base Rent, Monthly Parking Rent and
Expense Adjustment (all amounts due hereunder being referred to collectively as
"Rent"). Except as specifically provided in this Lease, Rent shall be paid
without abatement, deduction or set off of any kind, it being the
6
<PAGE>
intention of the parties that, to the full extent permitted by law, Tenant's
covenant to pay Rent shall be independent of all other covenants contained in
this Lease, including Tenant's continued occupancy of the Premises. Tenant's
obligation hereunder to pay Rent accruing during the Term (whether or not the
amount thereof is determined or determinable as of the date of termination or
expiration of this Lease) shall survive the termination of this Lease.
4.03 Payment of Monthly Base Rent. Monthly Base Rent and Monthly Parking
----------------------------
Rent shall be payable monthly, in advance, on the first day of each calendar
month during the Term, except that Monthly Base Rent for the first full calendar
month of the Term for which Monthly Base Rent is due shall be paid concurrently
with the execution of this Lease by Tenant. If the Term commences on a day other
than the first day of a calendar month, then Monthly Base Rent for such month
will be prorated on a per diem basis based on a thirty (30) day month and the
excess of the installment or Monthly Base Rent paid concurrently with the
execution of this Lease by Tenant over such prorated amount for the first
calendar month of the Term shall be applied against Monthly Base Rent and
Monthly Parking Rent for the first full calendar month of the Term.
4.04 Adjustment. In addition to Monthly Base Rent, Tenant shall pay with
----------
respect to each Adjustment Year Tenant's Share of the amount by which the
aggregate of Operating Expenses and Taxes for the Adjustment Year exceed the
Base Expenses ("Adjustment"). As to any Adjustment Year during the Term which
does not begin on January 1st or does not end on December 31st, Adjustments with
respect to such Adjustment Year shall be prorated on a per diem basis.
4.05 Payment of Adjustments. Adjustments with respect to each Adjustment
----------------------
Year shall be paid in monthly installments in advance on the first day of each
calendar month during such Adjustment Year in amounts sufficient to satisfy
payment of the Adjustments for such Adjustment Year as reasonably estimated by
Landlord from time to time prior to or during any Adjustment Year and
communicated to Tenant by written notice ("Estimated Adjustment"). If Landlord
does not deliver such a notice (an "Estimate") prior to the commencement of any
Adjustment Year, Tenant shall continue to pay Estimated Adjustments as provided
in the most recently received Estimate (or Updated Estimate, as defined below)
or the latest determined Estimated Adjustment, whichever is greater, until the
Estimate for such Adjustment Year is delivered to Tenant. If, during any
Adjustment Year, Landlord reasonably determines that Operating Expenses for such
Adjustment Year have increased or will increase, Landlord may deliver to Tenant
an updated Estimate ("Updated Estimate") for such Adjustment Year. Monthly
installments of Estimated Adjustments paid subsequent to Tenant's receipt of the
Estimate or Updated Estimate for any Adjustment Year shall be in the amounts
provided in such Estimate or Updated Estimate, as the case may be. In addition,
Tenant shall pay to Landlord within twenty (20) days after receipt of such
Estimate or Updated Estimate, the amount, if any, by which the aggregate
installments of the Estimated Adjustments provided in such Estimate or Updated
Estimate, as the case may be, with respect to prior months in such Adjustment
Year exceed the aggregate installments of the Estimated Adjustment paid by
Tenant with respect to such prior months. Within one hundred twenty (120) days
after the end of each Adjustment Year, or as soon thereafter as practicable,
Landlord shall send to Tenant a statement (the "Final Adjustment Statement")
showing (i) the Operating Expenses for the immediately preceding year and the
Base Expenses by general category in the manner customarily provided to tenants
of the Building, (ii) the calculation of the Estimated Adjustment for such
Adjustment Year, (iii) the aggregate amount of the Estimated Adjustment
previously paid by Tenant for such Adjustment Year, and (iv) the amount, if any,
by which the aggregate amount of the installments of Estimated Adjustment paid
by Tenant with respect to such Adjustment Year exceeds or is less than the
Adjustment for such Adjustment Year. Landlord shall have the right to bill
Tenant separately for Adjustments in which event the provisions hereof shall
apply to each as a separate Final Adjustment Statement. Tenant shall pay the
amount of any deficiency to Landlord within ten (10) days after the date of such
statement. Any excess shall, at Landlord's option, either be credited against
payments past or next due under this Lease or refunded by Landlord, provided
Tenant is not then in default under this Lease.
4.06 Tenant's Review of Landlord's Books and Records. Tenant shall have
-----------------------------------------------
the right to conduct a Tenant's Review, as hereinafter defined, at Tenant's sole
cost and expense, upon thirty (30) days' prior written notice to Landlord.
"Tenant's Review" shall mean a review of Landlord's books and records
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relating to (and only relating to) the Taxes and Operating Expenses payable by
Tenant hereunder for the most recently completed calendar year (as reflected on
Landlord's Final Adjustment Statement) by a Certified Public Accountant ("CPA")
reasonably satisfactory to Landlord. Tenant's Review must be completed within
sixty (60) days following Tenant's receipt of Landlord's Final Adjustment
Statement for the most recently completed calendar year. In the event that
Tenant fails to complete Tenant's Review of Operating Expenses and Taxes for the
previous calendar year within such sixty (60) day period, Landlord's calculation
of Operating Expenses and Taxes shall be final and binding on Tenant. Tenant
hereby acknowledges and agrees that even if it has elected to conduct a Tenant's
Review, Tenant shall nonetheless pay all Adjustments and payments to Landlord,
subject to readjustment. Tenant further acknowledges that Landlord's books and
records relating to the Building may not be located at the Building and Landlord
is only obligated to make such books and records available to Tenant at a
location within the metropolitan Denver area. Tenant shall provide to Landlord a
copy of Tenant's Review as soon as reasonably possible after the date of such
Review. If Tenant's Review reflects a reimbursement owing to Tenant by Landlord,
and if Landlord disagrees with Tenant's Review, then Tenant and Landlord shall
jointly appoint a CPA to conduct a review ("Independent Review"), which
Independent Review shall be deemed binding and conclusive on both Landlord and
Tenant. If the Independent Review results in a reimbursement owing to Tenant
equal to five percent (5%) or more of the amounts reflected in the Final
Adjustment Statement, the costs of the Independent Review shall be paid by
Landlord, but otherwise Tenant shall pay the costs of the Independent Review.
Under no circumstances shall Tenant conduct a review of Landlord's books and
records whereby the auditor operates on a contingency fee or similar payment
arrangement.
ARTICLE 5
SECURITY DEPOSIT
As security for the performance of its obligations under this Lease,
Tenant, on the execution of this Lease, shall deposit with Landlord a security
deposit in the amount set forth in Article I hereof (the "Security Deposit"),
and agrees from time to time to pay Landlord within three (3) business days
following the receipt of a request therefor, any sum or sums of money paid or
deducted therefrom by Landlord pursuant to the provisions of this Lease, in
order that at all times during the Term there shall be continually deposited
with Landlord, a sum which shall never be less than the amount originally
deposited. The Security Deposit shall not be deemed an advance payment of Rent,
nor a measure of damages for any default by Tenant under this Lease, nor shall
the Security Deposit be a bar or a defense to any action that Landlord may
commence against Tenant. In the event of any default by Tenant hereunder,
Landlord shall have the right, but shall not be obligated, to apply or retain
all or any portion of the Security Deposit in payment of Tenant's obligations
hereunder, but any such application or retention shall not have the effect of
curing any such default.
In lieu of a cash deposit by Tenant for a security deposit, Tenant shall
deposit with Landlord and keep in full force and effect a clean, unconditional
and irrevocable letter of credit issued by a bank acceptable to Landlord in its
sole judgment, automatically renewing on an annual basis in the initial amount
of Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00), which letter
of credit shall be in the form annexed hereto as Exhibit G and incorporated
herein by this reference ("Letter of Credit"). The Letter of Credit shall
provide for written notice of non-renewal to be sent directly to Landlord at
least thirty (30) days prior to such renewal date.
At any time that a Default occurs, Landlord shall have the right to draw
down the entire Letter of Credit and apply the proceeds or any part thereof in
accordance with the provisions of the Lease. The proceeds of the Letter of
Credit remaining after application of funds shall be held by Landlord as a cash
security deposit without interest accruing thereon and subject to being
commingled with the security deposits of other tenants. Landlord shall also have
the right to draw down the entire Letter of Credit in the event Landlord does
not receive notice that the date of expiry of the Letter of Credit will be
extended by the issuing bank and Tenant fails to obtain and present to Landlord
at east fifteen (15) days prior to the expiration of the Letter of Credit a
substitute letter of credit. If Landlord shall have drawn down the Letter of
Credit and applied all or a portion thereof in accordance with the terms of the
Lease, then Tenant shall deposit with Landlord, within three (3) days after
notice from Landlord, an amount of cash sufficient to bring the balance of the
cash then being held by Landlord under the terms hereof to the amount of the
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original Letter of Credit. The failure by Tenant to deposit such additional
amount within the foregoing time period shall be deemed a Default pursuant to
Section 21.01 of the Lease.
Tenant hereby acknowledges the security provided by the Letter of Credit is
provided as a continuing material inducement to Landlord, is provided as current
and ongoing value to the Landlord, and constitutes an ongoing contemporaneous
exchange for new value given for the Tenant's tenancy throughout the Term of the
Lease, as may be extended.
In the event of loss or destruction of the Letter of Credit, Tenant shall
instruct the issuing bank to provide Landlord with a replacement Letter of
Credit, and Landlord shall provide to the issuing bank an affidavit of loss or
destruction in the form reasonably required by the issuing bank. Landlord may
deliver the Letter of Credit or substitute cash security deposit to a purchaser
of Landlord's interest in the Premises and the Building in the event such
interest in sold, and thereupon Landlord shall be discharged from further
liability with respect to the Letter of Credit. If claims of Landlord exceed the
amount of the Letter of Credit, Tenant shall remain liable for such claims.
On or after July 1, 2002, and provided there is no Default (declared or
undeclared by Landlord) under this Lease and no event or condition which, with
the passage of time, shall serve as the basis for a Default, the Letter of
Credit or any substitute cash security deposit (or the balance thereof remaining
after payment out of the same or deduction therefrom as provided above) shall be
returned to Tenant, it being understood and agreed that, in the event of
Default, the Letter of Credit or any substitute cash security deposit (if any)
may be retained by Landlord through the Expiration Date of this Lease, at which
time the cash substitute security deposit (or the balance thereof remaining
after payment out of the same or deduction therefrom as provided above) shall be
returned to Tenant no later than sixty (60) days following the Expiration Date.
No interest shall be payable on any substitute cash security deposit. No
Mortgagee (as hereinafter defined) or person or entity who acquires legal or
beneficial title to the Building from such Mortgagee shall be liable for the
return of the Letter of Credit or any substitute cash security deposit unless
such Letter of Credit or substituted cash security deposit are actually received
by such Mortgagee or purchaser.
ARTICLE 6
USE OF PREMISES; PARKING
6.01 Permitted Use. Tenant shall use and occupy the Premises solely for
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general administrative office purposes and for no other use or purpose.
6.02 No Nuisance. Tenant shall not commit, or suffer to be committed, any
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annoyance, waste, nuisance, act or thing against public policy, of which may
disturb the quiet enjoyment of Landlord or any other tenant or occupant of the
Building. Tenant agrees not to deface or damage the Building in any manner.
6.03 Parking. Tenant shall have a license from the Commencement Date until
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expiration of the Term to use the Parking Spaces in common with other tenants
and occupants of the Building and visitors, guests and invitees. Tenant may not
use additional parking spaces without the prior written consent of Landlord, in
its sole discretion. Tenant and its agents, employees, contractors, invitees or
licensees shall not interfere with the rights of Landlord or others entitled to
similar use of the parking facilities. All parking facilities furnished by
Landlord shall be subject to the reasonable control and management of Landlord,
who may, from time to time, establish, modify and enforce reasonable rules and
regulations with respect thereto. Landlord further reserves the right to change,
reconfigure, or rearrange the parking areas, to construct or repair any portion
thereof, and to restrict or eliminate the use of any parking areas and do such
other acts in and to such areas as Landlord deems necessary or desirable without
such actions being deemed an eviction of Tenant or a disturbance of Tenant's use
of the Premises and without Landlord being deemed in default hereunder. Landlord
may, in its sole discretion, convert the parking facilities to a reserved and/or
controlled parking facility. If specific parking spaces are not assigned
pursuant to the terms of this Lease, Landlord reserves the right at any time to
assign specific parking spaces and Tenant shall thereafter be responsible to
insure that its agents, employees, contractors, invitees or
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licensees park in the specifically designated parking spaces. Tenant shall, if
requested by Landlord, furnish to Landlord a complete list of the license plate
numbers of all vehicles operated by Tenant, Tenant's employees and agents.
Landlord shall not be liable for any damage of any nature to, or any theft of,
vehicles, or contents thereof, in or about such parking facility. At Landlord's
request, Tenant shall cause its employees and agents using Tenant's parking
spaces to execute an agreement confirming the foregoing. Excessive use of the
parking facilities by another tenant shall not be a default or breach of this
Lease by Landlord, and shall not suspend or terminate any of Tenant's
obligations under this Lease, and shall not entitle Tenant to exercise any other
right or remedy it may be afforded hereunder or at law or in equity. Landlord
may promulgate reasonable restrictions on the access to and from the parking
facilities, including, without limitation the installation of a card-key access
system (and Landlord may charge a commercially reasonable deposit for each such
card-key issued).
6.04 Number of Occupants. Tenant hereby acknowledges that Landlord desires
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to limit the number of people occupying the Premises in order to maintain
certain mechanical standards and appearances of the Building. Accordingly,
notwithstanding any other provision of this Lease to the contrary (including,
without limitation, provisions regarding use of the Premises, heating,
ventilation and air conditioning and rules and regulations), Tenant hereby
agrees that the aggregate number of people (including, without limitation,
full-time employees, part-time employees, independent contractors and agents of
Tenant) which may use or perform services or activities in the Premises shall
not exceed a ratio of one (1) person for each two hundred fifty (250) rentable
square feet of space in the Leased Premises, regardless of whether such people
"office share", "job share" or work in shifts. Landlord hereby acknowledges that
Tenant may, from time to time, allow invitees, guests and repair workers to
enter the Premises for the purposes of meeting with employees and making
repairs, and that the temporary presence of such people shall not be included in
the aforementioned calculation.
ARTICLE 7
RULES AND REGULATIONS
Tenant agrees to observe the reservations and rights reserved to Landlord
in this Lease. Tenant shall comply, and shall cause its employees, agents,
clients, customers, guests and invitees to comply, with the rules and
regulations attached hereto as Exhibit E, and such revised or additional rules
and regulations adopted by Landlord during the Term and applied generally to all
office tenants of the Building. Any violation by Tenant or any of its employees,
agents, clients, customers, guests or invitees of any of the rules and
regulations so adopted by Landlord shall be a default by Tenant under this Lease
and may be restrained by court injunction; but whether or not so restrained,
Tenant acknowledges and agrees that it shall be and remain liable for all
damages, loss, costs and expense resulting from any violation by Tenant or such
other persons of any of said rules and regulations. Nothing contained in this
Lease shall be construed to impose upon Landlord any duty or obligation to
enforce said rules and regulations of the terms, covenants and conditions of any
other lease against any other tenant or any other persons, and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
employees, agents, guests, invitees, licensees, customers, clients, family
members, or by any other person.
ARTICLE 8
SERVICES PROVIDED
8.01 Landlord's Services. Landlord shall furnish:
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(a) Cooled or heated air in season to provide a temperature condition
required, in Landlord's sole judgment, for comfortable occupancy of the Premises
under general administrative office purposes and in the absence of the use of
equipment which affects the temperature or humidity which would otherwise be
maintained in the Premises, daily from 7:00 A.M. to 6:00 P.M. (Saturdays 8:00
A.M. to 12:00 P.M.), Sundays and Holidays (as defined below) excepted. If Tenant
shall request, at least one (1) business day in advance, Landlord shall provide
after hours cooled or heated air for the Premises; provided, that Tenant shall
pay Landlord's charges for such service (currently in the amount of $50.00 per
hour), which hourly charges are subject to change from time to time without
notice, within ten (10) days after receipt of Landlord's invoices therefor.
Further, if the use of heat generating equipment in the Premises affects the
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temperatures otherwise maintained by the air conditioning system for normal
business operations, and thereby requires, in the sole judgment of Landlord, the
modification of the air conditioning or ventilation systems (including
installation of supplementary air conditioning units in the Premises, metering,
recircuiting for metering, engineering design services, construction services
and construction administration fees associated therewith) Landlord may elect to
perform such modification, and the cost thereof shall be paid by Tenant to
Landlord at the time of completion of such modification, or Landlord may elect
to require Tenant to perform such modification, at Tenant's sole cost and
expense. Any increased expense in maintaining or operating the system resulting,
in Landlord's sole opinion, from such modification shall be paid by Tenant. In
addition, Tenant shall, at Tenant's expense, perform all maintenance on any
supplementary air conditioning units installed in accordance with this Section
8.01(a) unless, in the exercise of its right hereby expressly reserved, Landlord
elects to perform part or all of such maintenance at Tenant's expense. Tenant
agrees to keep and cause to be kept closed all entrance doors and windows and
window coverings in the Premises and at all times to cooperate fully with
Landlord in the operation of said system and to abide by all reasonable
regulations and requirements which Landlord may prescribe to permit the proper
functioning and protection of said heating, ventilation and air conditioning
systems. For purposes of this Lease, "Holidays" means those federal or state
holidays or such other days which Landlord, in its sole discretion, designates
to Tenant as "Holidays" for purposes of this Lease, such designation being
subject to change from time to time;
(b) Washroom facilities, not within the Premises (unless Tenant leases an
entire floor), for use by Tenant in common with other tenants in the Building;
(c) Janitor service in and about the Premises as customarily provided in
similar office buildings in the submarket area that the Building is located
within, Saturdays, Sundays and Holidays excepted; and
(d) Passenger elevator service in common with other tenants and occupants
daily during normal Building hours, and otherwise by card key access only.
Landlord shall provide limited freight elevator service at such times as
Landlord shall determine.
8.02 Government Restrictions. Tenant agrees that compliance with any
-----------------------
mandatory or voluntary energy conservation measures or other legal requirements
instituted by any appropriate governmental authority shall not be considered a
violation of any terms of this Lease and shall not entitle Tenant to terminate
this Lease or require abatement or reduction of Rent hereunder.
8.03 Utility Consumption. In the event of either (i) a change in the type
-------------------
of use of the Premises as permitted in Section 6.01 above or (ii) an increase in
intensity in use of the Premises beyond that permitted by Section 6.04 above,
the electrical current and other utility services consumed relative to the
Premises shall be separately metered and Tenant shall pay for the cost of
metering or submetering and all such electrical current and other utility
services directly to the utility company supplying said service. Tenant
acknowledges that it shall be responsible for making arrangements for and shall
pay the cost of the installation, repair and maintenance of its own telephone
and cabling system. At no time shall Tenant permit the use of any utility
service consumed in the Premises to exceed Tenant's proportionate share of the
capacity of feeders or service lines to the Building or the risers, wiring or
pipe installation. Landlord does not warrant or represent that such capacity
shall be adequate for Tenant's purposes. Landlord and Tenant hereby acknowledge
and agree that Landlord currently has the right and ability to select and
change, from time to time, the entity(ies) which provide electricity and other
utilities to the Building ("service provider"). Also, Tenant shall (i) cooperate
with, (ii) allow reasonable access to the Premises to and (iii) accept any and
all reasonable disturbances caused by Landlord or such service provider
regarding the utilities of the Building. Further, Landlord is not liable or
responsible for any loss, damage, or expense that Tenant may sustain or incur by
reason of any change, failure, interference, disruption, or defect in the
supply, quantity or character of the electric energy or other utility service
furnished to the Premises, and no such change, failure, defect, unavailability,
or unsuitability shall constitute an actual or constructive eviction, in whole
or in part, or entitle Tenant to any abatement or diminution of Rent, or relieve
Tenant from any of its obligations under the Lease.
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8.04 Additional Services. Landlord shall in no event be obligated to
-------------------
furnish any services or utilities, other than those specified in Section 8.01.
If Landlord elects to furnish services or utilities requested by Tenant in
addition to those specified in Section 8.01 (including utility services at times
other than those specified), Tenant shall pay to Landlord, Landlord's then
prevailing rates for such services and utilities within ten (10) days after
receipt of Landlord's invoices therefor. If Tenant shall fail to make any such
payment, Landlord may, without notice to Tenant, and in addition to Landlord's
other remedies under this Lease, discontinue any or all of the additional
services. No failure to furnish or discontinuance of any service pursuant to
this Article 8 shall result in any liability of Landlord to Tenant or be deemed
to be a constructive eviction or a disturbance of Tenant's use of the Premises.
ARTICLE 9
LEASEHOLD IMPROVEMENTS; ALTERATIONS
9.01 Alterations. Tenant shall not, without Landlord's prior written
-----------
consent, permit any alteration, improvement, addition or installation in or to
the Premises (all of which is collectively referred to as "Work"), including
installation of telephone, computer or internal sound or paging systems or other
similar systems, or the performance of any decorating, painting and other
similar work in the Premises. Notwithstanding the foregoing, Landlord's consent
shall not be required for any Work which (i) is not visible from the exterior of
the Premises, (ii) costs less than $5,000.00 per year in the aggregate, (iii)
complies with any and all other requirements under this Lease, and (iv) does not
affect any structural portion of the Building or the Building's HVAC, plumbing,
electrical or mechanical portions of the Building. All Work requiring an
electrical or mechanical engineer or contractor shall be performed by a
mechanical or electrical engineer or contractor designated or approved by
Landlord in its sole discretion. All Work shall otherwise be performed by
contractors approved by Landlord, which approval shall not be unreasonably
withheld or delayed. Tenant shall pay the cost of preparation of the plans for
the Work, all permit fees and the fees of said contractors and subcontractors.
Except with respect to the Work described in the Work Letter, if any, or Work
performed by the designated or approved contractor as general contractor. Tenant
shall pay to Landlord an administration fee equal to five percent (5%) of the
total cost of such Work for any single job which costs under $500,000.00; four
and one half percent (4.5%) for any single job which costs from $500,000.00 to
$999,999.99; four percent (4%) for any single job which costs from $1,000,000.00
to $4,999,999.99; and three and one half percent (3.5%) for any single job which
costs in excess of $5,000,000.00. Before commencement of any Work or delivery of
any materials into the Premises or the Building, Tenant shall furnish to
Landlord, for its prior written approval, architectural plans and specifications
certified by a licensed architect or engineer reasonably acceptable to Landlord,
and such other documentation as Landlord shall reasonably request, including but
not limited to, documentation on electrical outlets, cabling, doors, and ceiling
plans. Tenant agrees to hold Landlord, its beneficiaries and their respective
agents, partners, officers, servants and employees forever harmless against all
claims and liabilities of every kind, nature and description which may arise out
of or in any way be connected with any such Work. At the request of Landlord,
Tenant will deliver a written indemnity against claims or damages to tenants or
occupants of any other premises affected by such Work. Tenant shall pay
Landlord's reasonable costs of reviewing plans and materials submitted to
Landlord for approval. Tenant shall pay the cost of all such Work and the cost
of decorating and altering the Premises and the Building occasioned by any such
Work. Landlord shall have the right to require Tenant's contractors to evidence
workman's compensation, general liability and other insurance coverage, as
reasonably required by Landlord. Prior to the commencement of any work in or
about the Premises, Tenant shall provide to Landlord a minimum of fifteen (15)
days' prior written notice, post the Premises with a notice of non-
responsibility in a form approved by Landlord, and shall take such other actions
as are required to avail itself and Landlord of any statutory protections
offered by the laws and statutes of Colorado. All alterations, improvements,
additions and installations to or in the Premises at Landlord's election shall
become part of the Premises at the time of installation.
9.02 Tenant's Work. In the event that Landlord permits Tenant to hire its
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own contractors for the performance of any Work, then in addition to the
provisions of Section 9.01, the following shall apply: (i) prior to the
commencement of the Work or the delivery of any materials to the Building,
Tenant shall submit to Landlord for Landlord's approval, the names and addresses
of all contractors, contracts, necessary permits and licenses, certificates of
insurance (including, without limitation, Worker's Compensation,
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comprehensive general liability and adequacy of design insurance) and
instruments of indemnification and waivers of lien against any and all claims,
costs, expenses, damages and liabilities which may arise in connection with the
Work, all in such form and amount as shall be satisfactory to Landlord; (ii)
unless Landlord agrees in writing, all such Work shall be memorialized by
architects and engineers designated or approved by Landlord in its sole
discretion and done only by contractors or mechanics approved by Landlord in its
reasonable discretion and at such time and in such manner as Landlord may from
time to time designate; (iii) upon completion of any Work, Tenant shall furnish
Landlord with as-built plans (both in hard copy and diskette, along with the
architect's acknowledgment that such plans are the property of Landlord),
contractors' affidavits, full and final waivers of lien, receipted bills
covering all labor and materials expended and used in connection with such Work,
and (iv) all such Work shall comply with all insurance requirements, all laws,
ordinances, rules and regulations of all governmental authorities, and all
collective bargaining agreements applicable to the Building, and shall be done
in a good and workmanlike manner and with the use of new, quality grade
materials.
9.03 No Mechanic's Liens. Without limitation of the provisions of Section
-------------------
9.01, Tenant agrees not to suffer or permit any lien of any mechanic or
materialman to be placed or filed against the Premises or the Building. In case
any such lien shall be filed, Tenant shall immediately satisfy and release such
lien of record, or at Tenant's sole cost and expense, provide a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to insure Landlord against any liability for mechanic's
liens and to insure completion of the work. If Tenant shall fail to have such
lien immediately satisfied and released of record, Landlord may, on behalf of
Tenant, without being responsible for making any investigation as to the
validity of such lien and without limiting or affecting any other remedies
Landlord may have, pay the same and Tenant shall pay Landlord on demand the
amount so paid by Landlord.
9.04 Removal of Tenant's Property. Subject to the rules and regulations,
----------------------------
Tenant, at any time Tenant is not in default hereunder, may remove from the
Premises its movable trade fixtures and personal property. Tenant shall repair
any damage to the Premises caused by such removal, failing which Landlord may
remove the same and repair the Premises and Tenant shall pay the cost thereof to
Landlord on demand.
ARTICLE 10
CONDITION OF PREMISES
10.01 Premises Condition. No agreements or representations, except such
------------------
as are expressly contained herein and in the Work Letter attached hereto, if
any, have been made to Tenant respecting the condition of the Premises. By
taking possession, Tenant conclusively waives all claims relating to the
condition of the Premises and accepts the Premises as being free from defects
and in good, clean and sanitary order, condition and repair, and agrees to keep
the Premises in such condition, ordinary wear and tear excepted.
10.02 Care of the Premises. Subject to Article 12, Tenant shall, at its
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own expense, keep the Premises clean and safe and in as good repair and
condition as when all of the work described in the Work Letter was completed (or
as to subsequent Work, as and when such Work was completed, ordinary wear and
tear excepted) and shall promptly and adequately repair all damage to the
Premises and the Building caused by Tenant or any of its employees, agents,
guests or invitees, including replacing or repairing all damaged or broken
glass, fixtures and appurtenances resulting from any such damage, under the
supervision and with the approval of Landlord. If Tenant does not promptly and
adequately make such repairs or replacements, Landlord may, but need not, make
such repairs and replacements and Tenant shall pay Landlord the cost thereof on
demand. Tenant, at its sole expense, shall comply with all laws, orders and
regulations of federal, state, county and municipal authorities and with any
directive of any public officer or officers pursuant to law which shall impose
any violation, order or duty upon Landlord or Tenant with respect to the
Premises or the use or occupation thereof. Tenant shall not do or permit to be
done any act or thing in, on or about the Premises or store anything therein
which (i) will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated, (ii) is not appropriate to the permitted use of the Premises,
(iii) will in any way increase the existing rate of, or adversely affect, or
cause a cancellation of, any fire or other insurance
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policies covering the Building or any of its contents, or (iv) constitutes a
nuisance or will disturb or interfere with the quiet enjoyment by other tenants
of their premises.
10.03 Care of the Building. Landlord, subject to Articles 12 and 14, shall
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be obligated only to maintain and make necessary repairs to the structural
elements of the Building, the public corridors, public washrooms and lobby of
the Building, the exterior windows of the Building, and subject to the
provisions of Articles 8, 12 and 14, the electrical, plumbing, heating,
ventilation and air conditioning systems of the Building.
ARTICLE 11
SURRENDER OF THE PREMISES
11.01 Surrender. At the termination of this Lease, by lapse of time or
---------
otherwise, or the termination of possession of any part thereof as otherwise
provided for herein, Tenant shall surrender possession of the Premises to
Landlord and deliver all keys or other access means to the Premises or the
Building and all locks therein to Landlord and make known to Landlord the
combination of all combination locks in the Premises, and shall, subject to
Articles 12 and 13, return the Premises and all equipment and fixtures of
Landlord therein to Landlord in broom clean condition and in as good condition
as when Tenant originally took possession, ordinary wear and tear excepted,
failing which Landlord may restore the Premises and such equipment and fixtures
to such condition and Tenant shall pay the cost thereof to Landlord on demand.
11.02 Removal of Fixtures. Upon termination of this Lease or of Tenant's
-------------------
right to possession of the Premises, by lapse of time or otherwise, all
installations, additions, partitions, hardware, light fixtures, floor coverings,
non-trade fixtures and improvements, temporary or permanent, whether placed
there by Tenant or Landlord, shall be Landlord's property and shall remain upon
the Premises, all without compensation, allowance or credit to Tenant; provided,
however, that if prior to any such termination or within thirty (30) days
thereafter Landlord so directs by notice, Tenant, at Tenant's sole expense,
shall promptly remove such of the installations, additions, partitions,
hardware, light fixtures, floor coverings, non-trade fixtures and improvements
in or to the Premises by or on behalf of Tenant as are designated in such notice
and repair any damage to the Premises caused by such removal, failing which
Landlord may remove the same and repair the Premises, and Tenant shall pay the
cost thereof to Landlord on demand.
11.03 Survival. All obligations of Tenant under this Article 11 shall
--------
survive the expiration or earlier termination of this Lease.
ARTICLE 12
DAMAGE OR DESTRUCTION
12.01 Minor Insured Damage. In the event the Premises or the Building, or
--------------------
any portion thereof, is damaged or destroyed by any casualty that is covered by
the insurance maintained by Landlord, then Landlord shall rebuild, repair and
restore the damaged portion thereof, provided that (i) the amount of insurance
proceeds available to Landlord equals or exceeds the cost of such rebuilding,
restoration and repair, (ii) such rebuilding, restoration and repair can be
completed within one hundred eighty (180) days after the work commences in the
opinion of a registered architect or engineer appointed by Landlord, (iii) the
damage or destruction has occurred more than twelve (12) months before the
expiration of the Term and (iv) such rebuilding, restoration, or repair is then
permitted, under applicable governmental laws, rules and regulations, to be done
in such a manner as to return the damaged portion thereof to substantially its
condition immediately prior to the damage or destruction, including, without
limitation, the same net rentable floor area. To the extent that insurance
proceeds must be paid to a mortgagee or beneficiary under, or must be applied to
reduce any indebtedness secured by, a mortgage or deed of trust encumbering the
Premises or Building, such proceeds, for the purposes of this subsection, shall
be deemed not available to Landlord unless such mortgagee or beneficiary permits
Landlord to use such proceeds for the rebuilding, restoration, and repair of the
damaged portion thereof. Notwithstanding the foregoing, Landlord shall have no
obligation to repair any damage to, or to replace any of, Tenant's personal
property, furnishings, trade fixtures, equipment or other such property or
effects of Tenant.
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12.02 Major or Uninsured Damage. In the event the Premises or the
-------------------------
Building, or any portion thereof, is damaged or destroyed by any casualty to the
extent that Landlord is not obligated, under Section 12.01 above, to rebuild,
repair or restore the damaged portion thereof, then Landlord shall within sixty
(60) days after such damage or destruction, notify Tenant of its election, at
its option, to either (i) rebuild, restore and repair the damaged portions
thereof, in which case Landlord's notice shall specify the time period within
which Landlord estimates such repairs or restoration can be completed; or (ii)
terminate this Lease effective as of the date the damage or destruction
occurred. If Landlord does not give Tenant written notice within sixty (60)
days after the damage or destruction occurs of its election to rebuild or
restore and repair the damaged portions thereof, Landlord shall be deemed to
have elected to terminate this Lease. Notwithstanding the foregoing, if
Landlord does not elect to terminate this Lease, Tenant may terminate this Lease
if either (i) Landlord notifies Tenant that such repair or restoration cannot be
completed within three hundred and sixty-five (365) days after the work is
commenced or (ii) the damage or destruction occurs within the last twelve (12)
months of the Term, unless Tenant's actions or omissions are the cause of the
damage. If Tenant has the right to terminate the Lease in accordance with the
above provisions, Tenant may so elect by written notice to Landlord which must
be given within fifteen (15) days after Tenant's receipt of Landlord's notice of
its election to rebuild. Upon Landlord's receipt of such notice, the
termination shall be effective as of the date the destruction occurred.
12.03 Abatement of Rent. Except as otherwise expressly provided herein,
-----------------
there shall be an abatement of rent by reason of damage to or destruction of the
Premises or the Building, or any portion thereof, to the extent that the floor
area of the Premises cannot be reasonably used by Tenant for conduct of its
business, in which event the Monthly Base Rent shall abate proportionately
according to (i) or (ii) above, as appropriate, commencing on the date that the
damage to or destruction of the Premises or Building has occurred, and except
that, if Landlord or Tenant elects to terminate this Lease as provided in
Paragraph 12.02 above, no obligation shall accrue under this Lease after such
termination. Notwithstanding the provisions of this Section, if any such damage
is due to the fault or neglect of Tenant, any person claiming through or under
Tenant, or any of their employees, suppliers, shippers, servants, customers or
invitees, then there shall be no abatement of rent by reason of such damage,
unless and until Landlord is reimbursed for all of such abatement pursuant to
any rental insurance policy that Landlord may, in its sole discretion, elect to
carry. Tenant's right to terminate this Lease in the event of any damage or
destruction to the Premises or Building, is governed by the terms of this
Section and therefore Tenant hereby expressly waives the provisions of any and
all laws, whether now or hereafter in force, and whether created by ordinance,
statute, judicial decision, administrative rules or regulations, or otherwise,
that would cause this Lease to be terminated, or give Tenant a right to
terminate this Lease, upon any damage to or destruction of the Premises or
Building that occurs.
12.04 Waiver. Tenant waives the provisions of any present or future laws
------
or case decisions regarding damage, destruction, repair or restoration of the
Premises and/or Building and agrees that the provisions of this Article 12 shall
control to the same effect. Upon completion of such repair or restoration,
Tenant shall promptly refixture the Premises substantially to the condition they
were in prior to the casualty and shall reopen for business if closed by the
casualty.
ARTICLE 13
EMINENT DOMAIN
13.01 Condemnation of the Premises. In the event that the whole or a
----------------------------
substantial part of the Premises shall be condemned or taken in any manner for
any public or quasi-public use (or sold under threat of such taking), and as a
result thereof, the remainder of the Premises cannot be used for the same
purpose as prior to such taking, the Lease shall terminate as of the date
possession is taken; provided, however, if Landlord elects to make comparable
space in the Building available to Tenant under the same Rent and terms as
herein provided, Tenant shall accept such space and this Lease shall then apply
to such space.
13.02 Partial Condemnation of the Premises. If less than a substantial
------------------------------------
part of the Premises shall be so condemned or taken (or sold under threat
thereof) and after such taking the Premises can be
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used for the same purposes as prior thereto, the Lease shall cease only as to
the part so taken as of the date possession shall be taken by such authority,
and Tenant shall pay full Rent up to that date (with appropriate refund by
Landlord of such Rent attributable to the part so taken as may have been paid in
advance for any period subsequent to the date possession is taken) and
thereafter Monthly Base Rent and Adjustments shall be equitably adjusted to
reflect the reduction in the Premises by reason of such taking, Landlord shall,
at its expense, make all necessary repairs or alterations to the Building so as
to constitute the remaining Premises a complete architectural unit, provided
that Landlord shall not be obligated to undertake any such repairs or
alterations if the cost thereof exceeds the award resulting from such taking.
13.03 Building Condemnation. If part of the Building shall be so condemned
---------------------
or taken (or sold under threat thereof), or if any adjacent property or street
shall be condemned or improved by a public or quasi-public authority in such a
manner as to alter the use of any part of the Premises or the Building and, in
the opinion of Landlord, the Building or any part thereof should be altered,
demolished or restored in such a way as to materially alter the Premises,
Landlord may terminate this Lease by notifying Tenant of such termination within
sixty (60) days following the taking of possession by such public or quasi-
public authority, and this Lease shall expire on the date specified in the
notice of termination, which shall be not less than sixty (60) days after the
giving of such notice, as fully and completely as if such date were the date
herein before set forth as the expiration of the Term, and the Monthly Base Rent
and Adjustments hereunder shall be apportioned as of such date.
13.04 Award. Landlord shall be entitled to receive the entire award,
-----
including the damages for the property taken and damages to the remainder, with
respect to any condemnation proceedings affecting the Building or to any
proceeds from a sale or transfer in lieu thereof. Tenant shall not be entitled
to any award or proceeds from Landlord or the condemning authority for the value
of any unexpired portion of the Term, the loss of profits, goodwill, leasehold
improvements or otherwise, Tenant irrevocably assigning any and all such claims
to Landlord. Tenant shall have the right to prosecute a claim directly against
the condemning authority for its trade fixtures and relocation costs, provided
that no such claim shall diminish or otherwise adversely affect Landlord's
claims and the claims of any mortgagees, ground lessors or owners of any
interest in the Building.
ARTICLE 14
RELEASE, WAIVER AND INDEMNIFICATION
14.01 Release. To the extent not expressly prohibited by law, Tenant
-------
releases Landlord, its beneficiaries, mortgagees, stockholders, agents
(including, without limitation, management agents), partners, officers, servants
and employees, and their respective agents, partners, officers, servants and
employees ("Related Parties"), from and waives all claims for damages to person
or property sustained by Tenant or by any occupant of the Premises, the
Building, or by any other person, resulting directly or indirectly from fire or
other casualty, any existing or future condition, defect, matter or thing in the
Premises, the Building, or any portions thereof, or from any equipment or
appurtenance therein, or from any accident in or about the Building, or from any
act of neglect of any tenant or other occupant of the Building or of any other
person, other than Landlord or its agents.
14.02 Tenant's Indemnification. To the extent not expressly prohibited by
------------------------
law, Tenant agrees to hold harmless and indemnify Landlord and Landlord's
Related Parties from and against claims and liabilities, including reasonable
attorneys' fees, (i) for injuries to all persons and damage to or theft or
misappropriation or loss of property occurring in or about the Premises arising
from Tenant's occupancy of the Premises or the conduct of its business, or from
activity, work, or thing done, permitted or suffered by Tenant, its employees,
agents, guests or invitees in or about the Premises and Building, or (ii) from
any breach or default on the part of Tenant in the performance of any covenant
or agreement on the part of Tenant to be performed pursuant to the terms of this
Lease or (iii) due to any other act or omission of Tenant, its agents,
employees, guests or invitees, or (iv) if any person, not a party to this Lease,
shall institute an action against Tenant in which Landlord or Landlord's Related
Parties shall be made a party. Landlord may, at its option, repair such damage
or replace such loss, and Tenant shall upon demand by Landlord reimburse
Landlord for all costs of such repairs, replacement and damages in excess of
amounts, if any, paid to Landlord under insurance covering such damages. In the
event any action or proceeding is
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brought against Landlord or Landlord's Related Parties by reason of any such
claims, then, upon notice from Landlord, Tenant covenants to defend such action
or proceeding by counsel reasonably satisfactory to Landlord.
14.03 Tenant's Fault. If any damage to the Building or any equipment or
--------------
appurtenance therein, whether belonging to Landlord or to other tenants in the
Building, results from any act or neglect of Tenant, its agents, employees,
guests or invitees, Tenant shall be liable therefor and Landlord may, at
Landlord's option repair such damage, and Tenant shall, upon demand by Landlord,
reimburse Landlord the total cost of such repairs and damages to the Building.
If Landlord elects not to repair such damage, Tenant shall promptly repair such
damages at its own cost and in accordance with the provisions of Sections 9.02
and 9.03 as if such repair constituted Work under such Sections. If Tenant
occupies space in which there is exterior or interior glass, then Tenant shall
be responsible for the damage, breakage or repair of such glass, except to the
extent such loss or damage is recoverable under Landlord's insurance, if any.
14.04 Landlord's Indemnification. Subject only to Section l4.0l above and
--------------------------
Section l4.05 below, Landlord agrees to indemnify, defend and hold Tenant and
its officers, directors, partners and employees harmless from and against all
liabilities, losses, demands, actions, expenses or claims, including attorneys'
fees and court costs but excluding consequential damages, for injury to or death
of any person or for damage to any property to the extent such are determined to
be caused by the gross negligence or willful misconduct of Landlord, its agents,
employees, or contractors in or about the Premises or Building. None of the
events or conditions set forth in this Section shall be deemed a constructive or
actual eviction or entitle Tenant to any abatement or reduction of Rent.
14.05 Limitations on Landlord's Liability. Tenant agrees that in the
-----------------------------------
event Tenant shall have any claim against Landlord or Landlord's Related Parties
under this Lease arising out of the subject matter of this Lease, Tenant's sole
recourse shall be against Landlord's interest in the Building, for the
satisfaction of any claim, judgment or decree requiring the payment of money by
Landlord or Landlord's Related Parties as a result of a breach hereof or
otherwise in connection with this Lease, and no other property or assets of
Landlord, Landlord's Related Parties or their successors or assigns, shall be
subject to the levy, execution or other enforcement procedure for the
satisfaction of any such claim, judgment, injunction or decree.
ARTICLE 15
INSURANCE; WAIVER OF SUBROGATION
15.01 Tenant's Insurance. Tenant shall procure and maintain at its own
------------------
cost policies of comprehensive general public liability and property damage
insurance with contractual liability coverage for the agreements of indemnity
provided for under this Lease and a broad form general liability endorsement to
afford protection with such limits as may be reasonably requested by Landlord
from time to time (which as of the date hereof shall be not less than
$3,000,000 under a combined single limit of coverage) insuring Landlord and
Landlord's Related Parties from all claims, demands or actions for injury to or
death of any person or persons and for damage to property made by, or on behalf
of, any person or persons, firm or corporation, arising from, related to or
connected with the Premises. The insurance shall be issued by companies and be
in form and substance satisfactory to Landlord and any mortgagee of the
Building and shall name Landlord and Landlord's Managing Agent (and, if
requested by Landlord or any mortgagee, include any mortgagee) and their
respective agents and employees as additional insureds. The aforesaid
insurance policies shall provide that they shall not be subject to cancellation
except after at least thirty (30) days' prior written notice to Landlord and
all such mortgagees (unless such cancellation is due to non-payment of
premiums, in which event ten (10) days' prior written notice shall be
required). The original insurance policies (or certificates thereof
satisfactory to Landlord), together with satisfactory evidence of payment of
the premium thereon, shall be deposited with Landlord prior to the commencement
of the Term and renewals thereof not less than thirty (30) days prior to the
end of the term of each such coverage.
15.02 Casualty Insurance. Tenant shall carry insurance of the type
------------------
typically referred to as "all risk" insurance, including water damage, insuring
its interest in the tenant improvements in the Premises (to
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the extent not covered by Landlord's property insurance) and its interest in all
its personal property and trade fixtures located on or within the Building,
including, without limitation, its office furniture, equipment and supplies.
15.03 Waiver of Subrogation. Notwithstanding any other provision of this
---------------------
lease to the contrary, Landlord and Tenant each hereby waive all rights of
action against the other for loss or damage to the Premises, or the Building and
property of Landlord and Tenant in the Building, which loss or damage is insured
or is required pursuant to this Lease to be insured by valid and collectible
insurance policies to the extent of the proceeds collected or collectible under
such insurance policies, subject to the condition that this waiver shall be
effective only when the waiver is permitted by such insurance policies or when,
by the use of good faith effort, such waiver could have been permitted in the
applicable insurance policies. The policies of insurance required to be
maintained by Tenant under the terms of this Lease shall contain waiver of
subrogation clauses in form and content satisfactory to Landlord.
15.04 Increased Costs. Tenant shall not conduct or permit to be conducted
---------------
by its employees, agents, guests or invitees any activity, or place any
equipment in or about the Premises or the Building that will in any way increase
the cost of fire insurance or other Landlord insurance on the Building. If any
increase in the cost of fire insurance or other insurance is stated by any
insurance company or by the applicable Insurance Rating Bureau, if any, to be
due to any activity or equipment of Tenant in or about the Premises or the
Building, such statement shall be conclusive evidence that the increase in such
cost is due to such activity or equipment and, as a result thereof, Tenant shall
be liable for the amount of such increase. Tenant shall reimburse Landlord for
such amount upon written demand from Landlord and any such sum shall be
considered additional Rent payable hereunder. Tenant, at its sole expense,
shall comply with any and all requirements of any insurance organization or
company necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises and the Building.
ARTICLE 16
LANDLORD'S RIGHT OF ACCESS
16.01 Entry Into Premises. Landlord and its contractors and
-------------------
representatives shall have the right to enter the Premises at all reasonable
times to perform janitorial and cleaning services and, after verbal notice
(except in the case of emergencies), to inspect the same, to make repairs,
alterations and improvements, to maintain the Premises and the Building,
specifically including, but without limiting the generality of the foregoing, to
make repairs, additions or alterations within the Premises to mechanical,
electrical and other facilities serving other premises in the Building, to post
such reasonable notices as Landlord may desire to protect its rights, to exhibit
the Premises to mortgagees and purchasers, and to exhibit the Premises to
prospective tenants. In the event the Premises are vacant, Landlord may place
upon the doors or in the windows of the Premises any usual or ordinary "To Let,"
"To Lease," or "For Rent" signs. Tenant shall permit Landlord to erect, use,
maintain and repair pipes, cables, conduit, plumbing, vents and wires, in, to
and through the Premises to the extent Landlord may now or hereafter deem
necessary or appropriate for the proper operation, maintenance and repair of the
Building and any portion of the Premises.
16.02 Landlord's Repairs. Landlord shall also have the right to take all
------------------
material into the Premises that may be required for the purposes set forth in
the foregoing Section 16.01 without the same constituting a constructive
eviction of Tenant, in whole or in part, and Rent shall not abate (except as
provided in Article 12) while said repairs, alterations, improvements or
additions are being made, by reason of loss or interruption of business of
Tenant, or otherwise. If Tenant shall not be personally present to open and
permit entry into the Premises, at any time, when for any reason entry therein
shall be necessary or desirable, Landlord or Landlord's agents may enter the
Premises by a master key, or may forcibly enter the same, without rendering
Landlord or such agents liable therefor (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's property), and
without in any manner affecting the obligations and covenants of this Lease.
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16.03 Minimize Interference. In exercising its rights under this Article
---------------------
16, Landlord will use reasonable efforts to minimize any interference with
Tenant's use or occupancy of the Premises, provided that Landlord will not be
obligated to provide overtime labor or perform work after regular Building
hours.
ARTICLE 17
RIGHTS RESERVED TO LANDLORD
Landlord shall have the following rights exercisable without notice and
without liability to Tenant for damage or injury to property, person or business
(all claim's for damage being hereby waived and released by Tenant) and without
effecting an eviction or disturbance of Tenant's use or possession or giving
rise to any claim for set-offs or abatement of Rent:
(a) To change the name or street address of the Building or the suite
number of the Premises;
(b) To install and maintain signs on the exterior and interior of the
Building;
(c) To designate all sources furnishing sign painting and lettering,
towels, coffee cart service, vending machines or toilet supplies used or
consumed on the Premises and the Building;
(d) To have pass keys to the Premises;
(e) To grant to anyone the exclusive right to conduct any business or
render any service in the Building, provided such exclusive right shall not
operate to exclude Tenant from the use expressly permitted by this Lease;
(f) To make repairs, additions or alterations to the Building which
may change, eliminate or remove common areas, parking areas, if any, or the
method of ingress to or egress from the Building and such areas, to convert
common areas into leasable areas, or otherwise alter, repair or reconstruct the
common areas or change the use thereof, to change the arrangement or location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets or other public parts of the Building, and to close entrances, doors,
corridors, elevators, plaza or other facilities, and to perform any acts related
to the safety, protection, preservation, reletting, sale or improvement of the
Premises or the Building;
(g) To have access to all mail chutes or boxes according to the rules
of the United States Postal Service;
(h) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time reasonably determine to identify
themselves to security personnel by registration or otherwise, and to establish
their right to enter or leave and to exclude or expel any peddler, solicitor or
beggar at any time from the Premises or the Building;
(i) To close the Building at 6:00 p.m. on weekdays, 12:00 p.m. on
Saturdays, and all day on Sundays and Holidays, or at such other reasonable
times as Landlord may determine, subject, however, to Tenant's right to
admittance under such regulations as shall be prescribed from time to time by
Landlord in its sole discretion.
Notwithstanding the terms and conditions of Section 17(f) or any
other provision of the Lease to the contrary, Tenant hereby acknowledges that
Landlord may, at its option, make alterations and remodel the Building and
otherwise renovate the Building including, without limitation, the front
entrance, lobby and the portion of the basement and during any such period of
remodeling Landlord may prohibit access to or through such affected areas, so
long as Landlord provides alternate access to the Premises. Tenant accepts any
inconvenience caused by such alterations and remodeling.
19
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ARTICLE 18
ABANDONMENT
Tenant shall not abandon the Premises at any time during the Term. Any
re-entry by Landlord following abandonment by Tenant shall not, unless Landlord
elects in a written notice to Tenant, constitute or be deemed to constitute
acceptance by Landlord of a surrender of this Lease, but rather, upon such
abandonment, Tenant's right to possession of the Premises shall cease, but
Tenant shall remain liable for all of its obligations under this Lease. Without
limitation of the foregoing, upon any such abandonment, Landlord shall have the
remedies provided for in Article 21 below. If Tenant shall abandon or surrender
the Premises or be dispossessed by process of law or otherwise during the Term
or at termination of the Term, any personal property left on the Premises shall
be deemed to be abandoned at the option of Landlord and, at the election of
Landlord evidenced by written notice to Tenant thereof, title thereto shall pass
to Landlord under this Lease as a bill of sale. For purposes of this Lease, and
at the option of Landlord, the Premises shall be deemed vacated or abandoned if
Tenant, or an agent or employee of Tenant, shall not have conducted Tenant's
ordinary business upon the Premises during any period of fifteen (15)
consecutive days, or shall have transferred all or substantially all of its
personnel, furniture and fixtures from the Premises without replacement, or
telephone service to the Premises, as such service has been customarily provided
to the Premises, is no longer subscribed for or provided to the Premises.
ARTICLE 19
TRANSFER OF LANDLORD'S INTEREST
As used in this Lease, the term "Landlord" means only the current owner of
the fee title to the Building or the leasehold estate under a ground lease of
the Building at the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such Landlord owns
such interest or title. Any Landlord who transfers its title or interest in the
Building is relieved of all liabilities for the obligations of Landlord under
this Lease to be performed on or after the date of transfer. Tenant agrees to
look solely to the transferee with respect to all matters in connection with
this Lease.
ARTICLE 20
TRANSFER OF TENANT'S INTEREST
20.01 Landlord's Consent. Tenant shall not sell, assign, encumber,
------------------
mortgage or transfer this Lease or any interest therein, sublet or permit the
occupancy or use by others of the Premises or any part thereof, or allow any
transfer hereof of any lien upon Tenant's interest by operation of law or
otherwise (collectively, a "Transfer") without the prior written consent of
Landlord, given or withheld, in its reasonable discretion. Any Transfer which
is not in compliance with the provisions of this Article 20 shall, at the option
of Landlord, be void and of no force or effect. Tenant shall, by written notice
in the form specified in the following sentence, advise Landlord of Tenant's
intention on a stated date (which shall not be less than sixty (60) days after
date of Tenant's notice) to sublet, assign, mortgage or otherwise Transfer any
part or all of the Premises or its interest therein for the balance or any part
of the Term, and, in such event, Landlord shall have the right, to be exercised
by giving written notice to Tenant within thirty (30) days after receipt of
Tenant's notice, to recapture the space described in Tenant's notice and such
recapture notice shall, if given, cancel and terminate this Lease with respect
to the space therein described as of the date stated in Tenant's notice.
Tenant's notice shall provide Landlord with (i) the name and address of the
proposed subtenant, assignee, pledgee, mortgagee or transferee, (ii) a
reasonably detailed description of such person or entity's business, (iii)
detailed financial references and certified, audited financial statements for
such person or entity, (iv) a true and complete copy of the proposed sublease,
assignment, pledge, mortgage or other conveyance and all related documentation,
and (v) such other information as Landlord may reasonably require.
If Tenant's notice shall cover all of the space hereby demised, and
Landlord shall elect to give the aforesaid recapture notice with respect
thereto, then the Term shall expire and end on the date stated in Tenant's
notice as fully and completely as if that date had been herein definitely fixed
for the expiration of the Term. If, however, this Lease is terminated pursuant
to the foregoing with respect to less
20
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than the entire Premises, the Monthly Base Rent and Adjustments then in effect
shall be adjusted on the basis of the number of rentable square feet retained by
Tenant in proportion to the original Area of the Premises, and this Lease as so
amended shall continue thereafter in full force and effect. In such event,
Tenant shall pay the cost of erecting demising walls and public corridors and
making other required modifications to physically separate the portion of the
Premises remaining subject to this Lease from the rest of the Premises,
including all electrical and mechanical services and changes to effect such
separation. If Landlord, upon receiving Tenant's notice that it intends to
sublet or assign any such space, shall not exercise its right to recapture the
space described in Tenant's notice, Landlord will, as herein above provided,
determine whether to approve Tenant's request to sublet or assign the space
covered by its notice. Without limiting Landlord's right to withhold such
consent, the withholding of such consent may be based upon, but not limited to,
the following:
(a) In the reasonable judgment of Landlord, the subtenant or assignee (A)
is of a character or engaged in a business or proposes to use the Premises in a
manner which is not in keeping with the standards of Landlord for the Building
or (B) has an unfavorable reputation or credit standing;
(b) Either the area of the Premises to be sublet or the remaining area of
the Premises is not regular in shape with appropriate means of ingress or egress
suitable for normal renting purposes;
(c) Tenant is in Default under this Lease at the time of requesting such
consent or at any time thereafter, it being expressly understood that if Tenant
is in Default under this Lease at any time after granting permission for a
Transfer, Landlord may withdraw any previously granted consent for such
Transfer;
(d) The proposed assignee or subtenant or any person or entity which
directly or indirectly controls, is controlled by or is under common control
with the proposed assignee or subtenant, is then an occupant or tenant of any
other space in the Building;
(e) The proposed sublessee or assignee is a person or entity with whom
Landlord is then negotiating to lease space in the Building;
(f) The proposed assignment or sublease instrument does not have the
substance or form which is reasonably acceptable to Landlord.
If Landlord consents to such sublet or assignment, such consent shall be
expressly contingent upon Tenant's payment to Landlord, as Rent, Landlord's
costs and expenses incurred in connection therewith, including, but not limited
to, attorney's fees and Landlord's construction supervision fee, if applicable.
20.02 Excess Rent. If Tenant individually, or as debtor or debtor in
-----------
possession or if a trustee in bankruptcy acting on behalf of Tenant pursuant to
the Bankruptcy Code, 11 U.S.C. 101 et seq., shall sublet or assign the Premises
or any part thereof or assign any interest in this Lease at a rental rate (or
additional consideration) in excess of the then current Monthly Base Rent and
Adjustments per rentable square foot, fifty percent (50%) of said excess Rent
(or additional consideration) shall be and become the property of Landlord and
shall be paid to Landlord as it is received by Tenant, less Tenant's reasonable
brokerage (excluding commissions paid to brokers who are Tenant's affiliates),
legal and other expenses ("Tenant's Costs") incurred in connection with such
assignment or, in the case of a sublease, less the monthly pro rata share of
such Tenant's Costs as determined by dividing such Tenant's Costs by the number
of months in the term of such sublease. If Tenant shall sublet the Premises or
any part thereof, Tenant shall be responsible for all actions and neglect of the
subtenant and its officers, partners, employees, agents, guests and invitees as
if such subtenant and such persons were employees of Tenant. Nothing in this
Section 20.02 shall be construed to relieve Tenant from the obligation to obtain
Landlord's prior written consent to any proposed sublease.
20.03 No Waiver. The consent by Landlord to any Transfer shall not be
---------
construed as a waiver or release of Tenant from liability for the performance of
all covenants and obligations to be performed by Tenant under this Lease, and
Tenant shall remain liable therefor, nor shall the collection or acceptance of
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Rent from any assignee, subtenant or occupant constitute a waiver or release of
Tenant from any of its obligations or liabilities under this Lease. Any consent
given pursuant to this Article 20 shall not be construed as relieving Tenant
from the obligation of obtaining Landlord's prior written consent to any
subsequent assignment or subletting.
20.04 Included Transfers. If Tenant is a partnership, a withdrawal or
------------------
change, whether voluntary, involuntary or by operation of law or in one or more
transactions, of partners owning a controlling interest in Tenant shall be
deemed a voluntary assignment of this Lease and subject to the provisions of
this Article 20. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or the sale, transfer or
redemption of a controlling interest of the capital stock of Tenant in one or
more transactions, shall be deemed a voluntary assignment of this Lease and
subject to the provisions of this Article 20; provided, however, that the
preceding sentence shall not apply to corporations, the stock of which is listed
on a national or regional stock exchange and offered to the public for sale in
an initial public offering or is otherwise traded through a national or regional
exchange or over-the-counter. Further, provided Tenant is not then in Default,
Tenant remains primarily liable under this Lease, Tenant provides prior written
notice to Landlord, and Tenant otherwise meets the requirements set forth
herein, then Tenant may make a Transfer without Landlord's prior written consent
to (a) an entity resulting from consolidation, merger or reorganization by or
with Tenant, provided that the surviving entity has a net worth and owner's
equity equal or greater to that of Tenant immediately preceding the
consolidation, merger or reorganization, or (b) to any purchaser of all or
substantially all of the assets or ownership interest of Tenant, provided that
the net worth of the acquiring entity is equal to or greater than the net worth
and owner's equity is equal to or greater than that of Tenant immediately
preceding the Transfer. Neither this Lease nor any interest therein nor any
estate created thereby shall pass by operation of law or otherwise to any
trustee, custodian or receiver in bankruptcy of Tenant or any assignee for the
assignment of the benefit of creditors of Tenant.
ARTICLE 21
DEFAULT; LANDLORD'S RIGHTS AND REMEDIES
21.01 Default. The occurrence of any one or more of the following matters
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constitutes a default ("Default") by Tenant under this Lease:
(a) Failure by Tenant to pay, within five (5) days after the due date,
any Rent or any other amounts due and payable by Tenant under this Lease;
(b) Failure by Tenant to observe or perform any of the covenants in this
Lease in respect to assignment and subletting;
(c) Abandonment or vacation of the Premises as prohibited in Article 18;
(d) Failure by Tenant to cure forthwith, after notice thereof from
Landlord or another tenant acquiring knowledge thereof, any hazardous condition
that Tenant has created in violation of law or of this Lease;
(e) Failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such failure shall continue
for fifteen (15) days after written notice thereof to Tenant by Landlord;
(f) The levy upon execution of the attachment by legal process of the
leasehold interest of Tenant, or the filing or creation of a lien in respect of
such leasehold interest;
(g) Tenant or any guarantor of this Lease becomes insolvent or bankrupt
or admits in writing its inability to pay its debts as they mature, makes an
assignment for the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver for itself or for all or a part of its
property;
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(h) Proceedings for the appointment of a trustee, custodian or receiver
of Tenant or any guarantor of this Lease or for all or a part of Tenant's or
such guarantor's property are filed against Tenant or such guarantor and are not
dismissed within thirty (30) days;
(i) Proceedings in bankruptcy, or other proceedings for relief under any
law for the relief of debtors, are instituted by or against Tenant or any
guarantor of this Lease, and, if instituted against Tenant or such guarantor,
are allowed against either or are consented to by either or are not dismissed
within sixty (60) days thereof; and
(j) Tenant shall repeatedly default in the timely payment of Rent or any
other charges required to be paid, or shall repeatedly default in keeping,
observing or performing any other covenant, agreement, condition or provision of
this Lease, whether or not Tenant shall timely cure any such payment or other
default. For the purposes of this subsection, the occurrence of similar defaults
three (3) times during any twelve (12) month period shall constitute a repeated
default.
Any notice periods provided for under this Article 21.01 shall run concurrently
with any statutory notice periods, and any notice given hereunder may be given
simultaneously with or incorporated into any such statutory notice.
21.02 Landlord's Remedies. If a Default occurs, Landlord shall have the
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following rights and remedies, which shall be distinct, separate and cumulative,
and which may be exercised by Landlord concurrently or consecutively in any
combination and which shall not operate to exclude or deprive Landlord of any
other right or remedy which Landlord may have in law or equity:
(a) Landlord may terminate this Lease by giving to Tenant notice of
Landlord's intention to do so, in which event the Term shall end, and all right,
title and interest of Tenant hereunder shall expire, on the date stated in such
notice;
(b) Landlord may terminate the right of Tenant to possession of the
Premises by any lawful means, without terminating this Lease. In such event,
Tenant's obligations under this Lease shall continue in full force and effect
and Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, not limited to those set forth herein;
and
(c) Landlord may enforce the provisions of this Lease and may enforce and
protect the rights of Landlord hereunder by a suit or suits in equity or at law
for the specific performance of any covenant or agreement contained herein, or
for the enforcement of any other appropriate legal or equitable remedy,
including injunctive relief and recovery of all moneys due or to become due from
Tenant under any of the provisions of this Lease.
21.03 Surrender of Possession. If Landlord exercises either of the
-----------------------
remedies provided for in subparagraphs (a) and (b) of Article 21.02, Tenant
shall surrender possession and vacate the Premises immediately and deliver
possession thereof to Landlord, and Landlord may then, or at any time
thereafter, re-enter and take complete and peaceful possession of the Premises,
full and complete license so to do being granted to Landlord, and Landlord may
remove all property therefrom, without being deemed in any manner guilty of
trespass, eviction or forcible entry and detainer and without relinquishing
Landlord's right to Rent or any other right given to Landlord hereunder or by
operation of law.
21.04 Damages. If Landlord terminates the right of Tenant to possession
-------
of the Premises without terminating this Lease, such termination of possession
shall not release Tenant, in whole or in part, from Tenant's obligation to pay
the Rent hereunder for the full stated Term, and Landlord shall have the right
to the immediate recovery of all such amounts. Alternatively, at Landlord's
option, Landlord shall have the right, from time to time, to recover from
Tenant, and Tenant shall remain liable for, all Monthly Base Rent and
Adjustments and any other sums then due under this Lease during the period from
the date of such notice or termination of possession to the end of the Term.
Landlord may file suit from time to time to recover any such sums and no suit or
recovery by Landlord of any such sums or portion thereof shall be a defense to
any subsequent suit brought for any other sums due under this Lease.
Alternatively, if
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Landlord elects to terminate this Lease, Landlord shall be entitled to recover
from Tenant all Monthly Base Rent and Adjustments accrued and unpaid for the
period up to and including such termination date, as well as all other
additional sums payable by Tenant hereunder. In addition, Landlord shall be
entitled to recover, as damages for loss of the benefit of its bargain and not
as a penalty, the sum of (x) the unamortized cost to Landlord, computed and
determined in accordance with generally accepted accounting principles, of any
tenant improvements provided by Landlord at its expense, (y) the aggregate sum
which at the time of such termination represents the excess, if any, or the
present value of the aggregate Monthly Base Rent and Adjustments (as reasonably
estimated by Landlord) for the remainder of the Term over the then present value
of the then aggregate fair rental value of the Premises for the balance of the
Term, immediately prior to such termination, such present worth to be computed
in each case on the basis of a six percent (6%) per annum discount from the
respective dates upon which rentals would have been payable hereunder had the
Term not been terminated and (z) any damages in addition thereto, including
reasonable attorneys' fees and court costs, which Landlord shall have sustained
by reason of the breach of any of the covenants of this Lease other than for the
payment of Rent.
21.05 Reletting. In the event Landlord terminates the right of Tenant to
---------
possession of the Premises without terminating this Lease as aforesaid, Landlord
shall use reasonable efforts to relet the Premises or any part thereof for the
account of Tenant for such rent, for such time (which may be for a term
extending beyond the Term) and upon such terms as Landlord in Landlord's sole
discretion shall determine (including concessions of free rent and other
inducements to prospective tenants), and Landlord shall not be required to
accept any tenant offered by Tenant or to observe any instructions given by
Tenant relative to such reletting and may give the leasing of any unleased space
in the Building priority over the reletting of the Premises. Also, in any such
event, Landlord may make repairs, alterations and additions in or to the
Premises and redecorate the same to the extent deemed by Landlord necessary or
desirable, and, in connection therewith, change the locks to the Premises, and
Tenant shall upon demand pay the cost thereof together with Landlord's expenses
of reletting. Landlord may collect the rents from any such reletting and apply
the same first to the payment of the expenses of re-entry, redecoration, repair
and alterations and the expense of reletting (including without limitation
brokers' commissions and attorneys' fees) and second to the payment of Rent
herein provided to be paid by Tenant. Any excess or residue shall operate only
as an offsetting credit against the amount of Rent as the same theretofore
became or thereafter becomes due and payable hereunder, but the use of such
offsetting credit to reduce the amount of Rent due Landlord, if any, shall not
be deemed to give Tenant any right, title or interest in or to such excess or
residue and any such excess or residue shall belong solely to Landlord. No such
re-entry or repossession, repairs, alterations and additions, or reletting shall
be construed as an eviction or ouster of Tenant, an election on Landlord's part
to terminate this Lease or an acceptance of a surrender of this Lease, unless a
written notice of such intention be given to Tenant, or shall operate to release
Tenant in whole or in part from any of Tenant's obligations hereunder. Landlord
may, at any time and from time to time, sue and recover judgment for any
deficiencies remaining after the application of the proceeds of any such
reletting.
21.06 Removal of Tenant's Property. All property removed from the
----------------------------
Premises by Landlord pursuant to any provisions of this Lease or of law shall be
handled, removed or stored by Landlord at the cost, expense and risk of Tenant.
In no event shall Landlord be responsible for the value, preservation or
safekeeping thereof, or be deemed to be in the possession or custody of any
Hazardous Material so removed by Landlord. Tenant shall pay Landlord upon
demand for all expenses incurred by Landlord in such removal and storage.
21.07 Costs. Tenant shall pay all costs, charges and expenses, including,
-----
without limitation, court costs and reasonable attorneys' fees incurred by
Landlord or its beneficiaries in enforcing Tenant's obligations under this
Lease, in the exercise by Landlord of any of its remedies in the event of a
default, in any litigation, negotiation or transactions in which Tenant causes
Landlord, without Landlord's fault, to become involved or concerned, or in
consideration of any request for approval of or consent to any action by Tenant
which is prohibited by this Lease or which may be done only with Landlord's
approval or consent, whether or not such approval or consent is given.
21.08 Late Charges. At the option of Landlord, Landlord may impose a late
------------
payment fee equal to five percent (5%) of the amount due if any payment of Rent
is paid more than five (5) days after
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its due date. In addition, any amount due hereunder shall bear interest after
default in the payment thereof at the annual rate of eighteen percent (18%),
provided that in no event shall such interest rate exceed the highest legal
interest rate for business loans.
21.09 Landlord's Right to Perform Tenant's Duties. If Tenant fails timely
-------------------------------------------
to perform any of its duties under this Lease, Landlord shall have the right
(but not the obligation), after the expiration of any grace period specifically
provided by this Lease, to perform such duty on behalf and at the expense of
Tenant without further notice to Tenant, and all sums expended or expenses
incurred by Landlord in performing such duty shall be deemed to be Rent under
this Lease and shall be due and payable to Landlord upon demand by Landlord.
21.10 Cumulative Rights. All of Landlord's rights and remedies under this
-----------------
Lease shall be cumulative with and in addition to any and all rights and
remedies which Landlord may have at law or equity. Any specific remedy provided
for in any provision of this Lease shall not preclude the concurrent or
consecutive exercise of a remedy provided for in any other provision hereof.
ARTICLE 22
WAIVER OF COUNTERCLAIMS AND JURY TRIAL
22.01 Counterclaims. Except for compulsory or mandatory counterclaims,
-------------
Tenant hereby waives any right to plead any counterclaim, offset or affirmative
defense in any action or proceedings brought by Landlord against Tenant pursuant
to Colorado law or otherwise, for the recovery of possession based upon the non-
payment of Rent or any other Default. This shall not, however, be construed as a
waiver of Tenant's right to assert any claim in a separate action brought by
Tenant against Landlord, subject, however, to the terms and conditions of
Article 14 above.
22.02 JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, LANDLORD AND TENANT AGREE
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THAT EACH SHALL, AND DO HEREBY, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BETWEEN THE PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS
ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, AND/OR TENANT'S USE OR OCCUPANCY OF THE
PREMISES. THIS WAIVER IS MADE FREELY AND VOLUNTARILY, WITHOUT DURESS AND ONLY
AFTER EACH OF THE PARTIES HERETO HAS HAD THE BENEFIT OF ADVICE FROM LEGAL
COUNSEL ON THIS SUBJECT.
ARTICLE 23
HOLDING OVER
If, with Landlord's express written consent, Tenant remains in possession of
the Premises after the expiration or other termination of the Term, Tenant shall
be deemed to be occupying the Premises on a month-to-month tenancy only, at a
monthly rental equal to one hundred fifty percent (150%) of the rate of Monthly
Base Rent and Adjustments in effect from the month immediately preceding said
holding over, computed on a per month basis, for each month or part thereof
(without reduction for any such partial month) that Tenant thus remains in
possession. Such month-to-month tenancy may be terminated by either party upon
thirty (30) days' written notice to the other party.
If, without Landlord's express written consent, Tenant remains in possession
of the Premises after the expiration or other termination of the Term, Tenant
shall be deemed to be occupying the Premises upon a tenancy at sufferance, and
shall pay Landlord Monthly Base Rent at one hundred fifty percent (150%) of the
rate of Monthly Base Rent and Adjustments in effect for the month immediately
preceding said holding over, computed on a per month basis, for each month or
part thereof (without reduction for any such partial month) that Tenant thus
remains in possession. Such tenancy at sufferance may be terminated by Landlord
at any time by notice of termination to Tenant, or by Tenant on the last day of
any calendar month by at least three (3) days' advance written notice of
termination to Landlord.
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Landlord shall have the right to recover from Tenant any and all damages
(actual and consequential) incurred by Landlord as a result of Tenant's holding
over. The provisions of this Article 23 do not exclude Landlord's right of
reentry or any other right hereunder.
ARTICLE 24
SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE
24.01 Subordination. Landlord may have heretofore encumbered or may
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hereafter encumber with a mortgage or trust deed the Building, or any interest
therein, and may have heretofore sold and leased back or may hereafter sell and
lease back the land on which the Building is located, and may have heretofore
encumbered or may hereafter encumber the leasehold estate under such lease with
a mortgage or trust deed. (Any such mortgage or trust deed is herein called a
"Mortgage" and the holder of any such mortgage or the beneficiary under any such
trust deed is herein called a "Mortgagee." Any such lease of the underlying land
is herein called a "Ground Lease", and the lessor under any such lease is herein
called a "Ground Lessor." Any Mortgage which is a first lien against the
Building, the land on which the Building is located, the leasehold estate or the
lessor under a Ground Lease (if the property is not then subject to an
unsubordinated mortgage) is herein called a "First Mortgage" and the holder or
beneficiary of or Ground Lessor under any First Mortgage is herein called a
"First Mortgagee.") This Lease is, or shall be, subject and subordinate to any
First Mortgage now or hereafter encumbering the Building. This provision shall
be self-operative, and no further instrument of subordination shall be required
to effectuate such subordination. If requested by a First Mortgagee, Tenant will
either (i) subordinate its interest in this Lease to said First Mortgage, and to
any and all advances made thereunder and to the interest thereon, and to all
renewals, replacements, supplements, amendments, modifications and extensions
thereof, or (ii) make certain of Tenant's rights and interest in this Lease
superior thereto; and Tenant will promptly execute and deliver such agreement or
agreements as may be reasonably required by such Mortgagee or Ground Lessor;
provided, however, Tenant covenants it will not subordinate this Lease to any
Mortgage or Ground Lease other than a First Mortgage (including a Ground Lease
defined as a First Mortgage hereunder) without the prior written consent of the
First Mortgagee. Tenant agrees that Landlord may assign the rents and interests
in this Lease to the holder of any Mortgage or Ground Lease. In conjunction with
the foregoing provisions, Tenant hereby acknowledges its agreement to execute
the Subordination, Non-Disturbance and Attornment Agreement and/or the Lease
Estoppel Certificate required by such Mortgagee and/or Ground Lessor within ten
(10) days following the receipt of a written request therefor.
24.02 Attornment. It is further agreed that (a) if any Mortgage shall be
----------
foreclosed, or if any Ground Lease be terminated, (i) the liability of the
Mortgagee or purchaser at such foreclosure sale or the liability of a subsequent
owner designated as Landlord under this Lease shall exist only so long as such
Mortgagee, purchaser or owner is the owner of the Building or the land on which
the Building is located, and such liability shall not continue or survive after
further transfer of ownership; and (ii) upon request of the Mortgagee, if the
Mortgage shall be foreclosed, Tenant will attorn, as Tenant under this Lease, to
the purchaser at any foreclosure sale under any Mortgage or upon request of the
Ground Lessor, if any Ground Lease shall be terminated, Tenant will attorn as
Tenant under this Lease to the Ground Lessor, and Tenant will execute such
instruments as may be necessary or appropriate to evidence such attornment; (b)
this Lease may not be modified or amended so as to reduce the Rent or shorten
the Term provided hereunder, or so as to adversely affect in any other respect
to any material extent the rights of Landlord or its successor, nor shall this
Lease be canceled or surrendered, without the prior written consent, in each
instance, of the First Mortgagee; and (c) Tenant waives the provisions of any
statute or rule of law, now or hereafter in effect, that may give or purport to
give Tenant any right to terminate or otherwise adversely affect Landlord's
interest in this Lease or reduce or limit the obligations of Tenant hereunder in
the event of the prosecution or completion of any such foreclosure proceeding.
No Mortgagee or any purchaser at a foreclosure sale shall be liable for any act
or omission of Landlord which occurred prior to such sale or conveyance, nor
shall Tenant be entitled to any offset against or deduction from Rent due after
such date by reason of any act or omission of Landlord prior to such date.
Further, Tenant agrees that no Mortgagee shall be bound by the prepayment of
Rent made in excess of sixty (60) days before the date on which such payment is
due.
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24.03 Mortgagee Requirements. Should any prospective First Mortgagee
----------------------
require a modification or modifications of this Lease, which modification or
modifications will not cause an increased cost or expense to Tenant or in any
other way materially and adversely change the rights and obligations of Tenant
hereunder, in the reasonable judgment of Tenant, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within ten (10)
days following the request therefor. Should any prospective Mortgagee or Ground
Lessor require execution of a short form of lease for recording (containing,
among other customary provisions, the names of the parties, a description of the
Premises and the Term of this Lease), Tenant agrees to execute such short form
of Lease and deliver the same to Landlord within ten (10) days following the
request therefor.
24.04 Mortgagee's Notice and Cure Rights. Tenant agrees to simultaneously
----------------------------------
give any First Mortgagee, by registered or certified mail, a copy of any notice
or claim of default served upon Landlord by Tenant, provided that prior to such
notice Tenant has been notified in writing (by way of service on Tenant of a
copy or an assignment of Landlord's interests in leases, or otherwise) of the
address of such First Mortgagee. Tenant further agrees that if Landlord shall
have failed to cure such default within twenty (20) days after such notice to
Landlord (or if such default cannot be cured or corrected within that time, then
such additional time as may be necessary if Landlord has commenced within such
twenty (20) days and is diligently pursuing the remedies or steps necessary to
cure or correct such default), then the First Mortgagee shall have an additional
thirty (30) days within which to cure or correct such default (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if such First Mortgagee has commenced within such thirty
(30) days and is diligently pursuing the remedies or steps necessary to cure or
correct such default, including the time necessary to obtain possession if
possession is necessary to cure or correct such default) before Tenant may
exercise any right or remedy which it may have on account of any such default of
Landlord.
24.05 Estoppel Certificate. Tenant agrees that from time to time, within
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seven (7) days of receipt of prior written request by Landlord, Tenant will, and
Tenant will cause any subtenant, licensee, concessionaire or other occupant of
the Premises to, promptly complete, execute and deliver to Landlord or any party
or parties designated by Landlord a statement in writing certifying: (i) that
this Lease is unmodified and in full force and effect (or if there have been
modifications that the same are in full force and effect as modified and
identifying the modifications); (ii) the dates to which the Rent and other
charges have been paid; (iii) that the Premises have been unconditionally
accepted by Tenant (or if not, stating with particularity the reasons why the
Premises have, not been unconditionally accepted); (iv) the amount of any
Security Deposit held hereunder; (v) that, so far as the party making the
certificate knows, Landlord is not in default under any provisions of this
Lease, if such is the case, and if not, identifying all defaults with
particularity; and (vi) any other matter reasonably requested by Landlord. Any
purchaser or Mortgagee of any interest in the Building shall be entitled to rely
on said statement. Failure to give such a statement within seven (7) days after
said written request shall be conclusive evidence, upon which Landlord and any
such purchaser or Mortgagee shall be entitled to rely, that this Lease is in
full force and effect and Landlord is not in default and Tenant shall be
estopped from asserting against Landlord or any such purchaser or Mortgagee any
defaults of Landlord existing at that time but Tenant shall not thereby be
relieved of the affirmative obligation to give such statement. Moreover, if
Tenant fails to deliver or cause to be delivered such statement within said
seven (7) day period, Landlord shall be entitled to collect from Tenant upon
demand, as liquidated damages occasioned by such delay and not as a penalty (the
actual damages resulting from such delay being impossible to ascertain), a sum
equal to one-fifteenth of the Monthly Base Rent for each day, up to fifteen (15)
days, after the expiration of said seven (7) day period that Tenant fails to
deliver such statement. If such failure persists after such fifteen (15) day
period, Landlord shall be entitled to pursue any and all remedies it may have
with respect to such Default, including termination of this Lease or Tenant's
right to possession and collection of damages, including consequential damages,
arising by reason of such Default.
24.06 Nondisturbance Agreement Benefitting Tenant. Notwithstanding
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anything in this Lease to the contrary, Landlord shall use commercially
reasonable efforts to obtain and deliver to Tenant within forty-five (45) days
of the date of full execution of this Lease a nondisturbance agreement, as more
particularly described below, from any present mortgagee, beneficiary of a deed
of trust, or lender. Such
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nondisturbance agreement shall provide, among other things, that Tenant,
notwithstanding any default of Landlord thereunder, will have the right to
remain i n possession of the Premises described herein in accordance with the
terms and provisions of this Lease for so long as Tenant will not be in default
under this Lease.
ARTICLE 25
HAZARDOUS MATERIALS
Tenant covenants and agrees that it shall not cause or permit any Hazardous
Material (as defined below) to be brought upon, kept, or used in or about the
Premises or Building by Tenant, its agents, employees, contractors or invitees.
The foregoing covenant shall not extend to substances typically found or used in
general administrative office applications so long as (i) such substances and
any equipment which generates such substances are maintained only in such
quantities as are reasonably necessary for Tenant's operations in the Premises,
(ii) such substances are used strictly in accordance with the manufacturers'
instructions therefor, (iii) such substances are not disposed of in or about the
Building in a manner which would constitute a release or discharge thereof, and
(iv) all such substances and any equipment which generates such substances are
removed from the Building by Tenant upon the expiration or earlier termination
of this Lease. Any use, storage, generation, disposal, release or discharge by
Tenant of Hazardous Materials in or about the Building as is permitted pursuant
to this Section shall be carried out in compliance with all applicable federal,
state and local laws, ordinances, rules and regulations. Moreover, no Hazardous
Materials resulting from any operations by Tenant shall be stored or maintained
by Tenant in or about the Building for more than ninety (90) days prior to
removal by Tenant. Tenant shall, annually within thirty (30) days after
Tenant's receipt of Landlord's written request therefor, provide to Landlord a
written list identifying any Hazardous Materials then maintained by Tenant in
the Building, the use of each such Hazardous Material and the approximate
quantity of each such Hazardous Material so maintained by Tenant, together with
written certification by Tenant stating, in substance, that neither Tenant nor
any person for whom Tenant is responsible has released or discharged any
Hazardous Materials in or about the Building.
In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other than
as specified in the first paragraph of this subsection, Tenant shall first in
writing submit such use or equipment to Landlord for approval, which approval
may be granted or withheld in Landlord's sole discretion. No approval by
Landlord shall relieve Tenant of any obligation of Tenant pursuant to this
subsection, including the removal, clean-up and indemnification obligations
imposed upon Tenant by this subsection. Tenant shall, within five (5) days
after receipt thereof, furnish to Landlord copies of all notices or other
communications received by Tenant with respect to any actual or alleged release
or discharge of any Hazardous Material in or about the Premises or the Building
and shall, whether or not Tenant receives any such notice or communication,
notify Landlord in writing of any discharge or release of Hazardous Material by
Tenant or anyone for whom Tenant is responsible in or about the Premises or the
Building. In the event that Tenant is required to maintain any Hazardous
Materials license or permit in connection with any use conducted by Tenant or
any equipment operated by Tenant in the Premises, copies of each such license or
permit, each renewal or revocation thereof and any communication relating to
suspension, renewal or revocation thereof shall be furnished to Landlord within
five (5) days after receipt thereof by Tenant. Compliance by Tenant with the
two immediately preceding sentences shall not relieve Tenant of any other
obligation of Tenant pursuant to this subsection.
Upon any violation of the foregoing covenants, Tenant shall be obligated,
at Tenant's sole cost, to clean-up and remove from the Building all Hazardous
Materials introduced into the Building by Tenant or any person or entity for
whom Tenant is responsible. Such clean-up and removal shall include all testing
and investigation required by any governmental authorities having jurisdiction
and preparation and implementation of any remedial action plan required by any
governmental authorities having jurisdiction. All such clean-up and removal
activities of Tenant shall, in each instance, be conducted to the satisfaction
of Landlord and all governmental authorities having jurisdiction. Landlord's
right of entry pursuant to Article 16 above shall include the right to enter and
inspect the Premises for violations of Tenant's covenants herein.
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Notwithstanding and in addition to the provisions of Article 14 above,
Tenant shall indemnify, defend and hold harmless Landlord and Landlord's Related
Parties from and against any and all claims, liabilities, losses, actions, costs
and expenses (including attorneys' fees and costs of defense) incurred by such
indemnified persons, or any of them, as the result of (i) the introduction into
or about the Building by Tenant or anyone for whom Tenant is responsible of any
Hazardous Materials, (ii) the usage, storage, maintenance, generation,
disposition or disposal by Tenant or anyone for whom Tenant is responsible of
Hazardous Materials in or about the Building, (iii) the discharge or release in
or about the Building by Tenant or anyone for whom Tenant is responsible of any
Hazardous Materials, (iv) any injury to or death of persons or damage to or
destruction of property resulting from the use, introduction, maintenance,
storage, generation, disposal, disposition, release or discharge by Tenant or
anyone for whom Tenant is responsible of Hazardous Materials in or about the
Building, and (v) any failure of Tenant or anyone for whom Tenant is responsible
to observe the foregoing covenants of this subsection.
Upon any violation of the foregoing covenants, Landlord shall be entitled
to exercise all remedies available to a landlord against a defaulting tenant,
including but not limited to those set forth in Article 21 above. Without
limiting the generality of the foregoing, Tenant expressly agrees that upon any
such violation Landlord may, at its option, (i) immediately terminate this Lease
or (ii) continue this Lease in effect until compliance by Tenant with its clean-
up and removal covenant notwithstanding any earlier expiration date of the term
of this Lease. No action by Landlord hereunder shall impair the obligations of
Tenant pursuant to this subsection.
As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints and
solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined or
designated as hazardous or toxic, or other similar term, by any federal, state
or local environmental statute, regulation, or ordinance affecting the Premises
or Building presently in effect or that may be promulgated in the future, as
such statutes, regulations and ordinances may be amended from time to time,
including but not limited to the following statutes: Resource Conservation and
Recovery Act of 1976, 42 U.S.C. (S) 6901 et seq.; Comprehensive Environmental
-- ----
Response, Compensation, and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.;
-- ----
Clean Air Act, 42 U.S.C. (S)(S) 7401-7626; Water Pollution Control Act (Clean
Water Act of 1977), 33 U.S.C. (S) 1251 et seq.; Insecticide, Fungicide, and
-- ----
Rodenticide Act (Pesticide Act of 1987), 7 U.S.C. (S) 135 et seq.; Toxic
-- ----
Substances Control Act, 15 U.S.C. (S) 2601 et seq.; Safe Drinking Water Act, 42
-- ----
U.S.C. (S) 300(f) et seq.; National Environmental Policy Act (NEPA) 42 U.S.C.
-------
(S) 4321 et seq.; Refuse Act of 1899, 33 U.S.C. (S) 407 et seq.; Tenant
-- ---- -- ----
acknowledges that incorporation of any material containing asbestos into the
Premises is absolutely prohibited. Tenant agrees, represents and warrants that
it shall not incorporate or permit or suffer to be incorporated, knowingly or
unknowingly, any material containing asbestos into the Premises.
The provisions of this Article 25 shall survive the expiration or
termination of this Lease.
ARTICLE 26
RELOCATION OF TENANT
[INTENTIONALLY OMITTED]
ARTICLE 27
NOTICES AND DEMANDS
All notices, demands, approvals, consents, requests for approval or consent
or other writings in this Lease provided to be given, made or sent by either
party hereto to the other ("Notice") shall be in writing and shall be deemed to
have been fully given, made or sent when made by personal service or two (2)
business days after deposit in the United States mail, certified or registered
and postage prepaid and properly addressed as follows:
To Landlord: The address set forth in Section l.0l above, with a copy to
Landlord's Management Agent at the address set forth in Section
1.18 above.
29
<PAGE>
To Tenant: The address set forth in Section 1.02 above; provided, however, if
the Premises shall have been vacated, Notice may be posted on the
door to the Premises.
The address to which any Notice should be given, made or sent to either party
may be changed by written notice given by such party as above provided. Any
notice, demand, request or consent to be made by or required of Landlord, may be
made and given by Landlord's Management Agent with the same force and effect as
if made and given by Landlord.
ARTICLE 28
MISCELLANEOUS; TENANT OPTIONS
28.01 Landlord's Lien and Security Interest. [Intentionally Omitted]
-------------------------------------
28.02 Construction. The language in all parts of this Lease shall in all
be construed as a whole according to its fair meaning and neither strictly for
nor against either Landlord or Tenant. Article and Section headings in this
Lease are for convenience only and are not to be construed as part of this Lease
or in any way defining, limiting, amplifying, construing, or describing the
provisions hereof. Time is of the essence of this Lease and every term, covenant
and condition hereof. The words "Landlord" and "Tenant," as herein used, shall
include the plural as well as the singular. The neuter gender includes the
masculine and feminine. In the event there is more than one person or entity
which executes this Lease as Tenant, the obligations to be performed and
liability of all such persons and entities shall be joint and several. All of
the covenants of Tenant hereunder shall be deemed and construed to be
"conditions" as well as "covenants" as though the words specifically expressing
or importing conditions were used in each separate instance. Landlord and Tenant
agree that in the event any term, covenant or condition herein contained (other
than with respect to the payment of Rent) is held to be invalid or void by any
court of competent jurisdiction, the invalidity of any such term, covenant or
condition shall in no way affect any other term, covenant or condition herein
contained.
28.03 Brokers. Landlord and Tenant represent and warrant unto each other
-------
that each has directly dealt with and only with Landlord's Management Agent and
the Broker, if any, identified in Article 1 of this Lease as broker in
connection with this Lease, and agree to indemnify and hold harmless each other
from and against any and all claims or demands, damages, liabilities and
expenses of any type or nature whatsoever arising by reason of the incorrectness
or breach of the aforesaid representation or warranty. Landlord shall pay, and
agrees to indemnify and hold harmless Tenant from and against any claim by,
Landlord's Management Agent and the Broker for its commission arising out of the
execution and delivery of this Lease.
28.04 Benefit. Subject to the provisions of Articles 19 and 20 hereof,
-------
all terms, covenants and conditions on this Lease shall be binding upon and
inure to the benefit of and shall apply to the respective heirs, executors,
administrators, successors, assigns and legal representatives of Landlord and
Tenant.
28.05 Execution and Delivery. The submission of an unsigned copy of this
----------------------
Lease by Landlord or Tenant to the other will not constitute an offer or option
to lease the Premises. The execution of this Lease by Tenant and delivery of
the same to Landlord or Landlord's Management Agent do not constitute a
reservation of or option to lease the Premises or an agreement by Landlord to
enter into a Lease, and this Lease shall become effective only if and when
Landlord executes and delivers a counterpart hereof to Tenant; provided,
however, the execution and delivery by Tenant of this Lease to Landlord or
Landlord's Management Agent shall constitute an irrevocable offer by Tenant to
lease the Premises on the terms and conditions herein contained, which offer may
not be withdrawn or revoked for thirty (30) days after such execution and
delivery. If Tenant is a corporation, it shall deliver to Landlord concurrently
with the delivery to Landlord of an executed Lease, a certified resolution of
Tenant's directors authorizing execution and delivery of this Lease and the
performance by Tenant of its obligations hereunder. If Tenant is a partnership,
it shall deliver to Landlord concurrently with the delivery to Landlord of an
executed Lease, a certified copy of its partnership agreement or other
satisfactory evidence of execution and performance authority. Tenant shall not
record this Lease or any memorandum or other evidence hereof.
30
<PAGE>
28.06 Default Under Other Lease or Agreement. If the term of any lease
--------------------------------------
(other than this Lease) made by Tenant for any demised premises in the Building
or any other agreement with Landlord shall be terminated or terminable after the
making of this Lease, because of any default by Tenant under such other lease or
agreement, such fact shall empower Landlord, at Landlord's sole option, to
declare this Lease to be in default by written notice to Tenant.
28.07 Applicable Law. This Lease shall be governed by and construed in
--------------
accordance with the laws of the State of Colorado.
28.08 Amendments. This Lease contains and embodies the entire agreement
----------
of the parties hereto, and no representation, inducements or agreements, oral or
otherwise, not contained in this Lease shall be of any force or effect. This
Lease may not be modified in whole or in part in any manner other than by an
instrument in writing duly signed by both parties hereto.
28.09 Non-Waiver of Defaults. No waiver of any provision of this Lease
----------------------
shall be implied by any failure of Landlord to enforce any remedy on account of
the violation of such provision, even if such violation be continued or repeated
subsequently, and no express waiver shall affect any provision other than the
one specified in such waiver and in that event only for the time and in the
manner specifically stated. No receipt of monies by Landlord from Tenant after
the termination of this Lease will in any way alter the length of the Term of
Tenant's right of possession hereunder or, after the giving of any notice, shall
reinstate, continue or extend the Term or affect any notice given Tenant prior
to the receipt of such monies, it being agreed that after the service of notice
or the commencement of a suit or after final judgment for possession of the
Premises, Landlord may receive and collect any Rent due, and the payment of Rent
shall not waive or affect said notice, suit or judgment, nor shall any such
payment be deemed to be other than on account of the amount due, nor shall the
acceptance of Rent be deemed a waiver of any breach by Tenant of any term,
covenant or condition of this Lease. No endorsement or statement on any check
or any letter accompanying any check or payment of Rent shall be deemed an
accord and satisfaction. Landlord may accept any such check or payment without
prejudice to Landlord's right to recover the balance due of any installment or
payment of Rent or pursue any other remedies available to Landlord with respect
to any existing Defaults. None of the terms, covenants or conditions of this
Lease can be waived by either Landlord or Tenant except by appropriate written
instrument.
28.10 Force Majeure. Landlord shall not be deemed in default with respect
-------------
to the failure to perform any of the terms, covenants and conditions of this
Lease on Landlord's part to be performed, if such failure is due in whole or in
part to any strike, lockout, labor dispute (whether legal or illegal), civil
disorder, inability to procure materials, failure of power, restrictive
governmental laws and regulations, riots, insurrections, war, fuel shortages,
accidents, casualties, Acts of God, acts caused directly or indirectly by Tenant
(or Tenant's agents, employees, guests or invitees), acts of other tenants or
occupants of the Building or any other cause beyond the reasonable control of
Landlord. In such event, the time for performance by Landlord shall be extended
by an amount of time equal t o the period of the delay so caused. No
interruption of service resulting from any of the causes described in the first
sentence of the Section shall relieve Tenant of any of its obligations under
this Lease or render Landlord liable for damages. Landlord shall not be liable
to Tenant for any expense, injury, loss or damage resulting from work done in or
upon, or the use of, any adjacent or nearby building, land, street, alley or
underground vault or passageway.
28.11 Counterparts. This Lease may be executed in several duplicate
------------
counterparts, each of which shall be deemed an original of this Lease for all
purposes.
28.12 Work Letters and Exhibits. Any and all work letters and exhibits
-------------------------
attached hereto are hereby incorporated in this Lease by reference.
28.13 Financial Statements. Tenant shall, when requested by Landlord from
--------------------
time to time, furnish a true and accurate audited statement of its financial
condition prepared in conformity with generally accepted accounting principles
and in a form reasonably satisfactory to Landlord.
31
<PAGE>
28.14 Relationship of Parties. Nothing contained in this Lease shall
-----------------------
create any relationship between the parties hereto other than that of
Landlord and Tenant, and it is acknowledged and agreed that Landlord shall
not be deemed to be a partner of Tenant in the conduct of its business, or
a joint venturer or a member of a joint or common enterprise with Tenant.
28.15 No Recording. Tenant shall not record this Lease or any memorandum
------------
thereof without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole discretion.
28.16 Bankruptcy. Landlord and Tenant understand that, notwithstanding
----------
certain provisions to the contrary contained herein, a trustee or debtor in
possession under the United States Bankruptcy Code ("Code") may have certain
rights to assume or assign this Lease. Landlord and Tenant further understand
that, in such event, Landlord is entitled under the Code to adequate assurances
of future performance of the terms and provisions of this Lease. The parties
hereto agree that, with respect to any such assumption or assignment, the term
"adequate assurance" shall include at least the following: (1) since the
financial condition and resources of Tenant were a material inducement to
Landlord in entering into this Lease, in order to assure Landlord that the
proposed assignee will have the resources with which to pay all Rent payable
pursuant to the terms hereof, any proposed assignee must have, as demonstrated
to Landlord's satisfaction, a net worth (as defined in accordance with generally
accepted accounting principles consistently applied) of not less than the net
worth of tenant on the date this Lease became effective, increased by seven
percent (7%), compounded annually, for each year from the Commencement Date
through the date of the proposed assignment; (2) since Landlord's asset will be
substantially impaired if the trustee in bankruptcy or any assignee of this
Lease makes any use of the Premises other than the Permitted Use, any proposed
assignee must have been engaged in the conduct of business for the five (5)
years prior to any such proposed assignment, which business does not violate the
Permitted Use, and such proposed assignee shall continue to engage in the
Permitted Use; and (3) any proposed assignee of this Lease must assume and agree
to be personally bound by the terms, covenants and provisions of this Lease.
28.17 Landlord's Consent. Unless otherwise specifically provided herein,
------------------
wherever Landlord's consent is required, such consent may be withheld by
Landlord at Landlord's sole discretion.
28.18 Landlord's Contingency. Tenant acknowledges and agrees that the
----------------------
terms and conditions of this Lease are specifically contingent upon the approval
by Landlord's Mortgagee of this Lease. Accordingly, in the event that Landlord's
Mortgagee fails to approve this Lease, this Lease shall automatically terminate
and be of no further force or effect.
28.19 Renewal Term. [INTENTIONALLY OMITTED]
------------
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
LANDLORD: TENANT:
WESTMARK TERRACE TOWER II, INC., INTEK INFORMATION, INC., a
a Delaware corporation a Delaware corporation
By: /s/ Fred Wasson By: /s/ Patrick O'Neal
--------------- -------------------
Name: Fred Wasson Name: Patrick O'Neal
------------- --------------
Title: Authorized Signatory Title: Managing Director
By: /s/ Robert L. Rattray By: ______________________________
----------------------
Name: Robert L. Rattray Name: ____________________________
Title: Authorized Signatory Title: ___________________________
32
<PAGE>
EXHIBIT 10.18.1
FIRST AMENDMENT TO LEASE
------------------------
(Intek Information, Inc. - Terrace Tower II)
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made effective as of June 1,
1999, by and between Westmark Terrace Tower II, Inc., a Delaware corporation
("Landlord"), and Intek Information, Inc., a Delaware corporation ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant entered into that certain Office Lease dated
June 9, 1999 ("Lease"), pertaining to the premises currently comprised of a
total of approximately 15,613 rentable square feet of space, commonly referred
to as Suite 1200 ("Premises"), of the building located at 5619 DTC Parkway,
Englewood, Colorado 80111 ("Building"); and
WHEREAS, Tenant desires to take occupancy of the Premises on or about June
1, 1999, and Landlord and Tenant therefore desire to enter into this Amendment
to adjust the Commencement Date of the Lease and provide for certain other
matters as more fully set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree that the Lease shall be amended in
accordance with the terms and conditions set forth below.
1. Definitions. The capitalized terms used herein shall have the same
-----------
definition as set forth in the Lease, unless otherwise defined herein.
2. Commencement Date. The parties hereby acknowledge that the
-----------------
Commencement Date, as set forth in Section 1.08 of the Lease, is July 1, 1999.
However, the parties desire to accelerate the Commencement Date by one (1) month
to accommodate an early commencement of the Lease. Accordingly, the Commencement
Date is hereby amended to be and to mean June 1, 1999. The period commencing on
June 1, 1999, and expiring on June 30, 1999, shall herein be known as the
"Extension Period". The change to the Commencement Date shall not affect the
Expiration Date, which shall remain June 30, 2005.
3. Term. As a result of the change in the Commencement Date, as set forth
----
in Section 2 above, the parties hereby acknowledge and agree that the Term, as
defined in Section 1.07 of the Lease, is hereby amended to be and to mean six
(6) years and one (1) month.
4. Monthly Base Rent During Extension Period. Simultaneously with the
-----------------------------------------
delivery of this Amendment to Landlord, Tenant shall remit to Landlord the sum
of Five Thousand Five Hundred Thirty and No/100ths Dollars ($5,530.00), which
shall be considered as
1
<PAGE>
Monthly Base Rent for the Extension Period, thereby increasing the total Monthly
Base Rent during the entire Term to Two Million Five Hundred Thirty-Four
Thousand Eight Hundred Thirty-Six and No/100ths Dollars ($2,534,836.00).
Notwithstanding the foregoing, in the event not more than twenty (20) persons
ostensibly occupy and/or are in tenancy of the Premises at any time during the
Extension Period, as determined in Landlord's sole discretion (but in good
faith), then the Monthly Base Rent for the Extension Period shall be waived and
forgiven, and the payment of $5,530.00 remitted by Tenant shall be credited
against Monthly Base Rent due for the month of January 2000.
5. Tenant's Share During Extension Period. Tenant shall not be obligated
--------------------------------------
to pay Tenant's Share of Operating Expenses (including Taxes) which would
otherwise be payable during the Extension Period.
6. Rent Abatement. As a result of the change to the Commencement Date,
--------------
the parties desire to confirm the period during which certain amounts are to be
abated pursuant to Section 3 of Exhibit F (Special Provisions) to the Lease.
Accordingly, Section 3 of Exhibit F (Special Provisions) to Lease is hereby
deleted in its entirety and replaced with the following:
"3. Rent Abatement. Notwithstanding anything to the contrary contained
--------------
herein and provided Tenant shall faithfully perform all terms and
conditions hereof during the Term, then (i) during the six (6) month period
beginning on July 1, 1999, through December 31, 1999, Tenant's obligation
to pay Monthly Base Rent shall be abated at a rate of Thirty-Five Thousand
One Hundred Twenty-Nine and 25/100ths Dollars ($35,129.25) per month in the
total amount of Two Hundred Ten Thousand Seven Hundred Seventy-Five and
50/100ths Dollars ($210,775.50), and (ii) during the twelve (12) month
period beginning on July 1, 1999, through June 30, 2000, Adjustments
otherwise due from Tenant pursuant to Section 4.04 of the Lease shall be
abated. Such abatement shall apply to payment of the monthly installments
of Monthly Base Rent and payment of Operating Expenses only and shall not
be applicable to any other charges, expenses or costs payable by Tenant
under this Lease, including, without limitation, Tenant's obligation to pay
directly metered electricity charges. Landlord and Tenant agree that the
waiver of rental and other payments contained in this Section is
conditional and is made by Landlord in reliance upon Tenant's faithful and
continued performance of the terms, conditions and covenants of this Lease
and the payment of all monies due Landlord hereunder. In the event of
Tenant's faithful and continued timely performance hereunder and Tenant's
payment of all monies due Landlord and upon the expiration hereof, Landlord
shall have then waived and forgiven Tenant from rental payments specified
in this Section. In the event of Tenant's failure to perform pursuant to
the terms and conditions hereof, including the non-payment of any monies
due Landlord hereunder, Landlord shall have the right to demand payment of
all unpaid and conditionally waived rental and other payments in addition
to exercising any and all other remedies provided herein or at law and in
equity."
7. Brokers. Tenant hereby represents and warrants to Landlord that
-------
Tenant has not dealt with any real estate brokers or leasing agents, except CB
Richard Ellis, Inc., and The Staubach Company (collectively, the "Broker"), in
the negotiation of this Amendment, and that
2
<PAGE>
no commissions are payable to any party claiming through Tenant as a result of
the consummation of the transaction contemplated by this Amendment, except to
Broker, if applicable. Tenant hereby agrees to indemnify and hold Landlord
harmless from any and all loss, costs, damages or expenses, including, without
limitation, all attorneys' fees and disbursements by reason of any claim of or
liability to any other broker, agent, entity or person claiming through Tenant
(other than Broker) and arising out of or in connection with the negotiation and
execution of this Amendment.
8. Incorporation of Lease Terms; Conflict. With the exception of those
--------------------------------------
matters set forth in this Amendment, Tenant's leasing of the Premises shall be
subject to all terms, covenants and conditions of the Lease. In the event of any
express conflict or inconsistency between the terms of this Amendment and the
terms of the Lease, the terms of this Amendment shall control and govern.
9. Ratification. Except as expressly modified by this Amendment, all
------------
other terms and conditions of the Lease are hereby ratified and affirmed.
10. Validity of Lease. The parties acknowledge that the Lease is a valid
-----------------
and enforceable agreement and that Tenant holds no claims against Landlord or
its agents which might serve as the basis of any other set-off against accruing
rent and other charges or any other remedy at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
LANDLORD: TENANT:
WESTMARK TERRACE TOWER II, INC., INTEK INFORMATION, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Fred Wasson By: /s/ Patrick F. O'Neal
--------------- ---------------------
Name: Fred Wasson Name: Patrick F. O'Neal
Title: Authorized Signatory Title: Managing Director
By: /s/ Robert L. Rattray
---------------------
Name: Robert L. Rattray
Title: Authorized Signatory
3
<PAGE>
EXHIBIT 10.20
OFFICE LEASE
between
THE EQUITABLE LIFE ASSURANCE SOCIETY
of the UNITED STATES, A New York Corporation,
as managing owner
as Landlord
and
INTEK INFORMATION INC.,
A DELAWARE CORPORATION
d.b.a., PROTOCALL
as Tenant
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: March 5, 1997
Landlord: The Equitable Life Assurance Society of the United States, A New
York Corporation, as managing owner
Tenant: INTEK Information, Inc., d.b.a. Protocall
Building (Paragraph 1 (a)): Southland Square
Office Building
24301 Southland Drive
Hayward, CA 94545
Use: Paragraph #5, Telemarketing Office
Premises (Paragraph 1 (b)): Suite 300, 7,565 rentable square feet
Term Commencement (Paragraph 2): Thirty-Six (36) months commencing on April
1, 1997, or when Tenant opens for
business, whichever first occurs.
Commencement date to be adjusted as
it occurs (Exhibit "E").
Term Expiration (Paragraph 2): March 31, 2000
Options: Two (2) 1-Year options at prevailing
market rate.
Base Rent (Paragraph 3 (a)): April 1, 1997 - March 31, 1998 =
$7,565.00
April 1, 1998 - March 31, 1999 =
$8,321.50
April 1, 1999 - March 31, 2000 =
$9,078.00
Base Year (Paragraph 1 (c)): 1997
Tenant's Percentage Share (Paragraph 1 (h)): 4.84%
Security Deposit (Paragraph 32): $8,321.50
Tenant's Address for Notices
(Paragraph 34): INTEK Information, Inc.
370 - 17th Street, 39th floor
Denver, CO 80202
Landlord's Address
for Notices (Paragraph 39): The Equitable Life Assurance Society of the
United States
One Bush Street, Suite 1200
San Francisco, CA 94104
<PAGE>
Exhibit(s) and Addendum (Paragraph 41): Exhibits "A", "A-1", "B", "B-1",
"D", "E", "G", "H", "I",
and Lease Rider
The provisions of the Lease identified above in parentheses are those
provisions where references to particular Basic Lease Information appear. Each
such reference shall incorporate the applicable Basic Lease Information. In
the event of any conflict between any Basic Lease Information and the Lease,
the latter shall control.
TENANT: LANDLORD:
INTEK Information, Inc. The Equitable Life
Assurance Society of the United
States, a New York Corporation,
as managing owner
By: /s/ Frank Richards By: /s/ James M. Piane
------------------- -------------------
Its Executive Vice President Its Investment Officer
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
1. Definitions.............................................. 1
2. Term; Condition of Premises.............................. 2
3. Rental................................................... 2
4. Escalation Rent Payments................................. 3
5. Use...................................................... 10
6. Services................................................. 4
7. Impositions Payable by Tenant............................ 5
8. Alterations.............................................. 5
9. Liens.................................................... 6
10. Repairs.................................................. 6
11. Destruction or Damage.................................... 6
12. Insurance................................................ 7
13. Subrogation.............................................. 7
14. Indemnification.......................................... 8
15. Compliance with Legal Requirements....................... 8
16. Assignment and Subletting................................ 8
17. Rules; No Discrimination................................. 10
18. Entry by Landlord........................................ 10
19. Events of Default........................................ 10
20. Termination upon Default................................. 11
21. Continuation after Default............................... 11
22. Other Relief............................................. 12
23. Landlord's Right to Cure Defaults........................ 12
24. Attorneys' Fees.......................................... 12
25. Eminent Domain........................................... 12
26. Subordination............................................ 12
27. No Merger................................................ 13
28. Sale..................................................... 13
29. Estoppel Certificate..................................... 13
30. No Light, Air, or View Easement.......................... 13
31. Holding Over............................................. 13
32. Security Deposit......................................... 13
33. Waiver................................................... 13
34. Notices and Consents..................................... 14
35. Complete Agreement....................................... 14
36. Corporate Authority...................................... 14
37. Partnership Authority.................................... 14
38. Limitation of Liability to Build......................... 14
39. Brokers.................................................. 14
40. Miscellaneous............................................ 14
41. Exhibits................................................. 15
42. Additional Provisions.................................... 15
Rules and Regulations
Exhibit(s) and Addendum
</TABLE>
i
<PAGE>
OFFICE LEASE
THIS LEASE, dated MARCH 5, 1997, for purposes of reference only, is
made and entered into by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, A NEW YORK CORPORATION ("Landlord") and INTEK INFORMATION, INC,
A DELAWARE CORPORATION, d.b.a. PROTOCALL ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord the premises described in paragraph 1(b) below for the term and subject
to the terms, covenants, agreements and conditions hereinafter set forth, to
each and all of which Landlord and Tenant hereby mutually agree.
1. Definitions. Unless the context otherwise specifies or requires, the
-----------
following terms shall have the meanings herein specified:
(a) The term "Building" shall mean the land and other real property
described in the Basic Lease Information, as well as any property interest in
the area of the streets bounding the parcel described in the Basic Lease
Information, and all other improvements on or appurtenances to said parcel or
said streets.
(b) The term "Premises" shall mean the portion of the Building
located on the floor(s) specified in the Basic Lease Information which is
crosshatched on the floor plan(s) attached to this Lease as Exhibit A.
---------
(c) The term "Base Year" shall mean the calendar year specified in
the Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean (1) all costs of
management, operation and maintenance of the Building, including, without
limitation: wages, salaries and payroll burden of employees; property management
fees; janitorial, maintenance, lobby attendant and other services; Building
office rent or rental value; power, water, waste disposal and other utilities;
materials and supplies; maintenance, replacements and repairs; license costs;
insurance premiums and the deductible portion of any insured loss; and
depreciation on personal property; and (2) the cost of any capital improvements
made to the Building by Landlord after the Base Year that are reasonably
anticipated to reduce other Operating Expenses or are required for the health
and safety of tenants, or made to the Building by Landlord after the date of
this Lease that are required under any governmental law or regulation that was
not applicable to the Building at the time it was constructed, such cost or
allocable portion thereof to be amortized over such reasonable period as
Landlord shall determine together with interest on the unamortized balance at
the rate of 10% per annum or such higher rate as may have been paid by Landlord
on funds borrowed for the purpose of constructing such capital improvements.
Operating Expenses shall not include: Property Taxes; depreciation on the
Building other than depreciation on exterior window covering provided by
Landlord and carpeting in public corridors and common areas; costs of tenants'
improvements; real estate brokers' commissions; interest (except as stated in
clause (2) above); and capital items other than those referred to in Clause (2)
above. Actual operating Expenses for both the Base Year and each subsequent
calendar year shall be adjusted to equal Landlord's reasonable estimate of
Operating Expenses had the total rentable area of the Building been occupied.
Landlord and Tenant acknowledge that certain of the costs of management,
operation and maintenance of the Building and certain of the costs of the
capital improvements referred to in clause (2) above may be allocated
exclusively to a single component of the Building (e.g. to an office area, a
retail area or a parking facility) and certain of such costs may be allocated
among such components. The determination of such costs and their allocation
shall be in accordance with generally accepted accounting principles applied on
a consistent basis.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses paid or incurred by Landlord in the Base Year.
<PAGE>
(f) The term "Property Taxes" shall mean all real property taxes and
assessments (and any tax levied against the Building or the rents earned in
connection with the Building wholly or partly in lieu thereof) levied against
the Building, and all real estate tax consultant expenses and attorneys' fees
incurred for the purpose of maintaining an equitable assessed valuation of the
Building.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes paid by Landlord allocable to the Base Year.
(h) The term "Tenant's percentage share" shall mean the percentage
figure specified in the Basic Lease Information.
2. Term; Condition of Premises. The term of this Lease shall commence
---------------------------
and, unless sooner terminated as hereinafter provided, shall end on the dates
respectively specified in the Basic Lease Information. Unless otherwise agreed
by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to
Tenant on the commencement of the term in their then existing condition with no
alterations being made by Landlord. If Landlord has undertaken in this Lease to
make any alterations to the Premises prior to commencement of the term and the
alterations are completed prior to the date set forth in the Basic Lease
Information for commencement of the term, if Tenant desires to take occupancy in
advance of such date and Landlord consents to such prior occupancy Landlord
shall deliver the Premises to Tenant on such advance date as shall be mutually
approved by Landlord and Tenant and, notwithstanding anything to the contrary
contained herein, the term of this Lease shall commence upon such delivery. If
Landlord, for any reason whatsoever, cannot deliver the Premises to Tenant at
the commencement of the term, this Lease shall not be void or voidable, nor
shall Landlord be liable to Tenant for any loss or damage resulting therefrom,
but in that event rental shall be waived for the period between the commencement
of the term and the time when Landlord delivers the Premises to Tenant. No delay
in delivery of the Premises shall operate to extend the term hereof.
2
<PAGE>
3. Rental.
------
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year subsequent
to the Base Year shall be the Base Rent, increased by Tenant's percentage share
of the total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in such year over the Base Operating Expenses, and also increased by
Tenant's percentage share of the total dollar increase, if any, in Property
Taxes paid by Landlord in such year over the Base Property Taxes. Tenant
acknowledges that the Basic Lease Information may set forth different percentage
shares of Operating Expenses and Property Taxes or a single percentage share
applicable to both. The increased rental due pursuant to this subparagraph (a)
is hereinafter referred to as "Escalation Rent."
(b) Rental shall be paid to Landlord on or before the first day of
the term hereof and on or before the first day of each and every successive
calendar month thereafter during the term hereof. In the event the term of this
Lease commences on a day other than the first day of a calendar month or ends on
a day other than the last day of a calendar month, the monthly rental for the
first and last fractional months of the term hereof shall be appropriately
prorated.
(c) All sums of money due from Tenant hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid when due it shall nonetheless be collectible as additional rent with
the next installment of rental thereafter falling due, but nothing contained
herein shall be deemed to suspend or delay the payment of any sum of money at
the time it becomes due and payable hereunder, or to limit any other remedy of
Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other sums due hereunder after the expiration of any
applicable grace period described in paragraph 19(a) will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any encumbrances covering the Building and the Premises. Accordingly,
if any installment of rent or any other sums due from Tenant shall not be
received by Landlord prior to the expiration of any applicable grace period
described in paragraph 19(a), Tenant shall pay to Landlord a late charge equal
to 5% of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant based on the circumstances existing as of the
date of this Lease. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
(e) Any amount due from Tenant, if not paid when first due, shall
bear interest from the date due until paid at an annual rate equal to 4% over
the annual prime rate of interest announced publicly by Citibank, N.A. in New
York, New York from time to time (but in no event in excess of the maximum rate
of interest permitted by law), provided that interest shall not be payable on
late charges incurred by Tenant nor on any amounts upon which late charges are
paid by Tenant to the extent such interest would cause the total interest to be
in excess of that legally permitted. Payment of interest shall not excuse or
cure any default hereunder by Tenant.
(f) All payments due from Tenant shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. Escalation Rent Payments.
------------------------
(a) With respect to each calendar year during the term of this Lease
subsequent to the Base Year, Tenant shall pay to Landlord as additional rent, at
the times hereinafter set forth, an amount equal to the Escalation Rent. Prior
to or anytime after the commencement of any calendar year subsequent to the Base
Year Landlord may, but shall not be required to, notify Tenant of Landlord's
estimate of the amount, if any, of the Escalation Rent for such current calendar
year. Tenant shall pay to Landlord on the first day of each calendar month
during such current calendar year one-twelfth (1/12) of the amount of any such
estimated Escalation Rent for such
3
<PAGE>
current calendar year payable by Tenant hereunder. If at any time or times
Landlord determines that the amount of any Escalation Rent payable by Tenant for
the current year will vary from its estimate by more than 5%, Landlord may, by
notice to Tenant, revise Landlord's estimate for such year, and subsequent
payments by Tenant for such year shall be based on such revised estimate.
Following the close of each calendar year, Landlord shall deliver to Tenant a
statement of the actual amount of Escalation Rent for the immediately preceding
year, accompanied by a statement made by an accounting or auditing officer
designated by Landlord showing the Operating Expenses and Property Taxes on the
basis of which Escalation Rent was determined. The statement of said accounting
or auditing officer shall be final and binding upon Landlord and Tenant. All
amounts payable by Tenant as shown on said statement, less any amounts
theretofore paid by Tenant on account of Landlord's earlier estimate of
Escalation Rent for such calendar year made pursuant to this paragraph 4, shall
be paid by or, if Tenant theretofore shall have paid more than such amounts,
reimbursed to Tenant within ten (10) days after delivery of said statement to
Tenant.
(b) If this Lease shall terminate on a day other than the last day of
a calendar year, the amount of any Escalation Rent payable by Tenant for the
calendar year in which this Lease terminates shall be prorated on the basis by
which the number of days from the commencement of said calendar year to and
including said date on which this Lease terminates bears to 365 and shall be due
and payable when rendered notwithstanding termination of this Lease. Escalation
Rent allocable to the calendar year in which this Lease terminates shall be
deemed to have been incurred evenly over the entire twelve-month period of that
calendar year.
5. Use. The Premises shall be used for general office purposes and no
---
other without the prior written consent of Landlord, which may be granted or
denied in Landlord's absolute discretion. Tenant shall not do or permit to be
done in or about the Premises, nor bring or keep or permit to be brought or kept
therein, anything which is prohibited by or would in any way conflict with any
law, statute, ordinance or governmental rule or regulation now in force or which
may hereafter be enacted or promulgated, or which is prohibited by the standard
form of fire insurance policy, or would in any way increase the existing rate of
or affect any fire or other insurance upon the Building or any of its contents,
or cause a cancellation of any insurance policy covering the Building or any
part thereof or any of its contents. Without limiting the generality of the
foregoing or of paragraph 15 below, Tenant shall not bring, or permit to be
brought, upon the Premises, any hazardous or toxic materials or chemicals,
except for ordinary and customary office products and cleaning supplies which
are used, stored, and removed in compliance with all applicable laws, statutes,
ordinances and governmental rules, regulations or requirements. Tenant shall
promptly notify Landlord of all hazardous or toxic substances maintained in the
Premises. Tenant shall not do or permit anything to be done in or about the
Premises which would in any way obstruct or interfere with the rights of other
tenants of the Building, or injure or annoy them, or use or allow the Premises
to be used for any improper, immoral, unlawful or objectionable purposes, nor
shall Tenant cause, maintain or permit any nuisance or waste in, on or about the
Premises.
6. Services.
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(a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and restrooms,
windows, mechanical, plumbing and electrical equipment, and the structure itself
in reasonably good order and condition except for damage occasioned by the acts
of Tenant, its employees, agents, contractors or invitees, which damage shall be
repaired by Landlord at Tenant's expense.
(b) Landlord shall furnish the Premises with (1) electricity for
lighting and the operation of customary office machines, (2) heat and air
conditioning to the extent reasonably required for the comfortable occupancy by
Tenant in its use of the Premises during the period from 7 a.m. to 7 p.m. on
weekdays (except holidays) , or such shorter period as may be prescribed by any
applicable policies or regulations adopted by. any utility or governmental
agency, (3) elevator service, (4) lighting replacement (for building standard
lights), (5) restroom supplies, (6) window washing with reasonable frequency,
and (7) lobby attendant services and janitor service during the times and in the
manner that such services are customarily furnished in comparable office
buildings in the area. Landlord may establish reasonable measures to conserve
energy, including but not limited to, automatic switching of lights after hours,
so long as such measures do not unreasonably interfere with Tenant's use of the
Premises. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of use
of any equipment in connection with the furnishing of any of the foregoing
services, (ii) failure to furnish or delay in furnishing any such services when
such failure or delay is caused by accident or any condition beyond the
4
<PAGE>
the actual or reasonable control of Landlord or by the making of necessary
repairs or improvements to the Premises or to the Building, or (iii) the
limitation, curtailment, rationing or restrictions on use of water, electricity,
gas or any other form of energy serving the Premises or the Building. Landlord
shall use reasonable efforts diligently to remedy any interruption in the
furnishing of such services.
(c) Whenever heat-generating equipment or lighting other than
building standard lights are used in the Premises by Tenant which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right, after notice to Tenant, to install supplementary air
conditioning facilities in the Premises or otherwise modify the ventilating and
air conditioning system serving the Premises, and the cost of such facilities
and modifications shall be borne by Tenant. Tenant shall also pay the cost of
providing all cooling energy to the Premises in excess of that required for
normal office use or during hours requested by Tenant when air conditioning is
not otherwise furnished by Landlord. If there is installed in the Premises
lighting requiring power in excess of that required for normal office use in the
Building or if there is installed in the Premises equipment requiring power in
excess of that required for normal desk-top office equipment or normal copying
equipment, Tenant shall pay for the cost of such excess power, together with the
cost of installing any additional risers or other facilities that may be
necessary to furnish such excess power to the Premises.
(d) In the event that Landlord, at Tenant's request, provides
services to Tenant that are not otherwise provided for in this Lease, Tenant
shall pay Landlord's reasonable charges for such services upon billing therefor.
7. Impositions Payable by Tenant. In addition to the monthly rental and
-----------------------------
other charges to be paid by Tenant hereunder, Tenant shall pay or reimburse
Landlord for any and all of the following items (hereinafter collectively
referred to as "Impositions"), whether or not now customary or in the
contemplation of the parties hereto: taxes (other than local, state and federal
personal or corporate income taxes measured by the net income of Landlord from
all sources), assessments (including, without limitation, all assessments for
public improvements, services or benefits, irrespective of when commenced or
completed), excises, levies, business taxes, license, permit, inspection and
other authorization fees, transit development fees, assessments or charges for
housing funds, service payments in lieu of taxes and any other fees or charges
of any kind, which are levied, assessed, confirmed or imposed by any public
authority, but only to the extent the impositions are (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, or the cost or
value of any leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements shall be in Tenant or Landlord;
(b) upon or measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross receipts tax levied by the City of
Hayward, County of Alameda, the state of California, the Federal Government or
any other governmental body with respect to the receipt of such rental; (c)
upon, with respect to or by reason of the development, possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or (d) upon this transaction or
any document to which Tenant is a party creating or transferring an interest or
an estate in the Premises. In the event that it shall not be lawful for Tenant
to reimburse Landlord for the Impositions but it is lawful to increase the
monthly rental to take into account Landlord's payment of the Impositions, the
monthly rental payable to Landlord shall be revised to net Landlord the same net
return without reimbursement of the Impositions as would have been received by
Landlord with reimbursement of the Impositions.
8. Alterations.
-----------
(a) Tenant shall make no alterations, additions or improvements to
the Premises or install fixtures in the Premises without first obtaining
Landlord's consent, which consent shall not be unreasonably withheld. In no
event, however, may the Tenant make any alterations, additions or improvements
or install fixtures which in Landlord's reasonable judgment might adversely
affect the structural components of the Building or Building mechanical, utility
or life safety systems. At the time such consent is requested, Tenant shall
furnish to Landlord a description of the proposed work, an estimate of the cost
thereof and such information as shall reasonably be requested by Landlord
substantiating Tenant's ability to pay for such work. Landlord, at its sole
option, may require as a condition to the granting of such consent to any work
costing in excess of $10,000, that Tenant provide to Landlord, at Tenant's sole
cost and expense, a lien and completion bond in an amount equal to one and one-
half (1 1/2) times any and all estimated costs of the proposed work, to insure
Landlord against any liability
5
<PAGE>
for mechanics' and materialmen's liens and to insure completion of the work.
Before commencing any work, Tenant shall give Landlord at least five (5) days
written notice of the proposed commencement of such work in order to give
Landlord an opportunity to prepare, post and record such notice as may be
permitted by law to protect Landlord's interest in the Premises and the Building
from mechanics' and materialmen's liens. Within a reasonable period following
completion of any work for which plans and specifications were required to
obtain a building permit for such work, Tenant shall furnish to Landlord "as
built" plans showing the changes made to the Premises.
(b) Any alterations, additions or improvements to the Premises shall
be made by Tenant at Tenant's sole cost and expense, and any contractor or other
person selected by Tenant to make the same shall be subject to Landlord's prior
approval, which approval shall not be unreasonably withheld. Tenant's contractor
and its subcontractors shall employ union labor to the extent necessary to
insure, so far as may be possible, the progress of the alterations, additions or
improvements and the performance of any other work or the provision of any
services in the Building without interruption on account of strikes, work
stoppage or similar causes of delay. All work performed by Tenant shall comply
with the laws, rules, orders, directions, regulations and requirements of all
governmental entities having jurisdiction over such work and shall comply with
the rules, orders, directions, regulations and requirements of any nationally
recognized board of insurance underwriters. All alterations, additions and
improvements shall immediately become Landlord's property and, at the end of the
term hereof, shall remain on the Premises without compensation to Tenant;
provided, however, that if Landlord at the time of consenting to the making of
such alterations, additions and improvements reserved the right to have Tenant
remove such alterations, additions and improvements, Tenant shall, prior to the
end of the term, at its sole cost and expense, remove the alterations, additions
and improvements and repair and restore the Premises to their condition at the
commencement of the term.
9. Liens. Tenant shall keep the Premises and the Building free from any
-----
liens (and claims thereof) arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. Landlord shall have the
right to post and keep posted on the Premises any notices that may be provided
by law or which Landlord may deem to be proper for the protection of Landlord,
the Premises and the Building from such liens and claims.
10. Repairs. By entry hereunder Tenant accepts the Premises as being in
-------
the condition in which Landlord is obligated to deliver the Premises, provided
that such acceptance shall not extend to latent defects which are not
discoverable through a diligent inspection of the Premises. Tenant shall, at all
times during the term hereof and at Tenant's sole cost and expense, keep the
Premises in good condition and repair, ordinary wear and tear and damage thereto
by fire, earthquake, act of God or the elements excepted. Tenant hereby waives
all rights to make repairs at the expense of Landlord or in lieu thereof to
vacate the Premises. Tenant shall at the end of the term hereof surrender to
Landlord the Premises and all Alterations thereto in the same condition as when
received, ordinary wear and tear and damage by fire, earthquake, act of God or
the elements excepted. Landlord has no obligation and has made no promise to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof, except as specifically herein set forth. No representations respecting
the condition of the Premises or the Building have been made by Landlord to
Tenant, except as specifically herein set forth.
11. Destruction or Damage.
---------------------
(a) In the event the Premises or the portion of the Building
necessary for Tenant's use and enjoyment of the Premises are damaged by fire,
earthquake, act of God, the elements or other casualty, Landlord shall repair
the same, subject to the provisions of this paragraph hereinafter set forth, if
(i) such repairs can, in Landlord's opinion, be made within a period of 180 days
after commencement of the repair work, (ii) the cost of repairing damage for
which Landlord is not insured shall be less than ten percent (10%) of the then
full insurable value of the Premises with respect to repairing any damage to the
Premises or five percent (5%) of the then full insurable value of the Building
with respect to repairing any damage to other areas of the Building, and (iii)
the damage or destruction does not occur during the last twelve (12) months of
the term of this Lease or any extension thereof. This Lease shall remain in full
force and effect except that so long as the damage or destruction is not caused
by the fault or negligence of Tenant, its contractors, agents, employees or
invitees, an abatement of rental shall be allowed Tenant for such part of the
Premises as shall be rendered unusable by Tenant in the conduct of its business
during the time such part is so unusable.
6
<PAGE>
(b) As soon as is reasonably possible following the occurrence of any
damage, Landlord shall notify Tenant of the estimated time and cost required for
the repair or restoration of the Premises or the portion of the Building
necessary for Tenant's occupancy. If, in Landlord's opinion, such repairs cannot
be made within 180 days as set forth in subparagraph (a)(i) above, Landlord or
Tenant may elect by written notice to the other within 30 days after Landlord's
notice of estimated time and cost is given, to terminate this Lease effective as
of the date of such damage or destruction. If Landlord is not obligated to
effect the repair based upon the circumstances set forth in subparagraphs
(a)(ii) or (a)(iii) above, Landlord shall have the right to terminate this
Lease, by written notice to Tenant within 30 days after Landlord's notice of
time and cost is given, effective as of the date of such damage or destruction.
If neither party so elects to terminate this Lease, this Lease shall continue in
full force and effect, but the rent shall be partially abated as hereinabove in
this paragraph provided, and Landlord shall proceed diligently to repair such
damage.
(c) A total destruction of the Building shall automatically terminate
this Lease. Tenant waives California Civil Code Sections 1932, 1933, 1941 and
1942 providing for (among other things) termination of hiring upon destruction
of the thing hired and the right to make repairs and to vacate the Premises
under certain conditions.
(d) In no event shall Tenant be entitled to any compensation or
damages from Landlord, specifically including, but not limited to, any
compensation or damages for (i) loss of the use of the whole or any part of the
Premises, (ii) damage to Tenant's personal property in or improvements to the
Premises, or (iii) any inconvenience, annoyance or expense occasioned by such
damage or repair (including moving expenses and the.-expense of establishing and
maintaining any temporary facilities).
(e) Landlord, in repairing the Premises, shall not be required to
repair any injury or damage to the personal property of Tenant, or to make any
repairs to or replacement of any alterations, additions, improvements or
fixtures installed on the Premises by or for Tenant.
12. Insurance.
---------
(a) Tenant agrees to procure and maintain in force during the term
hereof, at Tenant's sole cost and expense, commercial General Liability
insurance in an amount not less than two million dollars ($2,000,000) combined
single limit for bodily injury and property damage for injuries to or death of
persons and property damage occurring in, on or about the Premises or the
Building. Such policy shall name Landlord, Landlord's managing agent and any
other party designated by Landlord as additional insureds, shall insure
Landlord's and Landlord's managing agent's contingent liability as respects acts
or omissions of Tenant, shall be issued by a company licensed to do business in
the State of California and otherwise reasonably acceptable to Landlord, and
shall provide that the policy may not be cancelled nor amended without thirty
(30) days prior written notice to Landlord. Tenant may carry said insurance
under a blanket policy, provided however, said insurance by Tenant shall include
an endorsement confirming application to and coverage of Landlord. Said
insurance shall be primary insurance to any other insurance that may be
available to Landlord. Any other insurance available to Landlord shall be non-
contributing with and excess to this insurance.
(b) A copy of such policy of insurance shall be delivered to Landlord
by Tenant prior to commencement of the term of this Lease and upon each renewal
of such insurance.
(c) Tenant shall, prior to and throughout the term of this Lease,
procure from each of its insurers under all policies of fire, theft, public
liability, workers' compensation and any other insurance policies of Tenant now
or hereafter existing, pertaining in any way to the Premises or the Building or
any operation therein, a waiver, as set forth in paragraph 13 of this Lease, of
all rights of subrogation which the insurer-might otherwise, if at all, have
against the Landlord or any officer, agent or employee of Landlord (including
Landlord's managing agent).
13. Subrogation. Landlord and Tenant shall each obtain from its
-----------
respective insurers under all policies of fire, theft, public liability,
worker's compensation and other insurance maintained by either of them at any
time during the term hereof insuring or covering the Building or any portion
thereof or operations therein, a waiver of all rights of subrogation which the
insurer of one party might have against the other party, and Landlord and Tenant
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<PAGE>
shall each indemnify the other against and reimburse the other for any and all
loss or expense, including reasonable attorneys' fees, resulting from the
failure to obtain such waiver.
14. Indemnification. Tenant hereby waives all claims against Landlord
---------------
for damage to any property or injury or death of any person in, upon or about
the Premises arising at any time and from any cause other than principally by
reason of gross negligence or willful act of Landlord, its employees or
contractors, and Tenant shall defend Landlord against, hold Landlord harmless
from, and reimburse Landlord for any and all claims, liability, damage and loss
arising out of (a) injury to or death of any person, and (b) damage to or
destruction of any property, attributable to or resulting from the condition,
use or occupancy of the Premises by Tenant or Tenant's failure to perform its
obligations under this Lease, except such as is caused principally by gross
negligence or willful act of Landlord, its contractors or employees. The
foregoing indemnity obligation of Tenant shall include reasonable attorneys'
fees, investigation costs and all other reasonable costs and expenses incurred
by Landlord from the first notice that injury, death or damage has occurred or
that any claim or demand is to be made or may be made. The provisions of this
paragraph shall survive the termination of this Lease with respect to any
damage, injury or death occurring prior to such termination.
15. Compliance with Legal Requirements. Tenant, at its sole cost and
----------------------------------
expense, shall-promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, with the requirements of any board of fire underwriters
or other similar body now or hereafter constituted, with any direction or
occupancy certificate issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Premises (including, without limitation, any ground lease, mortgage or
covenants, conditions and restrictions), insofar as any thereof relate to or
affect the condition, use or occupancy of the Premises, including structural
utility system and life safety system changes necessitated by Tenant's acts, use
of the Premises or by improvements made by or for Tenant.
16. Assignment and Subletting.
-------------------------
(a) Tenant shall not hypothecate or encumber this Lease or any
interest herein without the prior written consent of Landlord, which may be
granted or denied in Landlord's absolute discretion. Tenant shall not, without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld by Landlord, transfer or assign this Lease or any interest herein,
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. This Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law without
the consent of Landlord, which consent shall not be unreasonably withheld. Any
of the foregoing acts without such consent shall be void and shall, at the
option of Landlord, terminate this Lease. In connection with each consent
requested by Tenant, Tenant shall submit to Landlord the terms of the proposed
transaction, the identity of the parties to the transaction, the proposed
documentation for the transaction, and all other information reasonably
requested by Landlord concerning the proposed transaction and the parties
involved.
(b) If the Tenant is a privately held corporation, or is an
unincorporated association or partnership, the transfer, assignment, or
hypothecation of any stock or interest in such corporation, association, or
partnership in excess of fifty percent (50%) in the aggregate shall be deemed an
assignment or transfer within the meaning and provisions of this paragraph 16.
If Tenant is a publicly held corporation, the public trading of stock in Tenant
shall not be deemed an assignment or transfer within the meaning of this
paragraph.
(c) Without limiting the other instances in which it may be
reasonable for Landlord to withhold its consent to an assignment or subletting,
Landlord and Tenant acknowledge that it shall be reasonable for Landlord to
withhold its consent in the following instances:
(1) if at the time consent is requested or at any time prior to
the granting of consent, Tenant is in default under this Lease or would be in
default under this Lease but for the pendency of any grace or cure period under
paragraph 19 below;
(2) if the proposed assignee or sublessee is a governmental
agency;
8
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(3) if, in Landlord's reasonable judgment, the use of the
Premises by the proposed assignee or sublessee would not be comparable to the
types of office use by other tenants in the Building, would entail any
alterations which would lessen the value of the leasehold improvements in the
Premises, or would conflict with any so-called "exclusive" or percentage lease
then in favor of another tenant of the Building;
(4) if, in Landlord's reasonable judgment, the financial worth
of the proposed assignee or sublessee does not meet the credit standards applied
by Landlord for other tenants under leases with comparable terms, or the
character, reputation, or business of the proposed assignee or sublessee is not
consistent with the quality of the other tenancies in the Building;
(5) if in case of subletting, such subletting is of less than
the, entire Premises; and
(6) if the proposed assignee or sublessee is an existing tenant
of the Building.
(d) If at any time during the term of this Lease Tenant desires to
assign its interest in this Lease or sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms of the proposed
assignment or subletting ("Tenant's Notice"). Landlord shall have the option,
exercisable by notice given to Tenant within thirty (30) days after Tenant's
Notice is given ("Landlord's Option Period"), either (1) to consent to the
assignment in which event the provisions of subparagraph (g) shall be
applicable, or to consent to the subletting in which event the provisions of
subparagraph (h) shall be applicable; (2) to become the assignee or sublessee of
Tenant (instead of the entity specified in Tenant's Notice) upon the terms set
forth in Tenant's Notice; (3) in the event of a proposed assignment, to
terminate this Lease and to retake possession of the Premises; or (4) in the
event of a proposed subletting of the entire Premises, or a portion of the
Premises for all or substantially all of the remainder of the term, to terminate
this Lease with respect to, and to retake possession of, the space in question,
together with, if only a portion of the Premises is involved, such rights of
access to and from such portion as may be reasonably required for its use and
enjoyment.
(e) The provisions of subparagraphs (a) and (b) above
notwithstanding, Tenant may assign this Lease or sublet the Premises or any
portion thereof, with prior notice to Landlord but without the necessity of
Landlord's consent and without extending any option to Landlord pursuant to
subparagraph (d) above, to any corporation which controls, is controlled by or
is under common control with Tenant, to any corporation resulting from the
merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant as a going concern of the business that is being
conducted on the Premises,
(f) No sublessee (other than Landlord if it exercises its option
pursuant to subparagraph (d) above) shall have a right further to sublet without
Landlord's prior consent, which Tenant acknowledges may be withheld in
Landlord's absolute discretion, and any assignment by a sublessee of its
sublease shall be subject to Landlord's prior consent in the same manner as if
Tenant were entering into a new sublease. No sublease, once consented to by
Landlord, shall be modified or terminated by Tenant without Landlord's prior
consent, which consent shall not be unreasonably withheld.
(g) In the case of an assignment to an entity other than Landlord,
50% of any sums or other economic consideration received by Tenant as a result
of such assignment shall be paid to Landlord after first deducting the
unamortized cost of leasehold improvements paid for by Tenant, and the cost of
any real estate commissions incurred by Tenant in connection with such
assignment.
(h) In the case of a subletting to an entity other than Landlord, 50%
of any sums or economic consideration received by Tenant as a result of such
subletting shall be paid to Landlord after first deducting (1) the rental due
hereunder, prorated to reflect only rental allocable to the sublet portion of
the Premises, (2) the cost of leasehold improvements made to the sublet portion
of the Premises at Tenant's cost, amortized over the term of this Lease except
for leasehold improvements made for the specific benefit of the sublessee, which
shall be amortized over the term of the sublease, and (3) the cost of any real
estate commissions incurred by-Tenant in connection with such subletting,
amortized over the term of the sublease.
(i) Regardless of Landlord's consent, no subletting or assignment
(except to Landlord) shall release Tenant of Tenant's obligation or alter the
primary liability of Tenant to pay the rental and to perform all other
9
<PAGE>
obligations to be performed by Tenant hereunder. The acceptance of rental by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Tenant or any successor of Tenant in the performance
of any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee or successor.
Landlord may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant of liability under
this Lease.
(j) In the event Tenant shall assign this Lease or sublet the
Premises or request the consent of Landlord to any assignment, subletting,
hypothecation or other action requiring Landlord's consent hereunder, then
Tenant shall pay Landlord's then reasonable and standard processing fee and
Landlord's reasonable attorneys' fees incurred in connection therewith.
17. Rules; No Discrimination. Tenant shall faithfully observe and comply
------------------------
with the rules and regulations annexed to this Lease, and after notice thereof,
all reasonable modifications thereof and additions thereto from time to time
promulgated in writing by Landlord. Landlord shall not be responsible to Tenant
for the nonperformance by any other tenant or occupant of the Building of any of
said rules and regulations. Tenant specifically covenants and agrees that Tenant
shall not discriminate against or segregate any person or group of persons on
account of race, sex, creed, color, national origin, or ancestry in the
occupancy, use, sublease, tenure or enjoyment of the Premises.
18. Entry by Landlord. Landlord may enter the Premises at reasonable
-----------------
hours to (a) inspect the same; (b) exhibit the same to prospective purchasers,
lenders or tenants, provided, however, that Landlord shall only exhibit the
Premises to prospective tenants during the final 90 days of Tenant's occupancy
of the Premises; and (c) make repairs or perform maintenance required of
Landlord under the terms hereof or repairs to any adjoining space or utility
services or make repairs, alterations or improvements to any other portion of
the Building; provided, however, that all such work shall be done as promptly as
reasonably possible and so as to cause as little interference to Tenant as
reasonably possible. Tenant hereby waives any claim for damages for any
inconvenience to or interference with Tenant's business or any loss of occupancy
or quiet enjoyment of the Premises occasioned by such entry. Landlord shall at
all times have and retain a key with which to unlock all of the doors in, on or
about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant in advance); and Landlord shall have the right
to use any and all means which Landlord may deem proper to open Tenant's doors
in an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord in an emergency shall not be construed or deemed
to be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. Events of Default. The following events shall constitute Events of
-----------------
Default under this Lease:
(a) a default by Tenant in the payment when due of any rent or other
sum payable hereunder and the continuation of such default for a period of 10
days after the same is due;
(b) a default by Tenant in the performance of any of the other terms,
covenants, agreements or conditions contained herein and, if the default is
curable, the continuation of such default for a period of 20 days after notice
by Landlord or beyond the time reasonably necessary for cure if the default is
of a nature to require more than 20 days to remedy;
(c) the bankruptcy or insolvency of Tenant, transfer by Tenant in
fraud of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of any proceedings of any kind by or against Tenant under any
provision of the Federal Bankruptcy Act or under any other insolvency,
bankruptcy or reorganization act unless, in the event any such proceedings are
involuntary, Tenant is discharged from the same within 60 days thereafter;
(d) the appointment of a receiver for a substantial part of the
assets of Tenant;
(e) the abandonment of the Premises; and
10
<PAGE>
(f) the levy upon this Lease or any estate of Tenant hereunder by any
attachment or execution and the failure to have such attachment or execution
vacated within 20 days thereafter.
20. Termination Upon Default. Upon the occurrence of any Event of Default
------------------------
by Tenant hereunder, Landlord may, at its option and without any further notice
or demand, in addition to any other rights and remedies given hereunder or by
law, terminate this Lease and exercise its remedies relating thereto in
accordance with the following provisions:
(a) Landlord shall have the right, so long as the Event of Default
remains uncured, to give notice of termination to Tenant, and on the date
specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease, Landlord may
then or at any time thereafter by judicial process, re-enter the Premises and
remove therefrom all persons and property and again repossess and enjoy the
Premises, without prejudice to any other remedies that Landlord may have by
reason of Tenant's default or of such termination.
(c) In the event of any such termination of this Lease, and in
addition to any other rights and remedies Landlord may have, Landlord shall have
all of the rights and remedies of a landlord provided by Section 1951.2 of the
California Civil Code. The amount of damages which Landlord may recover in
event of such termination shall include, without limitation, (1) the worth at
the time of award (computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent)
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss that Tenant proves could be
reasonably avoided, (2) all legal expenses and other related costs incurred by
Landlord following Tenant's default, (3) all costs incurred by Landlord in
restoring the Premises to good order and condition, or in remodeling, renovating
or otherwise preparing the Premises for reletting, and (4) all costs (including,
without limitation, any brokerage commissions) incurred by Landlord in reletting
the Premises.
(d) After terminating this Lease, Landlord may remove any and all
personal property located in the Premises and place such property in a public or
private warehouse or elsewhere at the sole cost and expense of Tenant. In the
event that Tenant shall not immediately pay the cost of storage of such property
after the same has been stored for a period of thirty (30) days or more,
Landlord may sell any or all thereof at a public or private sale in such manner
and at such times and places as Landlord in its sole discretion may deem proper,
without notice to or demand upon Tenant. Tenant waives all claims for damages
that may be caused by Landlord's removing or storing or selling the property as
herein provided, and Tenant shall indemnify and hold Landlord free and harmless
from and against any and all losses, costs and damages, including without
limitation all costs of court and attorneys' fees of Landlord occasioned
thereby.
(e) In the event of the occurrence of any of the events specified in
paragraph 19(c) of this Lease, if Landlord shall not choose to exercise, or by
law shall not be able to exercise, its rights hereunder to terminate this Lease,
then, in addition to any other rights of Landlord hereunder or by law, (1)
Landlord may discontinue the services provided pursuant to paragraph 6 of this
Lease, unless Landlord has received compensation in advance for such services in
the amount of Landlord's reasonable estimate of the compensation required with
respect to such services, and (2) neither Tenant as debtor-in-possession, nor
any trustee or other person (collectively, the "Assuming Tenant") shall be
entitled to assume this Lease unless on or before the date of such assumption,
the Assuming Tenant (a) cures, or provides adequate assurance that the Assuming
Tenant will promptly cure, any existing default under this Lease, (b)
compensates, or provides adequate assurance that the Assuming Tenant will
promptly compensate, Landlord for any pecuniary loss (including, without
limitation, attorneys' fees and disbursements) resulting from such default, and
(c) provides adequate assurance of future performance under this Lease. For
purposes of this subparagraph (e), "adequate assurance" of such cure,
compensation or future performance shall be effected by the establishment of an
escrow fund for the amount at issue or by bonding.
21. Continuation after Default. Landlord shall have the remedy described
--------------------------
in California Civil Code Section 1951.4 (i.e. Landlord may continue this Lease
in effect after Tenant's abandonment and recover rental as it becomes due,
because Tenant has the right to sublet or assign, subject only to reasonable
limitations). Even though Tenant has breached this Lease and abandoned the
Premises, this Lease shall continue in effect for so long as
11
<PAGE>
Landlord does not terminate Tenant's right to possession, and Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the rental as it becomes due under this Lease. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a receiver
upon initiative of Landlord to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession.
22. Other Relief. The remedies provided for in this Lease are in addition
------------
to any other remedies available to Landlord at law or in equity by statute or
otherwise.
23. Landlord's Right to Cure Defaults. All agreements and provisions to
---------------------------------
be performed by Tenant under any of the terms of this Lease shall be at its sole
cost and expense and without any abatement of rental. If Tenant shall fail to
pay any sum of money, other than rental, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder and
such failure shall continue for 20 days after notice thereof by Landlord, or
such longer period as may be allowed hereunder, Landlord may, but shall not be
obligated so to do, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such other act on Tenant's part
to be made or performed as in this Lease provided to the extent Landlord may
deem desirable, with full right of offset. All sums so paid by Landlord (with
interest at an annual rate equal to four percent (4%) over the annual prime rate
of interest announced publicly by Citibank, N.A., in New York, New York from
time to time, but in no event in excess of the maximum interest rate permitted
by law) and all necessary incidental costs shall be payable to Landlord on
demand.
24. Attorneys' Fees. If any action arising out of this Lease is brought
----------------
by either party hereto against the other, then and in that event the
unsuccessful party to such action shall pay to the prevailing party all costs
and expenses, including reasonable attorneys' fees, incurred by such prevailing
party, and if the prevailing party shall recover judgment in such action, such
costs, expenses and attorneys' fees shall be included in and as part of such
judgment.
25. Eminent Domain. If all or any part of the Premises shall be taken as
--------------
a result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the case of
a partial taking, either Landlord or Tenant shall have the right to terminate
this Lease as to the balance of the Premises by notice to the other within 30
days after such date, provided, however, that a condition to the exercise by
Tenant of such right to terminate shall be that the portion of the Premises
taken shall be of such extent and nature as substantially to handicap, impede or
impair Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to any and all compensation, damages, income, rent,
awards, or any interest therein whatsoever which may be paid or made in
connection therewith, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease or otherwise. In the event of a
partial taking of the Premises which does not result in a termination of this
Lease, the monthly rental thereafter to be paid shall be equitably reduced.
26. Subordination.
-------------
(a) This Lease shall be subject and subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Building and to any and all advances made on the
security thereof or Landlord's interest therein, and to all renewals,
modifications, consolidations, replacements and extensions thereof. In the event
any mortgage or deed of trust to which this Lease is subordinate is foreclosed
or a deed in lieu of foreclosure is given to the mortgagee or beneficiary,
Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee
under the deed in lieu of foreclosure; in the event any ground lease to which
this Lease is subordinate is terminated, Tenant shall attorn to the ground
lessor. Tenant agrees to execute any documents required to effectuate such
subordination, to make this Lease prior to the lion of any mortgage or deed of
trust or ground lease, or to evidence such attornment.
(b) In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, or in the event any ground lease to which this Lease
is subordinate is terminated, this Lease shall not be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Tenant hereunder be
disturbed if Tenant shall not then be in default in the payment of rental and
other sums due hereunder or otherwise be in default under the terms of this
Lease, and if Tenant shall attorn to the purchaser, grantee, or ground lessor as
provided in subparagraph (a) above or, if requested, enter into a new lease
12
<PAGE>
for the balance of the term hereof upon the same terms and provisions as are
contained in this Lease. Tenant's covenant under subparagraph (a) above to
subordinate this Lease to any ground lease, mortgage, deed of trust or other
hypothecation hereafter executed is conditioned upon each such senior instrument
containing the commitments specified in this subparagraph (b).
27. No Merger. The voluntary or other surrender of this Lease by Tenant,
---------
or a mutual cancellation thereof, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or subtenancies, or
operate as an assignment to it of any or all such subleases or subtenancies.
28. Sale. In the event the original Landlord hereunder, or any successor
----
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease accruing thereafter shall terminate and thereupon all such
liabilities and obligations shall be binding upon the new owner. Tenant agrees
to attorn to such new owner.
29. Estoppel Certificate. At any time and from time to time but on not
--------------------
less than 10 days' prior notice by Landlord, Tenant shall execute, acknowledge,
and deliver to Landlord, promptly upon request, a certificate certifying (a)
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that this Lease is in full force and effect, as modified,
and stating the date and nature of each modification), (b) the date, if any, to
which-rental and other sums payable hereunder have been paid, (c) that no notice
has been received by Tenant of any default which has not been cured, except as
to defaults specified in the certificate, (d) whether there is then existing any
claim by Tenant of default hereunder by Landlord, and, if so, specifying the
nature thereof, and (e) such other matters as may be reasonably requested by
Landlord. Any such certificate may be relied upon by any prospective purchaser,
mortgagee or beneficiary under any deed of trust on the Building or any part
thereof.
30. No Light, Air, or View Easement. Any diminution or shutting off of
-------------------------------
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
31. Holding Over. If Tenant holds possession of the Premises after
------------
expiration of the term of this Lease, Tenant shall become a tenant from month to
month upon the terms herein specified but at a monthly rental equivalent to 200%
of the then prevailing monthly rental payable by Tenant at the expiration of the
term of this Lease, payable in advance on or before the first day of each month,
and shall indemnify Landlord and any replacement tenant for the Premises for any
damages or loss suffered by either Landlord or the replacement tenant resulting
from Tenant's failure timely to vacate the Premises.
32. Security Deposit. Tenant shall, upon execution of this Lease, deposit
----------------
with Landlord the sum specified in the Basic Lease Information (the "deposit").
The deposit shall be held by Landlord as security for the faithful performance
by Tenant of all the provisions of this Lease to be performed or observed by
Tenant. If Tenant fails to pay rent or other sums due hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may use, apply or
retain all or any portion of the deposit for the payment of any rent or other
sum in default or for the payment of any other sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer thereby. If Landlord so uses or applies all
or any portion of the deposit, Tenant shall within 10 days after demand therefor
deposit cash with Landlord in an amount sufficient to restore the deposit to the
full amount thereof and Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep the deposit separate from
its general accounts.
33. Waiver. The waiver by Landlord of any agreement, condition or
------
provision herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other agreement, condition or provision herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be construed to waive or to
lessen the right of Landlord to insist upon the performance by Tenant in strict
accordance with such terms. The subsequent acceptance of rental hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any agreement, condition or provision of this Lease, other than the failure of
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of the preceding breach at the time of acceptance of the rental.
13
<PAGE>
34. Notices and Consents. All notices, consents, demands and other
--------------------
communications from one party to the other that are given pursuant to the terms
of this Lease shall be in writing and shall be deemed to have been fully given
when deposited in the United States mail, certified or registered, postage
prepaid, and addressed as follows: to Tenant at the address specified in the
Basic Lease Information, or to such other place as Tenant may from time to time
designate in a notice to Landlord; to Landlord at the address specified in the
Basic Lease Information, or to such other place as Landlord may from time to
time designate in a notice to Tenant; or, in the case of Tenant, delivered to
Tenant at the Premises.
35. Complete Agreement. There are no oral agreements between Landlord and
------------------
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements, letters of intent
and understandings if any, between Landlord and Tenant or displayed by Landlord
to Tenant with respect to the subject matter of this Lease, the Building or
related facilities.
36. Corporate Authority. If Tenant signs as a corporation, each of the
-------------------
persons executing this Lease on behalf of Tenant warrants that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in California, that the corporation has full right and authority to
enter into this Lease, and that each and both of the persons signing on behalf
of the corporation were authorized to do so.
37. Partnership Authority. If Tenant is a partnership, joint venture, or
---------------------
other unincorporated association, each individual executing this Lease on behalf
of Tenant warrants that this Lease is binding on Tenant and that each and both
of the persons signing on behalf of Tenant were authorized to do so.
38. Limitation of Liability to Build. The liability of Landlord to Tenant
--------------------------------
for any default by Landlord under this Lease or arising in connection with
Landlord's operation, management, leasing, repair, renovation, alteration, or
any other matter relating to the Building or the Premises, shall be limited to
the interest of Landlord in the Building. Tenant agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable for any such judgment or
deficiency after execution thereon. The limitations of liability contained in
this paragraph 38 shall apply equally and inure to the benefit of Landlord, its
successors and their respective, present and future partners of all tiers,
beneficiaries, officers, directors, trustees, shareholders, agents and
employees, and their respective heirs, successors and assigns. Under no
circumstances shall any present or future general partner of Landlord (if
Landlord is a partnership) or individual trustee or beneficiary (if Landlord or
any partner of Landlord is a trust) have any liability for the performance of
Landlord's obligations under this Lease.
39. Brokers. Tenant confirms and represents that Tenant has contacted
-------
and dealt with solely the broker identified in the Basic Lease Information and
that no other broker has participated in the negotiation of this Lease or is
entitled to any commission in connection with this Lease.
40. Miscellaneous. The words "Landlord" and "Tenant" as used herein shall
-------------
include the plural as well as the singular. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. Time
is of the essence of this Lease and each and all of its provisions. Submission
of this instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Landlord and Tenant. The
agreements, conditions and provisions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, executors,
administrators, successors and assigns of the parties hereto. Tenant shall not,
without the consent of Landlord, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises. Upon the request of Landlord, Tenant shall provide to Landlord from
time to time, at no expense to Landlord, copies of such financial statements
with respect to Tenant as may have been prepared by or for Tenant. Landlord's
acceptance of a partial rent payment shall not constitute a waiver of any rights
of Tenant or Landlord, including, without limitation, any right Landlord may
have to recover possession of the Premises, in unlawful detainer, or otherwise.
If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect. This
Lease shall be governed by and construed pursuant to the laws of the State of
California.
14
<PAGE>
41. Exhibits. The exhibit(s) and addendum, if any, specified in the Basic
--------
Lease Information are attached to this Lease and by this reference made a part
hereof.
42. Additional Provisions.
---------------------
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates indicated below:
TENANT LANDLORD
INTEK INFORMATION, INC. A DELAWARE THE EQUITABLE LIFE
CORPORATION ASSURANCE SOCIETY OF THE
UNITED STATES,A NEW YORK
CORPORATION AS MANAGING
OWNER
By /s/ Frank Richards By /s/ James M. Piane
------------------- ------------------
Its Executive Vice President Its Investment Officer
Date of Execution Date of Execution
by Tenant: 3/11/97 by Landlord: 3/14/97
15
<PAGE>
EXHIBIT A-1
-----------
(Southland Mall, Hayward, California)
-------------------------------------
All that certain real property situated in the City of Hayward, County of
Alameda, State of California, described as follows:
PARCEL 1A:
BEGINNING AT THE MOST SOUTHEASTERN CORNER OF THE PARCEL OF LAND DESCRIBED IN THE
DEED FROM WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE UNDER TRUST
AGREEMENT NO. 5-17391, TO TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA,
A NEW YORK CORPORATION, DATED FEBRUARY 7, 1973, AND RECORDED FEBRUARY 8, 1973,
ON REEL 3338, OFFICIAL RECORDS OF ALAMEDA COUNTY, IMAGE 493, INSTRUMENT NO. 73-
17289; THENCE FROM SAID POINT OF BEGINNING, NORTH 25(DEGREES) 48' 00" WEST,
424.00 FEET; THENCE NORTH 64(DEGREES) 12' 00" EAST, 339.02 FEET; THENCE NORTH
25(DEGREES) 48' 00" WEST, 424.00 FEET; THENCE NORTH 64(DEGREES) 12' 00" EAST,
14.50 FEET; THENCE NORTH 25(DEGREES) 48' 00" WEST, 45.00 FEET; THENCE SOUTH
64(DEGREES) 12' 00" WEST, 38.71 FEET; THENCE NORTH 25(DEGREES) 48' 00" WEST,
212.20 FEET; THENCE SOUTH 64(DEGREES) 12' 00' WEST, 435.21 FEET; THENCE NORTH
25(DEGREES) 48' 00' WEST, 332.29 FEET; THENCE SOUTH 64(DEGREES) 12' 00" WEST,
489.90 FEET; THENCE NORTH 25(DEGREES) 48' 00" WEST, 183.71 FEET TO THE
SOUTHEASTERN LINE OF TRACT 1000, FILED JUNE 15, 1950, IN BOOK 30 OF MAPS, PAGE
76, ALAMEDA COUNTY RECORDS; THENCE ALONG SAID SOUTHEASTERN LINE AND ITS DIRECT
PROLONGATION NORTHEASTERLY, NORTH 64(DEGREES) 12' 00" EAST, 846.90 FEET TO A
POINT ON THE WESTERN LINE OF REAL PROPERTY DESCRIBED AS PARCEL ONE OF THE DEED
FROM THIRD SEARS VALE PROPERTIES, INC., TO PIPE INVESTMENT COMPANY, ET. AL,
DATED OCTOBER 4, 1958, AND RECORDED OCTOBER 7, 1958, IN BOOK 8806, PAGE 196,
OFFICIAL RECORDS, INSTRUMENT NO. AP/102941, ALAMEDA COUNTY RECORDS; AND THENCE
ALONG SAID PARCEL ONE, SOUTH 25(DEGREES) 48' 00" EAST, 295.00 FEET, AND NORTH
64(DEGREES) 12' 00" EAST, 1214.58 FEET TO A POINT ON THE SOUTHWESTERLY LINE OF
THE NIMITZ FREEWAY, FORMERLY THE EASTSHORE FREEWAY, BETWEEN ROUTH 105 AND SAN
LORENZO ROAD IV ALA 69-0; THENCE ALONG SAID SOUTHWESTERLY LINE, SOUTH
29(DEGREES) 09' 49" EAST, 510.58 FEET, AND SOUTH 26(DEGREES) 16' 48" EAST,
571.26 FEET TO A POINT WHICH BEARS NORTH 64(DEGREES) 12' 00" EAST FROM THE POINT
OF BEGINNING; THENCE ALONG SAID LINE, SOUTH 64(DEGREES) 12' 00" WEST, 1485.92
FEET TO THE POINT OF BEGINNING.
PARCEL 1D:
COMMENCING AT A FOUND CITY MONUMENT AT THE INTERSECTION OF THE CENTERLINE OF
WEST WINTON AVENUE, FORMERLY WINTON AVENUE, WITH THE ORIGINAL CENTERLINE OF
HESPERIAN BOULEVARD, 66 FEET WIDE; THENCE ALONG SAID CENTERLINE OF HESPERIAN
BOULEVARD, SOUTH 26(DEGREES) 05' 10" EAST, 961.30 FEET TO THE MOST SOUTHERN
CORNER OF THE LAND SHOWN ON THE MAP OF TRACT 1000, FILED JUNE 15, 1950, IN BOOK
30 OF MAPS, AT PAGE 76, ALAMEDA COUNTY RECORDS; THENCE ALONG THE SOUTHEASTERN
LINE OF SAID TRACT, NORTH 64(DEGREES) 12' 00" EAST, 1,147.63 FEET; THENCE
LEAVING SAID LINE, SOUTH 25(DEGREES) 48' 00" EAST, 516.00 FEET TO THE TRUE POINT
OF BEGINNING OF THE HEREIN DESCRIBED PARCEL; THENCE NORTH 64(DEGREES) 12' 00"
EAST, 435.21 FEET; THENCE SOUTH 25(DEGREES) 48' 00" EAST, 212.20 FEET; THENCE
NORTH 64(DEGREES) 12' 00" EAST, 38.71 FEET; THENCE SOUTH 25(DEGREES) 48' 00"
EAST, 45.00 FEET; THENCE SOUTH 64(DEGREES) 12' 00" WEST, 14.50 FEET; THENCE
SOUTH 25(DEGREES) 48' 00" EAST, 178.74 FEET; THENCE SOUTH 64(DEGREES) 12' 00"
WEST, 339.02 FEET; THENCE SOUTH 25(DEGREES) 48' 00" EAST, 424.00 FEET TO THE
SOUTHEASTERN LINE OF PARCEL 2 CONVEYED TO A. L. BRANDEN, ET UX., BY DEED
RECORDED FEBRUARY 21, 1956, IN BOOK 7942, PAGE 303, RECORDER'S SERIES NO.
AL/18683. RECORDS OF SAID COUNTY: THENCE ALONG THE LAST MENTIONED LINE, SOUTH
64(DEGREES) 12' 00" WEST, 312.13 FEET; THENCE NORTH 25(DEGREES) 48' 00" WEST,
424.00 FEET; THENCE NORTH 64(DEGREES) 12' 00" EAST, 189.59 FEET; THENCE NORTH
25(DEGREES) 48' 00" WEST, 99.24 FEET; THENCE NORTH 64(DEGREES) 12' 00" EAST,
101.00 FEET; THENCE NORTH 25(DEGREES) 48' 00" WEST,
16
<PAGE>
204.00 FEET; THENCE SOUTH 64(DEGREES) 12' 00" WEST, 141.00 FEET; THENCE NORTH
25(DEGREES) 48' 00" WEST, 132.70 FEET; THENCE NORTH 64(DEGREES) 12' 00" EAST,
42.14 FEET TO THE TRUE POINT OF BEGINNING.
PARCEL 1E:
BEGINNING AT THE SOUTHWESTERN CORNER OF THE PARCEL OF LAND DESCRIBED IN THE DEED
FROM WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE UNDER TRUST AGREEMENT
NO. 5-17391 TO TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, A NEW YORK
CORPORATION, DATED FEBRUARY 7, 1973, AND RECORDED FEBRUARY 8, 1973, ON REEL
3338, IMAGE 493, OFFICIAL RECORDS, INSTRUMENT NO. 73-17289, ALAMEDA COUNTY
RECORDS; THENCE ALONG THE SOUTHWESTERN LINE OF SAID PARCEL, THE FOLLOWING
COURSES AND DISTANCES: NORTH 25(DEGREES) 48' 00" WEST, 424.00 FEET; NORTH
64(DEGREES) 12' 00" EAST, 189.59 FEET; NORTH 25(DEGREES) 48' 00" WEST, 99.24
FEET; NORTH 64(DEGREES) 12' 00" EAST, 101.00 FEET; NORTH 25(DEGREES) 48' 00"
WEST, 204.00 FEET; SOUTH 64(DEGREES) 12' 00" WEST, 141.00 FEET; NORTH
25(DEGREES) 48' 00" WEST, 132.70 FEET; AND NORTH 64(DEGREES) 12' 00" EAST, 42.14
FEET; THENCE LEAVING SAID LINE, NORTH 25(DEGREES) 48' 00" WEST, 332.29 FEET;
THENCE SOUTH 64(DEGREES) 12' 00" WEST, 489.90 FEET; THENCE SOUTH 25(DEGREES) 48'
00" EAST, 1192.23 FEET TO A POINT ON LINE DRAWN SOUTH 64(DEGREES) 12' 00" WEST
FROM THE POINT OF BEGINNING; THENCE ALONG SAID LAST NAMED LINE, NORTH
64(DEGREES) 12' 00" EAST, 298.17 FEET TO THE POINT OF BEGINNING.
PARCEL 1F:
COMMENCING AT THE SOUTHWESTERN CORNER OF THE PARCEL OF LAND DESCRIBED IN THE
DEED FROM WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE UNDER TRUST NO. 5-
17391, TO TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, A NEW YORK
CORPORATION, DATED FEBRUARY 7, 1973, AND RECORDED FEBRUARY 8, 1973, ON REEL
3338, IMAGE 493, OFFICIAL RECORDS, INSTRUMENT NO. 73-17289, ALAMEDA COUNTY
RECORDS; THENCE FROM SAID POINT OF COMMENCEMENT, SOUTH 64(DEGREES) 12' 00" WEST,
298.17 FEET TO THE ACTUAL POINT OF BEGINNING; THENCE FROM SAID POINT OF
BEGINNING, SOUTH 64(DEGREES) 12' 00" WEST, 595.86 FEET TO THE EASTERLY LINE OF
HESPERIAN BOULEVARD; THENCE ALONG SAID EASTERLY LINE, NORTH 26(DEGREES) 05' 10"
WEST, 1375.96 FEET TO THE SOUTHERN LINE OF TRACT 1000, FILED JUNE 15, 1950, IN
BOOK 30 0F MAPS, PAGE 76, ALAMEDA COUNTY RECORDS; THENCE ALONG SAID SOUTHERN
LINE, NORTH 64(DEGREES) 12' 00" EAST, 602.73 FEET TO A POINT ON A LINE DRAWN
NORTH 25(DEGREES) 48' 00" WEST FROM THE POINT OF BEGINNING; THENCE ALONG SAID
LINE LAST MENTIONED, SOUTH 25(DEGREES) 48' 00" EAST, 1375.94 FEET TO THE POINT
OF BEGINNING.
EXCEPTING THEREFROM, THAT PORTION DESCRIBED IN THE DEED TO CHEVRON U.S.A., INC.,
A PENNSYLVANIA CORPORATION, RECORDED MAY 31, 1991, SERIES NO. 91-140310,
OFFICIAL RECORDS.
PARCEL 2A:
BEGINNING AT A POINT IN THE CENTERLINE OF WEST WINTON AVENUE, DISTANT THEREON
ALONG SAID CENTERLINE, NORTH 64(DEGREES) 12' EAST, 909.17 FEET FROM THE CITY
MONUMENT MARKING THE ORIGINAL CENTERLINE OF HESPERIAN BOULEVARD, 66 FEET WIDE;
THENCE ON THE NORTHEASTERLY PROLONGATION OF SAID CENTERLINE OF WEST WINTON
AVENUE, NORTH 64(DEGREES) 12' EAST, 600.26 FEET; THENCE LEAVING SAID CENTERLINE
OF THE FOLLOWING TWO COURSES: (A) SOUTH 25(DEGREES) 48' EAST, 961.29 FEET; AND
(2) SOUTH 64(DEGREES) 12' WEST, 600.26 FEET TO THE MOST EASTERLY CORNER OF TRACT
1000, FILED IN BOOK 30 OF MAPS, PAGE 76, ALAMEDA COUNTY RECORDS: THENCE ON THE
NORTHEASTERLY LINE THEREOF AND ITS NORTHWESTERLY PROJECTION, NORTH 25(DEGREES)
48' WEST, 961.29 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM, THAT PORTION THEREOF GRANTED TO THE CITY OF HAYWARD, BY
THAT CERTAIN DEED RECORDED ON REEL 1789, OFFICIAL RECORDS, IMAGE 938, ALAMEDA
COUNTY RECORDS.
17
<PAGE>
ALSO EXCEPTING THEREFROM, PARCEL 1 OF PARCEL MAP 181, FILED MARCH 3, 1966, IN
BOOK 47 OF MAPS, PAGE 83, ALAMEDA COUNTY RECORDS.
PARCEL 2:
CERTAIN EASEMENTS AND RECIPROCAL PARKING PRIVILEGES CREATED IN THAT CERTAIN
INSTRUMENT EXECUTED BY A. L. BRANDEN AND VERYL M. BRANDEN, HIS WIFE, AND SEARS
ROEBUCK AND CO., A NEW YORK CORPORATION, DATED SEPTEMBER 12, 1956, AND RECORDED
SEPTEMBER 28, 1956, IN BOOK 8162, PAGE 401, OFFICIAL RECORDS, AND AS MODIFIED
AND AMENDED BY INSTRUMENTS DATED AUGUST 1, 1958, AND RECORDED AUGUST 14, 1958,
UNDER RECORDER'S SERIES NO. AP/81776, RECORDS OF ALAMEDA COUNTY, IN BOOK 8754 OF
OFFICIAL RECORDS, AT PAGE 325; AND DATED APRIL 1, 1962, AND RECORDED APRIL 23,
1962, REEL 566, IMAGE 512, SERIES NO. AT/53727, AND DATED APRIL 12, 1962, AND
RECORDED JULY 9, 1962, UNDER RECORDER'S SERIES NO. AT/91110, RECORDS OF SAID
COUNTY; AND DATED APRIL 15, 1963, AND RECORDED OCTOBER 30, 1963, REEL 1033,
IMAGE 292, SERIES NO. AU/179654; AND DATED JULY 1, 1966, AND RECORDED SEPTEMBER
2, 1966, REEL 1835, IMAGE 794, SERIES NO. AU/104717, OFFICIAL RECORDS; AND THE
MODIFICATION RECORDED JULY 12, 1972, REEL 3212, IMAGE 108, OFFICIAL RECORDS,
INSTRUMENT NO. 72/114598; AND THE SEVENTH AMENDMENT RECORDED FEBRUARY 22, 1989,
INSTRUMENT NO. 89/506540, ALAMEDA COUNTY RECORDS.
ASSESSOR'S PARCEL NOS. 442-0010-001-10 (AFFECTS PARCEL 2A)
442-0010-002-07 (AFFECTS PARCEL 2A)
442-0010-004-06 (AFFECTS PARCEL 1F)
442-0010-004-19 (AFFECTS PARCEL 1D)
442-0010-004-20 (AFFECTS PARCELS 1A AND 1E)
442-0010-005 (AFFECTS PARCEL 1F)
18
<PAGE>
EXHIBIT B
---------
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress to and
egress from their respective premises. The halls, passages, exits, entrances,
shopping malls, elevators, escalators and stairways are not for the general
public, and Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant shall go
upon the roof of the Building except such roof or portion thereof as may be
contiguous to the premises of a particular tenant and may be designated in
writing by Landlord as a roof deck or roof garden area.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Landlord
for modifications, which approval will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord, which
approval will not be unreasonably withheld Material visible from outside the
Building will not be permitted.
3. The premises shall not be used for the storage of merchandise held
for sale to the general public or for lodging. No cooking shall be done or
permitted by any tenant on the premises, except that use by the tenant of food
and beverage vending machines and Underwriters' Laboratory approved microwave
ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and regulations.
4 No tenant shall employ any person or persons other than Landlord's
janitorial service for the purpose of cleaning the premises, unless otherwise
approved by Landlord. No person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of cleaning
the same. No tenant shall cause any unnecessary labor by reason of such
tenant's carelessness or indifference in the preservation of good order and
cleanliness. Janitor service will not be furnished on nights when rooms are
occupied after 9:30 P.M. unless, by prior arrangement with Landlord, service is
extended to a later hour for specifically designated rooms.
5. Landlord will furnish each tenant free of charge with two keys to each
door lock in its premises. Landlord may make a reasonable charge for any
additional keys. No tenant shall have any keys made. No tenant shall alter any
lock or install a new or additional lock or any bolt on any door of its premises
without the prior consent of Landlord. The tenant shall in each case furnish
Landlord with a key for any such lock. Each tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Building which shall
have been furnished to the tenant.
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6. The freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. The persons employed to move such equipment in or out of
the Building must be acceptable to Landlord. Landlord shall have the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on wood strips of such thickness as is necessary
properly to distribute the weight. Landlord will not be responsible for loss of
or damage to any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired at the expense
of the tenant.
7. No tenant shall use or keep in the premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Landlord's prior approval, use any method of
heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other tenants or those having business therein.
8. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and street address of the
Building.
9. Landlord reserves the right to exclude from the Building between
the hours of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and legal
holidays all persons who do not present a pass to the Building signed by
Landlord. Landlord will furnish passes to persons for whom any tenant requests
the same in writing. Each tenant shall be responsible for all persons for whom
it requests passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In the case of
invasion, mob, riot, public excitement or other circumstances rendering such
action advisable in Landlord's opinion, Landlord reserves the right to prevent
access to the Building during the continuance of the same by such action as
Landlord may deem appropriate.
10. The directory of the Building will be provided for the display of
the name and location of tenants and a reasonable number of the principal
officers and employees of tenant, and Landlord reserves the right to exclude any
other names therefrom. Any additional name which a tenant desires to have added
to the directory shall be subject to Landlord's approval and may be subject to a
charge therefor.
11. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, such items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages,
and other products or services shall be subject to such reasonable regulations
as may be adopted by Landlord. Landlord may establish a central receiving
station in the Building for delivery and pick-up by all messenger services, and
may limit delivery and pick-up at tenant premises to Building personnel.
13. Each tenant shall see that the doors of its premises are closed and
locked and that all water faucets or apparatus, cooking facilities and office
equipment (excluding office equipment required to be operative at all times) are
shut off before the tenant or its employees leave the premises at night, so as
to prevent waste or damage, and for any default or carelessness in this regard
the tenant shall be responsible for any damage sustained by other tenants or
occupants of the Building or Landlord. On multiple-tenancy floors, all tenants
shall keep the doors to the Building corridors closed at all times except for
ingress and egress.
20
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14. The toilets, urinals, wash bowls and other restroom facilities shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or invitees, shall have
caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale at retail, of newspapers, magazines, periodicals, theatre
tickets or any other goods or merchandise to the general public in or on the
premises, nor shall any tenant carry on, or permit or allow any employee or
other person to carry on, the business of stenography, typewriting or any
similar business in or from the premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the premises of any
tenant be used for manufacturing of any kind, or any business or activity other
than that specifically provided for in such tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building.
17. There shall not be used in any portion of the Building, by any tenant
or its invitees, any hand trucks or other material handling equipment except
those equipped with rubber tires and side guards unless otherwise approved by
Landlord.
18. Each tenant shall store its refuse within its premises. No material
shall be placed in the refuse boxes or receptacles if such material is of such
nature that it may not be disposed of in the ordinary and customary manner of
removing and disposing of refuse in the City and County of San Francisco without
being in violation of any law or ordinance governing such disposal. All refuse
disposal shall be made only through entryways and elevators provided for such
purposes and at such times as Landlord shall designate.
19. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall
cooperate to prevent the same.
20. The requirements of the tenants will be attended to only upon
application by telephone or in person at the office of the Building. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
21. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
from thereafter enforcing any such Rules and Regulations against any or all of
the tenants of the Building.
22. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
23. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation of good
order therein.
24. Tenant will refer to Landlord for Landlord' s supervision, approval,
and control all contractors, contractors' representatives, and installation
technicians rendering any service to Tenant, before performance of any
contractual service. Such supervisory action by Landlord shall not render
Landlord responsible for any work performed for Tenant. This provision shall
apply to all work performed in the Building, including but not limited to the
installation of telephones, computer wiring, cabling, equipment, electrical
devices, attachments and installations of any nature. Tenant shall be solely
responsible for complying with all applicable laws, codes and ordinances
pursuant to which said work shall be performed.
25. Corridor doors, when not in use, shall be kept closed.
26. No animals, except seeing eye dogs, shall be brought into or kept in,
on or about the Premises.
21
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27. Tenant shall not take any action which would violate Landlord' s labor
contractors affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the business of
Landlord or any other tenant or occupant of the Building or with the rights and
privileges of any person lawfully in the Building. Tenant shall take any
actions necessary to resolve any such work stoppage, picketing, labor
disruption, dispute or interference and shall have pickets removed and, at the
request of Landlord, immediately terminate at any time any construction work
being performed in the Premises giving rise to such labor problems, until such
time as Landlord shall have given its written consent for the resumption of such
work. Tenant shall have no claim for damages of any nature against Landlord or
any of the Landlord Related Parties in connection therewith, nor shall the date
of the commencement of the Term be extended as a result thereof .
28. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations and improvements in the Premises only during times agreed to in
advance by Landlord and in a manner which will not interfere with the rights of
other tenants in the building.
29. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by Landlord.
Tenant agrees to have all students, faculty, employees, or anyone associated
with Tenant, smoke only at the designated smoking area at the south end of the
Building. Landlord reserves the right to relocate the designated area as may be
deemed necessary.
30. Tenant acknowledges that Landlord does not permit catering trucks,
push-carts or itinerant salespersons of any type (collectively "Peddlers") to
operate on, or sell from the Building, its parking areas or walkways. Tenant
shall neither summon to the Building, its parking areas or walkways any such
Peddler, nor shall it patronize any such Peddler while at the Building or on the
parking areas or walkways. Tenant shall take all reasonable steps to advise its
employees, agents and contractors of the foregoing prohibition and obtain their
compliance.
22
<PAGE>
EXHIBIT B-1
SCHEDULE OF BASE RENTAL
-----------------------
This Exhibit is attached to and made a part of the Lease dated March 5,
1997 by and between The Equitable Life Assurance Society of the United States, A
New York Corporation, as managing owner, ("Landlord") and INTEK, Information,
Inc. A Delaware Corporation, ("Tenant") for space in the Building located at
24301 Southland Drive, Hayward, California.
Tenant shall pay Landlord the sum of Two Hundred and Ninety-Nine Thousand, Five
------------------------------------------
Hundred and Seventy-Four Dollars and 00/100 Cents Dollars $299,574.00) as Base
- ------------------------------------------------- ------------
Rental for the Lease Term in Thirty-Six monthly installments as follows:
----------
A. Twelve equal installments of $7,565.00 each payable on or before the
------ ---------
first day of each month during the period beginning April 1, 1997 and ending
-------------
March 30, 1998.
- --------------
B. Twelve equal installments of $8,321.50 each payable on or before the
------ ---------
first day of each month during the period beginning April 1, 1998 and ending
-------------
March 30, 1999.
- --------------
C. Twelve equal installments of $9,078.00 each payable on or before the
------ ---------
first day of each month during the period beginning April 1, 1999 and ending
-------------
March 30, 2000.
- --------------
23
<PAGE>
INTEK
B-1 contd.
All such Base Rental shall be payable by Tenant in accordance with the
terms of Article 3 of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first written above.
LANDLORD:
The Equitable Life Assurance Society
of the United States, A New York
Corporation, as managing owner
ATTEST:
By: ___________________________ By: /s/ James M. Piane
-------------------
Name: James M. Piane
Title: _______________________ Title: Investment Officer
Name (print): _________________
TENANT:
INTEK Information, Inc.
A Delaware Corporation
ATTEST:
By: ___________________________ By: /s/ Frank Richards
-------------------
Name: Frank Richards
Title: _______________________ Title: Executive Vice President
Name (print): _________________
24
<PAGE>
EXHIBIT "D"
WAIVER OF SUBROGATION
Landlord and Tenant shall each have included in all policies of fire, extended
coverage, business interruption and other insurance respectively obtained by
them covering the Demised Premises, the Building and contents therein, a waiver
by the insurer of all right of subrogation against the other in connection with
any loss or damage thereby insured against. Any additional premium for such
waiver shall be paid by the primary insured. To the full extent permitted by
law, Landlord and Tenant each waives all right of recovery against the other
for, and agrees to release the other from liability for, loss or damage to the
extent such loss or damage is covered by valid and collectible insurance in
effect at the time of such loss or damage or would be covered by the insurance
required to be maintained under this Lease by the party seeking recovery.
25
<PAGE>
EXHIBIT "E"
COMMENCEMENT OF TERM AGREEMENT
March 5, 1997
WHEREAS, by lease dated March 5, 1997, as same may have been amended, The
Equitable Life Assurance Society of the United States, A New York Corporation,
as managing owner ("Landlord") leased to INTEK Information, Inc., A Delaware
Corporation, ("Tenant"), the area described therein in the Southland Square
Building situated at 24301 Southland Drive, Suite 300, Hayward, CA and
WHEREAS, said Lease's three (3) year term is to commence on the first day of
the calendar month following the month in which the Landlord substantially
completed the work required to be performed by it under the lease; and
WHEREAS, Landlord's work has been substantially completed;
NOW, THEREFORE, in accordance with the above, the parties hereto agree that the
term of said Lease shall commence April 1, 1997, or when Tenant opens for
business, whichever first occurs and expire March 31, 2000, unless otherwise
adjusted. The Base Rent shall commence on April 1, 1997, unless otherwise
adjusted.
All other terms and conditions of said lease are hereby reaffirmed as being in
full force and effect.
Landlord:
The Equitable Life Assurance Society of the
United States, as managing owner
By: DRAFT
-----
Its: ________________
Tenant:
INTEK Information, Inc.
By: DRAFT
-----
Its: ________________
26
<PAGE>
EXHIBIT "H"
PROTOCALL
MEMORANDUM
To: Keith Fink Date: 2/25/97
Equitable One Bush Street, Suite 1200
San Francisco, CA 94104
From: Steve Darnell
Re: Southland Mall Facility: Elevator Traffic Management Plan
As per our conversation on Monday, February 24, the following is a summary of
the actions we will employ to assist in controlling elevator traffic during the
12-1 PM lunch hour:
1. Encourage all able employees to use the stairs for all travel and/or at
least one of their trips.
2. When possible, stagger the lunch period for management and representatives.
3. Manage the 12-1 PM lunch period so that approximately 1/3 of the employee
force leaves for lunch at 12 PM and returns at 1 PM. (Approximately 40 of
the 120 employees going to lunch during this time.)
4. Develop and conduct an elevator courtesy training program. Require all
managers and staff members to participate.
5. Interact with our neighbors to apprise them of our unique employee staff
size, enlighten them as to our concern for their continued unrestricted
usage of the building, educate them as to our plan and establish points of
contact within our office.
6. Employ a gradual ramp-up plan. Begin with 50 employees and increase to 120
employees by close of 1997. (Business needs will dictated growth
increments.)
Through this plan, we will educate our team regarding elevator sensitivity and
regulate the issue through proactive scheduling procedures. Additionally, as
business needs permit, we will execute a controlled growth policy. I trust that
this plan demonstrates our sensitivity to the elevator usage challenge; that it
reinforces our desire to marshal time issue in a proactive manner.
I appreciate the time and effort you have committed to reviewing our lease
proposal. I trust that we will be able to discuss other future concerns and be
given the same opportunity to address, resolve and manage future challenges that
may arise.
Respectfully submitted,
/s/ Steve
Steve Darnell
Vice President Operations
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LEASE RIDER
THIS RIDER IS ATTACHED TO AND MADE A PART OF THE LEASE DATED March 5, 1997, BY
AND BETWEEN The Equitable Life Assurance Society of the United States, A New
York Corporation, as managing owner ("LANDLORD") AND INTEK Information, Inc., A
Delaware Corporation, ("TENANT").
CONCERNING A PORTION OF THE BUILDING KNOWN AS THE
Southland Square Office Building, Suite 300
1 . ALTERATIONS TO THE PREMISES:
A. Landlord's responsibility:
Scope of work, per Exhibit "G" to include:
1. New carpet, VCT flooring and paint throughout suite.
2. Enclose lunchroom with a demountable partition wall.
3. Enlarge a closet by dividing an existing office to create an I.S.
room.
4. Install a separate HVAC system in the I.S. room. This system will
be separately metered.
5. Perform a system check on the HVAC system for the suite prior to
Landlord completion.
6. Initial construction drawings per Tenants criteria.
7. Signage, Landlord to pay for Tenant's door and directory signs.
B. Tenant's Responsibility:
1. Approve plans.
2. All remaining construction costs other than those listed above,
per Tenant's criteria.
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3. AFTER HOURS HVAC
1. Standard Building Operation Hours are:
Monday - Friday 7:00 a.m. - 7:00 p.m.
Saturday 7:00 a.m. - 4:00 p.m.
2. Any usage beyond the hours listed above shall be billed at a
rate of $30.00 per hour.
4. PARKING: Refer to Exhibit "I" attached.
5. ELEVATOR USAGE: Refer to Exhibit "H".
6. BROKER COMMISSIONS: Tenant is represented by Colliers Parrish International
and Granite Realty Advisors, Inc. and Landlord is represented by White
Commercial Real Estate.
Landlord:
The Equitable Life Assurance Society of the
United States, as managing owner
By: /s/ James Piane
----------------
Its: Investment Officer
Tenant:
INTEK Information, Inc.,
a Delaware Corporation
By: /s/ Frank Richards
-------------------
Its: Executive Vice President
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EXHIBIT 10.20.1
EXHIBIT "E"
COMMENCEMENT OF TERM AGREEMENT
May 2, 1997
WHEREAS, by lease dated March 5, 1997, as same may have been amended, The
Equitable Life Assurance Society of the United States, A New York Corporation,
as managing owner ("Landlord") leased to INTEK Information, Inc., A Delaware
Corporation, ("Tenant"), the area described therein in the Southland Square
Building situated at 24301 Southland Drive, Suite 300, Hayward, CA and
WHEREAS, Landlord's work has been substantially completed;
NOW, THEREFORE, in accordance with the above, the parties hereto agree that the
term of said Lease shall commence May 2, 1997, and expire May 1, 2000. The Base
Rent shall commence on May 2, 1997.
All other terms and conditions of said lease are hereby reaffirmed as being in
full force and effect.
Landlord:
The Equitable Life Assurance Society of the
United States, as managing owner
By: /s/ James M. Piane
------------------
Its: James M. Piane
Investment Officer
Tenant:
INTEK Information, Inc.
By: /s/ Frank Richards
------------------
Its: Executive Vice President
<PAGE>
EXHIBIT 10.20.2
ESTOPPEL CERTIFICATE
--------------------
The undersigned ("Tenant") hereby certifies ATC Partners LLC, a California
Limited Liability Company, or it's Assignee, EastWest Bank, ("Buyer"), as
follows:
Attached to this Estoppel Certificate is an accurate and complete copy of the
Lease dated March 5, 1997 (and all amendments and modifications thereto and
-------------
guaranties thereof) between The Equitable Life Assurance Society Of The United
--------------------------------------------------
States as Landlord, and Intek Information Inc., a Delaware Corporation, as
- ------ ----------------------------------------------
Tenant, under which Tenant leases the space described in the Lease in the
building located at 24301 Southland Drive, Suite 300, Hayward, California. The
--------------------------------
term of the Lease commenced on, May 2, 1997 and ends on May 1, 2000 and full
-----------------------------------
rent is now accruing under the Lease, which is $8,321.50 per month for base rent
---------
and, $0 per month for operating expenses and taxes. Such base rent has been
--
paid through September 30, 1998. No other monthly rent or prepaid rent has been
------------------
paid. The Landlord holds a security deposit of $8,321.50 under the Lease.
----------
Tenant has accepted possession of the premises under the Lease, all improvements
and construction required to be performed by the Landlord under the Lease have
been completed to the satisfaction of Tenant, and no money is owed to Tenant for
improvements or otherwise under the Lease. The Lease is in full force and
effect, has not been amended or modified (except for the amendments or
modifications, if any, attached to this Estoppel Certificate), and constitutes
the entire agreement and only lease between the Landlord and Tenant relating to
such building. There is no breach or default by the Landlord under the Lease and
Tenant has no defense, claim or demand against the Landlord, under the Lease or
otherwise, which can be offset against rents or other charges due or to become
due under the Lease. Tenant has not assigned the Lease or subleased all or any
party of the premises thereunder. Tenant is not a debtor in any bankruptcy case
or other insolvency proceeding relating to Tenant.
The foregoing information is accurate and complete. Tenant acknowledges that
Buyer will rely on this Estoppel Certificate in purchasing such building from
the current owner and Tenant agrees that Buyer shall have the right to rely on
this Estoppel Certificate.
Dated: September 24, 1998.
/s/ Kris E. Danielson
- ----------------------
Vice President/Assistant Secretary
Intek Information, Inc., a
Delaware Corporation
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EXHIBIT 10.21
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 14, 1999, is made by and between LIVERMORE AIRWAY BUSINESS PARK, a
limited partnership ("Lessor") and INTEK INFORMATION, INC., a Delaware
corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 396, 380 and a portion of 372 Earhart
way, located in the city of Livermore, County of Alameda, State of California,
with zip code 94550, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): All of that certain
portion of area in a larger single story building, located on the corner of
Earhart Way and Armstrong Street. In addition to Lessee's rights to use and
occupy the Premised as hereinafter specified, Lessee shall have non-exclusive
rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the Building or to any other buildings in the Industrial Center. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: Forty-five (45) unreserved vehicle parking spaces
("unreserved Parking Spaces)); and zero (0) reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: See Addendum Section 1.3 ("Original Term") commencing
February 1, 1999 ("Commencement Date") and ending See Addendum Section 1.3
("Expiration Date"). (Also see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 Base Rent" $9,000.00 per month ("Base Rent"), payable on the
first (1st day of each month commencing February 1, 1999 (Also see Paragraph 4.)
[_] If this box is checked, this Lease provides for the Base Rent to be adjusted
per Addendum _____, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $9,000 as Base Rent for the period
of February, 1999.
1.6(b) Lessee's Share of Common Area Operating Expenses: Thirty-one
percent (31%) ("Lessee's Share") as determined by [X] prorate square footage of
the Premises as compared to the Total square footage of the Building or [_]
other criteria as described in Addendum ____.
1.7 Security Deposit: $9,000.00 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted Use: Telemarketing service bureau ("Permitted Use")
(Also see paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] N/A represents Lessor exclusively ("Lessor's Broker");
---
[ ] N/A represents Lessee exclusively ("Lessee's Broker);
---
[ ] N/A represents both Lessor and Lessee ("Dual Agency"). (Also see
---
Paragraph 15.)
1.10(b) Payment to Brokers. Lessor shall pay to said Broker(s) jointly,
or in such separate shares as they may mutually designate in writing, a fee as
set forth in a separate written agreement
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between Lessor and said Broker(s) (or in the event there is no separate written
agreement between Lessor and said Broker(s), the sum of $ N/A for brokerage
---
services rendered by said Broker(s) in connection with this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by N/A. ("Guarantor"). (Also see Paragraph 37.)
---
1.12 Addends and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1.3, 7.4(c), 12.1, 12.2(e), 12.2(i), 13.4, 49, 50 and
Exhibits A through B, all of which constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in the Lease. Unless otherwise provided
herein, any statement of square footage set forth in the Lease, or that may have
been used in calculating rental and/or Common Area Operating Expenses, is an
approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no actual knowledge of any
claim having been made by any governmental agency that a violation or violations
of applicable building codes, regulations, or ordinances exist with regard to
the Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by
2
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vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles shall be parked and loaded or unloaded as directed by Lessor in the
rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b If Lessee permits or allows the parking of inoperative vehicles
or any of the prohibited activities described in this Paragraph 2.6, the Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and Interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways. driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights. powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the properly and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide find conform. Lessor shall not
be responsible to Lessee for the noncompliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, front time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so tong as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
3
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(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified In Paragraph 1.3.
3.2 Early Possession. If an Early Possession Dale is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term commences, if possession is
not tendered to Lessee when required by this Lease and Lessee does not terminate
this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if
any, that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to the period during
which the Lessee would have otherwise enjoyed under the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessor shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation. repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, driveways,
landscaped areas, striping, bumpers, irrigation systems, Common Area lighting
facilities, fences and gates, elevators and roof.
4
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(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas, including pest control and window washing services.
(iii) Trash disposal, property management and security services
and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under paragraph 10 hereof,
and any property association dues and expenses levied against the Industrial
Center.
(vi) The cost of premiums for the insurance policies maintained
by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be Common Area Operating Expenses.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof of the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base Rent
increases during the term of this Lease, Lessee shall, upon written
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request from Lessor, deposit additional monies with Lessor as an addition to the
Security Deposit so that the total amount of the Security Deposit shall at all
times bear the same proportion to the then current Base Rent as the Initial
Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5.
Lessor shall not be required to keep all or any part of its Security Deposit
separate from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
Interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth In Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) DELETE PARAGRAPH 6.1(b).
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to
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by Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents. employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirement. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect.. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, warning, citation, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance With Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities,
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boilers, fired or unfired pressure vessels, fire hose connections if within the
Premises, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights, but excluding any
items which are the responsibility of Lessor pursuant to paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) shall procure and maintain the contract for the heating, air
conditioning and ventilating systems and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after ten (10) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair, in accordance with Paragraph 13.2
below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior wells, structural condition of interior walls, exterior
roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas)
or other automatic fire extinguishing system including fire alarm and/or smoke
detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the or interior surfaces of exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors, or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alternations or Utility Installations in, on under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$5,000.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire o make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installations to Lessor prior to commencement of the work thereon;
and (iii) the compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and be in compliance with all
Applicable Requirements. Lessee shall promptly upon completion thereof furnish
Lessor with as built plans and specifications therefor. Lessor may,
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but without obligation to do so) condition its consent to any requested
Alteration or Utility Installation that costs $5,000.00 or more upon Lessee's
providing Lessor with a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of no responsibility in or on the Premises as provided by law. If Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense, defend and protect itself, Lessor and
the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration. (See also Addendum
Section 7.4(c).)
(a) Ownership. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the Installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the Insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be pro-
rated to coincide with the corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
its term of this lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional Insureds) against claims for bodily injury and
property damage based upon,
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involving or arising out of its ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "Additional Insured Managers or Lessors of
Premises" endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "Insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property lnsurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than the replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
properly shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by Lessor or a Lender), including
coverage for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that
in the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to collect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of the Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance
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shall be used by Lessee for the replacement of personal property and the
restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any tight to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of nay obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
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(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described In Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their conditions
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, of ordinances
or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay to for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises unless
Lessee provides Lessor with the funds to cover same, or adequate assurance
thereof, within ten (10) days following receipt of written notice of such
shortage and request therefor. If Lessor waives said funds or adequate assurance
thereof within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessor to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of such notice to give written notice Lessor of Lessee's commitment to
pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
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9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived In Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage giving written notice to Lessee of Lessor's election
to do so within thirty (30) days after the date of occurrence of such damage.
Provided, however, if Lessee at that time has an exercisable option to extend
this Lease or to purchase the Premises, then Lessee may preserve this Lease by
(a) exercising such option, and (b) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the repairs on
or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall arise, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) clays after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall leave the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the excess costs of (a) investigation and remediation of
such Hazardous Substance Condition to the extent required by Applicable
Requirements, over (b) an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following said commitment by Lessee. In such event this Lease shall
continue in
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full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interests of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a
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reasonable proportion to be determined by Lessor of all such charges jointly
metered or billed with other premises in the Building, in the manner and within
the time periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting. (See also Addendum Section 12.1.)
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either; (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
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nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
subleasee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) (Also see Addendum Section 12.2(e).)
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described n Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) (Also see Addendum Section 12.1(i).)
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such subleasee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such subleasee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary.
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Lessee shall have no right or claim against such sublessee, or, until the Breach
has been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any subleasee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) [DELETE PARAGRAPH 12.3(e).
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3. (ii) the inspection, maintenance and service contracts required
under Paragraphs 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee, provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by
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Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 of any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, or (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined In Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b),(c) or (d) was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the
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applicable notice for grace period purposes required by Subparagraph 13.1 (b),
(c) or (d). In such case, the applicable grace period under the unlawful
detainer status shall run concurrently after the one such statutory notice. and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any Indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof for by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent(6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance. (Also see Addendum Section 13.4)
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor falls within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten
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percent (10%) of the floor area of the Premises, or more than twenty-five-
percent (25%) of the portion of the Common Areas designated for Lessee's
parking, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above Lessee's Share of the legal and other expenses incurred by Lessor
in the condemnation matter, repair any damage to the Premis caused by such
condemnation authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association (also see Attached Exhibit B),
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not
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limited to Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision there.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Untied States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the
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same or any other term, covenant or condition hereof. Lessor's consent to, or
approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to
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separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last two hundred seventy (270) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs. (ALSO SEE ADDENDUM SECTION 34.)
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any
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act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option, if any, granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is in
full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessor three
(3) or more notices of separate Defaults under Paragraph 13.1 the twelve (12)
months period immediately preceding the exercise of the Option, whether or not
the Defaults are cured.
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(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, right of
ways, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessor is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<CAPTION>
<S> <C> <C>
Executed at: LESSOR'S OFFICE
--------------------------------------
on: --------------------------------------
By LESSOR: LIVERMORE AIRWAY BUSINESS PARK By LESSEE: INTEK INFORMATION, INC.
-------------------------------------- -------------------------------
--------------------------------------
--------------------------------------
By: /s/ Terrence J. Rose By: /s/ Frank Richards
---------------------------------------- -------------------------------
Name Printed: Terrence J. Rose Name printed: Frank Richards
---------------------------------------- -------------------------------
Title: General Partner Title: Chief Operating Officer
----------------------------------------
By: By:
---------------------------------------- -----------------------------------
Name Printed: Name Printed:
---------------------------------------- -----------------------------------
Address: 3375 Scott Blvd., #308 Address:
---------------------------------------- -----------------------------------
Santa Clara, CA 95054
---------------------------------------- -----------------------------------
Telephone: (408) 496-1234 Telephone:
---------------------------------------- -----------------------------------
Facsimile: (408) 988-4768 Facsimile:
---------------------------------------- -----------------------------------
PROPERTY MANAGEMENT OFFICE: Tax I.D. #
-----------------------------------
2600 Kitty Hawk Rd., Suite 100, Livermore, CA 94550
Tel: (925) 455-1234 Fax: (925) 455-1546
BROKER: BROKER:
-----------------------------------
Executed at: Executed at:
---------------------------------------- -----------------------------------
on: on:
---------------------------------------- -----------------------------------
By: By:
---------------------------------------- -----------------------------------
Name printed: Name printed:
---------------------------------------- -----------------------------------
Title: Title:
---------------------------------------- -----------------------------------
Address: Address:
---------------------------------------- -----------------------------------
---------------------------------------- -----------------------------------
Telephone: Telephone:
---------------------------------------- -----------------------------------
Facsimile: Facsimile:
---------------------------------------- -----------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So.
Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
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Addendum To Standard Industrial/Commercial Multi Tenant Lease - Modified Net
----------------------------------------------------------------------------
Parties: Livermore Airway Business Park (Lessor), Intek Information, Inc.
(Lessee)
Dated: January 14,1999
1.3 Term: The term of the Lease shall be for a period of approximately one
----
(1) year (the "Original Term"), unless sooner terminated or extended pursuant to
the Expiration Date specified below, commencing February 1, 1999 ("Commencement
Date") and ending on the date that is seven (7) days after Lessee takes
possession (the "Expiration Date") of those certain premises in a yet-to-be-
constructed building located in the Livermore Airway Business Park (the "New
Building"), as more particularly described in a separate lease agreement between
Lessee and Lessor, dated January 30, 1999 ("Separate Lease"); however, in no
event shall the Expiration Date be later than May 31, 2000. Note that in the
absence of construction of the New Building or early termination of the Separate
Lease described above, the Expiration Date shall be May 31, 2000.
7.4(c) Alterations and Restoration. Reference is made to that certain
---------------------------
Sublease agreement for the Premises between Lessee (as sublessee) and Topcon
Laser Systems, Inc. (as sublessor), dated June 26, 1996.
Notwithstanding anything to the contrary contained in Paragraph 7.4(c) above,
Lessee acknowledges that Lessor may require Lessee, at Lessee's expense, to
remove any Alterations, Lessee-Owned Alterations, and/or Utility Installations
made to the Premises by Lessee, not later than the expiration of this Lease, and
return the Premises to their condition as existed prior to Lessee's initial
occupancy.
12.1 Permitted Transfer Notwithstanding anything contained in Paragraphs
------------------
12.1(b) and (c) of the Lease, a change in control of Lessee through an initial
public offering or the subsequent sale of shares of Lessee on a public exchange
shall not constitute an assignment requiring Lessor's consent. In addition,
Lessee may assign or transfer this Lease without Lessor's consent to any entity
resulting from a merger or consolidation with Lessee, or to any person or entity
which acquires all or substantially all of the assets of Lessee's business as a
going concern, provided that (i) Lessee gives Lessor at least thirty (30) days'
prior written notice of such transfer identifying the surviving entity of such
merger or consolidation or the person or entity acquiring all of the assets of
Lessee; (ii) such entity has a Net Worth immediately after such merger,
consolidation or acquisition of not less than the greater of Lessee's Net Worth
as of the date of this Lease or Lessee's Net Worth as of the date of such
merger, consolidation or acquisition; (iii) Lessee provides Lessor with such
financial information as Lessor reasonably requires to verify the Net Worth
requirements set forth above; and (iv) in the case of an acquisition of all of
the assets of Lessee, the acquiring entity promptly executes and delivers to
Lessor an assumption of the Lessee's obligations under this Lease.
Notwithstanding any permitted assignment of the Lease pursuant to this Paragraph
12.1, all of the terms of the Lease shall remain in full force and effect and
Lessee shall not be released from its obligations and liabilities under this
Lease.
12.2(e) Request for Consent. Each request for consent to an assignment or
-------------------
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any. If
Lessor determines in its reasonable discretion that it is necessary to engage
legal counsel to advise Lessor, review assignment or sublease documents or
prepare consent documents, Lessee shall reimburse Lessor for all attorney's fees
and costs incurred by Lessor with respect to Lessee's request for consent to
such assignment or subletting.
12.2(i) Bonus Rent. Upon Lessor's consent to any assignment or subletting,
----------
Lessee shall pay and continue to pay as additional rent over the term of such
assignment or subletting, on a monthly basis, concurrently with payment of Base
Rent, fifty percent (50%) of any rent or other economic consideration received
by Lessee as a result of such assignment or subletting, whether denominated
rentals or otherwise which exceed the sums which Lessee is obligated to Lessor
under the Lease (prorated to reflect obligations allocable to the portion of the
Premises subject to such assignment or subletting).
13.4 Late Charges. The ten (10) day time period for payment of rent or other
------------
sums due shall end at 4:00 PM Pacific Time on the tenth (10th) calendar day. If
the ten (10) day time period for delivery of rent and other sums due ends on a
Saturday, Sunday, or legal holiday, then such date for delivery shall be
accelerated to 4:00 p.m. Pacific Time of the preceding day which is not a
Saturday, Sunday, or legal holiday.
49. Interior Improvements. Lessor, at its expense, shall construct the
---------------------
following interior improvements:
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(i) Touch-up the interior walls of the Premises with new paint, as
needed;
(ii) Clean the carpets in the Premises;
(iii) Install additional electrical distribution to the center unit
(commonly known as 380 Earhart Way) of the Premises; or
(iv) Construct other similar general purpose improvements.
Lessor's cost for the interior improvements described in this Paragraph 49 shall
not exceed Fifteen Thousand and no/100 ($15,000.00) dollars. Notwithstanding
anything to the contrary, Lessor shall have no obligation to commence or
construct the above interior improvements until such time as Lessor and Lessee
execute a separate lease agreement for the construction of a new building on
vacant land in the Livermore Airway Business Park, in which Lessee shall lease
approximately 21,000 +/- square feet of area on a long-term lease, and all
contingencies with respect to the new building have been removed.
50 Pets. Lessee shall not keep or permit to be kept any pets within the
----
Premises, Common Areas, or Industrial Center at any time.
51
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EXHIBIT 10.22
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 30, 1999, is made by and between LIVERMORE AIRWAY BUSINESS PARK, a
limited partnership ("Lessor") and INTEK INFORMATION, INC., a Delaware
corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) Premises: REFER TO ADDENDUM, SECTION 1.2(a).
In addition to Lessee's rights to use and occupy the Premised as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as "Industrial
Center." (Also see Paragraph 2.)
1.2(b) Parking: 130 unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and zero (0) reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6.) (Also see Addendum Section 1.3(f).)
1.3 Term: 8 years and 0 months ("Original Term") commencing REFER TO
--------
ADDENDUM SECTION 1.3.
- --------------------
1.4 Early Possession: None ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 Base Rent: *REFER TO ADDENDUM SECTION 1.5 (Also see Paragraph 4.)
[xx] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 1.5, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $25,930 as Base Rent for the
first month of the Lease term.
1.6(b) Lessee's Share of Common Area Operating Expenses: fifty percent
(50%) ("Lessee's Share") as determined by [X] prorata square footage of the
Premises as compared to the Total square footage of the Building or [ ] other
criteria as described in Addendum ____.
1.7 Security Deposit: $25,000.00 ("Security Deposit"). (Also see
Paragraph 5.)
1.4 Permitted Use: An office teleservicing center ("Permitted Use")
(Also see paragraph 6.)
1.5 Insuring Party. Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] N/A represents Lessor exclusively ("Lessor's Broker");
[xx] COLLIERS INTERNATIONAL, AND GRANITE REALTY ADVISORS represents
Lessee exclusively ("Lessee's Broker);
[ ] N/A represents both Lessor and Lessee ("Dual Agency"). (Also see
Paragraph 15.)
<PAGE>
1.10(b) Payment to Brokers. Lessor shall pay to said Broker(s) jointly,
or in such separate shares as they may mutually designate in writing, a fee as
set forth in a separate written agreement between Lessor and said Broker(s)
(or in the event there is no separate written agreement between Lessor and said
Broker(s), the sum of $ N/A for brokerage services rendered by said Broker(s) in
---
connection with this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease
are to be guaranteed by N/A. ('Guarantor").
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1.2(a), 1.3, 1.3(f), 1.5, 12.1, 12.2(e), 12.2(i), 13.4
and 34, and Exhibits A through E, all of which constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in the Lease. Unless otherwise
provided herein, any statement of square footage set forth in the Lease, or that
may have been used in calculating rental and/or Common Area Operating Expenses,
is an approximation which Lessor and Lessee agree is reasonable and the rental
and lessee's Share (as defined in Paragraph 1.6(b) based thereon is not subject
to revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no actual knowledge of any
claim having been made by any governmental agency that a violation or violations
of applicable building codes, regulations, or ordinances exist with regard to
the Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and nay
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the
number of Unreserved Parking Spaces and Reserved Parking Spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas
designated from time to time by Lessor
2
<PAGE>
for parking. Lessee shall not use more parking spaces than said number. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows the parking of inoperative vehicles
or any of the prohibited activities described in this Paragraph 2.6, the Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights. powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, customers,
contractors and invitees to so abide find conform. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitations, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so tong as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
3
<PAGE>
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified In Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee Totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation or Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term commences, if possession is
not tendered to Lessee when required by this Lease and Lessee does not terminate
this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if
any, that Lessor would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to the period during
which the Lessee would have otherwise enjoyed under the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address slated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessor shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
4
<PAGE>
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas, including pest control and window washing services.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under paragraph 10
hereof, and any property association dues and expenses levied against the
Industrial Center.
(vi) The cost of premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessee's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof of the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee falls to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall, within ten (10) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base Rent
increases during the term of this Lease, Lessee shall, upon written request from
Lessor, deposit additional monies with Lessor as an addition to the Security
Deposit so that the Total amount of the Security Deposit shall at all times bear
the same proportion to the then current Base Rent as the Initial Security
Deposit bears in the initial Base Rent set forth in Paragraph 1.5. Lessor shall
not be required to keep all or any part of its Security
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Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's Interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth In Paragraph 1,8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring Premises or properties.
(b) DELETE PARAGRAPH 6.1(b).
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) its presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessee's option, removal on or Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous
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Substance including but not limited to all such documents as may be involved in
any Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents. employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
6.3 Lessee's Compliance with Requirement. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect.. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, warning, citation, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance With Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessor with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessee's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the not for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and
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repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair.
(b) Lessor shall procure and maintain the contract for the heating, air
conditioning and ventilating systems and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior walls, exterior
roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas)
or other automatic fire extinguishing system including fire alarm and/or smoke
detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the interior surfaces or exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors, or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessee's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installation" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term 'Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned" Alterations and/or Utility Installations' are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to
be made any Alternations or Utility Installations in, on under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or detection systems and the cumulative cost
thereof during the term of this Lease as extended does not exceed $5,000.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installations to Lessor prior to commencement of the work thereon;
and (iii) the compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alterations or Utility Installations by
lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and be in compliance with all
Applicable Requirements. Lessee shall promptly upon completion thereof furnish
Lessor with as built plans and specifications therefor. Lessor may, (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $5,000.00 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation.
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(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premised or any interest therein.
Lessee shall give Lessor not less than ten (10) days notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of no responsibility in or on the Premises as proved
by law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense, defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration. (See also Addendum
Section 7.4(c).)
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Less shall be the property of and owned by Lessee, but considered a
part of the premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the Lessee-
Owned Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may be then required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the Insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be rated
to coincide with the corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during its term of this lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional Insureds) against claims for bodily injury and
property damage based upon, involving or arising out of its ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in an
amount not less than $2,000,000 per occurrence with an "Additional Insurance
Managers or Lessors of Premises" endorsement and contain the "Amendment of
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the Pollution Exclusion" endorsement for damage caused by heat, smoke or fumes
from a hostile fire. The policy shall not contain any intra-insured exclusions
as between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "Insured contract" for the performance
of Lessee's indemnity obligations under this Lease. The limits of said
insurance required by this Lease or as carried by Lessee shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance to be carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property lnsurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurance
value thereof , if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than the replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by Lessor or a Lender), including
coverage for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of its enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies should also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not loss than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the in event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to collect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the insuring Patty.,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessor for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned
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Alterations and Utility Installations. Upon request from Lessor, Lessee shall
provide Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any tight to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of nay obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other Lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
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(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described In Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their conditions
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, of ordinances
or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.29a), in, on or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay to for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises unless
Lessee provides Lessor with the funds to cover same, or adequate assurance
thereof, within ten (10) days following receipt of written notice of such
shortage and request therefor. If Lessor waives said funds or adequate assurance
thereof within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessor to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the not proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of such notice to give written notice Lessor of Lessee's commitment to
pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice
of termination.
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9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived In Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to wh ich Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall arise, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) clays after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessor shall leave the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the excess costs of (a) investigation and remediation of
such Hazardous Substance Condition to the extent required by Applicable
Requirements, over (b) an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following said commitment by Lessee. In such event this Lease shall
continue in
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full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interests of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall he assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including, but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a
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reasonable proportion to be determined by Lessor of all such charges jointly
metered or billed with other premises in the Building, in the manner and within
the time periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting. (Also see Addendum Section 12.1.)
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either; (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of Base
Rent coming due, and any underpayment for the period retroactively to the
effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
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nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach
by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or subleasee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(Also see Addendum Section 12.2(e).)
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(Also see Addendum Section 12.2(i).)
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessor may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessor to perform and comply with any of Lessee's
obligations to such subleases under such Sublease. Lessee hereby irrevocably
authorizes and directs any such subleases, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary.
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Lessee shall have no right or claim against such sublessee, or, until the Breach
has been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee In the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any subleases to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided. however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or (or any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
[DELETE PARAGRAPH 12.3(e).
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessor agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessor hereunder as and when due, the failure by Lessor to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3. (ii) the inspection, maintenance and service
contracts required under Paragraphs 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) its guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee, provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by
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Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 of any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, or (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days renewing written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13 2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessor to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined In Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in its exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b),(c) or (d) was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the
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applicable notice for grace period purposes required by Subparagraph 13.1 (b),
(c) or (d). In such case, the applicable grace period under the unlawful
detainer status shall run concurrently after the one such statutory notice. and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration of termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
Indemnify provisions of this Lease as to matters occurring or accruing during
the term hereof for by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent(6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of their rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, the
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance. (Also see Addendum Section 13.4)
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall not
be in breach of this Lease if performance is commenced within such thirty (30)
day period and thereafter diligently pursued to completion.
.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten
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percent (10%) of the floor area of the Premises, or more than twenty-five-
percent (25%) of the portion of the Common Areas designated for Lessee's
parking, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above Lessee's Share of the legal and other expenses incurred by
Lessor in the condemnation matter, repair any damage to the Premise caused by
such condemnation authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
DELETE PARAGRAPH 15.2 ABOVE.
DELETE PARAGRAPH 15.3 ABOVE.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association (ALSO REFER TO ATTACHED
EXHIBIT E), plus such additional information, confirmation and/or statements as
may be reasonably requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial
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statements of Lessee and such Guarantors as may be reasonably required by such
lender or purchaser, including but not limited to Lessee's financial statements
for the past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term oLessoro as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision there.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Untied States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
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24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of
such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
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30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and
expenses incurred in preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last two hundred seventy (270) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sing on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from
such advertising signs. (ALSO SEE ADDENDUM SECTION 34.)
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by
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Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Any unused portion of said deposit shall be refunded to
Lessee without interest. Lessor's consent to any act, assignment of this Lease
or subletting of the Premises by Lessee shall not constitute an acknowledgment
that no Default or Breach by Lessee of this Lease exists, nor shall such consent
be deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this lease, including but not limited to
the obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the authority of the
Guarantor (and of the party signing on Guarantor's behalf) to obligate
such Guarantor on said guaranty, and resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to
time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and
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continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessor three
(3) or more notices of separate Defaults under Paragraph 13.1 the twelve (12)
months period immediately preceding the exercise of the Option, whether or not
the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessor fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity at Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) it Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessor hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, right of
ways, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessor is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessee or Lessor or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
25
<PAGE>
10. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
49. NO PETS. Lessee shall not keep or permit to be kept any pets within the
-------
Premises, Common Areas, or Industrial Center at any time.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.)
26
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the
date specified above their respective signatures.
Executed at: LESSOR'S OFFICE Executed at:
on: on:
By LESSOR: By LESSEE:
Livermore Airway Business Park Intek Information, Inc.,
a California limited partnership a Delaware corporation
By: /s/ Terrence J. Rose By: /s/ Frank Richards
Terrence J. Rose, General Partner Frank Richards
Title: General Partner Title: Chief Operating Officer
By: By:
Name Printed: Name Printed:
Title: Title:
Address: 3375 Scott Blvd., #308
Santa Clara, CA 95054
Telephone: (408) 496-1234
Facsimile: (408) 988-4768
PROPERTY MANAGEMENT OFFICE: 2600 Kitty Hawk Rd., Tax I.D.#
Suite 100, Livermore, CA 94550
Tel: (925) 455-1234 Fax: (925) 455-1546
BROKER: BROKER:
Executed at: Executed at:
on: on:
By: By:
Name Printed: Name Printed:
Title: Title:
Address: Address:
Telephone: ( ) Telephone: ( )
Facsimile: ( ) Facsimile: ( )
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 so.
Figueroa St., M-`1, Los Angeles, CA 90071. (213) 687-8777.
27
<PAGE>
Addendum To That Certain Standard Industrial/Commercial Multi-Tenant Lease-
Modified Net Dated January 30, 1999, By And Between Livermore Airway Business
Park, L.P., A California Limited Partnership, As Lessor, And Intek Information,
Inc., A Delaware Corporation, As Lessee
1.2(a) Premises. That certain portion of the Building (defined below),
--------
including all Tenant Improvements (defined below) to be constructed therein by
Lessor under the terms of this Lease, commonly known by the street address of
___________ Armstrong Street, Suite 100, located in the City of Livermore,
County of Alameda, State of California, with the zip code 94550, as outlined on
Exhibit A attached hereto ("Premises"). For purposes of this Lease, the
following terms shall have the meanings set forth below:
(i) "Building" shall mean that certain building shell consisting
of approximately forty-two thousand five hundred eight (42,508) rentable square
feet, to be constructed by Lessor on that certain real property located on
Armstrong Street, as more particularly described on Exhibit B attached hereto,
in the approximate location shown on the site plan attached hereto as Exhibit C
("Site Plan").
(ii) "Tenant Improvements" shall mean the leasehold improvements
to be constructed by Lessor in the Premises in accordance with the Improvement
Agreement attached hereto as Exhibit D.
---------
(iii) "Common Areas" shall mean, in addition to the items
described in Paragraph 2.7 of the Lease, the site improvements to be constructed
by Lessor outside the exterior of the Building, consisting of approximately two
hundred twenty (220) parking spaces, sidewalks, access driveways, landscaping
and other site improvements shown on the Site Plan or as otherwise shown on the
Final Building Plans referred to in the Improvement Agreement.
The Premises is comprised of approximately twenty-one thousand
two hundred fifty-four (21,254) rentable square feet on the first floor of the
Building.
1.3 Term.
----
(a) Original Term. The term of this Lease ("Original Term") shall be
-------------
for eight (8) years, commencing on the Commencement Date (defined in Section
1.3(b) below) and ending eight years thereafter ("Expiration Date"), unless
sooner terminated or extended pursuant to any provision hereof.
(b) Commencement Date. As used in this Lease, the term "Commencement
-----------------
Date" shall mean the date when all of the following have occurred:
(i) The construction of the Building and the Tenant Improvements
have been substantially completed in accordance with the Final Building Plans
and Final Tenant Improvement Plans (defined in the Improvement Agreement) and
the Improvement Agreement (except for punch list items which do not
substantially interfere with Lessee's access to or use of the Premises), and
Lessor has delivered to Lessee written notice of such substantial completion;
(ii) A certificate of occupancy or its equivalent has been issued
by the applicable agency of the City of Livermore to the extent required to
permit occupancy of the Premises; and
(iii) Lessor has tendered possession of the Premises to Lessee.
The preceding to the contrary notwithstanding, in the event that
Lessor is delayed in substantially completing construction of the Tenant
Improvements due to the fault or neglect of Lessee, acts of Lessee or Lessee's
agents (including, without limitation, delays caused by work done on the
Premises or any part thereof by Lessee or Lessee's agents or by acts of Lessee's
contractors or subcontractors) or delays caused by change orders requested by
Lessee or because Lessor cannot complete construction of the Tenant Improvements
until Lessee performs necessary portions of construction work it has elected or
is required to perform (collectively, "Lessee Delays"), then, provided in each
such instance Lessee has been given written notice of such applicable Lessee
Delay within ten (10) days after the date such Lessee Delay first occurs, the
Premises shall be deemed completed on the date the same would have been
completed had Lessor not incurred such Lessee Delays.
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(c) Failure to Deliver Timely Possession of Premises. Lessor makes no
-------------------------------------------------
representation or warranty as to the date by which the Premises will be
substantially completed. Except as hereinafter provided, Lessor shall not be
liable for any damage or loss incurred by Lessee for Lessor's failure for
whatever cause to deliver possession of the Premises by a particular date, nor
shall this Lease be void or voidable on account of such failure to deliver
possession of the Premises. Lessor agrees to use diligent efforts to procure all
necessary approvals and permits for construction of the Building and the
Premises. Lessor also agrees to use diligent efforts to deliver possession of
the Premises to Lessee, with all work substantially completed (subject to
punchlist items that do not substantially interfere with Lessee's access to or
use of the Premises) by the date that is eight (8) months after the date that
Lessor has received all necessary approvals and permits for the Building (the
"Estimated Delivery Date"); and Lessor agrees to apprise Lessee of any delays
which might cause the Estimated Delivery Date to occur after the Estimated
Delivery Date. The Estimated Delivery Date shall be extended by one day for each
day that Lessor is delayed in completing the Building and/or Premises, due to a
Lessee Delay or a Force Majeure Delay (defined below). For purposes of this
Lease, the term "Force Majeure Delay" shall mean any delay in the completion of
the Building and/or Premises which is caused by strikes, lockouts, labor
disputes, inability after due diligence to obtain materials, governmental
restrictions or regulations, moratorium, civil commotion, inclement weather,
fire or other acts of God or other causes beyond the reasonable control of
Lessor.
(d) Option to Extend Lease Term. Lessor hereby grants to Lessee one
----------------------------
(1) option to extend the Original Term for a period of five (5) years (the
"Extended Term"), on the following terms and conditions:
(i) Lessee shall give Lessor written notice of its exercise of
the applicable option to extend the Lease term no later than two hundred seventy
(270) days before expiration of the Original Term. Time is of the essence.
(ii) Lessee may not extend the Original Term pursuant to this
Section 1.3(d) if a Breach by Lessee (defined in Paragraph 13.1 of the Lease)
exists as of the date of Lessee's notice of exercise of the option to extend, or
if Lessee shall have assigned or sublet any of the aggregate square footage of
the Premises or otherwise transferred its interest in this Lease and/or the
Premises, whether or not Lessor's consent to such assignment or transfer has
been given. If a Breach by Lessee exists on the date that the Extended Term is
to commence, then Lessor may elect to terminate this Lease, notwithstanding any
notice given by Lessee of an exercise of its option to extend and such exercise
of Lessee's option to extend the Original Term shall be void and of no force or
effect.
(iii) All terms and conditions of this Lease shall apply during
the Extended Term, except that the Base Rent for the Extended Term shall be
determined in accordance with Section 1.5(b) of this Addendum; Lessee shall have
no further option to extend the Lease term beyond the Extended Term described in
this Section 1.3(d), and Lessor shall have no obligation to construct or install
any building shell improvements, leasehold improvements or site improvements or
provide any allowance with respect to any such improvements.
(iv) Once Lessee delivers notice of its exercise of the option to
extend the Original Term, Lessee may not withdraw such exercise and, subject to
the provisions of this Section 1.3(d), such notice shall operate to extend the
Original Term. Upon the extension of the Original Term pursuant to this Section
1.3(d), the term "Expiration Date" as used in this Lease shall thereafter mean
the expiration date of the Extended Term unless sooner terminated pursuant to
the terms hereof.
(e) Early Termination Right. Subject to the terms and conditions
-----------------------
contained in this Section 1.3(e), Lessee shall have the right to terminate this
Lease ("Termination Right") at the end of the eighty-fourth (84th) month of the
Lease term ("Early Termination Date"). Lessee may exercise the Termination Right
by giving Lessor written notice of such termination not later than the last day
of the seventy-fourth (74th) month of the Lease term. Lessee's failure to timely
exercise the Termination Right shall be deemed Lessee's waiver of the
Termination Right. If Lessee timely exercises the Termination Right, this Lease
shall terminate on the Early Termination Date, and Lessee shall surrender and
vacate the Premises in accordance with Section 7.4(c) of the Lease prior to such
date. If a Breach by Lessee exists on the date of delivery of Lessee's notice of
exercise of the Termination Right to Lessor or at any time after Lessee delivers
such notice, then Lessor may, in its sole discretion, elect either (i) to have
Lessee's exercise of the Termination Right be of no force and effect, and this
Lease shall continue and expire at the end of the Original Term, or (ii) to
treat the Lease as terminated, in which case Lessor's rights and remedies under
the Lease with respect to the Breach by Lessee shall survive the termination of
the Lease.
29
<PAGE>
(f) Offsite Parking Condition. Lessee's obligations under this Lease
-------------------------
shall be subject to the condition that Lessee secure not less than eighty-five
(85) offsite parking spaces use by Lessee's employees and invitees on terms
satisfactory to Lessee on or before April 30, 1999 ("Offsite Parking
Condition"). Lessee shall secure such offsite parking spaces from one or more of
the following sources: (i) the Mektec Corporation facility located on Lindbergh
Avenue, (ii) the Ashmes Shriners facility on Lindbergh Avenue; and/or (iii)
street parking with the approval of the City of Livermore. Lessee shall use
diligent efforts to satisfy the Offsite Parking Condition on or before April 30,
1999. The Offsite Parking Condition shall be deemed satisfied if Lessee is able
to secure not less than eighty-five (85) offsite parking spaces at a cost not in
excess of Two Thousand Five Hundred Dollars ($2,500) per month on or before
April 30, 1999. If the Offsite Parking Condition has not been satisfied on or
before April 30, 1999, Lessee may terminate this Lease by giving written notice
to Lessor on or before April 30, 1999. If Lessee gives timely written notice of
such termination, this Lease shall terminate as of the date of Lessor's receipt
of Lessee's termination notice, the Security Deposit and first month's Base Rent
shall be returned to Lessee, and neither party shall have any further obligation
hereunder except for obligations which have accrued prior to such termination
and expressly survive the Lease.
1.5 Base Rent.
---------
(a) Base Rent. Lessee shall pay to Lessor as Base Rent for the
---------
Premises the monthly amount specified below:
Lease Month Amount Per Month
----------- ----------------
1 - 12 $25,930
13 - 24 $26,440
25 - 36 $26,971
37 - 48 $28,055
49 - 60 $29,182
61 - 72 $30,351
73 - 84 $31,753
85 - 96 $31,881
The Base Rent set forth above shall be subject to adjustment in accordance
with Section 12(B) of the Improvement Agreement.
(b) Time of Payment. Lessee shall pay the Base Rent to Lessor each
---------------
month in advance on the first day of each calendar month, without deduction or
offset, prior notice or demand, commencing on the Commencement Date and
continuing through the term of this Lease, together with such other sums
(including Lessee's Share of Common Area Operating Expenses (defined in
Paragraph 1.6(b) of the Lease)) as are payable by Lessee to Lessor under the
terms of this Lease. Base Rent for any period during the Lease term which period
is less than one (1) full month shall be a prorata portion of the monthly Base
Rent on the actual number of days in such month.
(c) Place of Payment. Rent shall be payable in lawful money of the
----------------
United States of America to Lessor at 3375 Scott Boulevard, Suite 308, Santa
Clara, California 95054, or to such other person(s) or at such other place(s) as
Lessor may designate in writing.
(d) Base Rent During Extended Term. If Lessee elects to extend the
------------------------------
Lease term pursuant to Section 1.3(d) of this Addendum, the Base Rent payable by
Lessee for the Extended Term shall be in an amount equal to the fair market
rental value of the Premises in relation to market conditions at the time of the
commencement of the Extended Term (including, but not limited to, rental rates
for comparable space within a six mile radius of the Premises with comparable
tenant improvements and taking into consideration any adjustments to rent based
upon direct costs (operating expenses) and taxes, load factors, and/or cost of
living or other rental adjustments, the relative strength of the tenants; the
size of the space; rental concessions and tenant improvement allowances then
being offered for other space (Lessee hereby acknowledging that Lessor is not
obligated to provide an improvement allowance for the Extended Term), and any
other factors which affect market rental values at the time of the commencement
of the Extended Term, but without taking into consideration to the value of any
leasehold improvements installed in the Premises by Lessee at Lessee's sole
cost); however, the Base Rent payable during the Extended Term shall in no event
be lower than the Base Rent payable during the month immediately prior to the
commencement of the Extended Term.
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<PAGE>
(i) Mutual Agreement. After timely receipt by Lessor of Lessee's
-----------------
notice of exercise of the option to extend the Lease term, Lessor and Lessee
shall have a period of fifteen (15) days in which to agree on the Base Rent for
the Extended Term. If Lessor and Lessee agree on said Base Rent during such
fifteen (15) day period, they shall immediately execute an amendment to this
Lease stating the Base Rent for the Extended Term. If Lessor and Lessee are
unable to agree on the Base Rent for the Extended Term as aforesaid, then the
provisions of Section 1.5(d)(ii) below shall apply.
(ii) Appraisal. Not earlier than six (6) months prior to the
---------
commencement of the Extended Term, each party at its cost and by giving notice
to the other party, shall appoint an M.A.I. real estate appraiser, with at least
five (5) years full-time commercial appraisal experience in Alameda County, to
appraise and set the fair market rental value of the Premises. If a party does
not appoint an appraiser within ten (10) days after the other party has given
notice of the name of its appraiser, the single appraiser appointed shall be the
sole appraiser and shall set the fair market rental value. The cost of such sole
appraiser shall be borne equally by the parties. If two (2) appraisers are
appointed by the parties as provided in this Section 1.5(d)(ii), the two (2)
appraisers shall meet promptly in an attempt to set the fair market rental
value. If they are unable to agree within twenty (20) days after the last
appraiser has been appointed, then the two (2) appraisers shall attempt to
select a third appraiser meeting the qualifications stated in this Section
1.5(d)(ii) within ten (10) days after the last day the two (2) appraisers are
given to set the fair market rental value. If they are unable to agree on the
third appraiser, either of the parties to this Lease, by giving ten (10) days
notice to the other party, may apply to the presiding judge of the Superior
Court of Alameda County for the selection of a third appraiser who meets the
qualifications stated above. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either party. Within twenty (20) days after
the selection of the third appraiser, the majority of the appraisers shall set
the fair market rental value. If the majority of the appraisers are unable to
set the fair market rental value within said twenty (20) day period, the three
(3) appraisals shall be added together and the Total divided by three (3); the
resulting quotient shall be the fair market rental value and shall be deemed
incorporated herein; provided, however, that if any appraisal differs from the
median appraisal by an amount equal to more than ten percent (10%) of such
median appraisal, that appraisal shall be disregarded, and the average of the
remaining appraisals (or the remaining appraisal) shall be the fair market
rental value. In establishing the fair market rental value, the appraiser or
appraisers shall consider the factors referred to in Section 1.5(d)(i) above and
the appraiser or appraiser may include periodic adjustments to the Base Rent
payable during the Extended Term.
12.1 Permitted Transfer. Notwithstanding anything contained in
------------------
Paragraphs 12.1(b) and (c) of the Lease, a change in control of Lessee through
an initial public offering or the subsequent sale of shares of Lessee on a
public exchange shall not constitute an assignment requiring Lessor's consent.
In addition, Lessee may assign or transfer this Lease without Lessor's consent
to any entity resulting from a merger or consolidation with Lessee, or to any
person or entity which acquires all or substantially all of the assets of
Lessee's business as a going concern, provided that (i) Lessee gives Lessor at
least thirty (30) days' prior written notice of such transfer identifying the
surviving entity of such merger or consolidation or the person or entity
acquiring all of the assets of Lessee, (ii) such entity has a Net Worth
immediately after such merger, consolidation or acquisition of not less than the
greater of Lessee's Net Worth as of the date of this Lease or Lessee's Net Worth
as of the date of such merger, consolidation or acquisition; (iii) Lessee
provides Lessor with such financial information as Lessor reasonably requires to
verify the Net Worth requirements set forth above; and (iv) in the case of an
acquisition of all of the assets of Lessee, the acquiring entity promptly
executes and delivers to Lessor an assumption of the Lessee's obligations under
this Lease. Notwithstanding any permitted assignment of the Lease pursuant to
this Paragraph 12.1, all of the terms of the Lease shall remain in full force
and effect and Lessee shall not be released from its obligations and liabilities
under this Lease.
12.2(e) Request for Consent. Each request for consent to an assignment or
-------------------
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any. If
Lessor determines in its reasonable discretion that it is necessary to engage
legal counsel to advise Lessor, review assignment or sublease documents or
prepare consent documents, Lessee shall reimburse Lessor for all attorney's fees
and costs incurred by Lessor with respect to Lessee's request for consent to
such assignment or subletting.
12.2(i) Bonus Rent. Upon Lessor's consent to any assignment or subletting,
----------
Lessee shall pay and continue to pay as additional rent over the term of such
assignment or subletting, on a monthly basis, concurrently with payment of Base
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Rent, fifty percent (50%) of any rent or other economic consideration received
by Lessee as a result of such assignment or subletting, whether denominated
rentals or otherwise which exceeds (a) the cost of interior improvements made by
Lessee for such assignee (or sublessee, as applicable), (b) the amount of
brokerage fees actually paid by Lessee in connection with such assignment or
subletting (the amounts set forth in items (a) and (b) above shall be amortized
over the term of the assignment (or sublease, as applicable), and (c) the sums
which Lessee is obligated to Lessor under the Lease (prorated to reflect
obligations allocable to the portion of the Premises subject to such assignment
or subletting).
13.4 Late Charges. The ten (10) day time period for payment of rent or
------------
other sums due shall end at 4:00 PM Pacific Time on the tenth (10th) calendar
day. If the ten (10) day time period for delivery of rent and other sums due
ends on a Saturday, Sunday, or legal holiday, then such date for delivery shall
be accelerated to 4:00 p.m. Pacific Time of the preceding day which is not a
Saturday, Sunday, or legal holiday.
34. Signage. The provisions of Paragraph 34 of the Lease notwithstanding,
-------
subject to all necessary governmental approvals, and subject to Lessor's
approval (which shall not be unreasonably withheld), Lessee shall have the right
to place identifying signs on the exterior of the Building and on a sign
monument, if applicable, in the Common Areas at the main driveway entrance for
the Building.
IN WITNESS WHEREOF, the parties have executed this Addendum to Standard
Industrial/Commercial Multi-Tenant Lease on the dates set forth below.
LESSOR: LESSEE:
Livermore Airway Business Park, L.P., Intek Information, Inc.,
a California limited partnership a Delaware corporation
By: /s/ Terrence J. Rose By: /s/ Frank Richards
--------------------- -------------------
Terrence J. Rose, General Partner
Date: 1 April 99 Name: Frank Richards
Its: Chief Operating Officer
Date: 3/26/99
32
<PAGE>
EXHIBIT D
IMPROVEMENT AGREEMENT
This Improvement Agreement is made part of that Standard
Industrial/Commercial Multi-Tenant Lease -- Modified Net dated January 30, 1999
(the "Lease"), by and between LIVERMORE AIRWAY BUSINESS PARK, L.P., a California
limited partnership ("Lessor") and INTEK INFORMATION, INC., a Delaware
corporation ("Lessee").
1. Purpose of Improvement Agreement. The purpose of this Improvement
--------------------------------
Agreement is to set forth the rights and obligations of Lessor and Lessee with
respect to the construction of Tenant Improvements in the Premises. The rights
and obligations of the parties under this Agreement constitute rights and
obligations of the parties under the Lease, and upon any default under the terms
of this Agreement, the default and remedy provisions of the Lease shall apply.
2. Definitions. As used in this Improvement Agreement, the following
-----------
terms shall have the following meanings, and initially capitalized terms which
are not defined below, but which are defined in the Lease and which are used in
this Improvement Agreement, shall have the meanings ascribed to them by the
Lease:
(a) Amortization Amount. "Amortization Amount" shall mean an
-------------------
additional tenant improvement allowance in excess of the TI Allowance in an
amount not to exceed the amount determined by multiplying Three Dollars ($3.00)
by the number of usable square feet comprising the Premises as shown on the
Final Building Plans.
(b) Building Improvements. "Building Improvements" shall mean all
---------------------
work and improvements required to be performed by Lessor in connection with
construction of the Building.
(c) City. "City" shall mean the City of Livermore, California, and
----
any other governmental agencies issuing permits and approvals for construction
of the Building and the Tenant Improvements.
(d) Cost Estimate. "Cost Estimate" shall mean an estimate of the TI
-------------
Costs, as submitted by Lessor to Lessee pursuant to Paragraph 9 below.
(e) Excess TI Costs. "Excess TI Costs" shall mean all TI Costs in
---------------
excess of the TI Allowance and the Amortization Amount.
(f) Final Building Plans. "Final Building Plans" shall mean those
--------------------
final plans, specifications and working drawings for the Building Improvements
to be constructed by Lessor.
(g) Final Tenant Improvement Plans. "Final Tenant Improvement Plans"
------------------------------
shall mean those plans, specifications and working drawings for the Tenant
Improvements to be constructed by Lessor, as approved by Lessor and Lessee
pursuant to Paragraph 5 below.
(h) Preliminary Tenant Improvement Plans. "Preliminary Tenant
------------------------------------
Improvement Plans" means the preliminary plans for the Tenant Improvements
described in Paragraph 5 below.
(i) Substantial Completion and Substantially Complete. "Substantial
-------------------------------------------------
Completion" and "Substantially Complete" shall each mean the date when all of
the following have occurred with respect to the Tenant Improvements: (i) the
construction of the Tenant Improvements has been completed in accordance with
the Final Tenant Improvement Plans and this Improvement Agreement (except for
punch list items which do not substantially interfere with Lessee's access to or
use of the Premises), and (ii) the City has issued a certificate of occupancy or
its equivalent to the extent required to permit occupancy of the Premises. In
the event Lessor is delayed in completing construction of any of the Tenant
Improvements due to the fault or neglect of Lessee, acts of Lessee or Lessee's
agents) or delays caused by change orders requested by Lessee, then, provided in
each such instance Lessee has been given written notice of such applicable
Lessee Delay (as defined in the Lease) within ten (10) days after the date such
Lessee Delay first occurs, the Tenant Improvements shall be deemed completed on
the date the same would have been completed had Lessor not incurred such delays.
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(j) Tenant Improvements. "Tenant Improvements" shall mean the tenant
-------------------
improvements to be constructed by Lessor in accordance with the Final Tenant
Improvement Plans.
(k) TI Allowance. "TI Allowance" shall mean a sum equal to Thirty
------------
Dollars ($30.00) multiplied by the number of usable square feet comprising the
Premises as shown on the Final Building Plans.
(1) TI Costs. "TI Costs" shall mean and include all costs and
--------
expenses paid or incurred by Lessor in connection with the design, development
and construction of the Tenant Improvements including, without limitation, (i)
all design, architectural and engineering fees and costs, (ii) all building
permit fees and taxes, governmental agency plan check fees, and other
governmental fees and taxes required for the construction and occupancy of the
Tenant Improvements, and (iii) all "hard" construction costs for the
construction of the Tenant Improvements according to the Final Tenant
Improvement Plans and all approved changes thereto, including without
limitation, (1) all labor, supervision, and benefit costs therefor; (2) costs of
all materials; (3) value of all tools and equipment consumed on the job and
rental of all equipment used in the construction; (4) contract price for all
construction work undertaken by Lessor's general contractor and subcontractors;
(5) the cost of all equipment and fixtures, including the cost of installation;
(6) the costs of machinery and equipment rented for the construction of the
Tenant Improvements; (7) costs of reasonable transportation and travel expenses
incurred in connection with the construction of the Tenant Improvements; (8)
cost of minor repairs and replacements and costs of removal of debris; (9) costs
of telephone calls, postage and delivery charges and reasonable petty cash
expenses at the construction site office applicable to the construction of the
Tenant Improvements; (10) costs of construction insurance maintained by Lessor
or the general contractor with respect to the Tenant Improvements; (11) sales,
use or similar taxes related to the construction of the Tenant Improvements and
for which Lessor is liable or responsible; (12) costs of preventing damage or
loss in the event of an emergency (provided the emergency is not caused by the
negligence of the general contractor); (13) such other costs as reasonably may
be incurred by the Lessor in connection with the construction of the Tenant
Improvements.
3. Lessor's Obligation to Construct the Building and Improve the Land. As
------------------------------------------------------------------
of the effective date of the Lease, the land upon which the Building is to be
located is unimproved. Lessor shall improve said land in accordance with the
Final Building Plans and the site improvements shown on the Site Plan attached
to the Lease as Exhibit C.
---------
The Building shall be constructed substantially in accordance with the
Site Plan and the Final Building Plans, all of the foregoing subject to the
approval of, and any changes required by, any appropriate governmental
authority. Construction of the Building shall also be undertaken in accordance
with applicable laws and building code requirements and in a good and
workmanlike manner. The Building shall be constructed in accordance with the
following:
(a) The Building will be constructed according to the Final Building
Plans prepared by Lessor. The Building shall be approximately forty-two thousand
five hundred eight (42,508) rentable square feet as designated by Lessor, in its
sole and absolute discretion, and as permitted by the appropriate governmental
authorities.
(b) As soon as practicable following the execution of the Lease,
Lessor shall complete and deliver to Lessee the Final Building Plans for
Lessee's information in connection with the preparation of plans for the Tenant
Improvements. The Final Building Plans shall substantially conform to or
represent logical developments from the Site Plan.
4. Lessor's Obligation to Construct the Tenant Improvements. Upon
--------------------------------------------------------
completion of the Building Shell, Lessor shall construct the Tenant Improvements
in accordance with the Final Tenant Improvement Plans developed and approved in
accordance with this Improvement Agreement.
5. Final Tenant Improvement Plans. Prior to the effective date of the
------------------------------
Lease, Lessor caused to be prepared and delivered to Lessee preliminary tenant
improvement plans dated February 2, 1999 prepared by Richard L. Fish, A.I.A.
("Preliminary Tenant Improvement Plans") which show the floor plan, layout, and
architectural design of the Tenant Improvements to be constructed by Lessor in
the Premises. By execution of this Lease, Lessee shall be deemed to have
approved the Preliminary Tenant Improvement Plans.
34
<PAGE>
As soon as practicable following the execution of the Lease, Lessor
shall complete and deliver to Lessee final plans, specifications and working
drawings for the Tenant Improvements, which shall be subject to Lessee's
approval. Such final plans, specifications and working drawings shall
substantially conform to or represent logical developments from the Preliminary
Tenant Improvement Plans. Within five (5) days following receipt of such plans
specifications and working drawings, Lessee shall deliver to Lessor either: (i)
written approval of such plans, specifications and working drawings which shall
not be unreasonably withheld, or (ii) specify in writing its objections to such
final plans, specifications and working drawings and all changes that must be
made to the same to satisfy such objections; provided however, Lessee may only
object to such final plans, specifications and working drawings on the basis
that they do not substantially conform to or do not represent a logical
development of the Preliminary Tenant Improvement Plans approved by Lessee. If
Lessee does not deliver written objections to the plans, specifications and
working drawings within the specified time period, Lessee shall be deemed to
have approved the same. If Lessee delivers written objections within such time
period, the parties shall promptly confer and use their best efforts to develop
Final Tenant Improvement Plans that are acceptable to both Lessor and Lessee
within ten (10) days thereafter. When Lessor and Lessee agree upon the final
plans, specifications and working drawings for the Tenant Improvements, Lessor
shall submit the same to all appropriate governmental agencies for approval.
Immediately after all such governmental approvals have been obtained, and after
such Final Tenant Improvement Plans have been approved by Lessor's Lender, if
any, providing financing for construction of the Building and the Tenant
Improvements, or financing for a portion of the cost of such Tenant
Improvements, then such Final Tenant Improvement Plans shall be initialed and
dated by Lessor and Lessee or a representative of Lessor or Lessee. The final
plans, specifications and working drawings for the Tenant Improvements so
approved by Lessor and Lessee (or their designated representatives) are referred
to herein as the "Final Tenant Improvement Plans".
6. Substitutions. In developing the Final Tenant Improvement Plans,
-------------
Lessee shall, whenever feasible, designate and select material and equipment
which can be obtained within normal lead times. If at any time during the plan
development process or the course of construction, it becomes apparent that a
particular material or item of equipment is not or will not be obtainable within
a reasonable period of time, the parties shall meet and confer to find an
acceptable substitute therefor.
7. Changes to Final Tenant Improvement Plans. Once the Final Tenant
-----------------------------------------
Improvement Plans have been approved by Lessor and Lessee, Lessee shall have no
right to order extra work or change orders with respect to the construction of
the Tenant Improvements without the prior written consent of Lessor, which
consent shall not be unreasonably withheld or delayed, provided there is a
reasonable basis for such change. The foregoing notwithstanding, all changes
required by the City in connection with the issuing permits and approvals for
construction of the Tenant Improvements shall be made. All extra work or change
orders requested by Lessee shall be made in writing, shall spec ify the amount
of delay or the time saved resulting therefrom, shall specify any added or
reduced cost and/or construction time resulting therefrom, and shall become
effective and a part of the Final Tenant Improvement Plans once approved in
writing by both parties. Consistent with the foregoing, prior to effecting any
change that will result in a delay in the completion of construction of the
Tenant Improvements, Lessor shall notify Lessee of the estimated amount of added
construction time to effect or implement a change and obtain Lessee's consent
thereto prior to such change being implemented. If a change order requested by
Lessee results in a net increase in the TI Costs which causes the Total TI Costs
to exceed the TI Allowance but not the Amortization Amount, such TI Cost shall
be amortized over the term of the Lease and added to the Base Rent in accordance
with Section 12.B(2) of this Improvement Agreement. If a change order requested
by Lessee results in a net increase in the TI Costs which causes the Total TI
Costs to exceed the TI Allowance and the Amortization Amount, such TI Cost shall
be paid by Lessee to Lessor in cash prior to commencement of work on such change
order.
8. Cost Estimate for Tenant Improvements.
-------------------------------------
(a) Preliminary Cost Estimate. Promptly following the mutual
-------------------------
execution of the Lease, Lessor shall prepare and submit to Lessee a preliminary
Cost Estimate for the Tenant Improvements which shall be subject to Lessee's
approval. Lessee acknowledges that such preliminary Cost Estimate is only
Lessor's good faith estimate of the TI Costs, and is not a representation or
warranty by Lessor that the TI Costs will be equal to or approximately the
amount of the preliminary Cost Estimate. Lessor shall have no liability
hereunder if the actual TI Costs are greater or substantially greater than the
amount of the preliminary Cost Estimate. Within ten (10) days after receipt of
the preliminary Cost Estimate, Lessee shall notify Lessor in writing of either
(i) Lessee's approval of the preliminary Cost Estimate, or (ii) disapproval
thereof and specific instructions to Lessor to cause the project architect to
modify the plans and/or reduce the scope of the Tenant Improvements in a manner
that will reduce the TI Costs to an amount less than or equal to the TI
Allowance (or the Amortization Amount). Notwithstanding the foregoing, the
parties hereto acknowledge that they or their designated
35
<PAGE>
representatives shall meet and confer periodically to try to refine the
Preliminary Tenant Improvement Plans and attempt to obtain more accurate Cost
Estimates for the Tenant Improvements.
(b) Updated Cost Estimate. On or before the date Lessor submits the
---------------------
Final Tenant Improvement Plans to the City for approval (or promptly
thereafter), Lessor provide Lessee with an updated Cost Estimate based on the
Final Tenant Improvement Plans. Within seven (7) days after receipt of the
updated Cost Estimate, Lessee shall notify Lessor in writing of either (i)
Lessee's approval of the updated Cost Estimate, or (ii) disapproval thereof and
specific instructions to Lessor to modify the plans and/or reduce the scope of
the Tenant Improvements in a manner that will reduce the TI Costs to an amount
less than or equal to the TI Allowance (or the Amortization Amount). If Lessee
disapproves the updated Cost Estimate and instructs Lessor to modify the plans
or reduce the scope of the Tenant Improvements, then Lessor shall cause the
Final Lessee Improvement Plans to be revised in a manner reasonably requested by
Lessee and shall deliver a revised Cost Estimate to Lessee for approval in the
same manner as described above. Lessee acknowledges and agrees that if the
amount of time incurred to modify the Preliminary or Final Tenant Improvement
Plans and/or reduce the scope of the Tenant Improvements as directed by Lessee
as stated above, results in a delay in the Substantial Completion of the
Improvements, then such delay shall constitute a Lessee Delay.
9. Construction of Tenant Improvements. Lessor shall, at the expense of
-----------------------------------
Lessor and Lessee as specified in Paragraph 12.B below, construct the Tenant
Improvements, in accordance with the following:
(a) Building Permit. As soon as the Final Tenant Improvement Plans
---------------
have been approved by Lessor and Lessee, Lessor shall apply for a building
permit (and all other required governmental permits and approvals) for the
Tenant Improvements, and shall diligently pursue the obtaining of such permits
and approvals.
(b) Commencement of Construction of Tenant Improvements. Final Tenant
---------------------------------------------------
Improvement Plans have been approved by Lessor, Lessor's lender, if any, Lessee
and the City, and the governmental permits and approvals for the Tenant
Improvements have been issued, and Lessor has completed so much of the Building
as to permit Lessor to commence construction of the Tenant Improvements, Lessor
shall commence construction of the Tenant Improvements and shall diligently
prosecute such construction to completion.
10. Construction Period Insurance.
-----------------------------
(a) From the commencement of construction of the Tenant Improvements
until Substantial Completion, Lessor shall obtain and maintain, or shall cause
to be obtained and maintained, the following insurance:
(i) Commercial general liability insurance, on an occurrence
basis, insuring against bodily injury and property damage. with a liability
limit of at least $2,000,000 insuring Lessor and naming Lessee as an additional
insured;
(ii) Worker's compensation insurance, in amounts required by law;
and
(iii) "All risk" builder's risk insurance, including, but not
limited to, coverage against loss of damage by fire, vandalism and malicious
mischief, covering improvements in place and all material and equipment at the
job site or stored off-site (to the extent owned by Lessor) furnished in
connection with the construction of the Tenant Improvements (but excluding
equipment or other personal property of the contractor or any subcontractors) in
an amount equal to one hundred percent (100%) of the contract price. Such
insurance shall: (i) insure Lessor and Lessor's Lender (if required by such
lender), as their interests may appear; (ii) name Lessor or Lessor's Lender (if
required by such under) as the loss payee, and (iii) provide for severability of
interests or include a cross-liability endorsement, such that an act or omission
of an insured shall not reduce or avoid coverage of other insureds.
(b) The cost of such insurance attributable to the Tenant
Improvements (as equitably determined by Lessor) shall be part of the TI Costs.
11. Delivery of Possession, Punch List and Acceptance Agreement.
(a) As soon as the Tenant Improvements are Substantially Completed,
Lessor and Lessee shall together walk through the Premises and inspect the
Tenant Improvements so completed, using reasonable efforts to discover all
uncompleted or defective construction. Unless any uncompleted or defective
construction would materially affect
36
<PAGE>
Lessee's ability to conduct its business, then when such inspection has been
completed, Lessee shall sign an acceptance agreement which shall (i) include a
list of all "punchlist" items which the parties agree are to be corrected by
Lessor and (ii) state the Commencement Date. Lessor shall use diligent and
reasonable efforts to complete and/or repair all "punch list" items within
thirty (30) days after receiving the acceptance agreement and punchlist.
12. Payment of Costs; Adjustment to Base Rent.
-----------------------------------------
(a) Building and Site Improvements. Lessor shall complete all
------------------------------
Building and site improvements at Lessor's sole cost and expense.
(b) Tenant Improvements. The TI Costs for the Tenant Improvements
-------------------
shall be paid by Lessor and Lessee as follows:
(i) Lessor shall pay all TI Costs up to the TI Allowance.
(ii) The Base Rent specified in Section 1.5 of the Addendum to
Lease was computed based on the Total TI Costs not exceeding the TI Allowance.
In the event the TI Costs exceed the TI Allowance, then (i) Lessor shall pay all
TI Costs in excess of the TI Allowance and up to the Amortization Amount, and
(ii) the Base Rent specified in said Section 1.5 shall be increased by at the
rate of Two Cents ($0.02) per rentable square foot for each One Dollar ($1.00)
per usable square foot in TI Costs in excess of the TI Allowance (but in no
event more than the maximum Amortization Amount of Three Dollars ($3.00) per
usable square foot).
(c) Lessee shall pay all Excess TI Costs. Excess TI Costs shall be
------------------------------------
paid by Lessee to Lessor prior to the commencement of construction of the Tenant
Improvements. In the event any change order requested by Lessee after the
commencement of construction results in Excess TI Costs, Lessee shall pay the
Excess TI Costs to Lessor prior to commencement of work in such change order.
13. Effect of Agreement. In the event of any inconsistency between this
-------------------
Improvement Agreement and the Lease, the terms of this Improvement Agreement
shall prevail.
14. Time of the Essence. Lessor and Lessee agree that time and strict
-------------------
punctual performance are of the essence with respect to this Improvement
Agreement.
15. Condition Precedent. If Lessor has not received all governmental
-------------------
permits and approvals for the construction of the Building and the Tenant
Improvements by September 1, 1999, then Lessor may terminate the Lease and this
Improvement Agreement by written notice to Lessee given within fifteen (15)
business days thereafter. In the event of such termination, Lessor shall return
the Security Deposit and first month's Base Rent to Lessee concurrently with its
notice of termination of the Lease.
37
<PAGE>
EXHIBIT 10.23
- --------------------------------------------------------------------------------
COMMERCIAL
LEASE
- --------------------------------------------------------------------------------
THIS LEASE is made as of this 5/th /day of January, 1999, by and between Lot 4
LLC (hereinafter referred to as "Landlord") and the following party (hereinafter
referred to as "Tenant"):
Acorn Information Services, Inc.
IN CONSIDERATION of the mutual benefits and obligations set forth in this Lease,
Landlord and Tenant agree as follows:
ARTICLE I
LEASING DATA
1.1. LEASING DATA. This Article contains data used in other provisions of
this Lease but set forth in this Article for ease of reference. For
example, although the Monthly Base Rent is specified in this Article,
Article IV is the operative provision of the Lease regarding the
payment of the Monthly Base Rent. Whenever any item contained in this
Article is more specifically described in a subsequent Article of the
Lease, the more specific description will control.
(a) The "Building" is the building in which the Leased Premises is
located and is known as 4 Corporate Drive, Shelton, Connecticut
(b) The "Leased Premises" is to be determined, on the second floor or
above.
(c) The "Leased Premises Square Footage" shall be the gross square
footage (including a share of the core area) of Tenant's Leased
Premises, determined once Tenant's Exhibit A floor area outline
becomes final. The square footage of Tenant's Leased Premises
shall be calculated by dividing the usable area square footage as
determined by Tenant's Exhibit A floor area outline by .84. Once
Tenant's Leased Premises Square Footage has been determined, the
parties shall execute a memorandum fixing the square footage of
Tenant's Leased Premises which square footage will be
approximately 5,000 square feet and the parties will initial
Tenant's Exhibit A which will then become part of this Lease.
(d) The "Initial Commencement Date" is upon completion of Landlord's
Initial Fit-Out Work.
(e) The "Initial Term" is the period of time beginning with the
Initial Commencement Date and ending at the end of the 60/th/
month from and after the Initial Commencement Date.
(f) The "Leased Premises Use" is general administrative business
offices.
(g) The "Base Rent" for the Initial Term is $12.00 multiplied by the
number of square feet of Tenant's Leased Premises Square Footage.
The Base Rent shall be payable in equal monthly installments, in
advance.
(h) The "Security Deposit" is $12,324.06 which amount is paid by the
transfer of the security deposit which has been paid as the
security deposit under a lease between tenant and 140 Sherman
Street LLC, an affiliate of Landlord, under a lease dated October
30, 1996 for the lease of space in a
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PAGE 1
<PAGE>
building located at 140 Sherman Street, Fairfield, Connecticut.
The Security Deposit will be held by Landlord for the Initial
Term. Security Deposit will be reduced (credited) at the rate of
20% each December 1/st/.
(i) The "Notice Address" for Landlord and Tenant are:
Landlord:
Lot 4 LLC
c/o R. D. Scinto, Inc.
P.O. Box 880
Shelton, CT 06484
Tenant:
Acorn Information Services, Inc.
4 Corporate Drive
Shelton, CT 06484
Attn: Mr. Venkat Sharma,
President
But Until Initial Commencement Date:
Acorn Information Services, Inc.
140 Sherman Street
Fairfield, CT 06430
Attn: Mr. Venkat Sharma,
President
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PAGE 2
<PAGE>
ARTICLE II - DEFINITIONS
2.01. CAPITALIZED WORDS AND PHRASES. This Lease contains many words and
phrases with initial, capitalized letters. These words and phrases are used as
specially defined terms in an effort to make the lease easier to read. An effort
has been made to set forth some of the more common defined terms in this
Article, but other Articles may also contain defined terms. Whenever a
capitalized word or phrase is used in this Lease, it shall have the definition
specifically ascribed to it, unless the context of the usage implies otherwise.
Some of the definitions listed below may not be used in the main body of the
lease. Some definitions which may not be used in the main body of the Lease are
nevertheless listed because in some situations, the Data Section or additional
provisions or exhibits added to the Lease may incorporate the use of such
definitions.
2.02 "ADDITIONAL RENT" means any charge, other than the Base Rent,
payable by Tenant to Landlord under any provision of this Lease.
2.03. "BUILDING" means the building in which the leased premises is
located and "BUILDINGS" means all of the buildings in the Project.
2.04. "COMMON AREA" means all portions of the Project other than rentable
spaces in the Buildings.
2.05. "CONSENT" or "APPROVAL" of Landlord means only the consent or
approval given by Landlord in writing.
2.06. "CPI" means the United States Department of Labor Bureau of Labor
Statistics Consumer Price Index-All Urban Consumers-All Cities (1982-4 = 100),
or if such index is no longer published, a substitute selected by Landlord which
represents similar changes in consumer prices.
2.07. "FISCAL YEAR" means the 12 month periods comprising Landlord's
fiscal year for the purposes of computing Monthly Additional Rent. It is
contemplated that the Fiscal Year will be the calendar year, but Landlord may
choose a Fiscal Year other than the calendar year.
2.08. "LANDLORD'S INSURANCE PREMIUMS" means the premiums for Landlord's
Insurance Coverages, Landlord's Insurance Coverages being defined in paragraph
8.02.
2.09. "LEASED PREMISES" means the rentable space leased to Tenant at the
Project, as generally described in the Data Section. A more particular
description of the Leased Premises is all space within the lateral, upper and
lower boundaries, excluding common utility lines and other similar items, as
described below. The lateral boundary of the Leased Premises is the unfinished
face of the sheet-rock and inside surface of the glass on all demising walls. If
any wall is incomplete as of the inception of the Lease, the lateral boundary
shall be the inside face of the demising wall studs until they are sheet-rocked.
For the purposes of this paragraph, a demising wall is any wall separating the
Leased Premises from any other space within its Building and any exterior
Building wall separating the Leased Premises from the outdoors. The upper
boundary of the Leased Premises is the lower surface of the suspended acoustical
ceiling, and if none, the lower surface of the roof or deck of the next floor
above the Leased Premises. The lower boundary of the Leased Premises is the
unfinished surface of the concrete floor. The Leased Premises does not include
any pipe, conduit, duct chase, wire, structural building support column, or
other similar item located within the boundary of the Leased Premises but which
represents a building component that serves portions of the Project besides only
the Leased Premises.
2.10. "LEASED PREMISES SQUARE FOOTAGE" means the square footage set forth
in Article I, which represents the agreed upon rentable square footage of the
Leased Premises, which rentable square footage is different than and in excess
of the usable square footage.
2.11. "LEASED PREMISES UTILITY CHARGES" means the charges payable by
Tenant for utility consumption by the Leased Premises, as further described in
paragraph 5.02.
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PAGE 3
<PAGE>
2.12. "NOTICE" means only written notification given by one party to the
other. Notice may only be given by: a form of US Mail in which the recipient is
required to sign a receipt (such as certified, return receipt); a nationally
recognized courier service (such as Federal Express or UPS Next Day); and, in
the case of Notice to Tenant, delivery to the Leased Premises. All Notices will
be effective on receipt, except in the case of delivery to the Leased Premises,
in which event the Notice will be effective as of the date of delivery. Notice
must be given to the other party at the party's Notice Address, except in the
case of Notice to Tenant, which may always be given at the Leased Premises. The
Notice Address for each party is the address listed in the Data Section of this
Lease, or to such other address designated by a party by Notice to the other
party, provided, that Landlord shall not be required to give Notice to more than
one address, and if more than one address is specified, Landlord may choose any
one address of those designated by Tenant.
2.13. "PROJECT" means the Building and the real estate associated with the
Building, the current boundary of which is described on Exhibit B.
2.14. "PROJECT OPERATING EXPENSES" means all of the reasonable expenses
incurred by Landlord in the Operation of the Project except for those expenses
which are specifically excluded in this paragraph below, as may be adjusted by
the following sentence. If during all or part of any Fiscal Year the Project has
not been fully occupied, then for the purposes of computing Project Operating
Expenses for such Fiscal Year, Project Operating Expenses shall be those
expenses which would have reasonably been incurred had the Project been fully
occupied and would otherwise qualify as proper Project Operating Expenses. The
preceding sentence shall in no event allow Landlord to receive payment or
reimbursement for more than 100% of the expenses actually incurred by Landlord
for the relevant Fiscal Year. Project Operating Expenses includes, without
limitation: (a) the cost of any personnel of Landlord directly involved in the
operation of the Project, provided such personnel are not above the grade of
building manager and provided that the cost of any personnel serving more
properties than the Project is allocated to the Project only in proportion to
the time spent on the Project business; (b) the cost of equipment and supplies
used in the maintenance and operation of the Project (salt and sand in the
winter months, for example); (c) the cost of keeping the Project in good repair
(repairs & replacements); (d) the cost of utilities serving the Common Area and
utilities serving the Leased Premises other than those in Article 5 hereof
(electricity for the parking lot lighting and HVAC, for example); (e) a
reasonable management fee consistent with the operation of a first-class office
building in the local market; (f) the cost of maintenance and cleaning of the
Common Area; (g) the cost of equipment maintenance contracts; (h) landscaping
costs; (i) restriping and repairing the parking area serving the Project; (j)
Landlord's Insurance Premiums; (k) Project Taxes; and (1) any other item
reasonably expended for the maintenance, operation, repair and insurance of the
Project. Project Operating Expenses shall not include; [i] the cost of any
structural repairs or structural replacements for the Building; [ii] the cost of
any item that is not reasonable (which means no rates for any services will be
billed in excess of fair market rates - which may, for example, include a
reasonable premium for overtime, after hours services and emergency services);
[iii] any depreciation of any equipment or of any portion of the Project; [iv]
any income tax imposed upon Landlord's income or any estate or gift tax of
Landlord; [v] any payments on any mortgage debt secured by the Project; [vi] the
cost of construction for any additional rentable space in the Project; [vii]
fit-out costs for the fit-out of the leased Premises of any tenant. [viii] any
marketing and brokerage expenses in connection with the leasing of any space in
the Project to any tenant; and [ix] any expenses incurred by Landlord in
connection with the enforcement of a lease against any tenant.
2.15. "PROJECT TAXES" means the regularly assessed real estate tax of the
municipality in which the Project is located and any other tax or use charge
imposed upon the Project or its operation, such as, without limitation: a sewer
assessment or use charge; a fire district tax; and/or a special taxing district
tax. Project Taxes does not include any personal property tax imposed upon the
personal property of any tenant or any other tax which may be imposed directly
upon a tenant rather than the Project or its owner generally.
2.16. "RENT" means all sums payable by Tenant to Landlord under the
provisions of this Lease, including all Base Rent and Additional Rent.
2.17. "TENANT'S PERCENTAGE" means the percentage equivalent to the ratio
of the Leased Premises Square Footage divided by the Total Building Square
Footage, which may be adjusted upon any change in the Leased Premises Square
Footage or Total Building Square Footage, but will not be adjusted based upon
the degree of occupancy of the Project.
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PAGE 4
<PAGE>
2.18. "TERM" means the period of time during which Tenant is entitled to
possession of the Leased Premises in accordance with the provisions of this
Lease, but does not include any hold over Period.
2.19. "TOTAL BUILDING SQUARE FOOTAGE" means the gross rentable square
footage of all of the rentable tenant spaces in the Building, whether rented or
not. The Total Building Square Footage is subject to adjustment, such as an
increase if any additional rentable square footage is constructed as an addition
to the Building.
2.20. "WALL STREET PRIME" means the interest rate published by the Wall
Street Journal as the base rate of corporate loans posted by at least 75% of the
nations 30 largest banks, or a similar substitute rate selected by Landlord if
the foregoing rate is no longer published.
ARTICLE III - LEASING OF LEASED PREMISES AND TERM OF LEASE
3.01. LEASING OF LEASED PREMISES. Landlord hereby leases the Leased
Premises to Tenant for the Term, together with a right to use certain portions
of the Common Area, subject to the other provisions of this Lease.
3.02. QUIET ENJOYMENT. Upon payment by Tenant of the Rents herein
provided, and upon the observance and performance of all the covenants,
provisions and conditions of Tenant's part to be observed and performed. Tenant
shall peaceably and quietly hold and enjoy the Leased Premises for the Term
without hindrance or interruption by Landlord or any person claiming by or
through Landlord, except as expressly provided in this Lease.
3.03. COMMENCEMENT DATE. The Term will begin on the "Actual Commencement
Date". The "Actual Commencement Date" is the Initial Commencement Date set forth
in the Data Section, unless Landlord is unable to deliver possession of the
Leased Premises on or before the Initial Commencement Date on account of any
delay caused by any existing occupant of the Leased Premises not vacating on
time or unless Landlord is delayed in completing any Landlord's "Initial Fit-Out
Work" (defined in paragraph 3.04). In the case of any such delay, the Actual
Commencement Date shall be the Initial Commencement Date extended to the date on
which Landlord tenders possession of the Leased Premises to Tenant, in
substantially the condition promised to Tenant (for example - as-is & broom
clean and/or with substantial completion of Landlord's Initial Fit-Out Work - as
may be set forth in other provisions of this Lease regarding the condition of
the Leased Premises upon delivery to Tenant).
3.04. CONDITION OF LEASED PREMISES UPON DELIVERY TO TENANT. The Leased
Premises shall be delivered to Tenant on the Actual Commencement Date in as-is
condition, broom clean and free of all personal property of others, except that
Landlord will perform any work set forth in Exhibit C, attached hereto, as
Landlord's Initial Fit-Out Work. Any Landlord's Initial Fit-Out Work shall be
performed by Landlord in a good and workmanlike manner. Landlord will commence
any Landlord's Initial Fit-Out Work on or before the date felt to be reasonably
early enough for the work to be substantially completed on or before the Initial
Commencement Date, unless Landlord is unable to begin the work on account of
being unable to obtain occupancy of the Leased Premises due to the existing
occupancy of another party, in which event, Landlord shall use Landlord's best
efforts to obtain possession of the Leased Premises and begin Landlord's Fit-Out
Work promptly after possession of the Leased Premises has been obtained.
ARTICLE IV - PAYMENT OF RENT
4.01. PAYMENT OF RENT. Tenant shall pay the monthly Base Rent and the
Monthly Additional Rent on the first day of each month during the Term, in
advance. The amount of the Monthly Additional Rent and method of billing
therefore is set forth in paragraph 4.02. Any other charge shall be due in
accordance with the Lease provision governing the charge. For example, if Tenant
is to pay Landlord for any fit-out work, the charge and manner of payment for
that may be covered under the provision specifying the fit-out work.
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4.02. MONTHLY ADDITIONAL RENT. The Monthly Additional Rent is: [i]
Tenant's Percentage of Project Operating Expenses; plus [ii] Leased Premises
Utility Charges. At the beginning of each Fiscal Year, Landlord shall prepare an
itemized estimate (in reasonable detail) of all of the Components of the Monthly
Additional Rent expected to be incurred by Tenant during the ensuing Fiscal
Year. Landlord will provide a copy of the statement of estimated Monthly
Additional Rent to Tenant and Tenant shall pay the Monthly Additional Rent based
on Landlord's estimated statement, each monthly payment to be 1/12 of the
estimated Monthly Additional Rent to be incurred for the full Fiscal Year. After
the end of each Fiscal Year, Landlord will prepare an itemized statement of the
actual Monthly Additional Rent incurred by Tenant during the prior Fiscal Year,
together with a statement of any overpayment or underpayment of actual Monthly
Additional Rent based upon the estimated payments made by Tenant. Landlord will
render the statement of Monthly Additional Rent actually incurred by Tenant
within 90 days after the end of each Fiscal Year. In the case of an
underpayment, Tenant shall pay the shortage to Landlord within 30 days after
rendering the statement of actual Monthly Additional Rent to Tenant. In the case
of an overpayment, Landlord will reimburse the amount of the overpayment to
Tenant within 30 days after the rendering of the statement. In the event it
becomes apparent to Landlord during the course of a Fiscal Year that the actual
Monthly Additional Rent will be materially different than the estimated Monthly
Additional Rent (on account of an unexpected increase in the municipal real
estate tax, for example), then Landlord may amend the statement of estimated
Monthly Additional Rent and the monthly payments will be adjusted such that all
of the newly estimated Monthly Additional Rent for the full Fiscal Year will
have been paid via the Monthly Additional Rent payments made prior to the new
estimate plus payment of the equal adjusted installments of the Monthly
Additional Rent payments remaining in the Fiscal Year. If Landlord has not
provided Tenant with statement of estimated Monthly Additional Rent prior to the
beginning of a Fiscal Year, Tenant shall make installment payments based upon
the installments in effect for the prior year until the new statement of
estimated Monthly Additional Rent is rendered to Tenant. The calculation of
Monthly Additional Rent shall be in accordance with Generally Accepted
Accounting Principles (unless express provisions of this Lease deviate). Any
component of Project Taxes shall be charged to any period in the same manner in
which real estate tax is adjusted on closings for property in the municipality
in which the Project is located, but if not adjusted, then in advance, each
payment covering the period when first due until the date on which a payment is
next first due (the method of adjustment for the regular municipal real estate
tax being in advance - based upon a uniform fiscal year). All utility bills and
other similar expenses shall be allocated to the period of usage which resulted
in the bill. For example, if Landlord receives a Common Area electric bill in
January 1994, which bill covers a period beginning in November 1993 and ending
in December 1993, the electric bill would be charged to 1993 Project Operating
Expenses.
4.03. ADDITIONAL PROVISIONS REGARDING PAYMENT OF RENT. All Rent shall be
due and payable without any setoff or deduction to Landlord at the times
specified in this Article, above. If any installment of Rent is not paid within
10 days of its due date, Tenant shall pay a late charge to Landlord equal to the
greater of $100 or 5% of the overdue payment. If the outstanding balance of Rent
owed to Landlord contains any amount that has not been paid within 10 days of
its due date, then beginning on the 11th day, the entire outstanding balance of
Rent owed by Tenant shall bear interest at the "Default Rate", until the
outstanding balance no longer includes any amounts not paid within 10 days of
their due date. The "Default Rate" is the rate of interest equal to the lesser
of: [i] 4 % over the "Wall Street Prime" in effect at the time the Default Rate
begins to accrue; or [ii] the maximum rate of interest permitted to be charged
under law. Any liability for unpaid Rent shall survive the termination of the
Lease.
ARTICLE V - LEASED PREMISES UTILITIES
5.01. RESPONSIBILITY TO PROVIDE UTILITIES TO THE LEASED PREMISES. Landlord
shall provide electric power for the lighting and power outlets for the Leased
Premises and heating fuel and electricity for the air conditioning system for
the Leased Premises. If Landlord is responsible to provide the Leased Premises
to Tenant with any plumbing fixtures (such as kitchen facilities with a sink or
bathroom facilities), Landlord will provide a water supply to the plumbing
fixtures and a waste line from such plumbing fixtures. Landlord will provide
Tenant with a location in the Building with a local telephone line connection to
which Tenant may run Tenant's telephone lines. Landlord may provide for any
utility to be separately metered to Tenant, and, at Landlord's option, may
require Tenant to maintain Tenant's own, metered account with the utility
company providing such separately metered utility. In the case of any utility
for which Tenant is required to maintain Tenant's own separately metered
account, Landlord's responsibility to provide such utility to the Leased
Premises
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shall consist of being responsible to maintain all building systems installed by
Landlord for such utility system in good repair and providing the utility up to
the point of the meter. Tenant, and not Landlord, will be responsible for
maintaining the metered account and for keeping the utility turned on from and
after the point or the meter.
5.02. RESPONSIBILITY TO PAY FOR LEASED PREMISES UTILITY CHARGES. Tenant
shall pay all charges for utilities used, consumed in or allocable to the Leased
Premises ("Leased Premises Utility Charges"). In the case of separately metered
utilities, Landlord may direct that Tenant maintain Tenant's own account with
the utility company providing the service to the Project, in which case, payment
to the utility company and keeping the utility turned on past the point of the
meter shall be Tenant's responsibility. If Tenant is in arrears with any utility
company for any separately metered utility service to the Project, Landlord may
pay the utility company charges, and Tenant shall forthwith owe Landlord
reimbursement, together with interest from and after the date of Landlord's
payment at the Default Rate (defined in Article IV). If any utility consumption
in the Leased Premises is not separately metered, Landlord may allocate the
shared utility consumption to the Leased Premises in any reasonable manner. If
the electricity consumed in the Leased Premises is not separately metered,
Tenant shall pay Landlord for the electric consumption at the rate of $1.25 per
square foot of Leased Premises Square Footage per annum, increased by the amount
of any rate increase imposed after the execution of this Lease by the utility
company providing service to the Building. The preceding $1.25 per square foot
per annum rate is based on normal office usage, and Landlord reserves the right
to increase the Tenant electric charges in the event that Tenant's electric
consumption shall be in excess of normal office usage (for example, excess usage
due to a computer installation with high energy consumption). The Leased
Premises Utility Charges are payable in monthly installments, in the manner set
forth in Article IV.
ARTICLE VI - USE OF LEASED PREMISES AND TENANT'S CONDUCT IN PROJECT
6.01. PERMITTED USE FOR LEASED PREMISES BY TENANT. Tenant and any
permitted assignee or sublessee shall use the Leased Premises for the sole and
exclusive purpose set forth in the Data Section and no other purpose. The use or
the Leased Premises shall also be in accordance with all laws affecting the
Leased Premises, including the municipal zoning laws. Unless the use set forth
in the Data Section expressly provides otherwise, the use of the Leased Premises
shall be limited to the operation of a general business office. Tenant will
comply with all rules and regulations reasonably established by Landlord for the
governing of conduct of tenants in general in the Project, of which Tenant is
given notice.
6.02. TENANT ALTERATIONS, TENANT'S CONTRACTORS, MECHANIC'S LIENS, ETC.
Tenant shall not cause any alteration or improvement to be made to the Leased
Premises or to any other portion of the Project unless Tenant has obtained
Landlord's prior Consent. Landlord will not unreasonably withhold Landlord's
Consent to such alterations or improvements, but prior to rendering Consent,
Landlord may require Tenant to submit building plans (in detail reasonably
required by Landlord) and the identity of the contractor or contractors and
subcontractors to perform any such alterations and the references for such
contractors and subcontractors reasonably requested by Landlord. Prior to the
commencement of any such alteration or improvement by any contractor, Landlord
will be provided with a certificate of insurance for such contractor, showing
public liability coverage, workers' compensation coverage and any other coverage
reasonably required by Landlord, which certificate names Landlord as an
additional insured and provides that the coverage will not be canceled or not
renewed without at least 15 days advance Notice to Landlord. All work performed
by or through Tenant shall be performed in full compliance with all laws, shall
be carried out in a prompt and workmanlike manner and shall not interfere with
the peaceful enjoyment of the Project by any other tenants. Tenant shall
promptly pay all contractors and materialmen hired by Tenant to furnish any
labor or materials which may give rise to the filing of a mechanic's lien
against the Project attributable to alterations and improvements done by or
through Tenant. Should any such lien be placed against the Project, Tenant shall
cause same to be discharged as against the Project within the sooner of: [i] 10
business days after Tenant receives notice of such lien: or [ii] 10 business
days after request by Landlord to remove such lien: [iii] the date on which the
lien could have been removed had Tenant used all other reasonable efforts to
remove it after Notice from Landlord of it. If bond is filed and such lien is
discharged, Tenant shall not be obligated to discharge the lien by payment.
Notwithstanding any notice and grace period before default elsewhere set forth
in this Lease, if Tenant shall fail to discharge such lien within the time
period set forth in this paragraph above, and shall further fail to discharge
such lien within 10 more business days after Notice of failure to discharge the
lien is
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given from Landlord, then Tenant shall be in material default of the Lease,
without any further notice or grace period.
6.03. TENANT'S GENERAL COMPLIANCE WITH LAWS. Tenant shall, at Tenant's
sole cost and expense, comply with all of the requirements of all laws now in
force or which may hereafter be in force and not being reasonably disputed by
Tenant pertaining to Tenant's use of the Leased Premises and Project and any act
therein by Tenant. Specific reference is made to Tenant's duty to comply with
all state, federal and local laws concerning environmental protection and
Tenant's conduct at the Project. Tenant shall indemnify and hold Landlord
harmless from and against any damage, liability, cost and/or expense which
Landlord may suffer by reason of Tenant's failure to comply with the laws
governing Tenant's conduct at the Project, including all laws concerning
environmental protection. Tenant shall undertake no acts which would result in
the Leased Premises being defined as an "Establishment" under the environmental
laws of the State of Connecticut.
6.04. SIGNAGE AND WINDOW TREATMENT. Tenant will not place or maintain, or
cause to be placed or maintained, on any portion of the Project exterior to the
Leased Premises or any portion of the Project (including the Leased Premises)
visible from the exterior of the Leased Premises, any sign or advertising matter
without Landlord's written consent. Tenant shall not place any object on any
portion of the Project exterior to the Leased Premises without Landlord's
written consent. Tenant shall not install or maintain any window treatment
without the prior written consent of Landlord. Landlord may require Tenant to
install window treatments with a particular exterior appearance (color, style
and quality), as viewed from the exterior of the Leased Premises.
6.05. ENVIRONMENTAL COMPLIANCE. Tenant will not under any circumstances
cause or permit the depositing, spillage or seepage of any "Hazardous or Special
Substance" in any dumpster or in any other area of the Project other than an in
an area and in a manner which is in strict compliance with all laws and which is
Approved in advance by Landlord. Tenant will not use, store, generate or dispose
of any substance in any manner which would cause the Project to be classified as
an Establishment under the laws of the State of Connecticut. Tenant will
indemnify Landlord from and against any loss, cost, damage, fines, testing
deemed reasonably necessary by Landlord or any other expense incurred by
Landlord as a result of any violation of any environmental law or this paragraph
by Tenant or any agent, servant, employee or contractor of Tenant. "Hazardous or
Special Substance" means any substance that may not be dumped in a land fill as
general trash, any substance listed under the laws of the State of Connecticut
or the United States as a hazardous waste, or any other substance whose use,
presence or storage at the Leased Premises requires any person to comply with
any environmental reporting or registration requirement under any law.
6.06 OTHER DUTIES OF TENANT REGARDING MAINTENANCE, REPAIR AND CONDUCT AT
THE PROJECT. Tenant will conform Tenant's conduct to the following standards and
will perform the following duties, all in a prompt, diligent and workmanlike
manner, at Tenant's sole cost and expense:
(a) Tenant will maintain the Leased Premises in a clean and neat
condition;
(b) Tenant will keep the Leased Premises in good repair, except that any
repairs to the structure of the Building which are not necessitated
by any negligent or willful act or omission of Tenant shall be
performed by Landlord;
(c) Tenant will remove all trash from the Leased Premises with such
frequency as is consistent with the operation of Tenant's business
in a first class manner, which will include placing general trash in
the appropriate Project Dumpster and recyclable trash in the
appropriate Project Dumpster in order to comply with any
environmental laws affecting Tenant's conduct.
(d) Tenant will comply with all laws affecting Tenant's use of the
Leased Premises and any recommendations of Landlord's fire insurance
rating organization, which laws may include, but are not limited to:
the municipal zoning regulations; any environmental laws; and any
licensing laws regulating the operation of Tenant's business.
(e) Tenant will comply with all rules and regulations reasonably
established by Landlord regarding the use of the Project, which
rules may be presently existing or hereafter established and may
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include, for example rules governing employee parking, time for
rubbish remova1, manner of making deliveries to the Leased Premises
and style of signage.
6.07. LIMITATIONS ON TENANT'S CONDUCT. Tenant agrees to abide by the
following limitations regarding conduct at the Project:
(a) Tenant will not cause or permit the playing of any loudspeakers,
phonographs, public address systems or similar audio devices in any
manner so as to be audible outside of the Leased Premises:
(b) Tenant will not place any trash anywhere in the Project outside of
the Leased Premises except in the Project Dumpsters of Tenant's
Dumpsters, as the case may be.
(c) Tenant will not cause or permit to emanate from the Leased Premises
any objectionable odor, as determined in Landlord's reasonable
discretion.
(d) Tenant will not do anything which interferes with the use and
peaceful enjoyment of the leased Premises of any other tenant;
(e) Tenant will not solicit business in the Common Area via distribution
of handbills or other advertising matter or via verbal contact with
patrons of the Project, other than personal discussions with persons
known to the person soliciting prior to such person's entry into the
Common Area.
(f) Tenant will not permit the parking of any vehicles in any manner
which interferes with the drives, sidewalks and fire lanes and any
other areas desired to be kept clear by Landlord.
(g) Tenant will not permit the overnight parking of any vehicles in the
parking area.
(h) Tenant will not receive or ship merchandise or equipment outside of
the areas designated by Landlord for loading and unloading.
(i) Tenant will not place any load on any floor in excess of its loading
capacity.
(j) To the extent that Tenant may control the temperature in the Leased
Premises, Tenant will not permit the temperature in the Leased
Premises to fall low enough to cause any pipes to freeze.
(k) Tenant will not keep, use, sell or offer for sale in or upon the
Leased Premises any article which may be prohibited by the standard
form of fire insurance policy.
(1) Tenant will not use the Leased Premises or any portion of the Common
Area for any purpose prohibited by law or for any activity that is
generally considered inconsistent with the operation of a first class
building of the same type as the Building.
ARTICLE VII - LANDLORD'S MAINTENANCE OF Project AND OTHER ACTIVITIES OF LANDLORD
IN Project
7.01. LANDLORDS MAINTENANCE DUTIES. Landlord will perform all maintenance
and repair reasonably necessary to maintain the Project in a condition
consistent with a first class property of the type constituted by the Project
(e.g., office building, R&D building, retail center, etc.) in the municipality
in which it is located. Notwithstanding the preceding sentence, Landlord's
maintenance obligations shall not extend to any maintenance duties of Tenant set
forth in Article V or the maintenance of any other portion of the Project which
is the responsibility of any other tenant under such other tenant's lease.
Landlord's maintenance duties shall be carried out in a prompt, diligent and
workmanlike manner and shall include (to the extent not required to be performed
by Tenant under Article V):
(a) keeping the Common Area, including the parking areas reasonably
clean.
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(b) performing snow and ice removal and sanding/salting for all portions
of the Common Area constituting parking areas, drives and walkways.
(c) keeping the exterior and structure of the Buildings in good repair,
except that to the extent not covered by Landlord's Insurance, Tenant
will be responsible for any repair necessitated by the neglect or
willful misconduct of Tenant or Tenant's agents, servants, employees
or contractors.
7.02. PROJECT DUMPSTERS AND TENANT'S DUMSTERS. "Project Dumpsters" are
those trash receptacles referred to in this paragraph. Landlord will provide a
dumpster or dumpsters for normal volumes of office trash in a location or
locations in the Project selected by Landlord. In the event Tenant's refuse
consists of other than normal volumes of office trash, Landlord reserves the
right to require Tenant to supply a dumpster or dumpsters for Tenant's trash
("Tenant's Dumpsters"), at Tenant's sole cost and expense, under a contract
which is subject to Landlord's prior approval, which approval may be withheld on
account of the contract not being cancelable on not more than one month's
advance notice. The cost incurred by Landlord in providing a dumpster or
dumpsters may be included as an element of Project Operating Expenses or may be
charged as a Monthly Reimbursement reasonably allocated by Landlord among all of
the tenants using any dumpster in common with other parties.
7.03. LANLORD'S RIGHT TO RELOCATE THE LEASED PREMISES. Landlord reserves
the right to relocate the Leased Premises to another space in the Project at any
time prior to or during the Term, subject to the following conditions. If
Landlord shall desire to relocate Tenant, Landlord shall give Tenant at least 60
days advance Notice of the relocation (the "Relocation Notice"), which shall
include the estimated effective date of the relocation and a floor area outline
and Leased Premises Square Footage of the new Leased Premises. Tenant shall
cooperate in a prompt manner after receipt of Relocation Notice, for the purpose
of developing any fit-out plans desired by Tenant for the new Leased Premises.
Landlord shall perform and bear the cost of any fit-out desired by Tenant for
the new Leased Premises, provided that Landlord shall only be required to
perform and pay for any fit-out that is specified by Tenant not later than 30
days after Landlord's Relocation Notice and provided the specified fit-out
requested to be performed by Landlord does not constitute a level of fit-out in
excess of the level of quality and quantity (on a per square foot basis) as
existed in the Leased Premises at the time of Landlord's relocation Notice.
Landlord may tender possession of the new Leased Premises to Tenant at any time
after the estimated effective date for the relocation contained in the
Relocation Notice, provided that any fit-out work required to be performed by
Landlord has been substantially completed. Landlord shall either: pay for the
reasonable cost of a moving service hired by Tenant (which cost has been
Approved by Landlord before the service is hired); or directly arrange and pay
for Tenant's move into the new Leased Premises. The date of tender of possession
of the new Leased Premises is the Relocation Commencement Date, and on such
date: the new Leased Premises shall be substituted for the previous Leased
Premises; the floor area outline given by Landlord with the Relocation Notice
shall be the new Exhibit A of this Lease; the Base Rent shall be adjusted by the
proportionate change in the Leased Premises Square Footage (the square footage
being calculated in the same manner as that for the original Leased Premises);
and any other factor dependent upon the Leased Premises Square Footage shall be
adjusted accordingly. Unless Tenant shall otherwise Consent, the exercise of
Landlord's right to relocate Tenant shall be limited such that the Leased
Premises Square Footage and the frontage of the new Leased Premises shall not
vary by more than 5% from the previous Leased Premises Square Footage. Tenant
shall vacate the previous Leased Premises not later than 5 days after the
Relocation Commencement Date, leaving the Previous Leased Premises in the same
condition as would be required had the Term for the previous Leased Premises
come to an end by expiration of time.
7.04. LANDLORD'S RIGHT TO PERFORM WORK IN PROJECT. Landlord shall have the
right to undertake the following activities in the Project: construction of
additions to the Buildings and additional buildings; demolition of Buildings;
changing the grade and/or layout of the parking area or other Common Area;
excavation of the Common Area for the purposes of the above and/or installing or
repairing utility lines; and remodeling of the exterior of the Buildings.
Landlord's right to undertake any of the foregoing activities shall be limited
such that: there will be no unreasonable interference with Tenant's use of the
Leased Premises or access thereto; there shall be no materially adverse change
with respect to the proximity of Tenant's parking to the Leased Premises; and
Tenant's parking shall not decrease below the level required to be maintained
under the municipal zoning regulations.
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7.05. LANDLORD'S RIGHT TO PIPES, ETC. Landlord shall have the right to
install, maintain and repair pipes, wires, ducts and similar items in the space
above any suspended ceiling and, in the case of an area with no suspended
ceiling, in the area of the Leased Premises reasonably close to the underside of
the roof or next floor above the Leased Premises. Landlord may enter the Leased
Premises for the purpose of performing such installation, maintenance and
repair, and for the purpose of performing any maintenance or repair of any
portion of the Project for which entry into the Leased Premises is necessary,
provided any entry by Landlord under this paragraph is accomplished in a manner
which minimizes any disruption to Tenant's business.
ARTICLE VIII - INSURANCE, INDEMNIFICATION, WAIVERS, ETC.
8.01. TENANT'S INSURANCE COVERAGES. Tenant will maintain Tenant's
Insurance Coverages at all times during the Term. Tenant's Insurance Coverages
shall be maintained with an insurance carrier licensed to do business in
Connecticut and Approved of in advance by Landlord, Landlord's Approval not to
be unreasonably withheld and to be based on whether the insurance carrier
maintains a rating reasonably satisfactory to Landlord from a rating service
such as A.M. Best. Landlord may require Tenant to name Landlord as an additional
insured on Tenant's public liability policy and as a loss payee (to the extent
of damage to the realty) of Tenant's property insurance policy. Landlord may
require Tenant to provide Landlord with a copy of the policy or policies
evidencing Tenant's Insurance Coverages and Tenant shall provide Landlord (prior
to the Actual Commencement Date) with a certificate whereby the insurance
carrier agrees not to cancel or fail to renew its coverage unless at least 15
days advance Notice is provided to Landlord. If Tenant shall fail to procure
Tenant's Insurance Coverages or provide Landlord with the copy of an insurance
policy or a certificate of insurance, as Landlord may request under the
provisions of this paragraph, Landlord may procure, but without any obligation
to do so, any Tenant's Insurance Coverages and Tenant will pay Landlord the
reasonable cost of the same. Tenant's Insurance Coverages are the following
insurance coverages, or such lesser coverages as Landlord may approve of in
advance:
(a) General public liability insurance coverage in at least the single
limit amount of $500,000, without deductible, insuring Tenant against
all personal injury and property damage claims arising out of any act
or omission of Tenant at the Project and such personal injury and
property damage claims for which Tenant is required to indemnify
Landlord under the provisions of this Lease.
(b) All-risk property insurance insuring at least the full replacement
value (less a commercially reasonable deductible not to exceed
$2,000) of all of Tenant's personal property at the Project and all
fixtures and improvements forming a part of and located within the
boundaries of the Leased Premises.
8.02. LANDLORD'S INSURANCE COVERAGES. Landlord may maintain Landlord's
Insurance Coverages. Landlord's Insurance Coverages consist of any insurance
coverage reasonably maintained by Landlord in connection with the operation of
the Project, which coverages may include: a public liability insurance policy;
an all-risk property insurance policy, including coverage for rental loss on
account of property damage; and workers' compensation coverage for personnel
carrying out activities chargeable to Project Operating Expenses.
8.03. TENANT TO PAY FOR EXCESS INSURANCE PREMIUMS. Tenant will promptly pay
Landlord the amount of any insurance premium for Landlord's Insurance Coverages
which is in excess of the premium payable had Tenant's use of the Leased
Premises been a use for which the lowest premiums for Landlord's Insurance
Coverages are available. In the case where Tenant and any other tenant's use or
non use of their respective leased premises results in any insurance premium in
excess of the most favorable premiums for Landlord's Insurance Coverages, Tenant
shall be responsible to pay Landlord the portion of the excess which the Leased
Premises Square Footage bears to the total leased premises square footage of all
tenants causing the excess premium, or any other reasonable allocation made by
Landlord of the excess in premiums for Landlord's Insurance Coverages caused by
Tenant.
8.04. NO SUBROGATION - WAIVERS OF CLAIM. Landlord and Tenant, to the
extent not prohibited in their insurance policies, waive the right of
subrogation against the other party on account of any insured loss. Tenant and
Landlord each recognize that they may obtain property insurance, covering losses
to property on account of acts and/or omissions of the other, and if such
coverage is not obtained, the party failing to maintain the coverage shall bear
the risk of any insurable property loss (less a commercially reasonable
deductible) caused by any act or
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omission of the other party not arising to the level of gross negligence or
willful misconduct. Accordingly, in the event of any uninsured property loss or
damage of Tenant caused by any act or omission of Landlord that does not
constitute willful misconduct or gross negligence, which loss or damage could
have been insured under a standard tenant's all-risk property insurance policy,
Tenant waives any claim against Landlord on account of the loss (except for
recovery of a commercially reasonable deductible not in excess of $2,000).
Further provided, in the event of any uninsured property loss or damage of
Landlord caused by any act or omission of Tenant that does not constitute
willful misconduct or gross negligence, which loss or damage could have been
insured under a standard Landlord's all-risk property insurance policy, Landlord
waives any claim against Tenant on account of the loss (except for recovery of a
commercially reasonable deductible).
8.05. INDEMNIFICATION AGAINST THIRD PARTY CLAIMS. In the case of third
party claims arising out of an act or omission of Tenant or an agent, servant or
employee of Tenant (a "Tenant Fault Claim") and not out of an act or omission of
Landlord or an agent, servant or employee of Landlord (a "Landlord Fault
Claim"), Tenant shall be responsible for the Tort Indemnity of Landlord. In the
event of a Landlord Fault Claim, Landlord shall be responsible for the Tort
Indemnity of Tenant. In the event of claims which are both Tenant Fault Claims
and Landlord Fault Claims, Tenant shall be responsible for the claim to the
extent of the limit of public liability insurance coverage required to be
maintained by Tenant under paragraph 8.01(a). Landlord shall then be responsible
to the extent of the limit of Landlord's public liability insurance coverage,
and thereafter each party shall be responsible for the claim in the proportion
such party's fault bears to the total fault of Landlord and Tenant. Each party
shall be responsible for the Tort Indemnity of the other party for the portion
of the claim which is the responsibility of the party owing the Tort Indemnity.
Tort Indemnity shall mean that the party responsible for the indemnification
shall provide the legal defense of the claim (counsel being subject to the
approval of the indemnified party, approval not to be unreasonably withheld) and
the indemnifying party shall be responsible to pay the amount of the claim
(subject to the right to defend it) up to the limits of the indemnifications set
forth in this paragraph, above, except that in the case of claims which are both
Tenant Fault Claims and Landlord Fault Claims, each party shall be responsible
for such party's own costs of legal defense. Tort Indemnity shall not be owed to
the extent that the party owing the indemnification has been prejudiced by any
failure of the party seeking the indemnification to give Notice to the other
party within a reasonable time after said party becomes aware of a claim in
which the other party may owe an indemnity obligation under this paragraph.
ARTICLE IX - ASSIGNMENT AND SUBLETTING
9.01. LANDLORD'S CONSENT REQUIRED FOR ASSIGNMENT AND SUBLETTING. Tenant
will not assign this Lease in whole or in part nor sublet all or any part of the
Leased Premises without the prior written Consent of Landlord, which will not be
unreasonably withheld or delayed. Prior to any assignment or subletting for
which Landlord's Consent is required, Tenant shall give Notice to Landlord of
the proposed assignee or subtenant and the terms of the proposed assignment or
subtenancy, and upon request of Landlord, Tenant will provide Landlord with any
other information reasonably requested by Landlord for the purpose of evaluating
the proposed assignee or subtenant. Landlord hereby expressly Consents to any
assignment or subletting to an entity controlled by Tenant, which controls
Tenant, or is under the control of the same entity that controls Tenant (a
"Tenant Affiliated Entity"). For the purposes of the preceding sentence,
"control" means legal voting control. The Consent by Landlord to any assignment
or subletting shall not constitute a waiver of the necessity for such Consent to
subsequent assignment or subletting. Assignment or subletting shall include a
change in a majority of any ownership of Tenant (in the case of a tenant that is
not an individual) and shall include an assignment or subletting by operation of
law (attachment of Tenant's interest in the leasehold, for example). Unless
landlord shall give express Consent of the release of Tenant, no assignment or
subletting or acceptance of any rent from any party in possession of the Leased
Premises shall constitute a release of Tenant from the obligations under this
Lease. By accepting the assignment of this Lease, any assignee assumes all
obligations of Tenant to Landlord from and after the date of the assignment,
jointly and severally with Tenant. Any attempted assignment or subletting by
'Tenant without the prior Consent of Landlord shall be void. No assignment or
subletting shall provide for a rental payment, or other payment for use and
occupancy or utilization, based in whole or in part on the net income or profits
derived by any person or entity from the property assigned, subleased, occupied
or utilized (other than an amount based upon a fixed percentage of sales), and
any such purported assignment or subletting based upon such payment shall be
void and any amount payable thereunder or any rental amount therefor passed to
any person or entity shall not have deducted therefrom any expenses or costs
related in any way to the leasing of such space.
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9.02. RELEASE OF TENANT ON CERTAIN ASSIGNMENTS AND SUBLETTINGS. Except for
an assignment or subletting to a Tenant Affiliated Entity, for which express
Consent is given in paragraph 9.01, in the event Tenant gives Landlord any
Notice of proposed assignment of this Lease or subletting of more than 50% of
the Leased Premises, then Landlord may, by Notice to Tenant. terminate this
Lease by lapse of time, effective on the date specified in Landlord's
termination Notice. Landlord's termination Notice under this paragraph may only
be given within 30 days after Notice of the proposed assignment or subletting
from Tenant, unless, within 15 days after the Notice from Tenant Landlord makes
a request to Tenant for further information with which to evaluate the proposed
assignee or subtenant, in which event the time within which Landlord may give
Notice of termination shall be extended to 30 days after Tenant has provided the
further information to Landlord. Landlord's termination Notice must specify an
effective date for the termination, and if the termination Notice is given, this
Lease shall come to an end by lapse of time as if the Term had always expired on
the effective date of the termination, and provided Tenant has vacated the
Leased Premises in accordance with the provisions of this Lease. Tenant shall be
deemed to be released from any further liability or obligations of Tenant under
this Lease arising from and after the date Tenant has vacated.
9.03. LANDLORD'S RIGHTS ON PROPOSED SUBLETTING OR ASSIGNMENT. In the event
Tenant desires to sublet or assign this Lease in whole or in part, other than to
a Tenant Affiliated Entity, for which express Consent is given in paragraph
9.01, then Landlord shall have the right of first refusal against such
subletting or assignment in accordance with the further provisions of this
paragraph. Tenant shall give Landlord Notice of the terms of any bona fide offer
to sublet or assign pursuant to which Tenant desires to consummate a subletting
or assignment, which terms shall not include consideration for the subrent or
assignment price in anything other than cash and shall not include the subrent
or assignment of any premises other than all or a portion of the Leased
Premises. Landlord shall have 15 days after the Notice from Tenant to notify
Tenant of Landlord's acceptance of said subletting or assignment terms. If
Landlord shall not exercise Landlord's right of refusal within the 15 day time
period, the subletting or assignment shall be free of Landlord's refusal right
contained in this paragraph as to a subletting or assignment on the terms
contain in the Notice from Tenant, provided that such assignment or sublease is
executed and commences within not more than 60 days after Tenant's
aforementioned Notice to Landlord. If Tenant wishes to sublet or assign at a
lower rent, more favorable terms to the assignee or subtenant or outside of said
60 day period, Tenant must again Notice to Landlord the terms of any such bona
fide offer acceptable to Tenant and the above process shall be repeated.
ARTICLE X - ESTOPPEL CERTIFICATES, SUBORDINATION, ETC.
10.01. ESTOPPEL CERTIFICATES. Upon request of Landlord or any mortgagee of
Landlord, Tenant shall execute an estoppel certificate, certifying the status of
any facts with respect to the Lease. Estoppel certification may include: whether
the Lease is in full force and effect; the rentals due under the Lease and the
degree to which same have been paid; that there are no defenses or claims
against Landlord for any alleged violation of the Lease by Landlord, or a
statement of such defenses or claims; acknowledgment of the interpretation or
meaning of any term of the Lease, provided such acknowledgement shall not change
any term or provision hereof; and such other matters reasonably requested to be
certified in the estoppel certificate.
10.02 SUBORDINATION, ATTORNMENT, ETC. This Lease and all rights of the
Tenant under the Lease, will be, at the election of any mortgagee of the
Project, either subordinate or superior, all or in part, to the lien of the
mortgagee. Notwithstanding the foregoing or any other provision of this Lease to
the contrary, if there shall be more than one mortgage on the Project, the
rights of Tenant under this Lease shall not be treated as inferior to any
inferior mortgage without the consent of all mortgagees superior in right to the
mortgage to which Tenant's rights are sought to be subordinated. The
subordination provisions in this paragraph shall be self-operative, without the
need for any execution of any other document. In the event any proceeding is
brought for the foreclosure of the Leased Premises, Tenant agrees to attorn to
the mortgagee in the event of strict foreclosure, or to the purchaser in the
event of foreclosure by sale or deed in lieu of foreclosure, and recognize such
mortgagee or purchaser (as the case may be) as the Landlord under this Lease.
Tenant further agrees to execute any further instrument or instruments which
Landlord or Landlord's successors in title may at any time require to evidence
the subordination of this Lease to the lien of any such mortgage or mortgages
and Tenant's agreement to attorn.
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10.03. EXECUTION OF DOCUMENTS BY TENANT. Tenant will execute and deliver to
Landlord or the party designated by Landlord, within ten days after presentation
of the proposed form, any estoppel certificate and/or subordination, attornment
and/or non disturbance agreement requested to be executed by Tenant pursuant to
the terms of this Lease. Tenant further agrees to include in any such documents,
if requested by Landlord: an agreement not to pay Landlord rent for more than
one month in advance; an agreement to give any mortgagee a notice of any alleged
default by Landlord and a reasonable time for such mortgagee to have such
default cured before Tenant will exercise any right to terminate this Lease; and
an agreement that Tenant will not look to such mortgagee for the return of any
security deposit or other monies not actually received by such mortgagee. If
Tenant shall not have delivered the executed documents, required to be executed
and delivered under this Article, within the ten day period set forth above,
Landlord may give Tenant Notice of Tenant's failure to deliver such documents,
and if Tenant shall then fail to deliver said executed documents within three
business days after delivery of such Notice, notwithstanding any provision for
notice and grace period for default elsewhere contained in this Lease, Tenant
shall be in default of the Lease, and Landlord shall have all rights provided
for in the event of such default including termination. It is acknowledged that
foreseeable damages of Landlord on account of a breach of Tenant's obligations
under this Article may include the loss of and/or additional charge incurred by
Landlord in connection with a sale of the Project or a financing of which the
Project is to serve as collateral.
ARTICLE XI - TENANT'S SECURITY DEPOSIT
11.01. TENANT'S SECURITY DEPOSIT. Tenant's Security Deposit is due and
payable to Landlord upon execution of this Lease. The Security Deposit shall be
security for the full and faithful performance of all obligations of Tenant
under this Lease. The rights and remedies reserved to the Landlord under this
Lease are cumulative, and in the event of a default by the Tenant, the Landlord
shall not be required to resort to the Security Deposit before exercising any
other remedy available to Landlord under this Lease or by law. The Security
Deposit will be refunded without interest to the Tenant promptly following the
expiration of this Lease, except to the extent the Security Deposit has been
applied to any damages of Landlord on account of Tenant's failure to comply with
any obligation of Tenant under this Lease. In no event, except when the Landlord
elects at Landlord's sole option to do so, may the Tenant set off or apply any
part of the Security Deposit against any Rent.
ARTICLE XII - CASUALTY DAMAGE TO PROJECT
12.01. REPAIR OF DAMAGE AND RENTAL ABATEMENT DURING REPAIR PERIOD. If the
Leased Premises or any portion of the Project materially affecting the
appearance or use of the Leased Premises is damaged by fire or other casualty
during the Term, Landlord shall, at Landlord's own expense, use best efforts to
cause the damage to be promptly repaired within a reasonable time, which Period
shall not exceed six months. If by reason of such damage not the fault of
Tenant, any portion of the Leased Premises is thereby rendered untenantable and
Tenant ceases use of said portion of the Leased Premises, the Monthly Base Rent
and Monthly Additional Rent shall be abated in proportion to the area of the
Leased Premises rendered untenantable and which is not used by Tenant, said
abatement to continue until the sooner of the time when the Leased Premises is
repaired or until Tenant uses the damaged portion of the Leased Premises.
Landlord's obligation to restore under this Article shall be limited to the
extent of insurance proceeds made available by any mortgagee having control over
the disposition of such proceeds and shall be limited to not include the
restoration of any portion of the Leased Premises for which Tenant is required
to maintain property insurance under paragraph 8.01. Tenant shall be responsible
to promptly restore any portion of the Leased Premises for which Tenant is
required to maintain property insurance under paragraph 8.01.
12.02. TERMINATION FOR FAILURE TO REPAIR. If the Leased Premises or any
portion of the Project is damaged by fire or other casualty not the fault of
Tenant during the Term, and if said Damage materially adversely affects Tenant's
ability to carry on Tenant's business in the Leased Premises, then if the
portion of the damage that is not Tenant's responsibility to restore is not
repairable or repaired within six months, Landlord or Tenant shall have the
right to be exercised by Notice to the other party to terminate this Lease,
which Notice may not be given later than any date upon which the damage has been
substantially repaired. Upon the giving of such termination Notice, the Term
shall immediately come to an end by lapse of time.
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ARTICLE XIII - EMINENT DOMAIN
13.01. TERMINATION ON ACCOUNT OF TAKING. If any portion of the Leased
Premises or any portion of the Project materially affecting the appearance or
use of the Leased Premises is taken in condemnation proceedings or by any right
of eminent domain, this Lease shall terminate by lapse of time, as if the Term
had always ended on the effective date of the vesting of title in the condemning
authority.
13.02. TENANT NOT ENTITLED TO LANDLORD'S AWARD. In the event any portion of
the Project is taken in condemnation proceedings or by any right of eminent
domain or is transferred by Landlord under the threat of and in lieu of the
exercise of the power of eminent domain, all proceeds of any award, judgment or
settlement payable by the taking, condemning or transferee authority shall be
and remain the sole and exclusive property of Landlord, and Tenant waives any
right to make any claim to said award, judgment or settlement received by
Landlord. Tenant may pursue Tenant's own claim against the condemning authority
permitted by statute to be paid to Tenant without diminishing or reducing the
award, judgment or settlement payable to Landlord.
ARTICLE XIV - LANDLORD'S LIABILITY LIMITATIONS
14.01. LIMITATIONS REGARDING SECURING CLAIMS. In the event of any alleged
default of Landlord, Tenant agrees that Tenant will not seek to secure any claim
for damages or indemnification by any attachment, garnishment or other security
proceeding against any property of the Landlord other than the Project, or, if
sold, any sales proceeds of the Project, and in the event Tenant obtains any
judgment against Landlord by virtue of an alleged default of Landlord, Tenant
agrees that Tenant will not look to any property or Landlord other than the
Project, or if sold, any sales proceeds, for satisfaction of such judgment. In
no event will Tenant be entitled to recover against Landlord, or prosecute or
maintain any action for the recovery against Landlord of, any consequential
damages and/or business interruption damages against Landlord on account of any
act or omission of Landlord which constitutes a breach of this Lease by
Landlord.
14.02. TRANSFER OF LANDLORD'S INTEREST IN PROJECT. Upon any transfer of
Landlord's interest in the Project, the then transferor Landlord shall be
relieved of any and all liability to Tenant arising from and after the transfer,
and the transferee Landlord shall not be liable to Tenant for any liability
arising prior to the transfer. Notwithstanding the foregoing, if any condition
shall exist on the date of transfer which would entitle Tenant to terminate this
Lease or the continuance of which would entitle Tenant to terminate this Lease
after the passage of time, unless the condition is corrected within any time
allowed under this Lease or by law, the transfer shall not affect Tenant's right
to terminate.
14.03. NO LIABILITY FOR THEFT, ETC. All property of Tenant in the Project
shall be kept at Tenant's own risk, and Landlord shall not be responsible for
any theft of Tenant's property or any property of any agent, servant, employee,
contractor or invitee of Tenant, unless the theft is committed by Landlord, and
Tenant shall indemnify and hold Landlord harmless from any claim against
Landlord by any agent, servant, employee, contractor or invitee of Tenant based
upon any allegation of theft for which Landlord's liability is disclaimed under
this paragraph.
ARTICLE XV - DEFAULTS AND ENFORCEMENT OF LEASE
15.01. EVENTS OF DEFAULT BY TENANT. Tenant will be in default of Tenant's
obligations under the Lease upon the happening of any of the following:
(a) If any payment of Rent has not been made within 5 business days
after Notice to Tenant that the payment has not been received by
Landlord on or before its due date.
(b) If Tenant shall commit a default on account of a failure to execute
and deliver any estoppel or subordination, non disturbance and/or
attornment agreement in the manner provided in Article X.
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(c) If Tenant shall commit a default on account of a failure to
discharge a mechanic's lien in the manner provided in paragraph
6.02.
(d) The failure to cure any non compliance with the obligations for the
continuous operation of Tenant's business set forth elsewhere in
this Lease, if any, within 5 business days after Notice from
Landlord for a first violation in any one year, 2 business days for
a second violation in any one year and any violation thereafter,
without Notice for a third or more violation in a one year period.
(e) The failure to cure within 30 days after Notice to Tenant the non
compliance by Tenant with any other obligation of Tenant under this
Lease, except that in the case of an obligation not capable of being
cured within said 30 day period (determined without regard to the
cost or ability to pay for compliance), Tenant will not be in
default as long as Tenant has commenced the cure of the non
compliance reasonably promptly after the Notice and is continuously
thereafter diligently proceeding to complete the cure.
15.02. REMEDIES ON ACCOUNT OF DEFAULT. In the event of default by Tenant,
then Landlord may terminate this Lease and recover possession of the Leased
Premises, and Landlord may exercise any other remedy available under the law to
Landlord on account of a breach of lease by a tenant.
15.03. COSTS OF ENFORCING LEASE. Landlord shall be entitled to
reimbursement from Tenant of the reasonable costs of enforcement of this Lease
incurred by Landlord (including a reasonable attorney's fee) in any action or
proceeding (whether or not suit is brought) of Landlord to enforce the
provisions of this Lease on account of any failure of Tenant to adhere to
Tenant's obligations under this Lease, provided that Landlord prevails in such
action or proceeding.
15.04. JURY WAIVER, FORUM AND VENUE. Landlord and Tenant waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
against the other of any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Leased Premises, and/or claim of injury or damage. In any
dispute between the parties relating to the tenancy hereby created, unless the
parties shall agree otherwise, the exclusive forum for any such legal action
shall be the Connecticut state court hearing landlord and tenant disputes, with
venue based on the location of the Leased Premises and not the residence or
location of the parties.
ARTICLE XVI - VACATING AT END OF TERM, HOLDING OVER
16.01. VACATING LEASED PREMISES AT END OF TERM. At the expiration of the
Term, whether by lapse of time or for any other reason, Tenant will surrender
the Leased Premises to Landlord. the condition of which upon the surrender shall
be broom clean, free of all personal property and in good repair, reasonable
wear and tear excepted. All keys to any doors at the Leased Premises shall be
turned over to Landlord upon the surrender, and Tenant shall provide Landlord
with any other means for opening any other locks (safes, vaults, etc.) at the
Leased Premises upon the surrender. Prior to the surrender: Tenant shall remove
all of Tenant's trade fixtures, unless Landlord shall Consent to the retention
of any trade fixture; Tenant will remove any alteration that had made in the
Project by Tenant without Landlord's Approval; and Tenant will repair and/or
restore the Leased Premises and/or Project as a result of any removal of any
fixture or improvement removed by Tenant. Without diminishing Tenant's
responsibility to remove items from and repair damage in the Leased Premises at
the end of the Term, if, prior to Tenant's vacating of the Leased Premises,
Tenant fails to remove any item of personal property or any trade fixtures or
improvement that it is Tenant's responsibility to removed, all such item will
become the property of Landlord.
16.02. HOLDING OVER. If Tenant shall hold over beyond the end of the Term
with the Consent of Landlord, then the provisions of the hold over tenancy shall
be the same provisions set forth in this Lease governing the rights and
obligations of the parties during the Term, except that: the tenancy shall be on
the basis of a month to month tenancy, terminable by Landlord immediately by
issuance of a notice to quit possession, as long as the quitting date is at
least 8 days after the giving of the notice to quit; there shall be no rights or
options in Tenant to extend the Term, increase or decrease the size of the
Leased Premises, purchase any portion of the Project, exercise
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any right of refusal to any leasing or sale of any portion of the Project or any
similar rights that may have been in effect during the Term; and the Monthly
Base Rent for the hold over shall be the Monthly Base Rent in effect immediately
prior to the end of the Term, which shall be increased in the same manner as the
Monthly Base Rent had been increased by any formula or with any regular
frequency during the Term. If Tenant shall not have vacated the Leased Premises
on or before the end of the Term and does not have Landlord's Consent to remain
in the Leased Premises, the failure to vacate shall not be treated as a hold
over for any further term and it is agreed that the use and occupancy damages
for which Tenant will be liable during any such period of occupancy will be the
amount that would have been payable as Additional Rent had this Lease remained
in effect during the period of occupancy plus an amount equal to twice the
Monthly Base Rent in effect at the end of the Term.
ARTICLE XVII - MISCELLANEOUS PROVISIONS
17.01. NO WAIVER OF OBLIGATIONS. The waiver by Landlord or Tenant of any
breach by or obligation of the other party of any provision in this Lease shall
not be deemed to be a waiver of any other breach or obligation. The acceptance
of any Rent by Landlord or the payment thereof by Tenant shall not be deemed to
be a waiver of any breach by any party. No payment by Tenant or receipt by
Landlord of any payment which is less than the amount due shall be deemed to be
a waiver of any right to obtain payment of the full amount due, and Landlord may
apply any payment by Tenant to any charge owed by Tenant to Landlord under the
provisions of this Lease, and no restrictive endorsement, statement of Tenant or
any other attempt by Tenant to restrict the application of the payment in any
contrary manner shall be operative or effective, and no endorsement on any check
or payment made by or on the behalf of Tenant shall be deemed as any accord and
satisfaction for any obligation, other than satisfaction of the charge to which
Landlord has applied the payment. No waiver of any breach or obligation of any
party shall be effective unless in writing by the party charged with the waiver.
17.02. ENTIRE AGREEMENT. This Lease, including any exhibits attached to it
or referenced by it, constitute the entire agreement between the parties as to
this leasing, and there are no covenants, promises, agreements, conditions or
understandings, either oral or written between the parties other than those
contained in or specifically referenced by this Lease. No subsequent alteration,
amendment, change or addition to this Lease shall be binding upon either party
unless in writing by the party to be charged.
17.03. SEVERABILITY. The provisions of this Lease are severable, and if any
provision shall be determined to be invalid or unenforceable, the provision
shall be enforced to the extent permitted by law and, to the extent any
provision or portion thereof remains unenforceable or invalid, it shall be
severed from this Lease and the remainder of the Lease shall be valid and
enforced to the fullest extent permitted by the law.
17.04. HEADINGS NOT TO LIMIT EFFECT OF LEASE. The headings for the articles
and paragraphs of this Lease are inserted for ease of reference only and no such
heading shall be interpreted to limit the operation of any language contained in
the article or paragraph following the heading. All language in this Lease shall
be given its full operative effect, regardless of the article or paragraph in
which it is located and regardless of its location, proximity or lack of
proximity to any other related or unrelated provisions.
17.05. DATES. If the Initial or Actual Commencement Date or any other date
of which any obligation or event in this Lease is dependent is not a date
certain, the Commencement Date shall in no event be later than a time which
would not violate any applicable rule against perpetuities, determined as if all
relevant lives in being ceased as of the date of execution of this Lease.
17.06. FORCE MAJEURE. In the event that Landlord or Tenant shall be delayed
in, hindered in, or prevented from, the performance of any act required under
the provisions of this Lease, except for the payment of money, by reason of
strikes, lockouts, labor troubles, inability to procure materials, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war or
other reason of a like nature not the fault of the party whose act is delayed
("Force Majeure"), then as long as the party whose act is delayed is using best
efforts to avoid the delay and the effect of the Force Majeure, then performance
of such act shall be excused for the period of the delay.
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17.07. LANDLORD'S ENTRY INTO LEASED PREMISES. Landlord and Landlord's
agents and other representatives shall have the right to enter into and upon the
Leased Premises at all reasonable hours, upon reasonable advance written or
verbal notice to Tenant and consistent with Tenant's security requirements, for
the purpose of examining the Leased Premises or making such repairs or
alterations therein as may be necessary, in Landlord's reasonable discretion,
for maintaining the Project in a condition of safety and good repair. Landlord's
entry under this paragraph may be made at any hour and without notice in the
case of emergency. During any period in which Tenant is in possession of the
Leased Premises, Tenant will provide Landlord with a key or set of keys and any
other means necessary for Landlord to gain emergency access to the Leased
Premises in accordance with the provisions of this Paragraph, and Tenant shall
update the key, keys or other means of access on hand with Landlord at any time
the locks to the Leased Premises are changed.
17.08. SHOWING OF LEASED PREMISES. Tenant will permit Landlord and
Landlord's agents to show the Leased Premises to any prospective purchaser of
the Project at reasonable hours and upon advance written or verbal notice to
Tenant. During any period in which there are less than 6 months remaining in the
Term, Tenant will permit Landlord and Landlord's agents: to show the Leased
Premises to any prospective tenant for the Leased Premises at reasonable hours
and upon advance written or verbal notice to Tenant; and to place a sign on the
front of the Leased Premises offering the same for lease, so long as it does not
interfere with any of the Tenant's signage permitted under other provisions of
this Lease.
17.09. NO RESERVATION OR OFFER. The submission of this Lease for
examination does not constitute a reservation of the Leased Premises, and option
to lease the Leased Premises or in any other manner an offer by Landlord, unless
and until it is executed by Landlord and delivered to Tenant.
17.10. NO RECORDING. Tenant shall not record this Lease, but Landlord
agrees to execute a notice of lease in accordance with the Connecticut General
Statutes regarding the recording of notices of lease. Tenant may record the
notice of lease. If Tenant violates this paragraph, then notwithstanding any
other provision in this Lease to the contrary, Landlord may, at Landlords
election, without any further Notice or cure period, terminate the Lease on
account of the breach.
17.11. JOINT AND SEVERAL LIABILITY. The references to Tenant and Landlord
in this Lease mean all persons or entities comprising Tenant or Landlord at any
given time, and if Tenant or Landlord shall consist of more than one person or
entity, the obligations of each person or entity shall be joint and several with
all other persons or entities comprising Tenant or Landlord, as applicable.
17.12. CHOICE OF LAW. Connecticut law shall apply to all state law matters
arising under this Lease.
ADDITIONAL TERMS:
- - Effective on the Initial Lease Commencement Date, Robert D. Scinto, a
member of the Landlord, shall cancel a lease between Tenant and 140 Sherman
Street LLC, an affiliate of Landlord, dated October 30, 1996 for the lease of
space in a building located at 140 Sherman Street, Fairfield, Connecticut.
Tenant agrees to vacate the space in the 140 Sherman Street building on or
before the Initial Commencement Date and the lease for that space will come to
an end by lapse of time.
- - Payment of rent and all associated costs will be waived for the first month
following the initial lease commencement date.
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PAGE 18
<PAGE>
IN WITNESS WHEREOF, each party has caused this Lease to be executed on the
date below written, the date of the Lease being as of the date set forth on the
face page, if different than the date of execution for either party.
Landlord Tenant
/s/ Robert D. Scinto /s/ Venkat Sharma
- ------------------- -----------------
Lot 4 LLC Acorn Information Services, Inc.
By: Robert D. Scinto By: Venkat Sharma
Its: Member Its: CEO
Date: January 5, 1998 Date: 12/12/91
Subscribed and Sworn to before me, a Notary
Public, in and for County of Fairfield and State
of Connecticut, this 17 day of December, 1997.
/s/ Ellen B. McQuade-Smith
--------------------------
Notary Public
Ellen B. McQuade-Smith
Notary Public
My Commission Expires June 30, 2002
- --------------------------------------------------------------------------
PAGE 19
<PAGE>
State of Connecticut
ss City/Town of Fairfield
County of Fairfield
Personally appeared Venkat Sharma, signer and sealer of the foregoing
instrument, who acknowledged himself or herself to be the CEO of Acorn
Information Services, Inc. and the execution to be his or her free act deed and
the duly authorized free act and deed of his, before me, this 17 of December,
1997.
/s/ Ellen B. McQuade-Smith
--------------------------
Notary Public
Ellen B. McQuade-Smith
Notary Public
My Commission Expires June 30, 2002
State of Connecticut
ss City/Town of Shelton
County of Fairfield
Personally appeared Robert D. Scinto, signer and sealer of the foregoing
instrument, who acknowledged the same to be his free act and deed, before me,
this 5/th/ day of January, 1998.
/s/ Eleanor M. Choate
---------------------
Notary Public
Eleanor M. Choate
Notary Public
My Commission Expires July 31, 1998
- --------------------------------------------------------------------------
PAGE 20
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT C
- --------------------------------------------------------------------------------
ADDITIONAL LEASE PROVISIONS REGARDING
LANDLORD'S INITIAL FIT-OUT WORK
1. Tenant shall, within 2 weeks of the date on which this Lease is
executed by Tenant, deliver to Landlord final and complete dimensional
architectural and mechanical drawings and specifications for partitions,
layouts, including openings, ceiling and lighting layouts, electrical outlets,
finishing schedule, and any and all other information as may be necessary to
complete the Leased Premises, or approve in writing of the architectural plans
prepared by Landlord's architect, with the exception of flooring selection,
color choices and other finish materials selection (the "Initial Fit-Out
Plans"). Tenant shall, within 2 weeks after Tenant has delivered the above plans
to Landlord or approved of the plans that Landlord's architect has prepared,
make, in writing, flooring selection, color choices and other finish materials
selections which have not been specified in the above plans. Notwithstanding any
provision for determination of the Commencement Date elsewhere set forth in this
Lease, if Tenant shall fail to either submit or approve of the Initial Fit-Out
Plans or make the flooring selection, color choices and other finish materials
selections within the time periods set forth above, Landlord may, at Landlord's
option, set the Commencement Date as the later of the date specified as the
Commencement Date or estimated Commencement Date in the Lease; or the 74th day
from the date the Lease is executed by Tenant.
2. Tenant's Initial Fit-Out Plans shall be reviewed by Landlord's
architect and shall include both Building Standard Work (as hereinafter defined)
and Special Work (that work in excess of Building Standard Work) and shall be
consistent with the design, construction and equipment of the Building. Such
plans shall show the location and extent of any excess floor loading and all
special requirements for air conditioning, plumbing and electricity, and the
estimated total electrical load. Unless otherwise provided, Tenant may make use
of Landlord's architectural services, within reasonable limits, for development
of Tenant's Initial Fit-Out Plans, without charge to Tenant. Tenant's Fit-Out
Plans are expressly subject to Landlord's written approval, which Landlord will
not unreasonably withhold.
3. Landlord shall perform the construction and/or remodeling work set
forth in the Initial Fit-Out Plans, except expressly indicated otherwise
elsewhere in this Lease or on the Initial Fit-Out Plans ("Landlord's Fit-Out
Work"). Landlord's Initial Fit-Out Work shall be carried out in a workmanlike
manner, in compliance with all applicable building codes.
4. Landlord shall bear the cost of all Building Standard Work. Tenant
shall pay for the cost of any part of Landlord's Initial Fit-Out Work
constituting Extra Work. No allowance shall be made for the omission of any
Building Standard Work except as specifically set forth herein. "Extra Work" is
any portion of Landlord's Initial Fit-Out Work in excess of Building Standard
Work. "Building Standard Work" that portion of Landlord's Initial Fit-Out Work
consistent with the following:
a. Partitions of at least 5/8" sheetrock to hung ceiling, mounted on
steal or wood studs to provide for the reasonable subdivision of the
Leased Premises at a rate not exceeding six straight lineal feet of
such partitioning per 100 square feet of rentable floor area or
fraction thereof. Sheetrock walls and/or windows shall be provided to
all Leased Premises boundary walls, and on walls separating other
space in the building, shall run to structure above ceiling;
b. Doors at least 7' - 0" high and -3' - 0" wide of wood
construction, with metal frames, including latch sets and doorstops,
at the rate of not more than one door per 500 square feet of rentable
floor area or fraction thereof and, in the case of the entrance door
to the Leased Premises, one lock set and door closer;
c. Flooring; commercial grade carpeting throughout the Leased
Premises, consisting of 100% nylon static control, 30 ounce, cut pile,
10 year guaranty, Patchcraft brand, or equal.
<PAGE>
d. Painting of all wall surfaces, doors and trim, included in
Building Standard Work, with not more than one color in each room,
with two or three coats as necessary. The colors shall be selected by
Tenant from a spectrum of colors supplied by Landlord.
e. Electrical distribution system sufficient to provide for a
lighting load of 2 watts per square foot of useable floor area, or
fraction thereof, plus an additional electrical load of 2 watts per
square foot of useable floor area or fraction thereof for electrical
receptacles, at the rate of not more than one duplex receptacle for
each 125 square feet of rentable floor area or fraction thereof.
Lighting fixtures of not more than one fixture (a four 40-watt tube
fixture, measuring two feet by four feet with acrylic lenses) per 125
square feet of useable floor area or fraction thereof. Light switches
provided as per applicable building code. Perimeter offices shall have
separate switches.
f. Ceiling of 2 foot by 4 foot lay-in suspended acoustical the with
Armstrong "Second Look" tile or equivalent.
g. Heating, Ventilating and Air Conditioning systems in general
shall consist of gas heating and electric cooling. Building standard
HVAC shall allow the following conditions to be maintained: In the
cooling season, interior conditions of not more than 78 degrees F. Dry
Bulb, and 50% relative humidity when the outside temperature is not
more than 90 degrees F, Dry Bulb, and 77 degrees F, Wet Bulb; and in
the heating season, not less than 68 degrees F. Dry Bulb, when the
outside temperature is not less than 0 degrees F, Dry Bulb.
Maintenance of these conditions is contingent on the sources of heat
within the Leased Premises not exceeding one person per 100 square
feet of useable floor area, or fraction thereof, and four watts of
electrical consumption for all purposes, including lighting and power,
per square foot of useable floor area, or fraction thereof. If and to
the extent that the sources of heat in the Leased Premises exceed the
aforesaid design criteria, any additional cost incurred by the
Landlord in furnishing and operating equipment capable of meeting the
heating or air conditioning performance criteria set forth above shall
be reimbursed to Landlord by Tenant.
5. Payment for the cost of any Extra Work shall be required to be made in
installments, as the work progresses, 1/3 upon delivery of an estimate therefore
by Landlord, 1/3 upon substantial completion of the sheetrock, and 1/3 upon
substantial completion of the Extra Work. Each progress payment due within 15
days after presentment of an invoice therefore from Landlord. In the event any
progress or payments shall be late beyond their 15 day due dates, Landlord may
accelerate the Commencement Date by the number of days each payment is late
beyond its due date, regardless of whether the Leased Premises construction is
completed by the Commencement Date.
6. All telephone equipment and data processing wiring for any computer
system that Tenant may desire in the Leased Premises, as well as any other work
not constituting a part of Landlord's Initial Fit-Out Work, shall be installed
by Tenant, at Tenant's sole cost and expense. Landlord will give access to the
Leased Premises to decorators and other contractors employed by Tenant for the
purpose of making such improvements therein, when so long as, in Landlord's
reasonable judgment, the work to be done in the Leased Premises by Landlord as
provided herein shall have been completed to such an extent that the making of
such improvements will not interfere with or delay Landlord's performance of the
remaining portion of its work, it being understood that Tenant shall not be
deemed to have entered into occupancy of the Leased Premises by reason of the
presence in the Leased Premises of any decorator or other contractor. If at any
time such entry shall cause disharmony, delay or interference with Landlord's
performance of the remaining portion of the work, this license may be withdrawn
by Landlord immediately upon notice to Tenant.
7. Notwithstanding anything in this Lease to the contrary, if Landlord
shall be delayed in completing Landlord's Initial Fit-Out Work or if Landlord
shall be otherwise delayed in obtaining a certificate of occupancy for the
Leased Premises, and if such delay is caused by the failure of Tenant to provide
reasonable turn around time on architectural decisions to be made by Tenant, or
the failure of Tenant to provide items to the Leased Premises on time which are
Tenant's responsibility, then the Commencement Date shall be the date on which
the Leased
<PAGE>
Premises would have been ready but for the delay due to Tenant. Further, in the
event Landlord shall be delayed in obtaining delivery of any item specially
ordered for Tenant's Leased Premises in accordance with Tenant's Initial Fit-Out
Plans and if such delay shall cause a delay in the completion of Landlord's
Initial Fit-Out Work, the Commencement Date shall be the date on which Landlord
would have been able to complete Landlord's Initial Fit-Out Work but for the
delay in obtaining the specially ordered item. Landlord shall use best efforts
to obtain prompt delivery of all items required for completion of Landlord's
Initial Fit-Out Work in time to complete the Leased Premises on time. In the
event, however, that Landlord shall foresee difficulty in obtaining timely
delivery of any such specially ordered item referred to above, Landlord shall
notify Tenant of this condition, and Tenant shall have the option of obtaining
delivery of said item through Tenant's own source or replacing the item for
which timely delivery is not obtainable with an item with an earlier delivery
date.
8. Notwithstanding anything in this Exhibit C to the contrary, Landlord's
Fit-Out Work shall be carried out in accordance with "Building
Standard Work" specifications and with the exception Landlord shall
furnish sufficient quantities of the Building Standard Work items in
order to complete Landlord's Fit-Out Work, without regard to any
quantity limitations set forth in paragraph 4 above.
<PAGE>
EXHIBIT 10.23.1
FIRST AMENDMENT OF LEASE
This First Amendment of Lease is made as of this 20th day of April, 1998,
by and between Lot 4 LLC (hereinafter referred to as "Landlord"), and Acorn
Information Services, Inc., of Fairfield, Connecticut (hereinafter referred to
as "Tenant").
In consideration of the mutual benefits and obligations set forth herein,
the parties hereby amend a certain lease between Landlord and Tenant dated
January 5, 1998, for the lease of space in Landlord's building at 4 Corporate
Drive, Shelton, Connecticut (the January 5, 1998 lease as amended, hereinafter
referred to collectively as the "Lease"), in the following manner:
A. Paragraph 1.1 (b) of the Lease is deleted and is replaced with the
following:
"1.1 (b) The "Leased Premises" is located on the second floor of
the Building, with the floor area outline of the Leased Premises
being shown on Exhibit A, attached hereto."
B. Paragraph 1.1 (c) of the Lease is deleted and is replaced with the
following:
"1.1 (c) The "Leased Premises Square Footage" is 7,166 square
feet."
C. Exhibit A is added to the Lease and is attached to this First
Amendment of Lease.
In the event of any conflict between this First Amendment of Lease and the
January 5, 1998 lease, this First Amendment of Lease shall control, the Lease
being hereby ratified and to remain in full force and effect in all other
respects.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day and year first above written.
Acorn Information Services, Inc
By: /s/ Venkat Sharma
-----------------
Venkat Sharma
its duly authorized
Chief Executive Officer
Lot 4 LLC
By: /s/ Robert D. Scinto
--------------------
Robert D. Scinto, a member
<PAGE>
State of Connecticut
ss Town of Fairfield
County of Fairfield
Personally appeared Venkat Sharma, signer and sealer of the foregoing
instrument and duly authorized President of Acorn Information Services, Inc.,
who acknowledged the same to be his free act and deed and duly authorized free
act and deed of Acorn Information Services, Inc., before me, this ________ day
of April, 1998.
___________________________________
Commissioner of the Superior Court/
Notary Public
State of Connecticut
ss City of Shelton
County of Fairfield
Personally appeared Robert D. Scinto, signer and sealer of the foregoing
instrument and the duly authorized member of Lot 4 LLC, who acknowledged the
same to be his free act and deed and the duly authorized free act and deed of
Lot 4 LLC before me, this 20th day of April, 1998.
/s/ Eleanor M. Choate
---------------------
Notary Public
Eleanor M. Choate
Notary Public
My Commission Expires July 31, 1998
<PAGE>
46-375
MONTHLY RENTAL BREAKDOWN
<TABLE>
<S> <C>
BASIC MINIMUM MONTHLY RENT $ 7,166.00
BUDGETED MONTHLY OPERATING EXPENSES @ $5.52 $ 3,296.36
BUDGETED INTERIOR ELECTRIC $ 746.45
OTHER CHARGES $ 378.27
----------
TOTAL MONTHLY PAYMENT DUE JANUARY 1, 1999 $11,587.08
----------
</TABLE>
<PAGE>
Exhibit 10.26
-------------
AGREEMENT
AND
PLAN OF REORGANIZATION
BETWEEN
INTEK INFORMATION, INC.
AND
PROTOCALL NEW BUSINESS SPECIALISTS, INC.
DATED AS OF FEBRUARY 3, 1997
----------
<PAGE>
SCHEDULES TO
AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
INTEK INFORMATION, INC. and PROTOCALL NEW BUSINESS SPECIALISTS, INC.
Schedule No. Description
- ------------ -----------
1.5 Officers and Directors of Surviving Corp.
2.1 Protocall Shareholders
2.2 Protocall good standing states
2.4.A Protocall Articles and Bylaws
2.4.B Officers and directors of Protocall
2.5 Subsidiaries of Protocall
2.7.A Exceptions to acquisition effect on government permits
2.7.B Exceptions to effect on contracts
2.10 Permits, licenses of Protocall
2.11.1 Protocall financial statements
2.11.2 Exceptions to financial statements
2.12.2.A Exceptions to Taxes representation
2.12.2.B Exception to Taxes representation
2.13 Title to properties and assets; liens and encumbrances
2.14 Furniture, fixtures and equipment
2.15.A Insurance
2.15.B Exceptions to Insurance Rates
2.16 Leases and other material contracts
2.17 Litigation
2.18 Intellectual property
2.19 Interests in competitors
2.21 Insider transactions
2.23 Labor and employment disputes
2.24 Employee benefit plans
2.25 Banking and investment information
2.28 Certain changes
2.30.7 Shareholder mailing addresses and states of residence
2.31.A Material agreements with customers or suppliers
2.31.B 5% customers or suppliers
3.1 Intek Good Standing States
3.4 Intek Capitalization
3.5.A Intek Charter and Bylaws
3.5.B Intek Officers and Directors
3.7 Intek Financial Statements
3.9 Intek Title Properties, Assets and Liens, etc.
<PAGE>
3.11 Intek Patents and Other Intangible Assets
3.12 Intek Material Contracts and Commitments
3.14 Intek Litigation
3.19 Intek Transactions with its Officers, Directors,
or Shareholders
3.20 Intek Tax Exceptions
3.23.1 Intek Material Licenses
3.27 Intek Benefit Plans
3.28 Intek Effect of Agreement
3.30 Intek Insurance
3.31 Intek Insider Transactions
4.22 Guarantees
EXHIBITS TO
AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
INTEK INFORMATION, INC. and PROTOCALL NEW BUSINESS SPECIALISTS, INC.
Exhibit No. Description
- ----------- -----------
1.1.A Certificate of Merger (California)
1.1.B Articles of Merger (Colorado)
1.15 Escrow Agreement
2.44 Tax Opinion of Andrews & Kurth, LLP
3.36 Tax Opinion of Chrisman, Bynum & Johnson, P.C.
4.5 Employment Agreements and Option Agreements
4.10 Affiliate Letter and Shareholder Certificate Re Tax-Free
Reorganization
4.29 FIRPTA Certificate
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN INTEK INFORMATION, INC.
AND PROTOCALL NEW BUSINESS SPECIALISTS, INC.
This Agreement is dated as of February 3, 1997, among Intek Information,
Inc., a Delaware corporation ("Intek") and Protocall New Business Specialists,
Inc., a California corporation, ("Protocall"). For certain limited purposes,
the shareholders of Protocall (the "Shareholders") are parties to this
Agreement.
RECITALS
A. Protocall is the owner of a business generally engaged in the
provision of call centers providing outsourced teleservicing services.
B. Intek and Protocall desire to have Intek acquire Protocall by means of
a merger of Protocall with and into Intek Acquisition Corp., a Colorado
corporation ("Sub"), a wholly owned subsidiary of Intek, by means of a forward
triangular merger (the "Merger") intended to qualify as a partially tax free
reorganization under Section 368(a)(2)(D) of the Internal Revenue Code.
C. The parties understand that the Merger will not be treated as a
pooling of interests for accounting purposes.
D. Concurrently with the "Closing" (as defined below) of this Agreement,
among other things: (i) a Shareholders Agreement (the "Shareholders Agreement")
will be entered into by and among Intek, the Shareholders receiving stock of
Intek hereunder and the other stockholders of Intek, (ii) a Registration Rights
Agreement (the "Registration Rights Agreement") will be entered into by and
between Intek, the Shareholders receiving stock of Intek hereunder and possibly
certain other persons, (iii) certain employees of Protocall will enter into
employment agreements and stock option agreements with Sub or Intek; and (iv)
Intek, the Shareholders and an escrow agent for the escrow of certain of the
"Exchange Consideration" (as defined below) will enter into an Escrow Agreement.
Each of those agreements shall become effective only upon the Effective Time of
the Merger (as defined below); and each of those documents and the other
operative documents and certificates (including affiliate letters) to be
executed and delivered in connection herewith is referred to as a "Document" or
the "Documents."
AGREEMENT AND PLAN OF MERGER
ARTICLE I
---------
THE MERGER
----------
<PAGE>
1.1. Effective Time of the Merger. The Merger shall become effective
----------------------------
at the later of the time of the filing of a Certificate of Merger and related
Agreement and Plan of Merger substantially in the form attached as Exhibit
1.1.A. hereto with the Secretary of State of California and the filing of the
Articles of Merger substantially in the form of Exhibit 1.1.B. with the
Secretary of State of Colorado, which filings shall be made immediately
following Closing. The time the Merger becomes effective is hereinafter
referred to as the "Effective Time of the Merger." The delivery of the
California tax certificate referenced herein is not a precondition to the filing
of the Merger documents.
1.2. Surviving Corporation. At the Effective Time of the Merger,
---------------------
Protocall shall be merged with and into Sub, which shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") and which
shall continue its corporate existence under the laws of the State of Colorado.
1.3. Articles of Incorporation. The Articles of Incorporation of Sub,
-------------------------
as in effect at the Effective Time of the Merger, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law; provided, however, that the Articles of Merger shall change the name of
Sub to Protocall New Business Specialists, Inc.
1.4. Bylaws. The Bylaws of Sub, as in effect at the Effective Time of
------
the Merger, shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by law.
1.5. Directors and Officers. The officers of the Surviving
----------------------
Corporation and the directors of the Surviving Corporation immediately after the
Effective Time of the Merger shall be as set forth on Schedule 1.5; such
officers and directors to hold office in accordance with and subject to the
Articles of Incorporation and Bylaws of the Surviving Corporation.
1.6. Protocall Capitalization. At the Effective Time of the Merger,
------------------------
the outstanding capitalization of Protocall consists solely of 2,025 shares of
Protocall Series A Preferred Stock ("Protocall Preferred") and 9,775 shares of
Protocall Common Stock ("Protocall Common") (collectively "Protocall Stock").
1.7. Conversion of Shares. As of the Effective Time of the Merger, by
--------------------
virtue of the Merger and without any action on the part of the holder of any
share of Protocall Stock, or on the part of the holder of any share of common
stock of Sub ("Sub Common Stock"), aggregate Exchange Consideration (as defined
below), which the parties hereto have agreed is worth $6,457,735, shall be
delivered to the Shareholders, and shall be paid out as follows:
(a) Each share of Protocall Preferred outstanding immediately
prior to the Effective Time of the Merger (excluding those shares of Protocall
Preferred held by Protocall as treasury shares or those held by Intek or its
subsidiaries, which shall cease to exist and be cancelled as of the Effective
Time of the Merger) shall be converted into (i) $466.61 (being
2
<PAGE>
$944,884 divided by 2,025), less the amount of applicable withholding taxes.
Such amount shall be payable by wire transfers in the aggregate amount of
$807,595.86 (being $944,884, less the sum of $137,288.14 previously delivered to
purchase the Option). Of such $807,595.86, $73,502.64 shall be placed in the
Escrow Agreement escrow. The Delay Payment allocable to the Protocall Preferred
($193.60 per day) shall be added to the amount of $807,595, as Exchange
Consideration, but shall not affect the Option amount or the amount placed in
escrow.
(b) Each share of Protocall Common outstanding immediately prior
to the Effective Time of the Merger (excluding those shares of Protocall Common
held by Protocall as treasury shares or those held by Intek or its subsidiaries,
which shall cease to exist and be cancelled) shall be converted into (i) 190.616
shares of Series B Convertible Preferred Stock of Intek ("Series B") which is
equal to 1,863,271 (subject to adjustment as provided in Section 1.7(d) divided
by 9,775 (9,775 being the outstanding number of shares of Protocall Common)),
plus (ii) $232.11 (being $2,268,896 divided by 9,775 [Number of shares of
Protocall Common]). Such amount shall be payable by wire transfer in the
aggregate amount of $1,606,184.20 (being $2,268,896 less the sum of $662,711.86
previously delivered to purchase the Option). Of such $1,606,184.20, $176,497.36
shall be placed in the Escrow Agreement escrow, and 144,000 shares of Series B
shall be placed into such escrow. The Delay Payment allocable to the Protocall
Common ($385.05 per day) shall be added to the amount of $1,606,184.20 as
Exchange Consideration, but shall not affect the Option amount or the amount
placed in the escrow.
(c) The amount to be so received (including amounts previously
delivered) per share of Protocall Stock is referred to as the "Exchange
Consideration." The Exchange Consideration relative to a share of Protocall
Stock is herein sometimes referred to as the "Conversion Ratio."
(d) Intek contemplates an investment by The Beacon Group III -
Focus Value Fund L.P. ("Beacon") in Intek. That investment contemplates certain
documents including the Shareholders Agreement and the registration rights
agreement which Beacon will enter into with Intek (the "Beacon Registration
Agreement"). Intek has delivered to the Shareholders Representative the
Shareholders Agreement, the Beacon Registration Agreement, the Registration
Rights Agreement, the Series B Stock Purchase Agreement, the registration rights
agreement, as amended, among Resource BancShares Corporation, Timothy C.
O'Crowley and Intek, the Intek Amended and Restated Certificate of
Incorporation, and the By-laws of Intek, related to the Beacon transaction.
Those documents provide for a Conversion Price of $1.741 per share with respect
to the conversion of the Series B to Intek common stock. If the actual initial
Conversion Price is more or less than $1.741 then the number of shares of Series
B issuable as the aggregate Exchange Consideration shall be adjusted to that
number which when multiplied by the actual Series B Conversion Price equals
$3,243,955.
(e) The cash to be delivered as part of the Exchange
Consideration (including amounts previously delivered) is in the aggregate
$3,213,780 and is referred to as the
3
<PAGE>
"Cash Consideration."
(f) Protocall and the Shareholders agree, and warrant to Intek,
that the value of the Exchange Consideration per share of Protocall Preferred is
appropriate relative to the value of the Exchange Consideration per share of
Protocall Common and that notwithstanding any provision of Protocall's governing
documents, including its Articles of Incorporation, or any agreement, no
Shareholder is entitled to any amount in respect of Protocall capital stock
except the Exchange Consideration to be received by him as provided herein.
(g) The $25,000 payment and $75,000 principal amount loan
previously made by Intek to Protocall is not a part of the Exchange
Consideration and does not reduce the Exchange Consideration, and such $75,000
principal amount loan will not be cancelled or forgiven as a result of the
Merger.
1.8. No Fractional Shares. Notwithstanding any other provision
--------------------
hereof, no fractional shares of Series B shall be issued to holders of Protocall
Stock. In lieu thereof, each holder of shares of Protocall Stock who is
entitled to a fraction of a share of Series B shall receive an amount of cash
equal to the conversion price of the Series B multiplied by the fraction of a
share of Series B to which such stockholder would be otherwise entitled. No
such holder shall be entitled to dividends, voting rights or any other right of
stockholders in respect of any fractional share.
1.9. Options and Warrants. Protocall as of Closing does not have
--------------------
options, warrants, convertible debt, convertible securities, or other rights
outstanding to acquire any Protocall Stock or other Protocall securities so no
provision is made in respect thereof. The Shareholders have issued the "Option"
(as defined in Section 1.19).
1.10. Adjustments. If between the date of this Agreement and the
-----------
Effective Time of the Merger the outstanding shares of Protocall Stock, Intek
Common Stock or Series B, shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares or if a stock dividend thereon shall be declared with a
record date within said period, or if for any other reason as of the Effective
Time of the Merger there are more then the above specified number of shares of
Protocall Stock outstanding, the Conversion Ratio shall be adjusted accordingly.
1.11. Stock Transfer Books. At the Effective Time of the Merger,
--------------------
the stock transfer books of Protocall shall be closed and no transfer of shares
of Protocall Stock outstanding immediately prior to the Effective Time of the
Merger shall thereafter be made. If certificates representing such shares are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Exchange Consideration as provided in Section 1.13.
1.12. Closing. The closing of the transactions contemplated by
-------
this Agreement
4
<PAGE>
(the "Closing") shall take place on the date the proceeds from Beacon of the
Series B financing are received, as required in Section 5.1.1., and 5.2.1. but
not later than twenty-one days after the date hereof. The Closing will take
place at Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado 80302, (303) 546-1300, or in New York, New York at the location of the
closing of the Series B transaction with Beacon, as designated by Intek not less
than three (3) days before the Closing, unless otherwise mutually agreed.
1.13. Issuance and Delivery of Exchange Consideration.
-----------------------------------------------
Immediately after the Effective Time of the Merger, Intek shall deliver to each
holder of shares of Protocall Stock converted into Exchange Consideration
pursuant to Section 1.7 hereof, upon surrender by such holder to Intek of one or
more certificates representing such shares for cancellation (except as to items
to be delivered to the escrow agent as provided in Section 1.15): (i) if
applicable, certificates representing the aggregate number of shares of Series B
into which such surrendered shares have been converted and (ii) a wire transfer
into such account as such Protocall Shareholder shall designate for the
aggregate unpaid Cash Consideration in respect of such Protocall shares and a
wire transfer in the amount, if any, payable pursuant to Section 1.8. in respect
of fractional shares. Subsequent to the Effective Time of the Merger, unless
and until an outstanding Protocall certificate is so surrendered, (i) no
dividends or distributions of any kind payable to the holders of record of
Series B or Intek Common Stock into which the Series B may be converted, shall
be paid by Intek to the holder of such an outstanding certificate representing
Protocall Stock, and (ii) no such holder shall have a right to receive such
dividends or distributions. Upon the surrender and exchange of such an
outstanding Protocall certificate, the holder shall be paid, without interest,
the amount of any dividends or distributions which theretofore became payable
with respect to the shares of Series B or Intek Common Stock, as applicable,
evidenced by such certificate.
1.14. Intek Stock. The Series B will be restricted stock subject
-----------
to certain restrictions on transfer including, without limitation, the
restrictions contained herein and in the Shareholders Agreement and in the
Registration Rights Agreement. The Series B to be issued will not have been
registered under the Securities Act of 1933, as amended, or qualified under
applicable Blue Sky laws.
1.15. Escrow. As security for the indemnity provisions of this
------
Agreement from Protocall and the Shareholders to Intek, $250,000 in cash and
144,000 shares of Series B representing a proportionate part of the Exchange
Consideration deliverable hereunder to each Shareholder shall be physically held
for thirteen (13) months after the Closing by Bank One, N.A., Denver, Colorado
as escrow agent, in escrow, but issued in the names of the Shareholders. The
parties specifically understand that this is not an "earn out" or similar
provision. The Escrow Agreement shall be in substantially the form of Exhibit
1.15. attached hereto.
1.16. Transaction Costs. The amount of all fees and costs of or
-----------------
related to the negotiation, structuring or documentation of the transactions
described herein, including all professional fees, finders fees, investment
banker fees and consultant fees, paid, incurred or
5
<PAGE>
accrued by Protocall ("Transaction Costs") through the Effective Time of the
Merger shall not exceed the following payments: (i) the tax and accounting fees
of Arthur Andersen LLP ("Arthur Andersen") (estimated unpaid cost at $20,000);
(ii) the consulting fees of John Steuart ($61,000); (iii) miscellaneous
reasonable travel costs and miscellaneous consulting fees (to other than John
Steuart) of up to $10,000 (coach class, standard hotel room); and (iv) fees and
expenses of Andrews & Kurth up to $50,000. All such billings are subject to the
review of Intek. Protocall shall pay all such expenses in any event. To the
extent any amount listed above is exceeded the aggregate Cash Consideration
shall be reduced in the amount of such excess. Persons who will enter into
employment agreements with Intek or Sub will pay the legal fees associated with
the negotiation by them of such agreements. Each Shareholder shall bear their
own costs of the transactions contemplated herein to avoid an imputed payment of
cash consideration affecting the partially tax-free reorganization treatment of
the Merger and the foregoing allocation is intended to reach such result.
Notwithstanding the foregoing, as to work requested by Intek of Arthur Andersen,
the parties acknowledge any actual audit of Protocall to prepare audited
financial statements is for the benefit of Intek and will be paid by Intek
regardless of whether the Closing occurs.
1.17 Second Round Financing Requirements. Beacon as a purchaser of
-----------------------------------
Intek securities requires execution and delivery of the Shareholders Agreement,
the Beacon Registration Agreement, the Registration Rights Agreement, and the
Amended and Restated Certificate of Incorporation of Intek (the "Series B
Documents").
1.18 Delay Payment. The "Delay Payment" is in the aggregate $578.65
-------------
for each day after February 4, 1997 up to and including the Closing Date, and
shall be allocated to each share of Protocall Stock in the same ratio as the
Cash portion of the Exchange Consideration is paid.
1.19 Option Sale. Contemporaneous with the execution of this
-----------
Agreement, Intek shall purchase from the Shareholders of Protocall for an
aggregate price of $800,000 an option (the "Option") to effect the Merger of
Protocall into Sub pursuant to the terms of this Agreement. Such consideration
is to be divided pro rata among the Shareholders of Protocall. Upon consummation
of the Merger, the purchase price of the Option shall be treated hereunder as a
portion of the aggregate Exchange Consideration. If the Merger is not
consummated pursuant to the terms of this Agreement prior to the date twenty-one
days following the date hereof, for any reason other than by an action or
omission by Protocall that directly leads to a material breach of this Agreement
by Protocall, the Option shall automatically expire as of such date, this
Agreement shall be terminated and the purchase price of the Option shall be
retained by the Shareholders of Protocall. If the Merger is not consummated
pursuant to the terms of this Agreement prior to the date twenty-one days
following the date hereof due solely to an action or omission by Protocall that
directly leads to a material breach of this Agreement by Protocall, then the
full purchase price of the Option shall be repaid immediately to Intek.
6
<PAGE>
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF PROTOCALL
-------------------------------------------
AND THE SHAREHOLDERS
--------------------
Protocall and the Shareholders (as limited by Article VII) (collectively
and singly, the "Representing Party") represent and warrant to Intek as follows
as of the date hereof, as of the Closing and as of the Effective Time of the
Merger.
2.1. Authorization Capitalization; Outstanding Shares. The authorized
------------------------------------------------
capital stock of Protocall on the date hereof consists of 100,000 shares of one
class of common stock without a stated par value per share, of which 9,775
shares are issued and outstanding, and 50,000 shares of Preferred Stock of which
25,000 are undesignated and 25,000 shares are designated as Series A Convertible
Preferred Stock without a stated par value per share, of which 2,025 shares of
Series A Convertible Preferred Stock are issued and outstanding. All of the
issued and outstanding shares of Protocall Stock are duly authorized, fully
paid, validly issued and non-assessable, with no personal liability attaching to
the ownership hereof. Each Shareholder is the record and beneficial owner of,
and has marketable, legal and valid title to, the shares of Protocall Stock as
set forth on Schedule 2.1 under the caption "Current Ownership." As of the
Closing and as of the Effective Time of the Merger each Shareholder is and will
be the beneficial owner of, and have marketable, legal and valid title to, the
Protocall Stock as set forth on Schedule 2.1. under the caption "Closing
Ownership."
2.2 Organization; Good Standing; Power; Etc.; Protocall Partnership.
---------------------------------------------------------------
Protocall: (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of California; (ii) is authorized or
licensed to do business as a foreign corporation and is in good standing in the
jurisdictions listed in Schedule 2.2; (iii) is not required to be authorized or
licensed to do business as a foreign corporation in any other jurisdiction
(within or without the United States) except jurisdictions in which Protocall's
failure to qualify to do business will have no Material adverse effect on the
business, prospects, operations, properties, assets or condition (financial or
otherwise) of Protocall or, if Protocall is not so qualified in any such
jurisdiction, it can become so qualified in such jurisdiction without any
Material adverse effect; and (iv) has the requisite power and authority to own,
lease and operate its properties and to carry on its business as currently
conducted.
Protocall was capitalized by a contribution of all the assets of a
general partnership (the "Partnership") known as "Protocall," the only partners
of which were Frank Richards and Tyce Fields. Frank Richards and Tyce Fields
will make a good faith effort to provide copies of the documents pursuant to
which that contribution occurred to Intek after the Closing. The Partnership
has been dissolved.
2.3 Agreements Relating to Stock; Options; Warrants; Restrictions on
----------------------------------------------------------------
Shares; Etc. Except for the Option, neither Protocall nor any Shareholder, is a
- ------------
party to any written or oral agreement, understanding, arrangement or commitment
or bound by any certificate of
7
<PAGE>
incorporation, bylaw or instrument (including options, warrants or convertible
securities) which creates any rights in any person with respect to shares of the
capital stock or any other securities of Protocall including any which relates
to the voting of, restricts the transfer of, requires Protocall or the
Shareholder to issue or sell, or creates rights in any person with respect to
the capital stock or other securities of Protocall (or warrants or rights with
respect thereto). Except for the Option, there exist no options or other rights
to purchase, or rights to convert any securities or obligations into, any shares
of the capital stock or other securities of Protocall.
2.4. Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Protocall's corporate charter or articles, as amended to date
("Charter"), certified by the appropriate officials of the jurisdiction of
incorporation; and (ii) Protocall's Bylaws, as amended to date ("Bylaws"), are
attached as Schedule 2.4.A. Such Charter and Bylaws are fully in force and
effect, and Protocall is not in violation of any of the provisions thereof. A
complete and correct list of all officers and directors of Protocall is set
forth in Schedule 2.4.B.
2.5. No Subsidiaries. Protocall does not own and Protocall has never
---------------
owned, any interest, directly or indirectly, in any other corporation, person,
company, limited liability company, business, trust, partnership, limited
partnership, joint venture, or other entity or association, except as listed on
Schedule 2.5.
2.6. Authorizations and Enforceability. Each Shareholder and
---------------------------------
Protocall has all requisite power and authority to execute, deliver and perform
this Agreement, and any ancillary agreements hereto, and to consummate the
transactions contemplated hereby. This Agreement and the Documents have been
duly and validly authorized by Protocall, and have been duly and validly
executed and delivered by each Shareholder and Protocall and constitute the
valid and binding obligation of each Shareholder and Protocall fully enforceable
in accordance with their respective terms, except as may be limited by
principles of public policy and except as indemnification provisions may be
limited by securities laws, and subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
2.7. Effect of Agreement, Etc.. The execution, delivery and
-------------------------
performance of this Agreement by each Shareholder and Protocall and the
consummation of the transactions contemplated hereby will not, with or without
the giving of notice of the lapse of time, or both: (i) violate any provision of
law, statute, rule or regulation to which Protocall or any Shareholder is
subject; (ii) violate any judgment, order, writ or decree of any court,
arbitrator or governmental agency applicable to Protocall or any Shareholder;
(iii) have any effect on any of Protocall's permits, licenses, tariffs, orders
or approvals or the ability of Protocall to make use of such permits, licenses,
tariffs, orders or approvals, except as set forth in Schedule 2.7.A.; or (iv)
result in the breach of or conflict with any term, covenant, condition or
provision of, result in the modification or termination of, constitute a default
under, or result in the creation or imposition of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of Protocall pursuant
to any charter, bylaw, commitment, contract or other agreement or instrument,
8
<PAGE>
including any of the Commitments (as defined in Section 2.16) to which Protocall
is a party or by which any of its assets or properties are or may be bound or
affected or from which Protocall derives benefit except as set forth in Schedule
2.7.B.
2.8. Restrictions; Burdensome Agreements. Neither Protocall nor any
-----------------------------------
of the Shareholders is a party to any contract, commitment or agreement, and
neither Protocall nor any of the Shareholders or any of their respective
properties and assets are subject to or bound or affected, by any charter, bylaw
or other corporate restriction, or any order, judgment, decree, law, statute,
ordinance, rule, regulation or other restriction of any kind or character, which
would: (i) prevent any Shareholder or Protocall from entering into this
Agreement or from consummating the transactions contemplated hereby; or (ii)
have a Material adverse effect on the business, properties, prospects or the
condition, financial or otherwise, of Protocall. Protocall has no Knowledge
that any of Protocall's contracts or agreements are on terms more burdensome to
Protocall than typical contracts and agreements in its industry for companies
the size and scope of Protocall.
2.9. Government Consents. No consent, authorization or approval of,
-------------------
or exemption by, or filing with, any governmental, public or self-regulating
body or authority (including, but not limited to, any licensing authority with
jurisdiction over the telecommunication services used or provided by Protocall)
is required by any Shareholder or Protocall for consummation of this Agreement
or any of the instruments or agreements herein referred to, or the taking of any
action herein contemplated.
2.10. Compliance; Licenses and Permits.
--------------------------------
2.10.1 Protocall has all requisite corporate power and
authority, and all permits, licenses, tariffs, orders and approvals of
governmental and administrative authorities which are Material, to own,
lease and operate its properties and to carry on its business as presently
or previously conducted; all such presently existing permits, licenses,
tariffs, orders and approvals Material to the conduct of the business of
Protocall are listed in Schedule 2.10, are in full force and effect, and no
suspension or cancellation of any of them is pending or, to the Knowledge
of Protocall, threatened.
2.10.2 Protocall has complied in all respects with, and is not
in violation in any respect of, all or any Legal Requirements applicable to
the business of Protocall as presently or previously conducted, or as
currently proposed to be conducted, except where such non-compliance or
violation has not had, and could not reasonably be expected to have, a
Material adverse effect upon Protocall. Protocall (including to
Protocall's Knowledge all applicable employees) has all Federal, state,
local and foreign governmental tariffs, orders, licenses and permits
(collectively, "Permits") which are required for the conduct of its
business presently or previously conducted by Protocall, which Permits are
in full force and effect, and no violations are outstanding or uncured with
respect to any such Permits and no proceeding is pending or, to the
Knowledge of
9
<PAGE>
Protocall, threatened to revoke or limit any thereof. No condition or
event has occurred which, with notice or the passage of time or both, would
constitute a violation of a Legal Requirement or Permit except where such
noncompliance or violation has not had, and could not reasonably be
expected to have, a Material adverse effect upon Protocall. "Legal
Requirement" means any applicable law, rule, regulation, order or
ordinance. To the Knowledge of Protocall its proposed activities will not
violate any Legal Requirement proposed to be adopted, in such a fashion as
to have a Material adverse effect on Protocall.
2.11. Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
2.11.1. Protocall's unaudited balance sheets dated as of July
31, 1995, July 31, 1996 and November 30, 1996, and Protocall's unaudited
statements of operations for the fiscal year ended July 31, 1996 and four-
month period ended November 30, 1996 (the "Protocall Financial Statements")
are attached as Schedule 2.11.1 The Protocall Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") (except for the absence of notes, or in the case of the statements
for the period ended November 30, 1996, normal year end adjustments). The
Protocall Financial Statements fairly present, in all Material respects,
the financial condition and results of operations of Protocall as of the
dates indicated. The November 30, 1996 balance sheet is referred to as the
"Balance Sheet" and November 30, 1996 is referred to as the "Balance Sheet
Date."
2.11.2. Except to the extent reflected or reserved against or
otherwise disclosed in the Protocall Financial Statements, in another
Schedule hereto as cross-referenced in Schedule 2.11.2, or in Schedule
2.11.2, as of the Balance Sheet Date, Protocall had no liabilities, debts
or other obligations of any nature, whether absolute, accrued, contingent
or otherwise, or whether due or to become due, including, without
limitation, liabilities for Taxes, in excess of $15,000 in any one case or
which in the aggregate are Material. Subsequent to the Balance Sheet Date,
Protocall has not incurred any liabilities, debts or obligations other than
in the ordinary course of business (and such ordinary course items do not
in the aggregate exceed $100,000), except as listed in Schedule 2.11.2, or
otherwise disclosed herein including the payables run described below or in
the Schedules hereto, and has endeavored to properly record in its books of
account all items of income and expense and all other proper charges and
accruals required to be made in accordance with GAAP. Since the Balance
Sheet Date, no debts or liabilities of or to Protocall have been forgiven,
settled or compromised, except for full consideration or except in the
ordinary course of business. To assist in disclosing the status of its
debts Protocall has delivered to Intek an accounts payable run off
Protocall's computer, as prepared in the ordinary course of Protocall's
business, which run occurred not more than five (5) days before the date of
this Agreement. The parties recognize that in the ordinary course of
business invoices arrive at various times.
10
<PAGE>
2.12. Tax Matters.
-----------
2.12.1. Protocall's fiscal year for income tax reporting
purposes ends July 31.
2.12.2. Protocall has timely filed (including extension) all
Tax returns that are required to have been filed by it with appropriate
federal, state, county and local government agencies or instrumentalities,
that would have a Material adverse effect if not filed, except as provided
in Schedule 2.12.2.A. Protocall has paid or established reserves for all
income, franchise, payroll and other Taxes except as set forth in Schedule
2.12.2.B. An estimate of accrued Taxes is set forth in Schedule 2.12.B.
There is no pending dispute with any Taxing authority relating to any of
Protocall's Returns. Protocall has no Knowledge of any proposed Material
liability for any Tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Protocall Financial
Statements or accrued since the date of the Protocall Financial Statements.
No federal or state income or sales Tax Returns of Protocall have been
audited. Neither Protocall nor the Partnership have executed or filed with
any Taxing authority any agreement extending the period for assessment or
collection of any Taxes. Protocall has not consented to have the provisions
of Section 341(f) (which relates to collapsible corporations) of the
Internal Revenue Code of 1986, as amended (the "Code") apply to it.
Complete and correct copies of the income tax returns of Protocall and the
Partnership for fiscal years ending in 1993, 1994, 1995, and 1996 as filed
with the Internal Revenue Service and all state taxing authorities,
together with all related correspondence and notices, have previously been
delivered to Intek.
2.12.3. Protocall has never been taxed pursuant to Subchapter S
of the Code.
2.13. Title to Properties; Absence of Liens and Encumbrances; Etc..
------------------------------------------------------------
Except as disclosed on Schedule 2.13 Protocall does not own any real property.
Except as set forth in Schedule 2.13, Protocall owns good and marketable title
to the properties and assets used in its business (including, without
limitation, the assets reflected in the Protocall Financial Statements, except
as since sold or otherwise disposed of in the ordinary course of business), free
and clear of all mortgages, security interests, claims, liens, charges,
encumbrances, restrictions on use or transfer or other defects in title. The
fixed assets of Protocall reflected in the Protocall Financial Statements are
all located on real property owned or leased by Protocall and all personal
property located at or on such real property is owned or leased (as disclosed in
the Schedules) by Protocall. Protocall is not a bailee for any other entity,
except as set forth on Schedule 2.13. The leases and other agreements under
which Protocall holds, leases or is entitled to the use of any real property or
personal property involving lease payments of over $25,000 per year, are set
forth in Scheduled 2.16, and are in full force and effect, and all rentals,
royalties or other payments payable thereunder prior to the date hereof have
been duly paid. All "buy-out" prices under operating or capital leases are shown
on Schedule 2.16 if such payout price is in excess of
11
<PAGE>
$25,000 under any one lease, regardless as to whether the lessee has any
obligation to purchase such property.
2.14. Facilities; Equipment and Condition. Schedule 2.14 sets forth
-----------------------------------
a correct and complete list of all of the furniture, fixtures or equipment
having a book value, before accumulated depreciation or amortization, of more
than $25,000 (or, in the case of any such equipment which is leased and does not
have a book value for purposes of Protocall's financial statements, in the
opinion of Protocall management has a fair market value in excess of $25,000),
buildings, plants, warehouses and other real estate owned or used by Protocall
in the conduct of its businesses ("Fixed Assets"), indicating whether such
property is owned or leased, and complete legal descriptions of all real
property. The Fixed Assets owned, operated or leased by Protocall are in good
condition and repair (ordinary wear and tear excepted) and suitable for the uses
for which intended. All such Fixed Assets are operated in conformity with all
applicable laws, ordinances, regulations, orders and other requirements relating
thereto currently in effect, scheduled to come into effect or, to the Knowledge
of Protocall, proposed.
2.15. Insurance. Schedule 2.15.A. consists of declaration pages
---------
(including amounts, scope and coverage) of all of the policies of insurance and
fidelity or surety bonds carried by Protocall since January 1, 1993. All
current policies are in full effect. Protocall has not failed to give any
notice or present any claim under any insurance policy, fidelity bond or surety
bond in due and timely fashion. To Protocall's Knowledge there are no
outstanding requirements or recommendations by any insurance company that issued
a policy with respect to any of the properties and assets owned or leased by
Protocall, by any Board of Fire Underwriters or other body exercising similar
functions or by any governmental authority requiring or recommending any repairs
or other work to be done on or with respect to any of the properties and assets
owned or leased by Protocall or requiring or recommending any equipment or
facilities to be installed on or in connection with any of the properties or
assets owned or leased by Protocall. The workmen's compensation and
unemployment insurance ratings of Protocall have been made available to Intek.
Protocall has no Knowledge of any proposed increase therein and knows of no
conditions or circumstances applicable to the business of Protocall which might
result in such increase except as shown on Schedule 2.15.B.
2.16 Contracts. All contracts, agreements and instruments, to which
---------
Protocall is a party are valid, binding and in full force and effect in all
Material respects, and are valid, binding and enforceable by Protocall in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. Neither Protocall nor to Protocall's Knowledge any other
party to such contract is in default in any Material respect under such
contracts, agreements or instruments. Each of such Material contracts,
agreements and instruments has been listed on Schedule 2.16 attached hereto.
Except as set forth in Schedule 2.16, or another Schedule hereto,
Protocall is not a party to, nor are its properties and assets bound or affected
by, any oral or written:
12
<PAGE>
2.16.1. contracts, agreements, or instruments providing for
payments by or to Protocall of $50,000 or more per year;
2.16.2. employment or consulting agreements which provide for
compensation at the rate of more than $50,000 per year (including all
salary, bonuses and commissions);
2.16.3. employment or consultant policies or agreements, express
or implied, placing any limits (other than a notice period not exceeding 30
days) on Protocall's right to terminate at will the employment or retention
of any employee or consultant;
2.16.4. agreement involving more than $10,000 guaranteeing,
indemnifying or otherwise becoming liable for the obligations or
liabilities of another, or involving more than $10,000 providing
compensating balances or agreeing to assure another person meets any
financial covenant;
2.16.5. agreement which restricts the conduct of business
anywhere in the world;
Correct and complete copies of all such agreements, plans, policies, documents
and arrangements (or, where they are oral, true and complete written summaries
thereof) (collectively referred to herein as the "Commitments") have been
delivered to Intek prior to the date hereof.
2.17 Litigation. Except as set forth in Schedule 2.17, there is no
----------
claim, action, suit, proceeding, arbitration, investigation or inquiry pending
before any Federal, state, municipal, foreign or other court or any
governmental, administrative or self-regulatory body or agency, or any private
arbitration tribunal, (or, to Protocall's Knowledge, is there any threatened, or
basis for, any such claim, action, suit, proceeding, arbitration, investigation
or inquiry) which may have any Material adverse effect upon the assets,
properties or business of Protocall or the transactions contemplated by this
Agreement. Neither Protocall, the Partnership, nor any officer, director,
partner, agent or employee of Protocall or the Partnership has been permanently
or temporarily enjoined or barred by order, judgment or decree of any court or
other tribunal or any agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with the business engaged in by
Protocall or the Partnership. Except as set forth in Schedule 2.17, there is
not in existence at present any order, judgment or decree of any court or other
tribunal or any agency or self-regulatory body to which Protocall, the
Partnership, or the business, properties or assets of Protocall are subject or
by which they are bound. Protocall is not in Material default under any order,
license, tariff, regulation or demand of any Federal, state, municipal, foreign
or other governmental, administrative or self-regulatory body or with respect to
any order, writ, injunction or decree of any court or arbitration body.
13
<PAGE>
2.18 Patents and Other Intangible Assets.
-----------------------------------
a) Protocall, to the best of its Knowledge, except as set forth in
Schedule 2.18, (i) owns or has the right to use, free and clear of all
liens, claims and restrictions, all patents, trademarks, service marks,
trade names, copyrights, license and rights, used in the conduct of its
business as now conducted or as proposed to be conducted without infringing
upon or otherwise acting adversely to the right or claimed right of any
person under or with respect to any of the foregoing, and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trademark, tradename, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise Protocall has not received any
communication alleging that, and has no Knowledge of any allegation that,
Protocall or any of its employees has violated or infringed upon, or, by
conducting Protocall's business as proposed, would violate or infringe
upon, any patent, trademark, service mark, trade name, copyright, license
or right of any other person or entity. All patents, trademarks, service
marks, tradenames, copyrights and licenses (and applications therefor)
owned or used by Protocall are listed on Schedule 2.18 hereto, and such
schedule indicates which such rights are owned.
b) To its Knowledge, Protocall owns or has the unrestricted right to
use all trade secrets, including know-how, inventions, designs, processes,
computer programs and technical data required for or incident to the
development, manufacture, operation and sale of all products and services
sold or proposed to be sold by Protocall, free and clear of any rights,
liens or claims of others, including without limitation former employers of
all employees of Protocall.
c) Protocall has no Knowledge of any infringement by others of
intellectual property rights owned or used by Protocall.
2.19 No Interest in Competitors; Etc. Except as set forth in
-------------------------------
Schedule 2.19, no five percent (5%) or more beneficial owner, officer or
director of Protocall or any immediate family member or spouse of any such
person, or trust for their benefit, directly or indirectly, owns any interest in
(excluding the ownership of securities representing less than 1% of any class of
publicly traded securities) or controls or is an employee, officer, director or
partner of, or participant in or consultant to, any corporation, partnership,
limited liability company, limited partnership, joint venture, association or
other entity which is in the same line of business as Protocall, or a creditor,
debtor, supplier, customer, landlord, tenant, lessor or lessee, of Protocall, or
has any type of business, commercial, consulting or professional relationship
with Protocall.
2.20 Books and Records. The books and records of Protocall are
-----------------
located at 396 Earhart Way, Livermore, California. The books of account and
other financial and corporate records of Protocall are in all Material respects
complete and correct, and are maintained in accordance with good business
practices, as could reasonably be expected for a company the size
14
<PAGE>
and scope of Protocall (provided, however, that this representation does not
diminish the representations in Section 2.11). The minute books of Protocall, as
made available to Intek and its counsel, contain complete and accurate records
of all meetings and accurately reflect all other corporate action of the
stockholders and directors (and committees thereof) of Protocall through the
date hereof.
2.21 Insider Transactions. Schedule 2.21 (when read with Schedule
--------------------
2.19) sets forth: (i) the amounts and other essential terms of indebtedness or
other obligations, liabilities or commitments (contingent or otherwise) of
Protocall to or from any past or present officer, director, or stockholder or
any person related to, controlling, controlled by or under common control with
any of the foregoing (other than for usual services performed within the past
two months, the payment for which is not yet due); and (ii) all proposed
transactions with such persons, together with the essential terms thereof if the
amount payable thereunder will exceed $5,000 in any year.
2.22 Employees. Since January 1, 1996, there has been no resignation
---------
or termination of any officer or key employee of Protocall that has had or is
expected to have a Material adverse effect on Protocall. Protocall has no
Knowledge of any key employee or consultant of Protocall who is considering: (i)
terminating her or his employment or consultant status; or (ii) seeking a
substantial increase in compensation or benefit.
2.23 Union Contracts; Labor Relations; Etc. Protocall is not
-------------------------------------
presently, and has not been, party to any union or collective bargaining
agreement. Protocall is in compliance in all material respects with all
applicable laws, rules and regulations respecting employment conditions and
practices, has withheld all amounts required by law or agreement to be withheld
from the wages or salaries of its employees and Protocall is not liable for
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing. Protocall has not engaged in any unfair labor practice, nor has
Protocall discriminated on the basis of race, religion, age or sex, or other
protected category in its employment conditions or practices, nor has Protocall
taken any Material adverse action against any employee or consultant in breach
of any agreement or policy, express or implied, oral or written, nor taken any
Material adverse action against any employee or consultant in violation of
public policy. Except as set forth in Schedule 2.23 or in another Schedule to
this Agreement, there are no: (i) charges or complaints of unfair labor
practices, race, religion, age, sex or other discrimination, breach of
employment or consultant agreement or policy, or breach of public policy pending
or threatened against Protocall before any board, department, commission, agency
or court, nor does any basis therefor exist; (ii) existing or, to Protocall's
Knowledge, threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting Protocall; or (iii) pending or, to Protocall's
Knowledge, threatened union representation questions respecting the employees of
Protocall. Schedule 2.23 describes all labor strikes, disputes, grievances,
controversies or other labor troubles since January 1, 1995 which have affected
Protocall.
2.24 Employee Benefit Plans; Etc. Except as listed on Schedule 2.24,
---------------------------
15
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Protocall has and has not had, any employee benefit plan, stock option plan,
stock appreciation plan, stock purchase plan, profit sharing plan, or retirement
or deferred compensation plan (collectively "Plans"). Protocall has no
liability (contingent or otherwise) to any other person (including a Plan trust
or Plan) in respect of any profit sharing, retirement, deferred compensation or
other employee benefit plan that is maintained, sponsored or contributed to by
another person.
2.25 Bank Accounts and Safe Deposit Arrangements. Schedule 2.25 sets
-------------------------------------------
forth a correct and complete list of each bank account, brokerage account,
similar account and safe deposit box maintained by Protocall, and the names of
all persons authorized to deal with such matters.
2.26 Powers of Attorney. No person has any power of attorney to act
------------------
on behalf of Protocall in connection with any of the properties or business
affairs of Protocall.
2.27 No Finder. Except as provided for in Section 1.16, neither
---------
Protocall nor the Shareholders has taken any action which would give to any
person a right to a consultant's or finder's fee or any type of brokerage
commission in relation to or in connection with the transactions contemplated by
this Agreement.
2.28 No Material Adverse Change. Except as set forth in Schedule
--------------------------
2.28 since the Protocall Balance Sheet Date:
a) Protocall has not entered into any transaction which was not in
the ordinary course of its business except as contemplated or disclosed by
this Agreement.
b) There has been no Material adverse change as to Protocall other
than changes in the ordinary course of its business, none of which,
individually or in the aggregate, has a Material adverse effect.
c) There has been no damage to, destruction of or loss of physical
property (whether or not covered by insurance) that has had a Material
adverse effect on the business or operations of Protocall.
d) There has been no resignation or termination of employment of any
officer or key employee of Protocall, and Protocall does not know of the
impending resignation or termination of employment of any officer or
employee of Protocall that would have a Material adverse effect on the
business of Protocall.
e) There have been no loans or advances made by Protocall to
employees, officers or directors.
f) Protocall has not made or granted any employee bonus, or any
general or
16
<PAGE>
specific wage or salary increase outside the ordinary course of business
(and in any event less than 5%), engaged any new officer, or engaged any
new employee outside the ordinary course of business;
g) Protocall has not made any increase in or commitment to increase
any employee benefits or adopted or made any commitments to adopt any
additional employee benefit plan;
h) Protocall has not declared or paid any distribution to its
shareholders, whether in the nature of dividends or otherwise, or purchased
or redeemed any of its outstanding shares of capital stock or other
securities, or paid any debt for borrowed money to any Shareholder or any
affiliate of a Shareholder; and
i) Protocall has not issued or sold any shares of its capital stock
or any other securities, or granted any options or other rights for the
purchase of any shares of its capital stock or other securities.
2.29 Questionnaires. To the Knowledge of Protocall, Protocall has
--------------
made a good faith effort to respond to the Confidential Document and Information
Request bearing a date of October 12, 1996 delivered by Intek to Protocall in
October 1996.
2.30 Investment Representations. Each Shareholder individually
--------------------------
represents and warrants to Intek that:
2.30.1 he is acquiring the Series B, if applicable, for his own
account for investment, not for the interest of any other person, not for
resale to any other person and not with a view to or in connection with a
sale or distribution;
2.30.2 he has provided the information requested in written due
diligence requests to the Shareholder related to the Shareholder, provided
by Intek, and that such information provided by such Shareholder is true
and correct in all respects;
2.30.3 the Shareholders' Representative (as defined below), on
behalf of Shareholder, has had an opportunity to ask questions of and
receive answers from representatives of Intek with respect to the
acquisition of the Series B. Intek has made available to the Shareholder's
Representative all documents requested and has provided answers to all such
persons' questions relating to receipt of the Series B including the Intek
Financial Statements (as defined in Section 3.7);
2.30.4 he acknowledges that because the Series B, and the Intek
Common Stock received on conversion of the Series B, will not have been
registered under the Securities Act of 1933, as amended, or applicable
state securities laws, any resale inconsistent with the Securities Act of
1933, as amended, may create liability on the
17
<PAGE>
Shareholder's part and/or the part of Intek, and agrees not to assign,
sell, pledge, transfer or otherwise dispose of or transfer any of the
shares of Intek stock unless registered under the Securities Act and
applicable state securities laws or he has delivered an opinion of counsel
satisfactory to Intek that such registration is not required.
2.30.5 he is able to bear the economic risk of an investment in
the Series B and by reason of his business or financial experience or the
business or financial experience of his professional advisors who are
unaffiliated with and who are not compensated by Intek, directly or
indirectly, have the capacity to protect his own interests in connection
with the transactions contemplated hereby.
2.30.6 he acknowledges that all certificates of Series B or
other Intek securities issued pursuant hereto, shall contain substantially
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY
MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE
UNLESS (I) A REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT IS IN EFFECT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO, AND ARE SUBJECT TO AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
INTEK INFORMATION, INC. AND PROTOCALL NEW BUSINESS SPECIALISTS, INC. DATED
__________, A COPY OF WHICH IS AVAILABLE AT THE OFFICES OF THE ISSUER.
[LEGENDS REQUIRED BY STATE LAW]
[SUCH LEGENDS AS REQUIRED TO BE PLACED ON THE SERIES B CERTIFICATES
PURSUANT TO THE SERIES B DOCUMENTS.]
2.30.7 his state of residence and mailing address is as shown on
Schedule 2.30.7.
2.31 Suppliers and Customers. Except as set forth in Schedule 2.31.A.
-----------------------
there are no Material agreements of over 12 months duration which commit
Protocall to carry on business at fixed prices or prices determined by an
established formula. Except as set forth in Schedule 2.31.B. no supplier or
customer accounted for more than five percent of Protocall's
18
<PAGE>
consolidated sales or purchases in either the past fiscal year or in the four
month period ended November 30, 1996, and no supplier or customer Material to
Protocall's business has terminated its relationship with Protocall, or has
since January 1, 1996 decreased or delayed Materially, or, to Protocall's
Knowledge, threatened to decrease or delay Materially, its services or supplies
to Protocall.
2.32 Factoring. The factored accounts receivable of Protocall do not
---------
appear as assets of Protocall on the Protocall Financial Statements. All
factoring agreements to which Protocall is a party can be terminated without
penalty or termination fee to Protocall. Protocall as of the date hereof and in
the aggregate through the Closing has not received notice from the factor that
it intends on or after the date hereof to return more than $30,000 of factored
accounts to Protocall.
2.33 Frank Richards. Frank Richards separately represents and
--------------
warrants that no disclosure would be required concerning him pursuant to Item
401(f) of Regulation S-K promulgated under the Securities Act of 1933, as amend
(the "Securities Act"), if such disclosure were made on the date hereof, at the
Closing Date or at the Effective Time of the Merger.
2.34 NASD Matters. Shareholders' acquisition of Series B or the
------------
presence of Frank Richards on the Board of Intek would not, to each
Shareholders' and Protocall's Knowledge without inquiry, cause the U.S.
Securities and Exchange Commission ("SEC"), National Association of Securities
Dealers, Inc., or any state securities commission, to seek, or provide any basis
for any such body to seek, to deny, modify, terminate or fail to renew any
license, permit or accreditation necessary to operate the business of Intek or
its subsidiaries.
2.35 Securities Act, etc. Neither Protocall, nor its respective
-------------------
officers, directors, or to Protocall's Knowledge and belief without inquiry,
controlling persons (a) have been convicted within the ten years preceding the
date of this Agreement of any felony or misdemeanor of the types described in
Rule 262 (b)(1) under the Securities Act, (b) are subject to an order, judgment
or decree of the types described in Rule 262(b)(2) under the Securities Act, (c)
are subject to an order of the SEC of the types described in Rule 262(b)(3)
under the Securities Act, (d) have been suspended or expelled from, or suspended
or barred from association with a member of, a national securities exchange or
as described in Rule 262(b)(4) under the Securities Act or (e) are subject to an
order or injunction as described in Rule 262(b)(5) under the Securities Act.
2.36 Lawyers and Accountants. Protocall and the Shareholders are not
-----------------------
relying upon any investigation made by Intek's counsel or accountants or the
presence of such counsel or accountants as an indication that counsel or the
accountants has reviewed or passed upon the representations, warranties,
projections or business plan of Intek or the wisdom of an investment in Intek.
19
<PAGE>
2.37 Accounting Controls. To the Knowledge of Protocall, neither
-------------------
Protocall, nor any director, officer, agent, employee, consultant or other
person associated with or acting on behalf of any Protocall, has (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity or (b) made any direct or
indirect unlawful payments to government officials or others from corporate
funds or established or maintained any unlawful or unrecorded funds.
2.38 Essex, Iowa Matters. Other than the Farmer's dispute as set
-------------------
forth in Schedule 2.11.5., all claims of any type which may be asserted against
Protocall related to the closing of the Essex, Iowa facility, including as to
employees, development authorities and governmental bodies, have been paid and
discharged in full.
2.39 Names. Since January 1, 1991, neither Protocall nor the
-----
Partnership have used any trade name, d/b/a, or other name to identify itself,
except Protocall New Business Specialists, Inc. or Protocall.
2.40 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by any Representing Party in this Agreement, or any Document,
exhibit, statement, certificate or schedule furnished to Intek by a Representing
Party pursuant hereto, or in connection with the transactions contemplated
hereby, to such Representing Party's Knowledge, contain any untrue statement of
a Material fact, or omit to state any Material fact necessary to make the
statements or facts contained herein or therein in the context in which they
were made not misleading. Any forecasts or projections delivered by or on
behalf of Protocall are not guarantees or representations as to performance.
2.41 Other. Protocall has delivered to Intek Certificates of the
-----
Secretary of State (or other authorized officer) of the State of California
certifying as of a date within 30 days before the delivery that Protocall is, as
of such date, in good standing and authorized to transact business as a domestic
corporation. Protocall has delivered to Intek Certificates of the Secretary of
State (or other authorized officer) of each jurisdiction in which Protocall is
qualified to do business as a foreign corporation, certifying as of a date
within 30 days before the delivery that Protocall is, as of such date, in good
standing and authorized to transact business as a foreign corporation in such
jurisdiction. Protocall has delivered the written resignations, effective on
the Effective Date of the Merger, of all officers and members of the Board of
Directors of Protocall except those persons to remain as directors or officers,
as applicable, hereunder. The approvals and all consents from third parties and
governmental agencies (including under Blue Sky laws) required by Protocall, or
a Shareholder (other than approvals or consents required by Protocall the
absence of which would not have a Material adverse effect on the ability of
Intek or Protocall to operate their respective business after the Effective Time
of the Merger) required to consummate the transactions contemplated hereby and
any additional regulatory consents have been obtained. The Protocall Incentive
Plan never went into effect. No Shareholder or other holder of securities of
Protocall has exercised dissenting shareholder or similar rights.
20
<PAGE>
2.42 Protocall Shareholder Meetings. Protocall has held its
------------------------------
shareholders meeting to approve the matters herein and has received the
unanimous written consent of its shareholders.
2.43 Certificates. Shareholders have delivered to Chrisman, Bynum &
------------
Johnson, P.C. as escrow agent, for delivery to Intek upon Closing distribution
of the escrow, certificates and other instruments representing all shares of
Protocall, duly endorsed for transfer or accompanied by appropriate stock powers
(in either case executed in blank or in favor of Intek), together with all other
documents necessary or appropriate to validly transfer the shares to Intek free
and clear of all security interests, liens, encumbrances and adverse claims.
2.44 Tax Opinion. Intek has received from Andrews & Kurth, LLP,
-----------
counsel to Protocall, an opinion dated the date hereof in the form attached
hereto as Exhibit 2.44 that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
2.45 Employment Agreements. Protocall and the Shareholders have
---------------------
approved the existing employment and consulting agreements with Steve J.
Darnell, Michael E. Ford, Thomas M. Rocca, John Steuart and Craig Barton in such
a manner as to avoid the application of Section 280G of the Code, if such
approval is required to avoid the application of such Section.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF INTEK
---------------------------------------
Intek represents and warrants to Protocall and the Shareholders as follows
as of the date hereof, as of the Closing and as of the Effective Time of the
Merger:
3.1 Organization; Good Standing; Power; Etc. Intek (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) is authorized or licensed to do business as a
foreign corporation and is in good standing in the jurisdictions listed in
Schedule 3.1; (iii) is not required to be authorized or licensed to do business
as a foreign corporation in any other jurisdiction (within or without the United
States) except jurisdictions in which Intek's failure to qualify to do business
will have no Material adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of Intek or, if Intek
is not so qualified in any such jurisdiction, it can become so qualified in such
jurisdiction without any Material adverse effect; and (iv) has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as currently conducted.
3.2 Restrictions; Burdensome Agreements. Intek is not a party to any
-----------------------------------
contract, commitment or agreement, and its properties and assets are not subject
to or bound or affected, by any charter, bylaw or other corporate restriction,
or any order, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character, which would: (i)
21
<PAGE>
prevent Intek from entering into this Agreement or from consummating the
transactions contemplated hereby; or (ii) have a Material adverse effect on the
business, properties, prospects or the condition, financial or otherwise, of
Intek. Intek has no Knowledge that any of Intek's contracts or agreements are on
terms more burdensome to Intek than typical contracts and agreements in its
industry for companies the size and scope of Intek.
3.3. Subsidiaries. Intek does not own and Intek has never owned, any
------------
interest, directly or indirectly, in any other corporation, person, company,
limited liability company, business, trust, partnership, limited partnership,
joint venture, or other entity or association, except Brokerage Administrators
Corporation.
3.4 Capitalization; Outstanding Shares. The authorized capital stock
----------------------------------
of Intek consists solely of 45,000,000 shares of Common Stock, of which
7,428,571 shares are or will be issued and outstanding immediately prior to the
Closing and 2,000,000 shares of outstanding Preferred Stock, (i) 20,000 of which
are designated as Series A Preferred Stock, 20,000 of which are issued and
outstanding, and 5,000 of which are expected to be repurchased and cancelled by
Intek in connection with Beacon's investment in Intek. In addition, it is
anticipated that (i) approximately 9,615,738 shares of Series B will be issued
to Beacon and 287,191 to Bain & Co., Inc. and 287,191 to Squam Lake Investors
II, L.P. and up to 478,856 shares of Series B will be issued to other investors
on or prior to April 1, 1997. The outstanding shares of capital stock have been
duly authorized and validly issued, and are fully paid and nonassessable. As of
the Closing Intek shall have reserved all Series B for issuance hereunder and
sufficient Intek Common Stock to cover the conversion of Series B. A complete
and accurate schedule listing (i) all stockholders of Intek and the number of
shares held by each such stockholder, and (ii) all outstanding options and
warrants and any other obligation of Intek convertible into capital stock of
Intek, are set forth as Schedule 3.4 hereto and Schedule 3.4 will be updated as
of the Closing by an officer's certificate of the Company. Except as set forth
in (i) Schedule 3.4, (ii) the Intek Certificate of Incorporation, as amended;
(iii) the Stockholders Agreement dated August 2, 1996 with Resource BancShares
Corporation (which will be superseded in its entirety by the Shareholders
Agreement), (iv) the Shareholders Agreement, and (v) anticipated options
issuable under Intek stock option plans and warrants for an aggregate of up to
4,972,206 shares of Intek Common Stock (including options to be issued to
Protocall employees as provided herein), there are no options, warrants or other
rights to purchase any of Intek's authorized and unissued capital stock and,
further, there are no preemptive rights or rights of first refusal with respect
to Intek's capital stock or other contracts or agreements which, through anti-
dilution protection or otherwise, obligate Intek to issue its capital stock.
3.5 Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Intek's corporate charter or articles, as amended to date
("Intek Charter"), certified by the appropriate officials of the jurisdiction of
incorporation; and (ii) Intek's Bylaws, as amended to date ("Intek Bylaws"), are
attached as Schedule 3.5.A. Such Charter and Bylaws are fully in force and
effect, and Intek is not in violation of any of the provisions thereof. A
complete and correct list of all officers and directors of Intek is set forth in
Schedule 3.5.B.
22
<PAGE>
3.6 Authorization. All corporate action on the part of Intek, its
-------------
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Documents by Intek, the authorization,
sale, issuance and delivery of the Series B and the performance of all of
Intek's obligations hereunder and thereunder, has been taken. This Agreement
constitutes, and the Documents constitute, valid and binding obligations of
Intek, enforceable in accordance with their respective terms, except as may be
limited by principles of public policy and except as indemnification provisions
may be limited by securities laws, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Series B and the underlying shares of Intek Common Stock issuable upon
conversion of the Series B, when issued in compliance with the provisions of
this Agreement at their respective times of issuance, (i) will be validly
issued, fully paid and nonassessable, will be free of any liens or encumbrances,
and will not be subject to any restrictions on transfer (except for those set
forth in the Shareholders Agreement, the Registration Rights Agreement, herein,
or in another Document), provided, however, that such shares may be subject to
restrictions on transfer under the state and/or federal securities laws as set
forth herein, and (ii) are not and will not be subject to any preemptive rights
or rights of first refusal except for those in the Shareholders Agreement.
3.7 Financial Statements. Intek's unaudited pro forma estimated
--------------------
balance sheet reflecting the transactions contemplated herein and the Beacon
investment (the "Intek Financial Statements") is attached as Schedule 3.7. The
Intek Financial Statements are pro forma, but are complete and correct in all
Material respects and have been prepared in accordance with generally accepted
accounting principles (except for the absence of notes or normal year end
adjustments). The Intek Financial Statements fairly presents, in all Material
respects, the financial condition of Intek as of the date indicated and the
effect of the merger of Intek Information, Inc., a Colorado corporation ("Intek
Colorado") with and into Intek.
3.8 No Material Adverse Change. Since November 30, 1996 (the "Intek
--------------------------
Reference Date"):
a) Intek has not entered into any transaction which was not in the
ordinary course of its business except as contemplated or disclosed by this
Agreement.
b) There has been no Material adverse change as to Intek other than
changes in the ordinary course of its business, none of which, individually
or in the aggregate, has a Material adverse effect.
c) There has been no damage to, destruction of or loss of physical
property (whether or not covered by insurance) that has had a Material
adverse effect on the business or operations of Intek.
d) There has been no resignation or termination of employment of any
officer
23
<PAGE>
or key employee of Intek, and Intek does not know of the impending
resignation or termination of employment of any officer or employee of
Intek that would have a Material adverse effect on the business of Intek.
e) There have been no loans or advances made by Intek to employees,
officers or directors.
3.9 Title to Properties; Absence of Liens and Encumbrances; Etc..
------------------------------------------------------------
Intek does not own any real property other than certain leasehold improvements
in multi-tenant buildings. Except as set forth in Schedule 3.9, Intek owns good
and marketable title to the properties and assets used in its business
(including, without limitation, the Intek assets reflected in the Intek
Financial Statements, except as since sold or otherwise disposed of in the
ordinary course of business), free and clear of all mortgages, security
interests, claims, liens, charges, encumbrances, restrictions on use or transfer
or other defects in title. The fixed assets of Intek reflected in the Intek
Financial Statements are all located on real property owned or leased by Intek
or an Intek subsidiary and all personal property located at or on such real
property is owned or leased by Intek or an Intek subsidiary. Intek is not a
bailee for any other entity, except as set forth on Schedule 3.9. The leases
and other agreements or instruments under which Protocall holds, leases or is
entitled to the use of any real property or personal property are in full force
and effect, and all rentals, royalties or other payments payable thereunder
prior to the date hereof have been duly paid.
3.10 Material Liabilities. Except as described in the Intek Financial
--------------------
Statements, herein, or a Schedule hereto, and other than the loan of $800,000
from The Beacon Group or its affiliate, Intek as of the Effective Time of the
Merger, on a pro forma basis, does not have any obligations or liabilities
(whether accrued, absolute or contingent) other than obligations or liabilities
incurred in the ordinary course of business since the Intek Reference Date, in
excess of $15,000 in any one case or which is Material. Pursuant to the
Agreement and Plan of Merger dated as of August 2, 1996 with Intek Colorado,
Intek has assumed certain liabilities and obligations of that company all of
which are set forth in the representations and warranties herein, and the
representations and warranties made by Intek in this Agreement reflect the
merger of Intek Colorado with and into Intek.
3.11 Patents and Other Intangible Assets.
-----------------------------------
(a) Intek to the best of its Knowledge (i) owns or has the right to
use, free and clear of all liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights,
used in the conduct of its business as now conducted or as proposed to be
conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person under or with respect to any of the
foregoing, and (ii) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to, any patent, trademark, tradename,
copyright or other intangible asset, with
24
<PAGE>
respect to the use thereof or in connection with the conduct of its
business or otherwise, except for the Eden Debt as defined in Schedule
3.12. Intek has not received any communication alleging that, and has no
Knowledge of any allegation that, Intek or any of its employees has
violated or infringed upon or, by conducting Intek's business as proposed,
would violate or infringe upon, any patent, trademark, service mark, trade
name, copyright, license or right of any other person or entity provided,
however, that because of the existence of a company named Intec Information
Systems, Intek has qualified to do business in California under the name
Delaware Intek Information, Inc. All patents, trademarks, service marks,
tradenames, copyrights and licenses (and applications therefor) owned or
used by Intek are listed on Schedule 3.11 hereto and such Schedule
indicates which such rights are owned.
(b) To its Knowledge, Intek owns or has the unrestricted right to use
all trade secrets, including know-how, inventions, designs, processes,
computer programs and technical data required for or incident to the
development, manufacture, operation and sale of all products and services
sold or proposed to be sold by Intek, free and clear of any rights, liens
or claims of others, including without limitation former employers of all
employees of Intek.
(c) Intek has no Knowledge of any infringement by others of
intellectual property rights owned or used by Intek.
3.12 Material Contracts. All contracts, agreements and instruments to
------------------
which Intek is a party are valid, binding and in full force and effect in all
Material respects, and are valid, binding and enforceable by Intek in accordance
with their respective terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Neither
Intek nor to Intek's Knowledge any other party to such contracts, agreements or
instruments is in default in any Material respect under such contracts,
agreements or instruments, except as listed on Schedule 3.12. Each of such
Material contracts, agreements and instruments has been listed on Schedule 3.12
attached hereto.
3.13 Compliance with Other Instruments, None Burdensome, Etc. Intek
--------------------------------------------------------
is not in violation of any Material term or provision of the Intek Charter or
Intek Bylaws, or any Material mortgage, indebtedness, indenture, contract,
agreement, instrument, judgment or decree, and to its Knowledge is not in
violation of any order, statute, rule or regulation applicable to Intek. The
execution, delivery and performance of and compliance with this Agreement and
the Documents, and the issuance of the Series B, have not resulted and will not
result in any violation of, or conflict with, or constitute a default under, any
of the terms of the Intek Charter or Intek Bylaws or any corporate restriction
or of any indenture, mortgage, deed of trust, pledge, bank loan or credit
agreement, or any instrument, document or agreement by which Intek or its
properties may be bound or affected, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of
Intek.
25
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3.14 Litigation, Etc. Except as set forth in Schedule 3.14, there is
----------------
no claim, action, suit, proceeding, arbitration, investigation or inquiry
pending before any Federal, state, municipal, foreign or other court or any
governmental, administrative or self-regulatory body or agency, or any private
arbitration tribunal, (or to Intek's Knowledge is there any threat, or basis
for, any such claim, action, suit, proceeding arbitration, investigation or
inquiry), which may have any Material adverse effect upon the assets, properties
or business of Intek or the transactions contemplated by this Agreement.
Neither Intek nor any officer, director, partner, agent or employee of Intek has
been permanently or temporarily enjoined or barred by order, judgment or decree
of any court or other tribunal or any agency or self-regulatory body from
engaging in or continuing any conduct or practice in connection with the
business engaged in by Intek. There is not in existence at present any order,
judgment or decree of any court or other tribunal or any agency or self-
regulatory body to which Intek or the business, properties or assets, of Intek
are subject or by which they are bound. Intek is not in Material default under
any order, license, tariff, regulation or demand of any Federal, state,
municipal, foreign or other governmental, administrative or self-regulatory body
or with respect to any order, writ, injunction or decree of any court or
arbitration body.
3.15 Employees. Intek has no Knowledge of any key employee or
---------
consultant of Intek who is considering: (i) terminating her or his employment or
consultant status; or (ii) seeking a substantial increase in compensation or
benefit.
3.16 Accounting Controls. To the Knowledge of Intek, neither Intek,
-------------------
nor any director, officer, agent, employee, consultant or other person
associated with or acting on behalf of Intek, has (a) used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity or (b) made any direct or indirect unlawful
payments to government officials or others from corporate funds or established
or maintained any unlawful or unrecorded funds.
3.17 Registration Rights. Except as set forth in the registration
-------------------
rights agreement with Resource and Timothy O'Crowley, the Registration Rights
Agreement and the Beacon Registration Agreement, Intek is not under any
obligation to register any of its presently outstanding securities or any of its
securities that may hereafter be issued.
3.18 Governmental Consents. No consent, approval or authorization of,
---------------------
or exemption by, or filing with any governmental, public or self regulatory body
or authority is required by Intek for the consummation of this Agreement or any
of the instruments or agreements referred to, or the taking of any action,
herein contemplated, except for the qualification (or taking such action as may
be necessary to secure an exemption from qualification, if available) of the
offer and sale of the Series B, and Intek Common Stock issuable upon conversion
thereof under applicable Blue Sky laws or SEC rules and regulations, which
filings and qualifications, if required, will be accomplished by Intek in a
timely manner prior to or within ten (10) days after the Closing.
26
<PAGE>
3.19 Intek Transactions with its Officers, Directors, or Shareholders;
-----------------------------------------------------------------
Interest in Competitors. Except as set forth in Schedule 3.19, Intek is not
- -----------------------
indebted, either directly or indirectly, to any of its officers, directors or
shareholders or to their respective spouses or children, in any amount
whatsoever, other than for payment of salary for services rendered and
reasonable employee expenses. Except as set forth in Schedule 3.19, none of
Intek's officers, directors, or shareholders or any members of their immediate
families is indebted to Intek. Except as set forth in Schedule 3.19, no five
percent (5%) or more beneficial owner, officer or director of Intek or any
immediate family member or spouse of any such person, or trust for their
benefit, directly or indirectly, owns any interest in (excluding the ownership
of securities representing less than 1% of any class of publicly traded
securities) or controls or is an employee, officer, director or partner of, or
participant in or consultant to, any corporation, partnership, limited liability
company, limited partnership, joint venture, association or other entity which
is in the same line of business as Intek, or a creditor, debtor, supplier,
customer, landlord, tenant, lessor or lessee, of Intek, or has any type of
business, commercial, consulting or professional relationship with Intek. Intek
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation, but does provide indemnification to certain of its and its
subsidiaries' officers, directors, agents and employees.
3.20 Intek Tax Matters.
-----------------
3.20.1. Intek's fiscal year for income tax reporting purposes
ends December 31.
3.20.2. Intek has timely filed (including extension) all Tax
Returns that are required to have been filed by it with appropriate
federal, state, county and local government agencies or instrumentalities,
that would have a Material adverse effect if not filed, except as provided
in Schedule 3.20. Intek has paid or established reserves for all income,
franchise, payroll and other Taxes except as set forth in Schedule 3.20.
There is no pending dispute with any Taxing authority relating to any of
Intek's Returns. Intek has no Knowledge of any proposed Material liability
for any Tax to be imposed upon its properties or assets for which there is
not an adequate reserve reflected in the Intek Financial Statements or
accrued since the date of the Intek Financial Statements. No federal or
state income or sales Tax Returns of Intek have been audited. An estimate
of accrued Taxes is set forth in Schedule 3.20. Intek has not executed or
filed with any Taxing authority any agreement extending the period for
assessment or collection of any Taxes. Intek has not consented to have the
provisions of Section 341(f) (which relates to collapsible corporations) of
the Code apply to it.
3.20.3. Intek has never been taxed pursuant to Subchapter S of
the Code.
3.21 Offering. Subject to the accuracy of Protocall's and the
--------
Shareholders' representations in ARTICLE II hereof, the offer, sale and issuance
of the Series B and the issuance of the Intek Common Stock issuable upon
conversion thereof constitute transactions
27
<PAGE>
exempt from the registration requirements of Section 5 of the Securities Act and
applicable Blue Sky laws. Neither Intek nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
3.22 Brokers or Finders. Intek has not incurred, and will not incur,
------------------
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
3.23 Compliance; Licenses and Permits.
--------------------------------
3.23.1 Intek has all requisite corporate power and authority,
and all permits, licenses, tariffs, orders and approvals of governmental
and administrative authorities which are Material, to own, lease and
operate its properties and to carry on its business as presently or
previously conducted; all such presently existing permits, licenses,
tariffs, orders and approvals Material to the conduct of the business of
Intek are listed in Schedule 3.23.1, are in full force and effect, and no
suspension or cancellation of any of them is pending or, to the Knowledge
of Intek, threatened.
3.23.2 Intek has complied in all respects with, and is not in
violation in any respect of, all or any Legal Requirements applicable to
the business of Intek as presently or previously conducted, or as currently
proposed to be conducted except where such non-compliance or violation has
not had, and could not reasonably be expected to have, a Material adverse
effect upon Intek. Intek (including to Intek's Knowledge all applicable
employees) has all Permits which are required for the conduct of its
business presently or previously conducted by Intek, which Permits are in
full force and effect, and no violations are outstanding or uncured with
respect to any such Permits and no proceeding is pending or, to the
Knowledge of Intek, threatened to revoke or limit any thereof. No
condition or event has occurred which, with notice or the passage of time
or both, would constitute a violation of a Legal Requirement or Permit
except where such noncompliance or violation has not had, and could not
reasonably be expected to have, a Material adverse effect upon Intek.
Intek's subsidiary, Brokerage Administrators Corporation, will be or is
licensed pursuant to requirements of the SEC to conduct certain of its
activities. To the Knowledge of Intek its proposed activities will not
violate any Legal Requirement proposed to be adopted, in such a fashion as
to have a Material adverse effect on Protocall.
3.24 Minute Books. The copy of the minute books of Intek provided to
------------
Protocall contains complete and accurate minutes of all meetings of
incorporators, directors and stockholders (and all actions by written consent
without a meeting in lieu thereof) as to Intek and any predecessor entities and
accurately reflect all corporate actions by directors (and committees thereof)
and stockholders with respect to the transactions referred to in such minutes.
3.25 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by
28
<PAGE>
Intek in this Agreement, or any Document, exhibit, statement, certificate or
schedule furnished by Intek to a Shareholder or Protocall pursuant hereto, or in
connection with the transactions contemplated hereby, to Intek's Knowledge
contain any untrue statement of a Material fact, or omit to state any Material
fact necessary to make the statements or facts contained herein or therein in
the context in which they were made not misleading. Any forecasts or projections
delivered by or on behalf of Intek are not guarantees or representations as to
performance.
3.26 Lawyers and Accountants. Intek is not relying upon any
-----------------------
investigation made by Protocall's counsel or accountants or the presence of such
counsel or accountants as an indication counsel or the accountants has reviewed
or passed upon the representations, warranties, projections or business plan of
Protocall or the wisdom of an investment in Protocall.
3.27 Intek Employee Benefit Plans; Etc.. Except as listed on
----------------------------------
Schedule 3.27 Intek has, and has not had, any Plan. Intek has no liability to
any other person (including a Plan trust or Plan, but excluding in respect of
Intek subsidiaries) in respect of any Plan which is Plan of any other person.
3.28 Effect of Agreement, Etc.. The execution, delivery and
-------------------------
performance of this Agreement by Intek and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice of the lapse
of time, or both: (i) violate any provision of law, statute, rule or regulation
to which Intek is subject; (ii) violate any judgment, order, writ or decree of
any court, arbitrator or governmental agency applicable to Intek; (iii) have any
effect on any of Intek's permits, licenses, tariffs, orders or approvals or the
ability of Intek to make use of such permits, licenses, tariffs, orders or
approvals, except as set forth in Schedule 3.28; or (iv) result in the breach of
or conflict with any term, covenant, condition or provision of, result in the
modification or termination of, constitute a default under, or result in the
creation or imposition of, any lien, security interest, charge or encumbrance
upon any of the properties or assets of Intek pursuant to any charter, bylaw,
commitment, contract or other agreement or instrument to which Intek is a party
or by which any of its assets or properties are or may be bound or affected or
from which Intek derives benefit.
3.29. Facilities; Equipment and Condition. All of the material
-----------------------------------
furniture, fixtures or equipment, buildings, plants, warehouses and other real
estate owned or used by Protocall in the conduct of its businesses are referred
to as the "Intek Fixed Assets". The Material Intek Fixed Assets owned, operated
or leased by Intek are in good condition and repair (ordinary wear and tear
excepted) and suitable for the uses for which intended. All Material Intek
Fixed Assets are operated in conformity with all applicable laws (including the
Americans With Disabilities Act), ordinances, regulations, orders and other
requirements relating thereto currently in effect, scheduled to come into effect
or, to the Knowledge of Intek, are proposed. All real estate used by Intek is
supplied with adequate utilities and access, and Intek has no Knowledge such
situation will change.
3.30. Insurance. Schedule 3.30 consists of declaration pages
---------
(including
29
<PAGE>
amounts, scope and coverage) of all of the policies of insurance and fidelity or
surety bonds carried by Intek since January 1, 1993. All current policies are in
full effect. Intek has not failed to give any notice or present any claim under
any insurance policy, fidelity bond or surety bond in due and timely fashion. To
Intek's Knowledge there are no outstanding requirements or recommendations by
any insurance company that issued a policy with respect to any of the properties
and assets owned or leased by Intek, by any Board of Fire Underwriters or other
body exercising similar functions or by any governmental authority requiring or
recommending any repairs or other work to be done on or with respect to any of
the properties and assets owned or leased by Intek or requiring or recommending
any equipment or facilities to be installed on or in connection with any of the
properties or assets owned or leased by Intek. The workmen's compensation and
unemployment insurance ratings of Intek have been made available to Protocall.
Intek has no Knowledge of any proposed increase therein and knows of no
conditions or circumstances applicable to the business of Intek which might
result in such increase.
3.31 Insider Transactions. Schedule 3.31 (when read with Schedule
--------------------
3.19) sets forth: (i) the amounts and other essential terms of indebtedness or
other obligations, liabilities or commitments (contingent or otherwise) of Intek
to or from any past or present officer, director, or stockholder or any person
related to, controlling, controlled by or under common control with any of the
foregoing (other than for usual services performed within the past two months,
the payment for which is not yet due); and (ii) all proposed transactions with
such persons, together with the essential terms thereof if the amount payable
thereunder will exceed $5,000 in any year.
3.32 Questionnaires. To the Knowledge of Intek, Intek has fully
--------------
responded to the Information Request bearing a date of January 17, 1997
delivered by Intek to Protocall in January, 1997.
3.33 Other. Intek has delivered to Protocall Certificates of the
-----
Secretary of State (or other authorized officer) of the State of Delaware
certifying as of a date within 30 days before delivery Date that Intek is, as of
such date, in good standing and authorized to transact business as a domestic
corporation. Intek has delivered to Protocall Certificates of the Secretary of
State (or other authorized officer) of each jurisdiction in which Intek is
qualified to do business as a foreign corporation certifying as of a date within
30 days before delivery that Intek is, as of such date, in good standing and
authorized to transact business as a foreign corporation in such jurisdiction.
The approvals and all consents from third parties and governmental agencies
(including under Blue Sky laws) required by Intek (other than approvals or
consents required by Intek the absence of which would not have a Material
adverse effect on the ability of Intek or Protocall to operate their respective
business after the Effective Time of the Merger) required to consummate the
transactions contemplated hereby and any additional regulatory consents have
been obtained. Provided, however, that a post-Closing filing is required
pursuant to the California Blue Sky Laws.
3.34 Intek Shareholder Meeting. Intek has held its stockholders'
-------------------------
meeting to approve the matters contemplated herein and has received the
unanimous written consent of its
30
<PAGE>
stockholders.
3.35 Stock Certificates. Intek has delivered to Chrisman, Bynum &
------------------
Johnson, P.C., as escrow agent, for delivery to the Shareholder Representative
upon Closing distribution under the escrow, for deliver on to the Shareholders,
certificates and other instruments representing the Exchange Consideration
(other than cash, and other than the Exchange Consideration to be delivered to
the escrow agent), free and clear of all security interests, liens, encumbrances
and adverse claims other than those created hereunder or described herein.
3.36 Tax Opinion. Protocall has received from Chrisman, Bynum &
-----------
Johnson, P.C., counsel to Intek, an opinion dated the Closing date in the form
attached hereto as Exhibit 3.3.6. that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
ARTICLE IV
----------
OTHER COVENANTS AND AGREEMENT
-----------------------------
Protocall, Shareholders and Intek covenant that from the date of this
Agreement until the Effective Time of the Merger (and continuing after the
Closing as to the parties named in and covenants contained in Sections 4.3, 4.6,
4.8, 4.19, 4.21, 4.22, 4.26, 4.27, 4.28 4.30 and 4.31):
4.1 Access to Information.
---------------------
Intek and its counsel, accountants, and other representatives shall
have full access during normal business hours to all properties, employees,
documents, books and records relating to the operation of the business of
Protocall. Protocall and the Shareholders shall furnish to Intek and its
representatives all data and information concerning operations of the businesses
that may reasonably be requested. Intek will give Protocall and the
Shareholders reasonable notice of times it wishes to review documents or
otherwise conduct its due diligence and attempt to minimize any disruption
caused by such matters.
Protocall, through Frank Richards, and its counsel and accountants,
shall have full access during normal business hours to all properties,
employees, documents, books and records relating to the operation of the
business of Intek. Intek shall furnish to Protocall, through Frank Richards,
its counsel and accountants, all data and information concerning operations of
the businesses that may reasonably be requested. Protocall will give Intek
reasonable notice of times it wishes to review documents or otherwise conduct
its due diligence and attempt to minimize any disruption caused by such matters.
4.2 Business Relationships. Protocall shall use all reasonable
----------------------
efforts to preserve present relationships with suppliers, customers, employees,
vendors, and others having relationships with the businesses of Protocall.
Protocall will conduct its operations and business
31
<PAGE>
only in the normal course of business consistent with past practices and in
compliance with all applicable laws, statutes, rules, regulations, ordinances
and orders.
4.3 Delivery of Records. As soon as practicable after Closing, but
-------------------
no later than ten (10) days, Protocall will cause to be delivered to Intek all
books, records, stock transfer ledgers, unissued stock certificates, minutes of
shareholders and directors meetings, certificates of authority to conduct
business in all other jurisdictions, tax records and all other documents, files,
notes, and records of Protocall.
4.4 No Shop. Between the date of this Agreement and Closing, none of
-------
the Shareholders, nor Protocall, nor any of their respective agents shall,
directly or indirectly, (a) solicit offers, inquiries or proposals, or entertain
any offer, inquiry or proposal, to enter into any transaction that has as a
purpose a business combination, a financing transaction of any type, a
transaction comparable to or similar to the transaction with Intek, a sale of
all or any part of Protocall's stock or assets, or a public offering or private
placement of securities of Protocall (any of the foregoing, a "Competing
Transaction"), (b) provide information to any other person regarding a Competing
Transaction (except in the ordinary course of business) or (c) enter into any
discussions or negotiations, or enter into any agreement, arrangement or
understanding, regarding a Competing Transaction. Protocall and the
Shareholders shall promptly notify Intek if it receives any offers, inquiries or
proposals regarding a Competing Transaction and the details thereof, and keep
Intek informed with respect thereto. Protocall and the Shareholders shall
provide Intek with any written copies of such offers, inquiries or proposals.
Notwithstanding the foregoing Protocall may (i) negotiate for and acquire up to
$200,000 of capital leases without equity components; (ii) obtain lease
financing for Protocall's new EIS system valued at $379,780; and (iii) factor
accounts receivable to finance working capital needs in the regular course of
business. Intek and Protocall will discuss the terms and business
appropriateness of the capital leases. Intek will either consent to those
leases or provide the capital lease or debt funding on similar terms.
4.5 Employment and Option Agreements. Sub on the one hand, and Tom
--------------------------------
Rocca, Steve Darnell and Mike Ford on the other, have executed and delivered
employment agreements attached as Exhibit 4.5. Frank Richards and Tyce Fields
on the one hand and Intek on the other have executed and delivered employment
agreements attached as Exhibit 4.5. Intek on the one hand, and Frank Richards,
Tom Rocca, Steve Darnell, Tyce Fields and Mike Ford on the other, have executed
and delivered stock option agreements attached as Exhibit 4.5. Such agreements
shall become effective only at the Effective Time of the Merger. Such stock
options grant options to acquire an aggregate of (i) 200,000 shares of Intek
Common Stock plus (ii) an aggregate of 1,189,206 shares of Intek Common Stock
less (iii) 94,206 shares which are reserved for future issuances to Sub
employees.
4.6 Shareholder Representative. Each Shareholder confirms the
--------------------------
effectiveness of the appointment of Frank Richards as the "Shareholder
Representative" as that term is used herein.
32
<PAGE>
4.7 Amendments. Protocall agrees not to amend, revoke or suspend any
----------
provision in its charter or Bylaws except as requested by Intek in connection
herewith.
4.8 Resignations and Closing Date Boards. The Shareholders and
------------------------------------
Protocall have caused the resignation of all necessary officers and directors,
and the election of officers and directors, so that immediately after the
Effective Time of the Merger the Board of Directors and officers of Protocall
may be as contemplated in Section 1.5.
4.9 Signature Cards. Protocall shall prepare new signature cards for
---------------
each bank, depository, savings, brokerage or similar account, of Protocall,
effective as of the Effective Time of the Merger.
4.10 Shareholders Agreement; Registration Rights Agreement; Affiliate
----------------------------------------------------------------
Letter. Each Shareholder who will receive Series B has executed and delivered
- ------
the Shareholders Agreement, and the Registration Rights Agreement; and each
Shareholder has executed and delivered an Affiliate Letter and Certificate Re:
Tax Free Reorganization attached hereto as Exhibit 4.10., to Intek, Chrisman,
Bynum & Johnson P.C. and Andrews & Kurth, L.L.P.
4.11 Audit. Arthur Andersen shall have the full and complete
-----
cooperation of Protocall and its advisors and accountants, including access to
accountant's work papers, to continue working on Protocall matters requested by
Intek. All costs and fees of Arthur Andersen for such work shall be paid by
Intek. The parties recognized Arthur Andersen also provides accounting services
directly to Protocall.
4.12 Additional Financial Statements. Between the date hereof and the
-------------------------------
Effective Time of the Merger Protocall shall deliver to Intek the December 31,
1996 reconciled bank statement, check register, accounts receivable aging report
and accounts payable aging reports of Protocall, prepared in the ordinary course
of business, but in no event shall any such monthly statements be delivered
later than fifty (50) days after the end of the applicable period.
4.13 Satisfaction of Conditions. The parties hereto each shall use
--------------------------
their best efforts to satisfy any conditions of Closing set forth herein or in
any other document.
4.14 Tax Elections - Post Closing Change. No new elections with
-----------------------------------
respect to taxes or any changes in current elections with respect to taxes
affecting Protocall shall be made after the date of this Agreement and prior to
the Effective Time of the Merger without the prior written consent of Intek.
After the Effective Time of the Merger the fiscal year and tax year of Protocall
may be changed to be the same as Intek's.
4.15 Mutual Notification. Protocall and each Shareholder shall give
-------------------
prompt notice to Intek of the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty by it contained herein to be untrue or inaccurate in any Material
respect at any time from the date hereof to the Effective Time of the
33
<PAGE>
Merger. Without limitation Protocall shall inform Intek of (i) the loss of any
service contract, (ii) the hiring of any new employee at $50,000 or more per
year, or (iii) any loans or acquisitions of a new liability in excess of
$25,000. Intek shall give prompt notice to Protocall of the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty by it contained herein to be untrue or
inaccurate in any Material respect any time from the date hereof to the
Effective Time of the Merger.
4.16, 4.17, 4.18 Intentionally Left Blank.
------------------------
4.19 Confidentiality. The existing Confidentiality Agreement between
---------------
Protocall and Intek shall remain in effect up to the Effective Time of the
Merger. Each Shareholder and Protocall hereby agrees to maintain the
confidentiality of all proprietary or trade secret information of Intek provided
to the Shareholder and Protocall and to promptly return such information if the
Merger does not occur. A Shareholder may share such information on a
confidential basis with the Shareholder's financial and legal advisors. Intek
hereby agrees to maintain the confidentiality of all proprietary or trade secret
information of Protocall provided to Intek and to promptly return such
information, in each case if the Merger does not occur. Intek may share such
information on a confidential basis with Intek's financial and legal advisors,
Beacon and Bain & Co.
4.20 Intentionally Left Blank.
------------------------
4.21 Covenant Not to Compete; Confidentiality.
----------------------------------------
a. Covenant. In exchange for $3,250 of the Cash Consideration
--------
provided by Intek in the form of the Exchange Consideration and the
entering into of this Agreement, and in order to protect the trade secrets
of the Subject Company (as defined below), each Shareholder severally, not
jointly, hereby agrees with Intek that such Shareholder shall not compete
directly or indirectly with a Subject Company in the business of (i)
inbound or outbound telemarketing or teleservicing; or (ii) outsourced
teleservicing (the "Business"), during the Non-Compete Period (as defined
below). The parties agree that they shall not during such period make
public statements in derogation of each other, except as may be required by
law. For the purposes of this Section, the term "Subject Company" shall
mean Intek and any direct or indirect subsidiaries, parents and affiliates
of Intek. Competing directly or indirectly with the Subject Company shall
mean (a) either (i) engaging or (ii) having a material interest, directly
or indirectly, as owner, employee, officer, director, partner, venturer,
stockholder, capital investor, consultant, agent, principal, advisor or
otherwise, either alone or in association with others, in the operation of
any individual or entity engaged in (b) the Business within the continental
United States, including the California counties which would appear here if
each county in California was listed here. Competing directly or
indirectly with the Subject Company, as used in this Agreement, shall be
deemed not to include an ownership interest as an inactive investor, which
for purposes of this Section shall mean
34
<PAGE>
the beneficial ownership of less than one percent of the outstanding shares
of any series or class of securities of any competitor of the Subject
Company, which shares are publicly traded in the securities markets.
Shareholder agrees that the outsourced teleservicing business and inbound
and outbound telemarketing business is inherently nationwide in scope.
Shareholder acknowledges that he has had contacts with employees and/or
customers of Protocall. Accordingly, Shareholder covenants and agrees that
during the term of the Non-Compete Period, he will not (i) solicit or hire
any of the employees of a Subject Company who were employed by a Subject
Company at or within one month before the Closing, (ii) interfere with the
relationship of the Subject Company with any such employees or (iii)
personally target or solicit, or assist another to target or solicit,
customers of Protocall for activities related to the Business.
b. Remedies. Shareholder acknowledges and agrees that his
--------
obligations provided herein are necessary and reasonable in order to
protect the Subject Companies and their respective businesses, and
Shareholder expressly agrees that monetary damages may be inadequate to
compensate a Subject Company for any breach by Shareholder of his covenants
and agreements set forth herein. Accordingly, Shareholder agrees and
acknowledges that, in addition to any other remedies that may be available,
in law, in equity or otherwise, a Subject Company, and any successor or
assign thereof, shall be entitled to obtain specific performance of this
Covenant.
c. Term. The term of the Covenant Not to Compete set forth
----
herein (the "Non-Compete Period") shall begin on the Closing Date and end
on December 31, 1999. Notwithstanding the foregoing provisions of this
Section 4.21, the Covenant Not to Compete may be reduced in scope,
geographic area or time as to a particular Shareholder pursuant to the
written employment agreements that have been attached as Exhibit 4.5. This
provision does not prohibit any Subject Company and any other person from
entering into any other covenant not to compete or other agreement with
different provisions.
d. Confidential Information. Shareholder acknowledges and
------------------------
agrees that Intek and Protocall are actively doing business throughout the
State of California and in other areas of the United States and as an
officer, director and/or shareholder of Protocall Shareholder gained access
to certain "Confidential Information" (as defined below) of Protocall, and
in the future may gain additional Confidential Information of the Subject
Companies. For the purpose of this Agreement, "Confidential Information"
shall mean (x) information regarding the business of the Subject Companies
which is not generally known and which gives such entity an advantage over
competitors who do not know or use it, including but not limited to the
Subject Companies' plans for their own future products or developments and
(y) confidential information concerning third persons (including employees)
which is not generally known; but excluding (i) information which
35
<PAGE>
is, or was at the time it was disclosed, generally or readily obtainable by
the public or the trade, (ii) information which is publicly known or
becomes known, through no fault or activity of Shareholder, (iii)
information disclosed pursuant to the requirement of a court,
administrative agency, or other governmental body, or (iv) information
which is disclosed pursuant to applicable law, rule or regulation.
Shareholder agrees at all times to regard and preserve as confidential such
Confidential Information, and to refrain from publishing or disclosing any
part of it and from using, copying or duplicating it in any way or by any
means whatsoever. Shareholder agrees to return any Confidential Information
to Intek upon Intek's request.
e. Severability. Should any one or more of the provisions of
------------
this Section 4.21 be determined to be illegal or unenforceable, then such
illegal or unenforceable provision shall be modified by the proper court or
arbitrator to the extent necessary and possible to make such provision
enforceable, and such modified provision and all other provisions of this
Section and of each other agreement entered into pursuant to this Section
shall be given effect separately from the provision or portion thereof
determined to be illegal or unenforceable and shall not be affected
thereby. If any of the provisions of Section 4.21 relating to the scope,
periods or geographic area of restriction shall be deemed to exceed the
maximum scope, periods of time or geographic area which a court of
competent jurisdiction would deem enforceable, the scope, times and
geographic area shall, for the purposes of Section 4.21, be deemed to be
the maximum scope, time periods and geographic area which a court of
competent jurisdiction would deem valid and enforceable in any state in
which such court of competent jurisdiction shall be convened. The
invalidity or unenforceability of any such provision in one jurisdiction
shall not affect its validity or enforceability in another jurisdiction.
4.22 Guaranty. After the Effective Time of the Merger Intek shall
--------
make a good faith effort to obtain the release of Frank Richards and Tyce Fields
from their possible guarantees of obligations of Protocall listed on Schedule
4.22. "Good faith effort" does not include pledging assets not previously
pledged to secure the guaranteed obligation or agreeing to a modification in the
financial terms of the obligation. Intek will indemnify Frank Richards and Tyce
Fields for claims on such guarantees of the obligations listed in Schedule 4.22.
4.23 Customer Contact. Between the date hereof and the Effective Time
----------------
of the Merger Protocall and Intek may contact customers of Protocall. That
contact will be done in a coordinated and appropriate fashion and with
Protocall's participation.
4.24 No Transfer. No Shareholder will transfer any securities of
-----------
Protocall between the date hereof and the Effective Time of the Merger.
4.25 Frank Richards Director. At the Effective Time of the Merger
-----------------------
Frank Richards shall be appointed as a director of Intek to fill a vacancy on
the Board of Directors of Intek.
36
<PAGE>
4.26 Governmental Filings. If any filings are required under Federal,
--------------------
California or other securities laws for the Merger or the delivery of the
Exchange Consideration, the parties will cooperate in such filings.
4.27 Good Faith. The parties will act in good faith in connection
----------
with the matters described herein.
4.28 Tax Free Transaction. The parties hereto: intend that the
--------------------
Merger shall be treated as a tax-free reorganization under the Code to the
extent the Exchange Consideration is Series B; shall report the Merger as such
for federal and state Tax purposes; and shall take no action before or after the
Effective Time to adversely affect the status of the Merger as a tax-free
reorganization under the Code to the extent the Exchange Consideration is Series
B. Shareholders acknowledge that the treatment of the Merger as a taxable
transaction would result in substantial adverse consequences to Intek and
Protocall. Each Shareholder therefore (a) acknowledges that a transfer of any
of the Series B within two years (or possibly longer) from the Effective Time of
the Merger may be viewed as evidence that the representations in the Affiliate
Letter were not true, and (b) agrees to notify Intek of a disposition occurring
within two years of the Effective Time of the Merger not less than 20 days
before such disposition.
4.29 FIRPTA Certificate. Protocall has delivered to Intek the "FIRPTA
------------------
Certificate" substantially in the form attached hereto as Exhibit 4.29, dated
not more than 30 days prior to the Closing Date, and provide timely notice to
the Internal Revenue Service of its delivery of that certification to Intek.
4.30 Partnership Records. Upon request of Intek each Shareholder
-------------------
agrees to provide Intek books, records, documents and information (if any) that
the Shareholder has of or related to the Partnership.
4.31 Tax Certificate. Protocall and Intek shall cooperate to have
---------------
delivered to Intek as soon as possible after the Closing a certificate of
satisfaction of the California Franchise Tax Board certifying Protocall has
secured or paid all taxes imposed under the California Bank and Corporation Tax
Law.
ARTICLE V
---------
CONDITIONS OF CLOSING
---------------------
5.1 Intek's and Subsidiaries' Conditions of Closing. The obligation
-----------------------------------------------
of Intek and Sub to consummate the Closing and the Merger shall be subject to
and conditioned upon the satisfaction at the Closing and the Effective Time of
the Merger of each of the following conditions and no other conditions:
5.1.1 Tax Change. Intek shall not have received notice from
----------
Andrews & Kurth,
37
<PAGE>
LLP that it is withdrawing its opinion delivered under Section 2.44, which
opinion may only be withdrawn due to a change in fact or law subsequent to the
date hereof and prior to the Closing.
5.1.2 Intek shall have received additional equity financing of at
least $15,000,000 (and cash of at least $15,000,000 shall have been received).
5.2 Protocall's Conditions of Closing. The obligation of Protocall
---------------------------------
to consummate the Closing and the Merger shall be subject to and conditioned
upon the satisfaction at the Closing and the Effective Time of the Merger of
each of the following conditions and no other conditions:
5.2.1 Tax Change. Protocall shall not have received notice from
----------
Chrisman, Bynum & Johnson, P.C. that it is withdrawing its opinion delivered
under Section 3.36, which opinion may only be withdrawn due to a change in fact
or law subsequent to the date hereof and prior to the Closing.
5.2.2 Intek shall have received additional equity financing on terms
approved by the Board of Intek of at least $15,000,000 (and cash of at least
$15,000,000 shall have been received).
ARTICLE VI
----------
TERMINATION AND ABANDONMENT; AMENDMENT
--------------------------------------
6.1 Methods of Termination. The transactions contemplated herein
----------------------
may be terminated and/or abandoned at any time prior to the Effective Time of
the Merger:
6.1.1 By written consent of Intek and Protocall.
6.1.2 By either Intek or Protocall if: (i) the Closing shall
not have occurred on or before February 24, 1997 (the "Termination Date");
or (ii) any court of competent jurisdiction of the United States or any
State shall have issued an order, judgment or decree (other than temporary
restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the transaction contemplated hereby and such order,
judgment or decree shall have become final and nonappealable.
6.2 Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to the provisions of Section 6.1, this Agreement (except for
Sections 4.19, 8.1, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8 and 8.16, and Article VII,
which shall continue) shall become void and of no effect, without any liability
on the part of the parties, unless the termination was the result of the
representations and warranties of a party being incorrect when made or the
breach by a party of a covenant herein contained, in which event the party whose
representations and warranties were incorrect or which breached such covenants
shall be liable to the other party for damages
38
<PAGE>
suffered by the other party.
6.3 Procedure Upon Termination. In the event of termination and/or
--------------------------
abandonment by any party pursuant to Section 6.1 hereof, written notice thereof
shall forthwith be given to the other party and the transactions contemplated by
this Agreement shall be terminated and/or abandoned, without further action by
any person. If the transactions contemplated by this Agreement are terminated
and/or abandoned as provided herein, each party will redeliver all documents,
work papers and other information of any other party relating to the
transactions contemplated hereby, whether so obtained before or after the
execution of this Agreement, to the party furnishing the same, except that such
party may keep one copy thereof in a secure location for its legal files.
6.4 Amendment. This Agreement may be amended by Intek and
---------
Protocall by action taken by their respective Boards of Directors at any time
before or after approval hereof by the stockholders of Intek and/or Protocall,
but no amendment after approval by the stockholders of Intek or Protocall shall
be made which changes any of the principal terms of this Agreement. This
Agreement may not be amended except by an instrument in writing signed on behalf
of Intek, Protocall and the Shareholder Representative.
ARTICLE VII
-----------
INDEMNIFICATION
---------------
7.1 Shareholder General Indemnification Covenants. Subject to the
---------------------------------------------
provisions of this Article VII, Shareholders severally, and Protocall
(collectively, the "Protocall Parties" but Protocall shall not be a Protocall
Party after the Effective Time of the Merger) jointly and severally, shall
indemnify, defend, save and keep Intek and its affiliates (including Protocall),
officers, directors, successors and assigns (collectively, the "Intek
Indemnitees"), harmless against and from all liability, demands, claims, actions
or causes of action, assessments, losses, fines, penalties, costs, damages and
expenses, including without limitation, reasonable attorneys' fees,
disbursements and expenses including any diminution in the value of Protocall or
the Protocall stock held by Intek (collectively "Damages"), sustained or
incurred by any of the Intek Indemnitees as a result of, arising out or by
virtue of any misrepresentations, breach of any warranty or representation, or
non-fulfillment of any agreement or covenant on the part of the Shareholders or
a Protocall, whether contained in this Agreement, any Document or any exhibit or
schedule hereto or thereto, or any written statement or certificate furnished or
to be furnished to Intek pursuant hereto or in any closing document delivered by
Protocall or Shareholders to Intek in connection herewith, including, without
limitation, any Affiliate Letter and Certificate Re: Tax-Free Reorganization.
Such obligations apply regardless of the presence of a Third Party Claim (as
defined below). For purposes of determining the amount of Damages for which
indemnification is provided hereunder (but not for the purpose whether a breach
of a representation, warranty or covenant has occurred), each of the
representations, warranties and covenants made by any party in this Agreement or
in any certificate or other instrument delivered
39
<PAGE>
pursuant hereto, including, without limitation, the Documents, shall be deemed
to have been made without the inclusion of limitations or qualifications as to
materiality such as the word "Material," if with the inclusion of such
-- ----
limitation or qualification the representation, warranty or covenant was
breached. For example, if there was a $70,000 misrepresentation (which is over
the Material threshold), the Damages would be $70,000.
7.2 Procedures for Indemnification Pursuant to Section 7.1.
------------------------------------------------------
7.2.1 Promptly following the receipt by a Intek Indemnitee of
notice of a demand, claim, action, assessment or proceeding made or brought
by a third party, including a governmental agency (a "Third Party Claim")
or Intek receiving Knowledge of the basis of a claim for Damages, the Intek
Indemnitee receiving the notice of the Third Party Claim or Knowledge of
the basis for a claim: (i) shall notify Protocall (if the Merger has not
occurred) and the Shareholder Representative, of its existence, setting
forth the facts and circumstances of which such Intek Indemnitee has
received notice or Knowledge; and (ii) if the Intek Indemnitee giving such
notice is a person entitled to indemnification under this Section 7 (an
"Indemnified Party"), specifying the basis hereunder upon which the
Indemnified Party's claim for indemnification is asserted; provided,
--------
however, that a failure to provide prompt notification shall not prevent or
-------
prejudice a claim under this Article VII except to the extent such failure
has prejudiced the rights or defenses of the Protocall Parties.
7.2.2 The Indemnified Party shall, upon reasonable notice by
the Shareholder Representative, tender the defense of a Third Party Claim
to the Protocall Parties. If the Protocall Parties accept responsibility
for the defense of a Third Party Claim, then the Protocall Parties shall
have the right to contest, defend and litigate the Third Party Claim and
shall have the exclusive right, in their discretion exercised in good faith
and upon the advice of counsel, and subject to the consent of the
Indemnified Party (which shall not be unreasonably withheld) to settle any
such matter, either before or after the initiation of litigation provided
that at least ten (10) days prior to any such settlement, they shall give
written notice of their intention to settle to the Indemnified Party. The
Indemnified Party shall have the right to be represented by counsel at its
own expense in any defense conducted by the Protocall Parties.
7.2.3 Notwithstanding the foregoing, in connection with any
settlement negotiated by the Protocall Parties, no Indemnified Party shall
be required to: (i) enter into or be bound by or obligated under any
settlement (a) that does not include the delivery by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect of such claim or litigation, (b) if the Indemnified Party shall, in
writing to the Protocall Parties within the ten (10) day period prior to
such proposed settlement, unreasonably withhold its consent with respect to
such settlement proposal as contemplated by Section 7.2.2., and desire to
have the Protocall Parties tender the defense of such matter back to the
Indemnified Party, or (c) that requires an Indemnified Party to
40
<PAGE>
take any unreasonable affirmative actions as a condition of such
settlement; or (ii) consent to the entry of any judgment that does not
include a full dismissal of the litigation or proceeding against the
Indemnified Party with prejudice; provided, however, that should the
Indemnified Party disapprove of a settlement proposal pursuant to Clause
(b) above, the Indemnified Party shall thereafter have all of the
responsibility for defending, contesting and settling such Third Party
Claim but shall not be entitled to indemnification by the Protocall Parties
to the extent that, upon final resolution of such Third Party Claim, the
Protocall Parties' liability to the Indemnified Party but for this proviso
exceeds what the Protocall Parties' liability to the Indemnified Party
would have been if the Protocall Parties were permitted to settle such
Third Party Claim in the absence of the Indemnified Party exercising its
right under Clause (b) above.
7.2.4 If, in accordance with the foregoing provisions of this
Section 7.2, an Indemnified Party shall be entitled to indemnification
against a Third Party Claim, and if the Protocall Parties shall fail to
accept the defense of a Third Party Claim which has been tendered in
accordance with this Section 7.2, the Indemnified Party shall have the
right, without prejudice to its rights of indemnification hereunder, in its
discretion exercised in good faith and upon the advice of counsel, to
contest, defend and litigate such Third Party Claim, and may settle such
Third Party Claim, either before or after the initiation of litigation, at
such time and upon such terms as the Indemnified Party deems fair and
reasonable, provided at least ten (10) days prior to any such settlement,
written notice of its intention to settle is given to the Shareholders.
If, pursuant to this Section 7.2, the Indemnified Party so defends or
settles a Third Party Claim for which it is entitled to indemnification
hereunder, as hereinabove provided, the Indemnified Party shall be
reimbursed by the Protocall Parties for the reasonable attorneys' fees and
other expenses of defending the Third Party Claim which are incurred from
time to time, forthwith following the presentation to Shareholders of
itemized bills for said attorneys' fees and other expenses. No failure by
the Protocall Parties to acknowledge in writing their indemnification
obligations under this Article VII shall relieve them of such obligations
to the extent they exist.
7.2.5 In order to induce a rapid, fair and acceptable
resolution of Third Party Claims, Intek will also be entitled to a
distribution from the Active Fund as defined in the Escrow Agreement,
attached hereto as Exhibit 1.15, in an amount equal to twenty percent (20%)
of any funds remaining in the Active Fund, only, on the later of March 3,
1998, or such a time that all payments have been made for claims under the
Escrow Agreement. The intent of this provision is to induce Intek to settle
any and all Third Party Claims at a fair amount and share to the extent of
20% of the benefits of such settlement upon the breaking of the Active
Fund. Provided, however, that (i) this Section 7.2.5. only applies to the
amounts held in the Active Fund as defined in the Escrow Agreement
established under Section 1.15 and (ii) Intek shall not in any event be
entitled to more than twenty percent (20%) of the amount left in the Active
Fund after all payments are made for claims under the Escrow Agreement.
41
<PAGE>
7.3 Certain Information. The parties hereto shall furnish or cause
-------------------
to be furnished to each other (at reasonable times and at no charge) upon
request as promptly as practicable such information (including access to books
and records) pertinent to Protocall, the Partnership, or Intek and assistance
relating to Protocall or Intek as is reasonably necessary for the preparation,
review and audit of financial statements, the preparation, review, audit and
filing of any Tax Return, the preparation for any audit or the prosecution or
defense of any claim, suit or proceeding relating to any proposed adjustment or
which may result in Shareholders or Intek being liable under the indemnification
provisions of this Article VII; provided, that access shall be limited to items
pertaining solely to Protocall and the Partnership.
7.4 Release by Shareholders. Shareholders, as of the Effective
-----------------------
Time of the Merger, hereby release and discharge Protocall and its officers and
directors from, and agree and covenant that in no event will Shareholders
commence any litigation or other legal or administrative proceeding against,
Protocall or any of its officers or directors, either in law or equity, relating
to any and all claims and demands, known and unknown, suspected and unsuspected,
disclosed and undisclosed, for damages, actual, consequential, or otherwise,
past, present and future, arising out of or in any way connected with their
ownership of the equity securities of Protocall or any employment or consulting
relationship (other than for wages or employee benefits accrued but not yet
paid, or under debts for borrowed money as listed on a Schedule hereto) prior to
or at the Effective Time of the Merger. Except for this Agreement and the
agreements entered into hereunder, as of the Closing without further action, all
shareholders, voting, preemptive, buy-sell, first refusal or similar rights,
employment or consulting rights, by agreement or statute, of a Shareholder of
Protocall, shall terminate as to securities of Protocall and as to Protocall.
This Section shall in no way release, waive or extinguish claims that any
Shareholder or Protocall has or will have against Intek arising in the past,
present or future, including under this Agreement and the agreements entered
into hereunder.
Section 1542 Waiver. With respect to all released Claims, Shareholder
-------------------
waives all rights against the released party under Section 1542 of the
California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
The parties acknowledge that they may discover facts different from or in
addition to those which they now believe to be true with respect to this
section. The parties agree that, except as provided herein, this section shall
be and remain effective notwithstanding the discovery of any different or
additional facts. Except as expressly provided in this Agreement, no party nor
any agent has made any statement or representation to any other party regarding
any fact relied upon
42
<PAGE>
in entering into the release contained in this section, and each party expressly
states that such party does not rely upon any statement, representation or
promise of any other party or other party's agent in executing the release
contained in this section except for those set forth in this Agreement. Each
party hereto has made an investigation of the facts pertaining to this release
as it deems necessary. In agreeing to this release, each releasing party assumes
the risk of any misrepresentation, concealment or mistake with respect to the
subject matter of this release except as set forth in this Agreement. If any
releasing party should subsequently discover that any fact relied upon by the
party in agreeing to this release was untrue, or that any fact was concealed
from that party, or that the party's understanding of the law or facts was
incorrect, the releasing party shall not be entitled to any relief as a result,
including any alleged right or claim to set aside or rescind this release.
7.5 Indemnification by Intek. Subject to the provisions of this
------------------------
Article VII, Intek agrees to indemnify and hold Shareholders harmless against,
and will reimburse Shareholders on demand for, any Damages (as defined in
Section 7.1) sustained or incurred by any of the Shareholders as a result of,
arising out of or by virtue of any misrepresentation, breach of any warranty or
representation, or non-fulfillment of any agreement or covenant on the part of
Intek, whether contained in this Agreement, any Document or any exhibit or
schedule hereto or thereto or any written statement or certificate furnished or
be to furnished to Intek pursuant hereto or in any closing document delivered by
Intek to Shareholders in connection herewith. The procedures set forth in
Sections 7.2 and 7.3 shall be applied to any claim under this Section by a
Shareholder, and the Shareholder shall be the "Intek Indemnitees" and
"Indemnifying Party" for such purposes and Intek shall be the "Protocall Party"
or "Shareholder." Such obligations apply regardless of the presence of a Third
Party Claim.
7.6 Exclusive Remedy. The remedies provided in this Article VII
----------------
are, to the extent permitted by law, the sole and exclusive remedies related to
representations, warranties or covenants made or to be performed at or before
the Closing or Effective Time of the Merger, and there are no other remedies
otherwise available to any of the parties, for any claim by one party against
any other party under this Agreement or with respect to the transactions
contemplated by it related to representations, warranties or covenants made or
to be performed at or before the Closing, except for equitable injunctive
relief. No party shall make any claim under any theory, in tort, contract,
statute or otherwise, which could not be brought directly hereunder due to the
time or dollar limitations set forth in Sections 7.8.
7.7 No Rights of Shareholders Against Protocall. No Shareholder
-------------------------------------------
has any claim or cause of action, directly, by contribution, by subrogation or
otherwise, against Protocall or Sub for any matter for which a Shareholder must
provide indemnification, defense or hold harmless hereunder or under any other
document or agreement.
7.8 Limits on Each Person's Indemnification; Survival Periods.
---------------------------------------------------------
43
<PAGE>
7.8.1 The limits on indemnification, defense and hold harmless
("Indemnity") obligations hereunder are based on whether Damages for which
indemnification is to be paid arise out of circumstances (i) of which Intek
(if Intek is the indemnifying party or Protocall (if Protocall or a
Shareholder is the indemnifying party and the claim relates to Protocall),
or a Shareholder (if the claim relates solely to the Shareholder) is
required to pay indemnification ("Indemnifying Party") had Knowledge or
reasonably should have had Knowledge at the time of Closing ("Known
Liabilities"), or (ii) of which the Indemnifying Party did not have
Knowledge and reasonably should not have had Knowledge at the time of
Closing ("Unknown Liabilities"). For purposes of this subsection 7.8.1,
any indemnity obligation with respect to Taxes is deemed to be a Known
Liability. The indemnity for Damages shall be limited in the case of any
party (for this purpose all the Shareholders in the aggregate are one
party) to: (a) as to Known Liabilities, $3,000,000 for claims asserted by
an Indemnified Party within twelve (12) months after Closing, $2,000,000
for claims asserted by an Indemnified Party after twelve (12) months after
Closing and before twenty-four (24) months after Closing, and $1,000,000
for claims asserted by an Indemnified Party after twenty-four (24) months
after Closing and through three (3) years after Closing; and (b) as to
Unknown Liabilities, $1,000,000 for claims asserted by an Indemnified Party
before twenty-four (24) months after Closing. For purposes of the
limitation reductions at twelve (12) and twenty-four (24) months, a claim
will also be deemed made by the Indemnified Party within the applicable
time period if a Third Party Claim is asserted by way of the filing of a
lawsuit, arbitration, or complaint, claim or demand with a governmental
body, within the twelve (12) or twenty-four (24) month period, as
applicable, so long as the Indemnified Party has provided notice hereunder
of a claim of Damages to the Indemnifying Party within thirty (30) days
after the end of such twelve (12) or twenty-four (24) month period, as
applicable (but this thirty (30) day grace period does not apply to Third
Party Claims made other than by such a filing). The filing of a lawsuit,
arbitration, or complaint, claim or demand with a governmental body, is not
a condition for a Third Party Claim to exist. The indemnification
limitation for Known Liabilities and Unknown Liabilities are independent,
such that if the limitation for Unknown Liabilities is met, an Indemnified
Party may still require indemnification with respect to a Known Liability
up to the then applicable limitation. The amount of Damages for which
indemnification to be paid by a party will in no case exceed $3,000,000.
The indemnification obligations of the parties shall in all cases expire
three (3) years after Closing for all claims for which notification has not
been provided under Article VII to the Indemnifying Party by the
Indemnified Party. Notwithstanding any other provision of this Article
VII, an Indemnifying Party shall not be liable for indemnification unless
the aggregate amount of Damages for which the Indemnifying Party would be
liable, but for this paragraph exceeds $100,000 (the "Basket"); provided,
however, that if the Basket is met it shall not serve to reduce the amount
of Damages suffered by an Indemnified Party and the $100,000 shall
thereupon be a part of the indemnifiable amount.
44
<PAGE>
A Shareholder may pay an indemnification by delivery of cash or
shares of Series B which shall be deemed to be valued at the initial
Conversion Price per share (subject to adjustment only for stock splits,
stock dividends, stock combinations and recapitalizations) ("Series B
Value") unless in the sole reasoned opinion of Intek's counsel such payment
will potentially adversely affect the treatment of the Merger as a
reorganization pursuant to Code Section 368(a)(2)(D); provided, however,
that the ratio of the aggregate indemnification paid in shares of Series B
may not exceed the ratio that the Series B Value bears to the total
Exchange Consideration. If a Shareholder disagrees with that legal
opinion, he may bring his disagreement to the attention of Intek and
Intek's counsel will consider the basis of the disagreement and respond in
writing as to its agreement or disagreement with the Shareholder's
position. If the Shareholder still disagrees with the opinion of Intek's
counsel, and that Shareholder or Shareholders also disagreeing are liable
for fifteen percent (15%) or more of the Damages, the Shareholder(s) will
so notify Intek. Within twenty (20) days of that notice Intek will select
three (3) nationally recognized law firms with which Intek does not have a
prior relationship to render an opinion on that matter. The notifying
Shareholders (by vote by the Shareholders liable for a majority of Damages)
shall promptly select the firm from that list. Intek and such Shareholders
shall each deliver a $5,000 retainer to such firm and such Shareholder(s)
and Intek will request a legal opinion of that firm that such method of
payment will not adversely affect the treatment of the Merger as a
reorganization pursuant to Code Section 368(a)(2)(D). That opinion will be
addressed to Intek and will be a "will not" opinion, not a "should not" or
"more likely than not" opinion, and shall have only normal and reasonable
assumptions and qualifications. If that opinion is delivered Intek will
pay such counsel's fees and expenses and permit payment of indemnification
as provided in this paragraph and if it is not delivered the requesting
Shareholders will pay such counsel's fees and expenses and such method of
payment will not be permitted.
Intek shall make claims initially against, and such claims
shall be paid by, the Indemnification Escrow and only after that escrow has
been exceeded will a claim be made against a Shareholder.
7.8.2 The indemnity, defense and hold harmless obligations of
the Shareholders hereunder for a claim related to Protocall shall be
proportional to the Exchange Consideration received by them valuing (i) the
Series B at the Series B Value, and (ii) cash on a dollar for dollar basis.
If Damages relate to a claim for which solely the Shareholder is liable
(for example, his investment representations) the Damages payable by the
Shareholder shall be limited to an amount equal to the maximum amount which
the Shareholder could owe at the time of the claim for any potential
Damages related to Protocall under Section 7.8.1. (regardless of whether
any Damages in fact exist).
7.8.3 The parties recognize that the period for indemnification
hereunder
45
<PAGE>
is shorter than the statute of limitations for certain Third Party Claims.
Accordingly, if a person has determined that grounds for a Third Party
Claim exist, a person may notify the Indemnifying Party and, upon such
notice, the rights of the person seeking indemnity shall be preserved and
the later reduction in the amount of indemnity owing hereunder, or the time
for asserting a claim hereunder, shall not apply to such potential Third
Party Claim to the extend and in the amount described in such
indemnification notice.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Notice. Any notice required or permitted hereunder shall be in
------
writing and shall be sufficiently given if (i) personally delivered, (ii) mailed
by certified or registered United States mail, return receipt requested, or
(iii) sent by recognized air express courier for next business day delivery,
addressed as follows:
If to Intek: Intek Information Inc.
370 Seventeenth Street, Suite 3950
Denver, CO 80202
Attn: Timothy C. O'Crowley
Telephone: (303) 405-8400
Copy to: Chrisman, Bynum & Johnson, P.C.
1900 15th Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Telephone: (303) 546-1300
If to Shareholders at any time,
or to Protocall before the
Effective Time of the
Merger: Frank Richards
PROTOCALL New Business Specialists, Inc.
396 Earhart Way
Livermore, California 94550
Telephone: (510) 371-3140
46
<PAGE>
Copy to: Andrews & Kurth, LLP
425 Lexington Avenue
New York, New York 10017
Attn: David S. Brosgol
Telephone: (212) 850-2890
(or to such other address as any party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered, or two calendar days after mailed or as of the date delivered to the
air express courier.
8.2 Execution of Additional Documents. The parties hereto will at
---------------------------------
any time, and from time to time after the Closing date, upon reasonable request
of the other party, execute, acknowledge and deliver all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances as
may be required to carry out the intent of this Agreement, and to transfer and
vest title to any securities being transferred hereunder, and to protect the
right, title and interest in and enjoyment of all of the securities transferred,
delivered and conveyed pursuant to this Agreement; provided, however, that this
Agreement shall be effective regardless of whether any such additional documents
are executed.
8.3 Binding Effect; Benefits. This Agreement shall be binding upon
------------------------
and shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
8.4 Entire Agreement. This Agreement, together with the exhibits,
----------------
schedules and other documents contemplated hereby, constitutes the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this Agreement and the exhibits, schedules and other documents
contemplated hereby, shall be given no force or effect. The parties
specifically represent, each to the other, that there are no additional or
supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing. This Agreement does not, however, supersede the $75,000
principal amount promissory note from Protocall to Intek dated December 6, 1996
or the related Security Agreement and Financing Statements.
8.5 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado exclusive of the conflict
of law
47
<PAGE>
provisions thereof.
8.6 Arbitration; Consent to Jurisdiction. Except as provided below
------------------------------------
in this paragraph, any and all disputes arising under or related to this
Agreement shall be submitted to binding arbitration before the American
Arbitration Association ("AAA") in accordance with its rules of Commercial
Arbitration. The decision of the arbiter shall be final and binding upon the
parties, and it may be entered in any court of competent jurisdiction. The
arbitration shall take place in Denver, Colorado. The arbiter shall be bound by
the laws of the State of Colorado applicable to all relevant privileges and the
attorney work product doctrine. The arbiter shall have the power to grant
equitable relief where applicable under Colorado law and shall not be entitled
to make an award of punitive damages. The arbiter shall issue a written opinion
setting forth its decision and the reasons therefor within thirty (30) days
after the arbitration proceeding is concluded. The obligation of the parties to
submit any dispute arising under or related to this Agreement to arbitration as
provided in this Section shall survive the expiration or earlier termination of
this Agreement. Notwithstanding the foregoing, any party may seek and obtain an
injunction or other appropriate relief from a court of competent jurisdiction to
preserve or protect the status quo with respect to any matter pending conclusion
of the arbitration proceeding, but no such application to a court shall in any
way be permitted to stay or otherwise impede the progress of the arbitration
proceeding.
Shareholders, Intek, and Protocall hereby consent to the jurisdiction of
the courts of the State of Colorado and the United States District Courts for
the District of Colorado and Northern District of California, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
their obligations arising hereunder or with respect to the transactions
contemplated hereby and expressly waive any and all objections they may have as
to venue in any of such courts.
8.7 Attorneys' Fees and Costs. In the event of any arbitration or
-------------------------
litigation being filed or instituted between two or more of the parties
concerning this Agreement, the Prevailing Party will be entitled to receive from
the other party or parties its attorneys' fees, experts' fees, costs and
expenses, whether or not such controversy, claim or action is prosecuted to
judgment or other form of relief. The "Prevailing Party" is that party which is
awarded judgment or other legal or equitable relief as a result of trial or
arbitration, or who receives or is entitled to receive a payment of money from
the other party in settlement of claims asserted by such party. If both parties
receive a judgment or other award of relief, the court or the arbiter shall
determine which party is the prevailing party, taking into consideration the
merits of the claims asserted by each party, the relative values of the
judgments or other forms of relief received by each party, and the relative
equities between the parties.
8.8 Survival. All of the terms, covenants, conditions, warranties
--------
and representations contained in this Agreement and any Document shall survive
the execution hereof, the Closing hereunder and the Effective Time of the
Merger.
48
<PAGE>
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
8.10 Headings. Headings of the Sections of this Agreement are for the
--------
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.11 Waivers. Either Intek or Protocall may, by written notice to the
-------
other: (i) extend the time for the performance of any of the obligations or
other actions of the other under this Agreement; (ii) waive any inaccuracies in
the representations or warranties of the other contained in this Agreement or in
any document delivered pursuant to this Agreement; (iii) waive compliance with
any of the conditions or covenants of the other contained in this Agreement; or
(iv) waive performance of any of the obligations of the other under this
Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder
nor as a waiver of any claim for breach of representation, warranty or covenant.
8.12 Merger of Documents. This Agreement and all agreements and
-------------------
documents contemplated hereby constitute one agreement and are interdependent
upon each other in all respects.
8.13 Incorporation of Exhibits and Schedules. All exhibits and
---------------------------------------
schedules attached hereto are by this reference incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
8.14 Severability. If for any reason whatsoever any one or more of
------------
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
8.15 Assignability. Neither this Agreement nor any of the parties'
-------------
rights or obligations hereunder shall be assignable by any party hereto prior to
the Effective Time of the Merger without the prior written consent of the other
parties hereto and no assignment after the Effective Time of the Merger shall
relieve a party of its obligations hereunder.
8.16 No Action for Failure to Deliver Opinions, Etc. No party shall
----------------------------------------------
have any claim or right of action against the legal counsel or accountants of
the other party for the failure
49
<PAGE>
or refusal of such counsel or accountants to deliver any opinion, certification
or letter requested hereunder.
8.17 Effectiveness of Agreement. This Agreement shall become
--------------------------
effective and binding on the parties hereto only when signed and delivered by
each of the parties hereto. There are no third party beneficiaries of this
Agreement.
8.18 Person. The term "person" is to be broadly construed and
------
includes, without limitation, any entity, body, association, governmental body
or agency, natural person or trust.
8.19 Material. The term "Material" shall mean a material effect on
--------
(i) the business operations, condition (financial or otherwise), prospects,
assets, liabilities or results of operations of either Protocall or Intek, taken
as a whole, (ii) the value, condition or marketability of any material assets of
either Protocall or Intek, taken as a whole or (iii) the ability of either
Protocall or Intek to perform on a timely basis its obligations under any
material contract or to exercise or enforce any of its material rights, powers
or remedies under any material contract; provided, that no prospective change in
the business, operations, condition (financial or otherwise) or results of
operations of Protocall or Intek, on account of general economic conditions or
local, regional, national or international industry conditions shall be deemed
to constitute a Material effect.
8.20 Knowledge. The term "Knowledge" shall mean, when used in any
---------
representation, covenant or warranty of either Protocall or Intek contained
herein, the actual knowledge of any officer, director, key employee, division
head or similar person of either Protocall or Intek, as applicable.
8.21 Taxes. The term "Taxes" means, any taxes, assessments, duties,
-----
fees, levies, imposts, deductions, withholdings, including, without limitation,
income, gross receipts, ad valorem, value added, excise, real or personal
property, asset, sales, use, license, payroll, transaction, capital, net worth
and franchise taxes, estimated taxes, withholding, employment, social security,
workers compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country and any
liabilities with respect thereto, including any penalties, additions to tax,
fines or interest thereon, and includes any liability of the company arising
under any tax sharing agreement to which the company is or has been a party; and
(ii) "Return" means any report, return, statement, estimate, declaration,
notice, form or other information required to be supplied to a taxing authority
in connection with Taxes.
50
<PAGE>
INTEK INFORMATION, INC. PROTOCALL NEW BUSINESS
a Delaware corporation SPECIALISTS, INC.
a California corporation
By: /S/ TIMOTHY C. O'CROWLEY By: /S/ FRANK D. RICHARDS
------------------------------ ------------------------------
Its: President Its: President
By: By:
------------------------------ -------------------------------
Its: Secretary Its: Assistant Secretary
Shareholders of Protocall, solely for purposes of the Sections herein as to
which by their terms the Shareholders are parties.
/S/ FRANK D. RICHARDS
-------------------------------
Frank D. Richards
/S/ TYCE M. FIELDS /S/ PATRICIA J. KARLESKIND
------------------------------- -------------------------------
Tyce M. Fields Patricia J. Karleskind
/S/ THOMAS M. ROCCA /S/ JOAN M.. FIELDS
------------------------------- -------------------------------
Thomas M. Rocca Joan M. Fields
/S/ STEVE J. DARNELL /S/ JAMES M. FIELDS
------------------------------- -------------------------------
Steve J. Darnell James M. Fields
/S/ MICHAEL E. FORD /S/ JENNIFER A. WORLEY
------------------------------- -------------------------------
Michael E. Ford Jennifer A. Worley
/S/ JOHN STEUART /S/ DANIEL J. WORLEY
------------------------------- -------------------------------
John Steuart Daniel J. Worley
/S/ JOHN P. KARLESKIND, JR. /S/ CRAIG BARTON
------------------------------- -------------------------------
John P. Karleskind, Jr. Craig Barton
51
<PAGE>
CONFIDENTIAL TREATMENT REDACTED PORTIONS APPLIED FOR
Exhibit 10.27
SHARE PURCHASE AGREEMENT
AMONG
INTEK INFORMATION, INC.,
ACORN INFORMATION SERVICES, INC.,
AND
THE SHAREHOLDERS NAMED HEREIN
DATED AS OF OCTOBER 30, 1999
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS........................................................................ 1
ARTICLE 2 PURCHASE AND SALE OF ACORN STOCK................................................... 5
2.1 Purchase Price..................................................................... 5
--------------
2.2 Contingent Earn-out Consideration.................................................. 6
---------------------------------
2.3 Capital For Growth And Economically Justified Capital Expenditures................. 11
------------------------------------------------------------------
2.4 Effect of Employee Departures and Minimum EBITDA Threshold......................... 12
----------------------------------------------------------
2.5 Closing............................................................................ 15
-------
2.6 Transaction Costs.................................................................. 17
-----------------
2.7 Transaction Advisor Fees........................................................... 17
------------------------
ARTICLE 3 REPRESENTATIONS AND WARRANTIES.................................................... 18
3.1 Authorization Capitalization; Outstanding Shares................................... 18
------------------------------------------------
3.2. Organization; Good Standing; Power; Etc............................................ 18
---------------------------------------
3.3 Agreements Relating to Stock; Options; Warrants; Restrictions on Shares: ETC....... 18
-----------------------------------------------------------------------
3.4 Charter and Bylaws; Officers and Directors......................................... 19
------------------------------------------
3.5 No Subsidiaries.................................................................... 19
---------------
3.6 Authorizations and Enforceability.................................................. 19
---------------------------------
3.7 Effect of Agreement, Etc........................................................... 19
------------------------
3.8 Restrictions; Burdensome Agreements................................................ 20
-----------------------------------
3.9 Government Consents................................................................ 20
-------------------
3.10 Compliance; Licenses and Permits................................................. 20
--------------------------------
3.11 Financial Statements; Absence of Undisclosed Liabilities......................... 21
--------------------------------------------------------
3.12 Tax Matters...................................................................... 22
-----------
3.13 Title to Properties; Absence of Liens and Encumbrances; Etc...................... 22
-----------------------------------------------------------
3.14 Facilities; Equipment and Condition..............................................
-----------------------------------
3.15 Insurance........................................................................ 23
---------
3.16 Contracts........................................................................ 23
---------
3.17 Litigation....................................................................... 24
----------
3.18 Intellectual Property and Other Intangible Assets................................ 24
-------------------------------------------------
3.19 No Interest in Competitors; Etc.................................................. 25
-------------------------------
3.20 Books and Records................................................................ 26
-----------------
3.21 Insider Transactions............................................................. 26
--------------------
3.22 Employees........................................................................ 26
---------
3.23 Union Contracts; Labor Relations; Etc............................................ 26
-------------------------------------
3.24 Employee Benefit Plans........................................................... 27
----------------------
3.25 Bank Accounts and Safe Deposit Arrangements...................................... 27
-------------------------------------------
3.26 Powers of Attorney............................................................... 27
------------------
3.27 No Finder........................................................................ 27
---------
3.28 No Material Adverse Change....................................................... 27
--------------------------
3.29 Investment Representations....................................................... 28
--------------------------
3.30 Suppliers and Customers.......................................................... 30
-----------------------
3.31 Securities Act, Etc.............................................................. 30
-------------------
3.32 Lawyers and Accountants.......................................................... 30
-----------------------
3.33 Accounting Controls.............................................................. 30
-------------------
3.34 Names............................................................................ 31
-----
</TABLE>
-i-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
<TABLE>
<S> <C>
3.35 Material Misstatements or Omissions......................................... 31
-----------------------------------
3.36 Not A United States Real Property Interest.................................. 31
------------------------------------------
3.37 Other....................................................................... 31
-----
3.38 Year 2000 Compliance........................................................ 31
--------------------
3.39 Due Diligence............................................................... 32
------------
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF INTEK.................................... 32
4.1 Organization; Good Standing; Power; Etc..................................... 36
---------------------------------------
4.2 Restrictions; Burdensome Agreements......................................... 37
-----------------------------------
4.3 Subsidiaries................................................................ 38
------------
4.4 Capitalization; Outstanding Shares.......................................... 39
----------------------------------
4.5 Charter and Bylaws; Officers and Directors.................................. 34
------------------------------------------
4.6 Authorization............................................................... 34
-------------
4.7 Financial Statements........................................................ 34
--------------------
4.8 No Material Adverse Change.................................................. 35
--------------------------
4.9 Material Liabilities........................................................ 35
--------------------
4.10 Material Contracts........................................................ 35
------------------
4.11 Compliance with Other Instruments, None Burdensome, Etc................... 35
-------------------------------------------------------
4.12 Litigation, Etc........................................................... 35
---------------
4.13 Governmental Consents..................................................... 36
---------------------
4.14 Intek Tax Matters......................................................... 36
-----------------
4.15 Offering.................................................................. 37
--------
4.16 Brokers or Finders........................................................ 37
------------------
4.17 Compliance; Licenses and Permits.......................................... 37
--------------------------------
4.18 Material Misstatements or Omissions....................................... 37
-----------------------------------
4.19 Lawyers and Accountants................................................... 38
-----------------------
4.20 Effect of Agreement, Etc.................................................. 38
------------------------
4.21 Other..................................................................... 38
-----
ARTICLE V OTHER COVENANTS AND AGREEMENTS.............................................. 38
5.1 Access to Information....................................................... 39
---------------------
5.2 Business Relationships...................................................... 39
----------------------
5.3 No Shop..................................................................... 40
-------
5.4 Amendments.................................................................. 40
----------
5.5 Resignations and Closing Date Board......................................... 40
-----------------------------------
5.6 Signature Cards............................................................. 40
---------------
5.7 Additional Financial Statements............................................. 40
-------------------------------
5.8 Satisfaction of Conditions.................................................. 40
--------------------------
5.9 Tax Elections - Post Closing Change....................................... 40
-----------------------------------
5.10 This Section intentionally left blank..................................... 40
-------------------------------------
5.11 Confidentiality........................................................... 40
---------------
5.12 Covenant Not to Compete................................................... 41
-----------------------
5.13 Governmental Filings...................................................... 43
--------------------
5.14 Good Faith................................................................ 43
----------
5.15 Existing Acorn Loans; Bridge Loan......................................... 43
---------------------------------
5.16 Unwind Provision; Changes in Control; Intek IPO........................... 43
-----------------------------------------------
5.17 Board Observer; Executive Management Committee............................ 44
----------------------------------------------
ARTICLE 6 CONDITIONS OF CLOSING...................................................... 45
- --------------------------------
</TABLE>
-ii-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
<TABLE>
<S> <C>
6.1 Intek's Conditions of Closing............................................... 45
-----------------------------
6.2 Acorn's Conditions of Closing............................................... 46
-----------------------------
ARTICLE 7 AMENDMENT................................................................... 47
ARTICLE 8 INDEMNIFICATION............................................................ 48
8.1 Shareholders' General Indemnification Covenants............................. 48
-----------------------------------------------
8.2 Procedures for Indemnification Pursuant to Section 8.1...................... 48
------------------------------------------------------
8.3 Certain Information......................................................... 50
-------------------
8.4 Release by Shareholders..................................................... 50
-----------------------
8.5 Indemnification by Intek.................................................... 50
------------------------
8.6 Exclusive Remedy............................................................ 51
----------------
8.7 No Rights of Shareholders Against Acorn..................................... 51
---------------------------------------
8.8 Limits on Indemnification; Escrow........................................... 51
---------------------------------
ARTICLE 9 MISCELLANEOUS.............................................................. 52
-------------
9.1 Notice...................................................................... 52
------
9.2 Execution of Additional Documents........................................... 53
---------------------------------
9.3 Binding Effect; Benefits.................................................... 54
------------------------
9.4 Entire Agreement............................................................ 54
----------------
9.5 Governing Law............................................................... 54
-------------
9.6 Arbitration; Consent to Jurisdiction........................................ 54
------------------------------------
9.7 Attorneys' Fees and Costs................................................... 55
-------------------------
9.8 Survival.................................................................... 55
--------
9.9 Counterparts................................................................ 55
------------
9.10 Headings.................................................................. 55
--------
9.11 Waivers................................................................... 55
-------
9.12 Merger of Documents....................................................... 56
-------------------
9.13 Incorporation of Exhibits and Schedules................................... 56
---------------------------------------
9.14 Severability.............................................................. 56
------------
9.15 Assignability............................................................. 56
-------------
9.16 No Action for Failure to Deliver Opinions, Etc............................ 56
-----------------------------------------------
9.17 Effectiveness of Agreement................................................ 57
--------------------------
9.18 Reference to Shareholders Agreement....................................... 57
-----------------------------------
9.19 Action by Shareholders.................................................... 57
----------------------
9.20 Shareholder Family LLC's.................................................. 57
------------------------
</TABLE>
-iii-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
SCHEDULES TO
SHARE PURCHASE AGREEMENT
AMONG
INTEK INFORMATION, INC., ACORN INFORMATION SERVICES, INC. and
THE SHAREHOLDERS NAMED HEREIN
ACORN; KEY SHAREHOLDERS
Schedule Number & Description
2.2.2.A Shareholder Representative
2.2.2.B Shareholder Percentage Purchase Price
3.1 Capitalization
3.2 Good Standing States
3.3 Agreements Relating to Stock
3.4.A Articles and Bylaws
3.4.B Officers and Directors
3.5 Subsidiaries
3.7. Effects of Agreement
3.8 Restrictions; Burdensome Agreements
3.10 Permits, Licenses
3.11.1 Financial Statements
3.11.2 Exceptions to Financial Statements
3.12 Estimate of Accrued Taxes
3.13 Title to Properties and Assets; Liens and Encumbrances
3.14 Furniture, Fixtures and Equipment
3.15 Insurance
3.16 Leases and Other Material Contracts
3.17 Litigation
3.18.1 Trademarks, Tradenames, Patents, Copyrights; Exceptions to Right
to Use
3.18.2 Exceptions to Unrestricted Rights to Use Trade Secrets, Know-
How, Inventions, Designs, Etc.
3.18.3 Third Party Infringement of Intellectual Property
3.18.4 Conveyances of Intellectual Property
3.19 Interests in Competitors
3.21 Insider Transactions
3.23 Labor and Employment Disputes
3.24 Employee Benefit Plans
3.25 Banking and Investment Information
-iv-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.28 Certain Changes in Business or Operations
3.29.7 Shareholder Mailing Addresses and States of Residence
3.30 Material Agreements with Customers or Suppliers
5.5 Resignations and Closing Date Board
-v-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
INTEK
Schedule Number & Description
4.1 Good Standing States
4.4 Capitalization
4.5.A Charter and Bylaws
4.5.B Officers and Directors
4.7 Financial Statements
4.9 Material Undisclosed Liabilities
4.10 Material Contracts and Commitments
4.12 Litigation
4.14 Tax Exceptions
4.20 Effect of Agreement
5.5 Resignations and Closing Date Board
-vi-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
EXHIBITS TO
SHARE PURCHASE AGREEMENT
AMONG
INTEK INFORMATION, INC., ACORN INFORMATION SERVICES, INC.
and THE SHAREHOLDERS NAMED HEREIN
Exhibit Number & Description
2.2.4 Form of Registration Rights Agreement
2.2.5 Intek Shareholders Agreement
2.7 Transaction Advisor Fee Payment Agreement
3.36 FIRPTA Affidavit
5.3 Standstill Agreement dated June 4, 1999
6.1.1 Form of Acorn Employment Agreements and Employee
Stock Restriction Agreement
6.1.2 Form of Acorn Officer's Certificate
6.1.6 Form of Acorn Secretary's Certificate
6.1.7 Form of Opinion of Counsel for Acorn and Key Shareholders
6.2.2 Form of Intek Officer's Certificate
6.2.5 Form of Intek Secretary's Certificate
6.2.6 Form of Opinion of Counsel for Intek
8.8.3 Form of Escrow Agreement
-vii-
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
SHARE PURCHASE AGREEMENT
AMONG
INTEK INFORMATION, INC.,
ACORN INFORMATION SERVICES, INC.
AND THE SHAREHOLDERS NAMED HEREIN
This Share Purchase Agreement is dated as of October 30, 1999,
("Agreement") and is entered into by and among Intek Information, Inc., a
Delaware corporation ("Intek"), Acorn Information Services, Inc., a Delaware
corporation ("Acorn"), and Venkat Sharma, Shoba Murali, Raja Ramnarayan and
Sunil Gupta (referred to herein individually by name and collectively as the
"Key Shareholders") and all other shareholders of Acorn common stock listed on
the signature page hereof (referred to collectively as the "Non Employee
Shareholders" and together with the Key Shareholders as the "Shareholders").
RECITALS
A. Acorn is generally engaged in the business of providing marketing,
consulting, analytic and other related services to clients seeking online
marketing and technological solutions.
B. Intek is generally engaged in the business of providing inbound and
outbound telemarketing, teleservicing, e-servicing and other related services.
C. The Shareholders own all of the outstanding capital stock of Acorn.
D. Intek wishes to acquire all of the issued and outstanding shares of
capital stock of Acorn from the Shareholders under the terms and conditions
provided herein.
E. Concurrently with the Closing, among other things: (i) the Key
Shareholders will enter into employment agreements (which shall include non-
compete covenants) with Acorn; and (ii) Intek, the Shareholders and a mutually
agreed upon escrow agent will enter into an escrow agreement for the escrow of
the Escrow Consideration (as hereinafter defined). Each of those agreements
shall become effective only upon the Closing; and each of those documents and
the other operative documents and certificates to be executed and delivered in
connection herewith is sometimes referred to individually as a "Document" or
collectively as the "Documents."
ARTICLE 1
DEFINITIONS
-----------
The following terms have the meanings set forth below:
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
"Acorn" means Acorn Information Services, Inc., a Delaware corporation.
-----
"Acorn Shares" means all of the issued and outstanding shares of capital
------------
stock of Acorn.
"Acorn Officers Loans" means those certain loans from various officers of
--------------------
Acorn to Acorn as described on Schedule 3.21.
"Annual Measurement Period" has the definition set forth in Section 2.2.
-------------------------
"Base Consideration" means the amount payable to the Shareholders by Intek
------------------
at Closing in consideration for the Acorn Shares and as provided in Section 2.1
herein.
"Bridge Loan" means the loan to Acorn by Intek in the principal amount of
-----------
$200,000 pursuant to a Promissory Note executed by Acorn on June 4, 1999 for
regular payroll and priority accounts payable disbursements and secured by
certain collateral pursuant to a security agreement and by the personal
guarantees of the Key Shareholders.
"Change in Control" means (i) a sale, transfer or disposition of all or
-----------------
substantially all of the assets of Intek; (ii) a merger or consolidation in
which Intek is not the surviving corporation, other than a reincorporation
merger; or (iii) a transaction in which a person and his or her affiliates, who
prior to the transaction are the beneficial owners of less than fifty percent
(50%) of the outstanding common stock of Intek, hold, as a result of the
transaction, two-thirds or more of Intek's outstanding common stock on an as-
converted to common basis.
"Closing" means the closing of the transactions contemplated by this
-------
Agreement and as set forth in Section 2.5 herein.
"Closing Date" has the meaning set forth in Section 2.5 herein.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidential Information" has the meaning set forth in Section 5.11
------------------------
herein.
"Contingent Earn-Out Consideration" means the amount payable to the
---------------------------------
Shareholders by Intek in consideration for the Acorn Shares that is contingent
upon Acorn meeting certain performance targets as provided in Section 2.2
herein.
"Date of Termination" has the meaning given to it in the Employment
-------------------
Agreement.
"Earn-Out Period" has the meaning set forth in Section 2.2.1 herein.
---------------
2
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
"EBITDA" means earnings before interest, taxes, depreciation and
------
amortization. For purposes of calculating EBITDA hereunder, corporate overhead
expenses for finance and administration, human resources, administration and
executive functions will be allocated between Intek and Acorn on the basis of
the pro rata percentage of the number of Intek (and Intek subsidiary, other than
Acorn, employees) and Acorn employees, respectively, after those expenses
incurred solely by Intek and Spider (as hereinafter defined) are deducted.
Legal, consulting, audit and advisor fees directly incurred by Acorn, or by
Intek on behalf of Acorn will be billed to Acorn at actual cost.
"Employment Agreement" means the employment agreement between Intek and
--------------------
each of the Key Shareholders in substantially the form attached hereto as
Exhibit 6.1.1, to be executed concurrently herewith.
"Escrow Consideration" means the consideration defined in Section 8.8.3
--------------------
herein.
"Escrow Agreement" means the escrow agreement described in Section 8.8.3
----------------
herein and attached as Exhibit 8.8.3 hereto.
"GAAP" means United States generally accepted accounting principles applied
----
in accordance with Intek's then current accounting policies.
"Intek Shares" means the shares of Intek common stock, $0.0001 par value
------------
per share, that may be issued to the Shareholders by Intek pursuant to this
Agreement.
"Intek" means Intek Information, Inc., a Delaware corporation.
-----
"IPO" means an initial public offering of the capital stock of Intek under
---
the Securities Act of 1933, as amended.
"Key Shareholders" means Venkat Sharma, Shoba Murali, Raja Ramnarayan and
----------------
Sunil Gupta.
"Material" means a material effect on (i) the business operations,
--------
condition (financial or otherwise), prospects, assets, liabilities or results of
operations of either Acorn or Intek, taken as a whole, (ii) the value, condition
or marketability of any material assets of either Acorn or Intek, taken as a
whole or (iii) the ability of either Acorn or Intek to perform on a timely basis
its obligations under any material contract or to exercise or enforce any of its
material rights, powers or remedies under any material contract; provided, that
--------
no prospective change in the business, operations, condition (financial or
otherwise) or results of operations of Acorn or Intek, on account of general
economic conditions or local, regional, national or international industry
conditions shall be deemed to constitute a material effect.
3
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
"Minimum EBITDA Targets" means the performance targets that Acorn must
----------------------
achieve a percentage of as a condition to Intek's obligation to pay the
Contingent Earn-Out Consideration and to Intek's obligation to make certain
capital contributions to Acorn pursuant to Section 2.3 herein. The
determination of whether the Minimum EBITDA Targets are met for purposes of this
Agreement shall be made based on minimum EBITDA reported by Acorn.
"Net Operating Income" means revenues from continuing operations less
--------------------
operating expenses reported in accordance with GAAP.
"Non-Employee Shareholders" means the holders of Acorn common stock who are
-------------------------
not Key Shareholders.
"Person" is to be broadly construed and includes, without limitation, any
------
entity, body, association, governmental body or agency, natural person or trust.
"Replacement Employee" means the person or persons who is or are hired
--------------------
to replace a Key Shareholder whose employment is terminated for any reason with
Acorn, and the person or persons who may be hired to replace such replacee.
"Return" means any report, return, statement, estimate, declaration,
------
notice, form or other information required to be supplied to a taxing authority
in connection with Taxes (as hereafter defined).
"Shareholders" means the Non-Employee Shareholders and the Key
------------
Shareholders.
"Spider" means Spider Technologies, Inc., a Delaware corporation and a
------
previously wholly owned subsidiary of Intek.
"Spider Shares" means the common stock of Spider, par value $0.0001 per
-------------
share.
"Sustained Profitability" means (a) positive Net Operating Income for any
-----------------------
consecutive 30 day period after June 1, 1999 and (b) bona fide and well founded
projections of positive Net Operating Income for the four (4) months following
such period of positive Net Operating Income.
"Sustained Profitability Consideration" means $650,000 in cash or
-------------------------------------
immediately available funds less the outstanding principal amount and accrued
interest on the Bridge Loan as of the date of achievement of Sustained
Profitability (which amount shall be used to pay off the Bridge Loan in full),
and less Acorn's cumulative negative Net Operating Income for the period between
September 1, 1999 and the date Acorn achieves Sustained Profitability.
4
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
"Taxes" means, any taxes, assessments, duties, fees, levies, imposts,
-----
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the company arising under any tax sharing agreement to
which the company is or has been a party.
"Terminated Key Shareholder Cash Earn-Out" means the cash portion of the
----------------------------------------
Contingent Earn-Out Consideration that a Key Shareholder whose employment with
Acorn has been terminated would have been entitled to receive pursuant to
Section 2.2 herein for the Annual Measurement Period in which the Date of
Termination occurred had such Key Shareholder continued to be an employee of
Acorn.
"Terminated Key Shareholder Shares" means the number of Intek Shares that a
---------------------------------
Key Shareholder whose employment with Acorn has been terminated would have been
entitled to receive as Contingent Earn-Out Consideration pursuant to Section 2.2
herein for the Annual Measurement Period in which the Date of Termination
occurred had such Key Shareholder continued to be an employee of Acorn.
ARTICLE 2
PURCHASE AND SALE OF ACORN STOCK
--------------------------------
2.1 Purchase Price.
--------------
Subject to the terms and conditions set forth in this Agreement, on
the date of the Closing, the Shareholders will transfer and convey all of the
Acorn Shares free and clear of any liens, claims, security interests or
encumbrances of any kind to Intek, and Intek will acquire the Acorn Shares from
the Shareholders for a purchase price (the "Purchase Price") comprised of:
2.1.1. a non-contingent cash payment in the aggregate amount of
$100,000 (the "Base Consideration") payable in cash or immediately available
funds to the Shareholders at the Closing;
2.1.2. an obligation to pay certain contingent payments (the
"Contingent Earn-Out Consideration"), consisting of both cash and the Intek
Shares, determined and paid in the amounts and subject to the terms and
conditions as set forth in
5
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Section 2.2 below; and
2.1.3. If Acorn achieves Sustained Profitability on or before
November 30, 1999, the Sustained Profitability Consideration payable within
thirty (30) days after Intek's determination that Acorn has achieved Sustained
Profitability and Intek shall make such payment to the Shareholders
Representative (as defined in Section 2.2.2), less any amounts to be paid into
escrow pursuant to Section 8.8 herein. If Acorn does not achieve Sustained
Profitability by November 30, 1999, Intek shall have no obligation to pay the
Shareholders the Sustained Profitability Consideration and Acorn's and the Key
Shareholders' obligations under the Bridge Loan will remain in effect and
interest on such loan will continue to accrue in accordance with the terms of
the Bridge Loan and the Letter of Intent.
The portion of the Purchase Price for the Acorn Shares payable at the
Closing will be paid to each Shareholder based upon the percentages listed on
Schedule 2.2.2B hereto. All subsequent payments of the Purchase Price payable
hereunder shall be made pursuant to Section 2.2 below.
2.2 Contingent Earn-Out Consideration.
---------------------------------
Intek will pay to the Shareholders the Contingent Earn-Out
Consideration, if Acorn meets certain percentages of certain Minimum EBITDA
Targets as set forth in this Section 2.2 on the first, second and third
anniversary dates of the last day of the month in which the Closing Date occurs
("Year 1," "Year 2" and "Year 3," respectively, and each may be referred to as
an "Annual Measurement Period"). Upon satisfaction of such targets, the
Contingent Earn-Out Consideration will be paid in cash and Intek Shares subject
to and as provided in Sections 2.2.4 and 2.2.5.
2.2.1. Payment of the Contingent Earn-Out Consideration is
expressly conditioned upon Acorn meeting the "Percent Minimum EBITDA" Targets in
Year 1, Year 2 and Year 3 (collectively, the "Earn-Out Period") set forth in the
second following table and will be made in the form of cash and the Intek Shares
in the maximum amounts set forth in the following table:
Contingent Earn-Out Consideration
---------------------------------
Minimum
-------
EBITDA TARGET Cash Portion Stock Portion
------------- ------------ -------------
Year 1 [$ _________] up to $ 600,000 up to 1,000,000 Intek Shares
Year 2 [$ _________] up to $ 600,000 up to 666,667 Intek Shares
6
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Year 3 [$ ] up to $ 700,000 up to 444,444 Intek Shares
------------- ----------------- ----------------------------
Total: [$ ] up to $ 1,900,000 up to 2,111,111 Intek Shares
============= ================= ============================
The aggregate amount of the Contingent Earn-Out Consideration payable in
respect of any Annual Measurement Period will be determined separately for each
year in the Earn-Out Period and will be calculated based on the percentage of
the Minimum EBITDA Target Acorn achieves in each such year as follows:
Percent Minimum Percent Contingent Earn-Out
--------------- ---------------------------
EBITDA Consideration Earned
------ --------------------
100% 100%
90% 80%
80% 60%
75% 50%
The aggregate amount of the Contingent Earn-Out Consideration payable by
Intek pursuant to the foregoing table will be calculated on a linear basis up to
100% of the Minimum EBITDA Target. Proportional adjustments will be made in
each year in the Earn-Out Period between the cash and stock portions of the
Contingent Earn-Out Consideration (by way of example only, if the 80% Minimum
EBITDA Target were achieved in Year 1, the Contingent Earn-Out Consideration
would be an aggregate amount equal to $360,000 in cash and 600,000 Intek
Shares). No Contingent Earn-Out Consideration will be paid in respect of a
particular Annual Measurement Period if EBITDA is less than 75% of the Minimum
EBITDA Target in any such Annual Measurement Period, whether or not Intek
determines to make a capital contribution to Acorn as provided in Section 2.3
below, notwithstanding Acorn's failure to achieve 75% of the Minimum EBITDA
Target. The amount of the Contingent Earn-Out Consideration shall not be
affected by whether Acorn achieves Sustained Profitability. The number of Intek
Shares payable hereunder shall be adjusted for any stock splits, stock dividends
payable in Intek common stock, recapitalizations, stock combinations, or similar
transactions of Intek common stock and, at the option of Intek, either
appropriate adjustment will be made to the number of shares of Intek Shares to
be delivered hereunder in the event of any spin off (other than Intek's spin off
of Spider Shares) or appropriate distribution of stock of the company that is
spun off will be made to the Shareholders in the event of any such spin off or
similar transaction (which shares will be subject to all the terms hereof
applicable to Intek Shares, including Intek's stock registration obligations but
as to registration rights only to the extent Intek is able to obtain
registration rights with respect to such shares).
7
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
2.2.2. Contingent Earn-Out Consideration will be measured
separately for each year in the Earn-Out Period so that if the Minimum EBITDA
Target is met in one Annual Measurement Period but not in another, the Earn Out
Consideration for the Annual Measurement Period in which the Minimum EBITDA
Target is met would be payable. The cash portion of the Contingent Earn-Out
Consideration, if any, will be paid within thirty (30) days after the closing of
Intek's books of account for each Annual Measurement Period and will be paid in
an aggregate amount, less any amounts to be paid into Escrow as provided in
Section 8.8.3 herein, to a Shareholders Representative designated in Schedule
2.2.2.A ("Shareholders Representative") for allocation and distribution at the
times and in the amounts agreed to by the Shareholders to each of the
Shareholders entitled to receive payment thereunder. The Shareholders covenant
that the payment of the cash portion of the Earn-Out Consideration by Intek to
the Shareholders Representative and the allocation and distribution to the
Shareholders by the Shareholders Representative will not adversely affect the
tax, accounting or legal effects of the transactions to Intek that Intek would
have received had Intek paid such amounts directly to the Shareholders. The
Shareholders further agree that upon payment of the cash portion of the Earn-Out
Consideration by Intek to the Shareholders Representative, Intek will have fully
performed its payment obligations with respect to the Cash Earn Out under this
Section 2.2.2, and that the Shareholders shall hold Intek harmless and agree to
pay all costs associated with any Intek defense that may arise from any claim
asserted by a Shareholder against Intek in connection with the allocation and
distribution of funds to the Shareholders by the Shareholders Representative.
The stock portion of the Contingent Earn-Out Consideration, if
any, will be earned contingently as of the last day of each annual Measurement
Period and will be paid and delivered within thirty (30) days after the closing
of Intek's books of account for Year 3, free and clear of all liens, charges,
security interests or encumbrances of any kind other than those provided for
herein including, if then in effect, the Intek Shareholders' Agreement (defined
below). The Shareholders shall furnish to Intek on the Closing Schedule 2.2.2.B
which contains the percentages of the Contingent Earn-Out Consideration each
Shareholder is entitled to receive hereunder, which Schedule shall be updated
and promptly furnished to Intek from time to time upon the change of any such
percentages during the Earn-Out Period.
2.2.3. If the parties dispute any Contingent Earn-Out
Consideration calculations, a "big five" accounting firm, which may be Acorn's
then current or Intek's then current accounting firm, or a mutually acceptable
reputable accounting firm, will determine the amount of Contingent Earn-Out
Consideration payable, if any, and such determination shall be final and binding
on the parties. The cost of such determination shall be borne equally by Intek
on the one hand and the Shareholders on the other hand.
2.2.4. Upon payment to the Shareholders of the Intek stock
portion of the Contingent Earn-Out Consideration following Year 3, if any, Intek
will provide to
8
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
the Shareholders upon request of all or any of the Shareholders one of the
following, provided that such request is made no later than three (3) months
prior to the date on which the Shareholders must pay tax on the receipt of such
Intek Shares: (i) a loan with a term of three (3) years, bearing fixed simple
interest at the prime rate reported on the date of the loan in the "Money Rates"
section of the Wall Street Journal (or if such rate is not published, a
-------------------
comparable rate of Citibank, N.A. ("Prime Rate") amortized in equal monthly
payments in an amount equal to up to twenty-five percent (25%) of the fair
market value of Intek Shares held by the requesting Shareholders as of the date
of receipt of the Intek Shares and secured by 25% of the Intek Shares held by
the requesting Shareholders; or (ii) an offer to repurchase at fair market value
twenty-five percent (25%) of the Intek Shares held by the requesting
Shareholders as of such date; or (iii) one demand registration right requiring
Intek to register up to twenty-five percent (25%) of the Intek Shares (except
that in certain circumstances under the Registration Rights Agreement, such
percentage may be increased to up to 50% of the Intek Shares) held by the
requesting Shareholders pursuant to a registered public offering under the
Securities Act of 1933, as amended, and pursuant to a Registration Rights
Agreement in the form attached hereto as Exhibit 2.2.4 (the foregoing
transactions shall be referred to individually as a "Liquidity Event"). The
determination of the manner in which Intek shall provide a Liquidity Event
pursuant to subparagraph (i), (ii) or (iii) above shall be at Intek's sole
discretion. In the case of a grant of registration rights, if the Shareholders
are unable to sell their Intek Shares under a registration statement filed
pursuant to such registration within a sufficient period of time to satisfy
their tax obligations for the receipt of such Intek Shares, Intek will provide
to the Shareholders either (at Intek's sole discretion) a loan or a repurchase
of the Shareholders' Intek Shares in the manner set forth in (i) and (ii) above
less the amount received upon any sale under such registration statement.
2.2.5. Upon issuance and delivery in Year 3 of the Intek Shares
(if any) to the Shareholders entitled to receive Intek Shares pursuant to this
Section 2.2 and Section 2.4, such Shareholders shall become parties to the Intek
Shareholders Agreement (the "Shareholders Agreement") substantially in the form
attached hereto as Exhibit 2.2.5, and as subsequently amended or superseded and
replaced in accordance with the terms of the Shareholders Agreement, and agree
to be bound by the terms and conditions of the Shareholders Agreement and shall
execute and deliver such Shareholders Agreement to Intek prior to the delivery
of Intek Shares hereunder. The Shareholders acknowledge that the terms of the
Shareholders Agreement may change over time in accordance with the terms of the
Shareholders Agreement and that the Shareholders Agreement may be terminated and
not replaced by any other agreement, in accordance with the terms of the
Shareholders Agreement. No Shareholder is entering into this Agreement on the
basis that such changes or termination will not occur. Notwithstanding anything
to the contrary herein, the consent of a majority of the ownership percentages
reflected on Exhibit 2.2.2.B, as the same may be amended, shall be required for
any amendment to the Shareholders Agreement that does not apply to all holders
of the same class of shares as the Intek Shares and that adversely impacts the
Shareholders as a group.
9
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
2.2.6. In addition to the Intek Shares issuable pursuant to this
Section 2.2, the Non-Employee Shareholder shall be entitled to receive 22,500
Spider Shares at the Closing and shall place such Spider Shares in escrow as
provided in the Stock Restriction Agreement. The Non-Employee Shareholder shall
be entitled to receive on the Disbursement Date (as defined in the Stock
Restriction Agreement) such number of shares of Spider Shares equal to the
number of Intek Shares that the Non-Employee Shareholder is entitled to receive
under this Section 2.2 in Year 1, subject to Section 5.16 herein (and as
adjusted for all stock splits, stock dividends, stock combinations and
recapitalizations of Spider common stock and Intek common stock, other than the
Spider spin off transaction) (the "Non-Employee Shares"). As a condition to the
receipt of the Non-Employee Shares hereunder, the Non-Employee Shareholder
agrees to execute and deliver a copy of the Spider Shareholders Agreement that
it executed by the holders of seventy percent (70%) or more of the outstanding
common stock of Spider (the "Spider Shareholders Agreement").
As used in this Section, the Non-Employee Shares includes any and
all proceeds and products of the Non-Employee Shares, whether by dividend,
distribution, as consideration for a merger, or otherwise. In the event such
proceeds or products includes cash, any cash shall be placed in escrow account
as provided in the Stock Restriction Agreement. The Non-Employee Shareholder
shall be entitled to receive on the date the amount of such products or proceeds
in proportion to the number of Non-Employee Shares he is entitled to receive on
the Disbursement Date.
The Non-Employee Shareholder may not sell, transfer, gift,
assign, pledge, encumber or otherwise dispose ("Transfer") of any of his Non-
Employee Shares during his lifetime until receipt of such shares following Year
3, unless to another Acorn Shareholder or to a partnership, trust or other
entity formed for estate planning purposes, subject to the same restrictions
contained in Section 9.20, or with the prior written consent of the Company,
which consent may be withheld for any reason or for no reason. Any Transfer of
the Non-Employee Shares, whether voluntary or involuntary or by operation of
law, which is made in violation of this Section 2.2.6 (other than a Transfer
resulting from a merger or similar event required by applicable law to be
approved by a vote of the shareholders of Spider) shall be null and void and
have no effect, and Intek shall not recognize any such Transfer or recognize the
transferee as the holder of such Non-Employee Shares for any purpose. If the No
Employee Shareholder Transfers his Non-Employee Shares in accordance with this
Section 2.2.6, then such Transfer may be consummated subject to the restrictions
in the Spider Shareholders Agreement; provided, however, that any transferee
-------- -------
thereof shall execute and deliver a counterpart of the Spider Shareholders
Agreement and shall agree to be subject to the restrictions and obligations
thereunder. The Non-Employee Shareholder agrees and acknowledges that any
transfer of his Non-Employee Shares shall be subject to and made in accordance
with the terms of the Spider Shareholders Agreement.
10
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
2.3 Capital for Growth and Economically Justified Capital Expenditures.
------------------------------------------------------------------
2.3.1. Intek will provide certain economically justified capital
contributions to Acorn upon the request of the Chief Executive Officer of Acorn
(a "Capital Request") to fund the growth and ongoing operations of Acorn as
described in the Acorn Business Plan dated May, 1999 ("Business Plan"), and to
facilitate Acorn's achievement of the Minimum EBITDA Targets during the Earn Out
Period. A Capital Request shall be in writing and submitted to the Chief
Executive Officer of Intek, and shall contain a description of the business and
economic justification for such requested capital for each period during the
Earn Out Period. The following table sets forth the maximum levels of
economically justified Capital Expenditure Contributions and economically
justified Working Capital Contributions projected to fund each Minimum EBITDA
Target level:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Capital Expenditures Working Minimum
Contribution Capital Contribution EBITDA
by Intek by Intek Target
$000's $000's $000's
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year 1 $ 500 $1,010 [$ ]
-----------------------------------------------------------------------------------------
Year 2 $ 750 $2,000 [$ ]
-----------------------------------------------------------------------------------------
Year 3 $1,500 $5,000 [$ ]
-----------------------------------------------------------------------------------------
TOTALS: $2,750 $8,010 [$ ]
-----------------------------------------------------------------------------------------
</TABLE>
The final determination of the amount of capital contribution provided by
Intek hereunder will be made by the Chief Executive Officer of Intek with the
advice and counsel of the Chief Executive Officer of Acorn and other Key
Shareholders, taking into account factors, including, without limitation,
Acorn's actual performance compared to its Business Plan, Acorn's projected
volume, profitability and other appropriate business and economic factors.
Intek's judgment is final as to what capital expenditures are economically
justified based on such factors.
2.3.2. Subject to the above limitations, Intek will provide
working capital to Acorn in an amount that is not greater than Acorn's revenues
from sales for a period of fifty (50) days and the amount of Acorn's accounts
payable for a period of thirty-five (35) days. The amount of the capital
contributions provided by Intek pursuant to this Section 2.3 shall be reduced by
the amount of net funds provided by Acorn's operations in the applicable Annual
Measurement Period.
2.3.3. The parties agree and acknowledge that the working
capital contributed by Intek will be used to fund Acorn's normal business
operations, intensify market
11
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
development, pay off past due accounts payable, and pay current interest amounts
owing on the Chase and Fleet loans (as defined below). It is further agreed that
net revenues from Acorn's operations and the proceeds from working capital
contributed by Intek will not be used to pay off the Acorn Officers Loans or
debt to other third parties other than Intek except as specifically provided in
this Agreement.
2.3.4. Notwithstanding the other provisions of this Section 2.3,
if Acorn does not achieve one hundred percent (100%) of the Minimum EBITDA
Target in any single Annual Measurement Period, but achieves seventy-five
percent (75%) or greater than the Minimum EBITDA Target, at Intek's sole
discretion, Intek's capital contribution will be adjusted on a linear basis to
reflect Acorn's actual results compared with the Minimum EBITDA Target. If
Acorn's EBITDA is less than seventy-five percent (75%) of the Minimum EBITDA
Target in any single Annual Measurement Period, Intek, at its sole discretion,
will determine the appropriate level of capital contributions, if any, provided
to Acorn hereunder. If at Intek's sole discretion Intek decides in any Annual
Measurement Period to provide capital contributions despite Acorn's failure to
meet seventy-five percent (75%) of the Minimum EBITDA Target, it will be under
no obligation in any other Annual Measurement Period to provide capital
contributions unless the Minimum EBITDA Targets are met.
2.4 Effect of Employee Departures and Minimum EBITDA Threshold.
----------------------------------------------------------
2.4.1. If the employment of any Key Shareholder is terminated:
2.4.1.1. by a Key Shareholder (other than by reason of
his or her death, Disability or Hardship, or by Intek without Cause or a
material breach of the Employment Agreement by Intek; each such capitalized
term as defined in the Employment Agreement), before Acorn's annual EBITDA,
measured on a trailing 12-month basis, equals or exceeds [$_______] (the
"Annual EBITDA Threshold"); or
2.4.1.2. by Intek for Cause (as defined in the
Employment Agreement) before Annual EBITDA Threshold is achieved,
then such terminated Key Shareholder shall be entitled to
receive (i) his or her portion of the Base Consideration and the Sustained
Profitability Consideration accrued as of the Date of Termination, and (ii) his
or her cash portion only of the Contingent Earn-Out Consideration earned as of
the last Annual Measurement Period ending prior to the Date of Termination
("Earned Cash"). The Terminated Key Shareholder Shares and the Terminated Key
Shareholder Cash Earn-Out shall be canceled and shall not be placed in the Earn-
Out Pool or paid to the Shareholders Representative (as applicable).
The cash portion of the Contingent Earn-Out Consideration
(the "Future Cash Contingent Earn-Out") and the stock portion of the Contingent
Earn-Out
12
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Consideration (the "Future Stock Contingent Earn-Out") that such terminated Key
Shareholder would have been entitled to receive had he or she been an employee
of Acorn after the Annual Measurement Period in which the Date of Termination
occurred shall not be placed in the Earn-Out Pool (as defined in Section 2.4.4)
or paid to the Shareholders Representative for allocation or distribution to the
remaining Shareholders.
The stock portion of any Contingent Earn-Out Consideration for
which a Minimum EBITDA Target has been met for the completed Annual Measurement
Period(s) ending prior to the Date of Termination ("Earned Stock") will
terminate and be canceled immediately and will not be placed in the Earn-Out
Pool (as defined in Section 2.4.4 below) for allocation or distribution to the
remaining Shareholders and neither such terminated Key Shareholder nor any other
Shareholder will have any right to receive such Earned Stock.
2.4.2. Upon Acorn's achievement of the Annual EBITDA Threshold,
up to two Key Shareholders may terminate their employment with Acorn with the
consent of the Chief Executive Officers of Acorn and Intek, respectively, which
consent will not be unreasonably withheld. Upon the voluntary termination by a
Key Shareholder of his or her employment with Acorn after achievement of the
Annual EBITDA Threshold and with the consent of the Acorn and Intek Chief
Executive Officers, such Key Shareholder shall be entitled to receive:
2.4.2.1. his or her portion of the Base Consideration
and the Sustained Profitability Consideration accrued as of the Date
of Termination;
2.4.2.2. his or her portion of the Earned Cash;
2.4.2.3. his or her portion of the Terminated Key
Shareholder Cash Earn-Out subject to Section 2.4.4 herein; and
2.4.2.4. the right to receive following Year 3 his or
her Earned Stock and the Terminated Key Shareholder Shares, subject to
Section 2.4.4.
The terminated Key Shareholder's Future Cash Contingent
Earn-Out shall be paid to the Shareholders Representative pursuant to
Section 2.2 for distribution to the remaining Shareholders and the Future
Stock Contingent Earn-Out shall be placed in the Earn-Out Pool for
allocation and distribution to the remaining Shareholders.
Notwithstanding the above, if after achievement of Annual EBITDA
Threshold a Key Shareholder either (A) is terminated for Cause by Intek or (B)
voluntarily terminates his or
13
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
her employment (other than by reason of his or her death, Disability or
Hardship, or by Intek without Cause or a material breach of the Employment
Agreement by Intek) but without the consent of the Acorn and Intek Chief
Executive Officers or after two or more Key Shareholders have previously
terminated their employment, then such terminated Key Shareholder will be
entitled to receive: (i) his or her portion of the Base Consideration and the
Sustained Profitability Consideration accrued as of the Date of Termination; and
(ii) his or her Earned Cash. The Terminated Key Shareholder Cash Earn Out and
the terminated Key Shareholder's Future Cash Contingent Earn-Out shall be paid
to the Shareholders Representative for distribution to the remaining
Shareholders, and the Earned Shares, Terminated Key Shareholder Shares and the
Future Stock Contingent Earn-Out shall be placed in the Earn-Out Pool for
allocation and distribution to the remaining Shareholders.
2.4.3. Upon the termination of a Key Shareholder's employment at
any time due to Hardship, death or Disability or a material breach of the
Employment Agreement by Intek or termination by Intek without Cause, such Key
Shareholder (or his or her estate or beneficiary) will be counted toward the 2
Key Shareholders who may leave after the Annual EBITDA Threshold is achieved
under Section 2.4.2 and will be entitled to receive:
2.4.3.1. his or her portion of the Base Consideration
and the Sustained Profitability Consideration accrued as of the Date
of Termination;
2.4.3.2. his or her Earned Cash;
2.4.3.3. his or her portion of the Terminated Key
Shareholder Cash Earn-Out;
2.4.3.4. the right to receive his or her portion of the
Terminated Key Shareholder Shares following Year 3 out of the Earn-Out
Pool; and
2.4.3.5. the right to receive following Year 3 his or
her Earned Shares.
Such terminated Key Shareholder (or his or her estate or
beneficiary) will not be entitled to receive any Contingent Earn-Out
Consideration which is earned or accrues after the end of the Annual Measurement
Period in which the Date of Termination occurred, whether paid in cash or stock.
The Future Cash Contingent Earn-Out shall be paid to the Shareholders
Representative and the Future Stock Contingent Earn-Out shall be placed in the
Earn-Out Pool for allocation or distribution to the remaining Shareholders,
subject to the other provisions of Section 2.4.4.
14
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
2.4.4. Upon the termination of employment for any reason of
or by a Key Shareholder, the decision of whether or not to hire a Replacement
Employee, and the person or persons to be hired (including his or her
compensation package), if any, will be made with the prior consent of the Chief
Executive Officer of Intek, which consent will not be unreasonably withheld. If
a Replacement Employee is recruited and/or hired to replace a terminated Key
Shareholder and he or she is granted stock options or stock as part of his or
her employment compensation with Acorn, a number of the Terminated Key
Shareholder Shares shall be allocated and reserved for issuance to the
Replacement Employee equal to the number of shares granted to the Replacement
Employee and the number of shares reserved for issuance for options granted to
the Replacement Employee exercisable as of the end of Year 3. In accordance with
the other provisions of this Section 2.4, the remaining Terminated Key
Shareholder Shares (if any) shall be designated and reserved by Intek (the "Earn
- -Out Pool") for allocation or distribution as so directed by the Shareholders to
the remaining Shareholders upon receipt of such Intek Shares following Year 3.
Further, the Terminated Key Shareholder Cash Earn-Out (if any) shall be
allocated first to pay for any recruiting fees, signing bonuses or similar
guaranteed payments (other than moving costs) to be paid in connection with the
hiring of the Replacement Employee.
2.4.5. The payment of any Terminated Key Shareholder Cash
Earn-Out that a terminated Key Shareholder is entitled to receive under this
Section 2.4 will be made within thirty (30) days of the date Intek determines
the amount of Contingent Earn-Out Consideration payable, if any, for the Annual
Measurement Period in which such Key Shareholder's employment is terminated,
less any amounts to be paid into Escrow in accordance with Section 8.8.3 herein.
2.4.6. Each Shareholder will consult with his or her own tax
advisor to determine the tax effect of each provision of this Agreement on the
Shareholder, including the possible application of Section 83 of the Code.
2.5 Closing.
-------
The Closing shall be effective as of the date hereof (the "Closing Date").
The Closing will take place at the offices of Chrisman, Bynum & Johnson, P.C.,
1900 Fifteenth Street, Boulder, Colorado 80302, or at such other place as the
parties may mutually agree.
2.5.1. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Shareholders shall deliver to Intek:
2.5.1.1. the certificates representing the Acorn Shares
held by each Shareholder, duly endorsed, or along with duly executed
stock powers;
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
2.5.1.2. Employment Agreements, together with all
exhibits thereto, in the form of Exhibit 6.1.1 executed by each of
the Key Shareholders and Acorn;
2.5.1.3. a certificate in the form attached hereto as
Exhibit 6.1.2 executed by the Shareholders and an officer of Acorn
certifying that each of the representations and warranties made in
ARTICLE 3 is accurate in all Material respects as of the Closing
Date and that each of the covenants, terms and conditions of this
Agreement have been complied with and performed in all Material
respects as of the Closing Date;
2.5.1.4. a certificate executed by the Secretary of Acorn
in the form attached hereto as Exhibit 6.1.6;
2.5.1.5. an Escrow Agreement in the form attached hereto
as Exhibit 8.8.3 executed by each of the Shareholders;
2.5.1.6. an Opinion executed by counsel to Acorn and the
Shareholders in the form attached hereto as Exhibit 6.1.7;
2.5.1.7. resignations of all officers and directors of
Acorn, from such positions (but not as employees) except those
persons continuing as directors or officers under Section 5.5
hereof;
2.5.1.8. a letter from Prospero LLC. ("Prospero") in the
form attached hereto as Exhibit 2.5.1.8 agreed and acknowledged by
Acorn, and the Transaction Advisor Fee Payment Agreement in the form
attached hereto as Exhibit 2.7 executed by Prospero and acknowledged
by Acorn and the Shareholders; and
2.5.1.9. an affidavit in the form attached hereto as
Exhibit 3.36 executed by Acorn and each of the Shareholders.
2.5.2. Subject to the terms and conditions set forth in this
Agreement, at the Closing, Intek shall deliver to the Shareholders:
2.5.2.1. each such Shareholder's portion of that amount
of the Purchase Price which is, as of the date of the Closing,
payable to the Shareholders pursuant to Schedule 2.2.2.B herein in
cash or immediately available funds;
2.5.2.2. Employment Agreements, together with all
16
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
exhibits thereto, in the form of Exhibit 6.1.1. executed by Intek;
2.5.2.3. a certificate in the form attached hereto as
Exhibit 6.2.2. executed by an officer of Intek certifying that each
of the representations and warranties made in ARTICLE 3 is accurate
in all Material respects as of the Closing Date and that each of the
covenants, terms and conditions of this Agreement have been complied
with and performed in all Material respects as of the Closing Date;
2.5.2.4. an Escrow Agreement in the form attached hereto
as Exhibit 8.8.3 executed by Intek;
2.5.2.5. an Opinion executed by counsel of Intek in the
form attached hereto as Exhibit 6.2.6;
2.5.2.6. the Transaction Advisor Fee Payment Agreement in
the form attached hereto as Exhibit 2.7 executed by Intek; and
2.5.2.7. a certificate executed by the Secretary of Intek
in the form attached hereto as Exhibit 6.2.5.
2.6 Transaction Costs. Except as set forth in Section 2.7 below, the
-----------------
parties will each be solely responsible for and bear all of their respective
expenses in connection with the negotiation, documentation or consummation of
the transactions contemplated in this Agreement including, without limitation,
expenses of legal counsel, accountants and other advisors, and any fees of any
finder or broker, whether or not such transactions are consummated. Without
limitation, this shall include the obligation of the Shareholders to pay the
legal fees of Wiggin and Dana and the obligation of Intek to pay the legal fees
of Chrisman, Bynum & Johnson, P.C.
2.7 Transaction Advisor Fees. In consideration for services rendered by
------------------------
Prospero in connection with the transactions contemplated by this Agreement,
Intek will issue to Prospero on behalf of Acorn the number of shares of Intek
common stock ("Transaction Advisor Shares") as set forth in the Transaction
Advisor Fee Payment Agreement attached hereto as Exhibit 2.7 and subject to the
terms and conditions of such Agreement Except as set forth in this Agreement,
Intek shall assume no liability for any taxes or other payments of Prospero,
Acorn or the Shareholders. Acorn and the Acorn Shareholders acknowledge the
acceptance by Prospero of the Transaction Advisor Shares in partial
consideration for services rendered by Prospero to Acorn. The Shareholders
agree to hold Intek harmless and to pay all costs associated with any Intek or
Acorn defense that may arise from any claim asserted by Prospero, or an
intermediary on its behalf, in connection with the payments to be made by the
Shareholders under the Engagement Letter with Prospero dated August 3, 1998 (as
amended). Intek agrees to hold the Shareholders harmless and to pay all costs
associated with any Shareholder defense that may arise from any
17
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
claim asserted by Prospero, or an intermediary on its behalf, in connection with
the consideration to be paid by Intek under the Transaction Advisor Fee Payment
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACORN
---------------------------------------
AND THE SHAREHOLDERS
--------------------
Acorn and the Shareholders (as limited by ARTICLE 8) represent and warrant
to Intek as of the Closing:
3.1 Authorization Capitalization; Outstanding Shares. The authorized
------------------------------------------------
capital stock of Acorn on the date hereof consists of 5,000 shares of Class A
common stock, with a stated par value of $0.01 per share, of which 1,840 shares
are issued and outstanding and 5,000 shares of Class B (non-voting) common
stock, with a stated par value of $0.01 per share, of which no shares are issued
and outstanding. All of the issued and outstanding Shares of Acorn stock are
duly authorized, fully paid, validly issued and non-assessable, with no personal
liability attaching to the ownership hereof. Each Shareholder is the record and
beneficial owner of, and has marketable, legal and valid title to, the shares of
Acorn common stock as set forth on Schedule 3.1 free and clear of any liens,
charges, claims, security interests or encumbrances of any kind.
3.2. Organization; Good Standing; Power; Etc. Acorn: (i) is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) is authorized or licensed to do business as a
foreign corporation and is in good standing in the jurisdictions listed in
Schedule 3.2; (iii) is not required to be authorized or licensed to do business
as a foreign corporation in any other jurisdiction (within or without the United
States) except jurisdictions in which Acorn's failure to qualify to do business
will have no Material adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of Acorn or, if Acorn
is not so qualified in any such jurisdiction, it can become so qualified in such
jurisdiction without any Material adverse effect; and (iv) has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as currently conducted.
3.3 Agreements Relating to Stock; Options; Warrants; Restrictions on
----------------------------------------------------------------
Shares; Etc. Except as set forth on Schedule 3.3, neither Acorn nor any
- -----------
Shareholder, is a party to any written or oral agreement, understanding,
arrangement or commitment or bound by any certificate of incorporation, bylaw or
instrument (including options, warrants or convertible securities) which creates
any rights in any person with respect to shares of the capital stock or any
other securities of Acorn including any which relates to the voting of,
restricts the transfer of, requires Acorn or the Shareholder to issue or sell,
or creates rights in any person with respect to the capital stock or other
securities of Acorn (or warrants or rights with respect thereto). There exist
no options or
18
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
other rights to purchase, or rights to convert any securities or obligations
into, any shares of the capital stock or other securities of Acorn.
3.4 Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Acorn's corporate charter or articles of incorporation, as
amended to date ("Charter"), certified by the appropriate officials of the
jurisdiction of incorporation; and (ii) Acorn's Bylaws, as amended to date
("Bylaws"), are attached as Schedule 3.4.A. Such Charter and Bylaws are fully
in force and effect, and Acorn is not in violation of any of the provisions
thereof. A complete and correct list of all officers and directors of Acorn is
set forth in Schedule 3.4.B.
3.5 No Subsidiaries. Acorn does not own and Acorn has never owned, any
---------------
interest, directly or indirectly, in any other corporation, person, company,
limited liability company, business, trust, partnership, limited partnership,
joint venture, or other entity or association, except as listed on Schedule 3.5.
3.6 Authorizations and Enforceability. Each Shareholder and Acorn has
---------------------------------
all requisite power and authority to execute, deliver and perform this
Agreement, and any ancillary agreements hereto, and to consummate the
transactions contemplated hereby. This Agreement and the Documents have been
duly and validly authorized by Acorn, and have been duly and validly executed
and delivered by each Shareholder and by Acorn and constitute the valid and
binding obligation of each Shareholder and Acorn fully enforceable in accordance
with their respective terms, except as may be limited by principles of public
policy and except as indemnification provisions may be limited by securities
laws, and subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.7 Effect of Agreement, Etc. The execution, delivery and performance of
------------------------
this Agreement and the Documents by each Shareholder and by Acorn and the
consummation of the transactions contemplated hereby will not, with or without
the giving of notice of the lapse of time, or both: (i) violate any provision of
law, statute, rule or regulation to which Acorn or any Shareholder is subject;
(ii) violate any judgment, order, writ or decree of any court, arbitrator or
governmental agency applicable to Acorn or any Shareholder; (iii) have any
effect on any of Acorn's permits, licenses, tariffs, orders or approvals or the
ability of Acorn to make use of such permits, licenses, tariffs, orders or
approvals or (iv) result in the breach of or conflict with any term, covenant,
condition or provision of, result in the modification or termination of,
constitute a default under, or result in the creation or imposition of, any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Acorn or any Shareholder pursuant to any charter, bylaw, commitment,
contract or other agreement or instrument, including any of the Commitments (as
defined in Section 3.16) to which Acorn or any Shareholder is a party or by
which any of its assets or properties are or may be bound or affected or from
which Acorn or any Shareholder derives benefit, except as set forth in Schedule
3.7.
19
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.8 Restrictions; Burdensome Agreements. Except as set forth in Schedule
-----------------------------------
3.8, neither Acorn nor any Shareholder is a party to any contract, commitment or
agreement, and neither Acorn nor any of the Shareholders or any of their
respective properties and assets are subject to or bound or affected, by any
charter, bylaw or other corporate restriction, or any order, judgment, decree,
law, statute, ordinance, rule, regulation or other restriction of any kind or
character, which would: (i) prevent any Shareholder or Acorn from entering into
this Agreement or the Documents or from consummating the transactions
contemplated hereby; or (ii) have a Material adverse effect on the business,
properties, prospects or the condition, financial or otherwise, of Acorn. None
of Acorn's contracts or agreements are on terms more burdensome to Acorn than
typical contracts and agreements in its industry for companies the size and
scope of Acorn.
3.9 Government Consents. No consent, authorization or approval of, or
-------------------
exemption by, or filing with, any governmental, public or self-regulating body
or authority (including, but not limited to, any licensing authority with
jurisdiction over the services used or provided by Acorn) is required by any
Shareholder or by Acorn for consummation of this Agreement or any of the
instruments or agreements herein referred to, or the taking of any action herein
contemplated.
3.10 Compliance; Licenses and Permits.
--------------------------------
3.10.1. Acorn has all requisite corporate power and
authority, and all permits, licenses, tariffs, orders and approvals of
governmental and administrative authorities which are Material, to own, lease
and operate its properties and to carry on its business as presently or
previously conducted; all such presently existing permits, licenses, tariffs,
orders and approvals Material to the conduct of the business of Acorn are listed
in Schedule 3.10, are in full force and effect, and no suspension or
cancellation of any of them is pending or threatened.
3.10.2. Acorn has complied in all respects with, and is not
in violation in any respect of, all or any Legal Requirements (as defined below)
applicable to the business of Acorn as presently or previously conducted, or as
currently proposed to be conducted, except where such non-compliance or
violation has not had, and could not reasonably be expected to have, a Material
adverse effect upon Acorn. Acorn has all federal, state, local and foreign
governmental tariffs, orders, licenses and permits (collectively, "Permits")
which are required for the conduct of its business presently or previously
conducted by Acorn, which Permits are in full force and effect, and no
violations are outstanding or uncured with respect to any such Permits and no
proceeding is pending or, to the best of Acorn's knowledge, threatened to revoke
or limit any thereof. Acorn and the Shareholders have no knowledge or reason to
know of any such Permits with respect to any Acorn employees that are not in
full force and effect, or have violations outstanding or uncured with respect
thereto, or any proceedings pending or threatened to revoke or limit any such
Permits. No condition or event has occurred which, with notice or the passage of
time or both, would constitute a violation of a Legal
20
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Requirement or Permit except where such noncompliance or violation has not had,
and could not reasonably be expected to have, a Material adverse effect upon
Acorn. "Legal Requirement" means any applicable law, rule, regulation, order or
ordinance. Acorn's current and currently contemplated activities and services
will not violate any Legal Requirement in such a fashion as to have a Material
adverse effect on Acorn.
3.11 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
3.11.1. Acorn's most recent audited financial statements as
of and for the period ended December 31, 1998, and Acorn's unaudited balance
sheets and income statements dated as of August 31, 1999 (the "Acorn Financial
Statements"), are attached as Schedule 3.11.1 The Acorn Financial Statements
have been prepared in accordance with GAAP (without reference to Intek's
application thereof), and fairly present, in all Material respects, the
financial condition and results of operations of Acorn as of the dates
indicated. Without limitation, any reduction in the net book value of Acorn of
more than $50,000 is "Material" for purposes of this Section. The August 31,
1999 balance sheet is referred to as the "Balance Sheet" and August 31, 1999 is
referred to as the "Balance Sheet Date." The historical books and records of
Acorn for the fiscal year period ended December 31, 1998, have been sufficiently
prepared to permit the preparation of audited financial statements by Intek
after the Closing in accordance with the financial accounting rules applicable
in connection with any registered public offering of Intek securities under the
Securities Act of 1933, as amended. The books and records of Acorn for the
fiscal years ended December 31, 1997 and 1996 have been prepared in all Material
respects consistently with the financial accounting rules applied to the Acorn
books and records for fiscal year 1998, except that the for the fiscal years
1997 and 1996 the cash basis method of accounting was used.
3.11.2. Except to the extent reflected or reserved against
or otherwise disclosed in the Acorn Financial Statements or in Schedule 3.11.2,
as of the Balance Sheet Date, Acorn had no liabilities, debts or other
obligations of any nature, whether absolute, accrued, contingent or otherwise,
or whether due or to become due, including, without limitation, liabilities for
Taxes, in excess of $50,000 in any one case or which in the aggregate exceed
$100,000. Subsequent to the Balance Sheet Date, Acorn has not incurred any
liabilities, debts or obligations other than in the ordinary course of business
(and such ordinary course items do not in the aggregate exceed $50,000), except
as listed in Schedule 3.11.2, or otherwise disclosed herein including the
accounts payable report described below or in the Schedules hereto, and has
endeavored to properly record in its books of account all items of income and
expense and all other proper charges and accruals required to be made in
accordance with GAAP (without reference to Intek's application thereof. Since
the Balance Sheet Date, no debts or liabilities of or to Acorn have been
forgiven, settled or compromised, except for full consideration or except in the
ordinary course of business. To assist in disclosing the status of its debts
Acorn has delivered to Intek an accounts payable report, as prepared in the
ordinary course of Acorn's business, which report was created not more than five
(5) days before the date of this Agreement.
21
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
The parties recognize that in the ordinary course of business invoices arrive at
various times.
3.12 Tax Matters.
-----------
3.12.1. Acorn's fiscal year for income tax reporting
purposes ends December 31.
3.12.2. Acorn has timely filed (including extensions) all
Tax Returns that are required to have been filed by it with the appropriate
federal, state, county and local government agencies or instrumentalities, that
would have a Material adverse effect if not filed. Acorn has paid or established
reserves shown on the Balance Sheet (plus not more than $10,000 of additional
reserves subsequent to the Balance Sheet Date) for all income, franchise,
payroll and other Taxes. An estimate of accrued Taxes is set forth in Schedule
3.12. There is no pending dispute with any Taxing authority relating to any of
Acorn's Tax Returns. Acorn is not subject to any proposed Material liability for
any Tax to be imposed upon its properties or assets for which there is not an
adequate reserve reflected in the Acorn Financial Statements or accrued since
the Balance Sheet Date. No federal or state income or sales Tax Returns of Acorn
have been audited. Acorn has not executed or filed with any Taxing authority any
agreement extending the period for assessment or collection of any Taxes.
Complete and correct copies of the income tax returns of Acorn for fiscal years
ending in 1995, 1996, 1997, and 1998 as filed with the Internal Revenue Service
and all state taxing authorities, together with all related correspondence and
notices, have previously been delivered to Intek. Acorn has not consented to
having the provisions of Section 341(f) (which relates to collapsible
corporations) of the Code apply to it.
3.12.3. Acorn has never elected to be treated as a
Subchapter S corporation as provided by the Code.
3.13 Title to Properties; Absence of Liens and Encumbrances; Etc. Acorn
-----------------------------------------------------------
does not own any real property. Except as set forth in Schedule 3.13, Acorn
owns good and marketable title to the properties and assets used in its business
(including, without limitation, the assets reflected in the Acorn Financial
Statements, except as since sold or otherwise disposed of in the ordinary course
of business), free and clear of all mortgages, security interests, claims,
liens, charges, encumbrances, restrictions on use or transfer or other defects
in title. The fixed assets of Acorn reflected in the Acorn Financial Statements
are all located on real property owned or leased by Acorn and all personal
property located at or on such real property is owned or leased (as disclosed in
the Schedules) by Acorn. Acorn is not a bailee for any other entity, except as
set forth on Schedule 3.13. The leases and other agreements under which Acorn
holds, leases or is entitled to the use of any real property or personal
property involving lease payments of over $18,000 per year are set forth in
Schedule 3.16 (the "Scheduled Leases") and are in full force and effect, and all
rentals, royalties or other payments payable thereunder prior to the date hereof
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<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
have been duly paid. All "buy-out" prices under the Scheduled Leases are shown
on Schedule 3.16, regardless as to whether the lessee has any obligation to
purchase such property.
3.14 Facilities; Equipment and Condition. Schedule 3.14 sets forth a
-----------------------------------
correct and complete list of all of the furniture, fixtures or equipment having
a book value, before accumulated depreciation or amortization, of more than
$50,000 (or, in the case of any such equipment which is leased and does not have
a book value for purposes of Acorn's financial statements, in the opinion of
Acorn management has a fair market value in excess of $50,000), buildings,
plants, warehouses and other real estate owned or used by Acorn in the conduct
of its businesses ("Fixed Assets"), indicating whether such property is owned or
leased, and complete legal descriptions of all real property. The Fixed Assets
owned, operated or leased by Acorn are in good condition and repair (ordinary
wear and tear excepted) and suitable for the uses for which intended. All such
Fixed Assets are operated in conformity with all applicable laws, ordinances,
regulations, orders and other requirements relating thereto currently in effect,
scheduled to come into effect, or proposed.
3.15 Insurance. Schedule 3.15 contains a correct and complete
---------
description (including amounts, scope and coverage) of all of the policies of
insurance and fidelity or surety bonds carried by Acorn. All such policies are
in full force and effect. Acorn has not failed to give any notice or present
any claim under any insurance policy, fidelity bond or surety bond in due and
timely fashion. There are no outstanding requirements or recommendations by any
insurance company that issued a policy with respect to any of the properties and
assets owned or leased by Acorn or by any governmental authority requiring or
recommending any repairs or other work to be done on or with respect to any of
the properties and assets owned or leased by Acorn or requiring or recommending
any equipment or facilities to be installed on or in connection with any of the
properties or assets owned or leased by Acorn. The worker's compensation and
unemployment insurance ratings of Acorn have been made available to Intek.
There are no Material proposed premium increases on any of Acorn's insurance
policies and no conditions or circumstances applicable to the business of Acorn
which might result in such increase except as shown on Schedule 3.15.
3.16 Contracts. All contracts, agreements and instruments, to which
---------
Acorn is a party are valid, binding and in full force and effect in all Material
respects, and are valid, binding and enforceable by Acorn in accordance with
their respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Acorn has
no knowledge or any reason to know of any default by any other party to such
contracts in any Material respect under such contracts, agreements or
instruments. Each of such Material contracts, agreements and instruments has
been listed on Schedule 3.16 attached hereto.
Except as set forth in Schedule 3.16, or another Schedule hereto, Acorn is
not a party to, nor are its properties and assets bound or affected by, any oral
or written:
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<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.16.1. contracts, agreements, or instruments providing for
payments by or to Acorn of $50,000 or more per year;
3.16.2. employment or consulting agreements which provide
for compensation at the rate of more than $50,000 per year (including all
salary, bonuses and commissions);
3.16.3. employment or consultant policies or agreements,
express or implied, placing any limits (other than a notice period not exceeding
30 days) on Acorn's right to terminate at will the employment or retention of
any employee or consultant;
3.16.4. agreement involving more than $50,000 guaranteeing,
indemnifying or otherwise becoming liable for the obligations or liabilities of
another, or involving more than $50,000 of compensating balances, or agreeing to
assure another person meets any financial covenant; or
3.16.5. agreement which restricts the conduct of business
anywhere in the world.
Correct and complete copies of all such agreements, plans, policies,
documents and arrangements (or, where they are oral, true and complete written
summaries thereof) (collectively referred to herein as the "Commitments") have
been delivered to Intek prior to the date hereof.
3.17 Litigation. Except as set forth in Schedule 3.17, there is no
----------
pending or, to the best of Acorn's knowledge, threatened claim, action, suit,
proceeding, arbitration, investigation or inquiry pending before any federal,
state, municipal, foreign or other court or any governmental, administrative or
self-regulatory body or agency, or any private arbitration tribunal which may
have any Material adverse effect upon the assets, properties or business of
Acorn or the transactions contemplated by this Agreement. Neither Acorn, nor
any officer, director, partner, agent or employee of Acorn has been permanently
or temporarily enjoined or barred by order, judgment or decree of any court or
other tribunal or any agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with the business engaged in by
Acorn. Except as set forth in Schedule 3.17, there is not in existence at
present any order, judgment or decree of any court or other tribunal or any
agency or self-regulatory body to which Acorn or the business, properties or
assets of Acorn are subject or by which they are bound. Acorn is not in
Material default under any order, license, tariff, regulation or demand of any
Federal, state, municipal, foreign or other governmental, administrative or
self-regulatory body or with respect to any order, writ, injunction or decree of
any court or arbitration body.
3.18 Intellectual Property and Other Intangible Assets.
-------------------------------------------------
24
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.18.1. Except as set forth in Schedule 3.18, Acorn (i) owns
or has the right to use, free and clear of all liens, claims and restrictions,
all patents, trademarks, service marks, trade names, copyrights, licenses and
rights, used in the conduct of its business as now conducted or as proposed to
be conducted without infringing upon the right or claimed right of any person
under or with respect to any of the foregoing, and (ii) is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner of, licensor of, or other claimant to, any patent,
trademark, tradename, copyright or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
Acorn has not received any written communication alleging that Acorn or any of
its employees has violated or infringed upon, or, by conducting Acorn's business
as proposed, would violate or infringe upon, any patent, trademark, service
mark, trade name, copyright, license, or right of any other person or entity.
All patents, trademarks, service marks, tradenames, copyrights and licenses (and
applications therefor) owned or used by Acorn are listed on Schedule 3.18
hereto, and such schedule indicates which such rights are owned.
3.18.2. Except as set forth on Schedule 3.18.2, Acorn owns
or has the unrestricted right to use all trade secrets, including know-how,
inventions, designs, processes, computer programs and technical data required
for or incident to the development, manufacture, operation, sale and licensing
of all products and services sold or licensed or proposed to be sold or licensed
by Acorn (together with the rights listed in Schedule 3.18, such rights will be
hereinafter referred to collectively as the "Intellectual Property"), free and
clear of any rights, liens or claims of others, including without limitation
former employers of all employees of Acorn. All computer software which is in
any way used or to be used in conducting the business (except "off-the-shelf"
software, such as word processing and spreadsheet packages, to which Acorn has
express, written licenses) was created wholly by employees of Acorn, or was
created by independent contractor programmers who expressly, and in writing,
assigned to Acorn all rights, title and interest in such software, including all
copyright(s) and appurtenant rights.
3.18.3. No third party currently infringes, or has
threatened infringement, of any Intellectual Property owned, licensed or used by
Acorn as set forth in Schedule 3.18.
3.18.4. Except as disclosed in Schedule 3.18.4, Acorn has
not ever conveyed, or is currently under an obligation to convey, any right,
title or interest in or to any of the Intellectual Property to any third party
other than in the ordinary course of its business.
3.19 No Interest in Competitors; Etc. Except as set forth in Schedule
-------------------------------
3.19, none of the Key Shareholders, nor any officer or director of Acorn or any
immediate family member or spouse of any such person, or trust for their
benefit, directly or indirectly, owns any interest in (excluding the ownership
of securities representing less than 5% of any class of publicly traded
securities) or controls or is an employee, officer, director or partner of, or
participant in or consultant to, any corporation, partnership, limited liability
company, limited partnership, joint
25
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
venture, association or other entity which is in the same line of business as
Acorn or Intek, or a creditor, debtor, supplier, customer, landlord, tenant,
lessor or lessee, of Acorn, or has any type of business, commercial, consulting
or professional relationship with Acorn.
3.20 Books and Records. The books and records of Acorn are located at 4
-----------------
Corporate Drive, Shelton, Connecticut. The books of account and other financial
and corporate records of Acorn are in all Material respects complete and
correct, and are maintained in accordance with good business practices, as could
reasonably be expected for a company the size and scope of Acorn (provided,
however, that this representation does not diminish the representations in
Section 3.11). The minute books of Acorn, as made available to Intek and its
counsel, contain complete and accurate records of all meetings and accurately
reflect all other corporate action of the shareholders and directors (and
committees thereof) of Acorn through the date hereof.
3.21 Insider Transactions. Schedule 3.21 (when read with Schedule 3.19)
--------------------
sets forth: (i) the amounts and other essential terms of indebtedness or other
obligations, liabilities or commitments (contingent or otherwise), whether
written or oral, of Acorn to or from any past or present officer, director, or
shareholder or any person related to, controlling, controlled by or under common
control with any of the foregoing (other than for usual services performed in
connection with such person's employment with Acorn, the payment for which is
not yet due and does not constitute a bonus); and (ii) all proposed transactions
with such persons, together with the essential terms thereof.
3.22 Employees. Since August 1, 1999, there has been no resignation or
---------
termination of any officer or key employee of Acorn that has had or is expected
to have a Material adverse effect on Acorn. Acorn has received no
communication that any key employee or key consultant of Acorn is considering:
(i) terminating his or her employment or consultant status; or (ii) seeking a
substantial increase in compensation or benefit.
3.23 Union Contracts; Labor Relations; Etc. Acorn is not presently, and
-------------------------------------
has not been, party to any union or collective bargaining agreement. Acorn is
in compliance in all Material respects with all applicable laws, rules and
regulations respecting employment conditions and practices, has withheld all
amounts required by law or agreement to be withheld from the wages or salaries
of its employees and Acorn is not liable for arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. Acorn has not
engaged in any unfair labor practice, nor has Acorn discriminated on the basis
of race, religion, age or sex, or other protected category in its employment
conditions or practices, nor has Acorn taken any Material adverse action against
any employee or consultant in breach of any agreement or policy, express or
implied, oral or written, nor taken any Material adverse action against any
employee or consultant in violation of public policy. Except as set forth in
Schedule 3.23 or in another Schedule to this Agreement, there are no: (i)
charges or complaints of unfair labor practices, race, religion, age, sex or
other discrimination, breach of employment or consultant agreement or policy, or
breach of public policy pending or threatened against Acorn before any board,
26
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
department, commission, agency or court, nor does any basis therefor exist; (ii)
existing or threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting Acorn; or (iii) pending or threatened union
representation questions respecting the employees of Acorn.
3.24 Employee Benefit Plans. Except as listed on Schedule 3.24, Acorn
----------------------
does not have any employee benefit plan, stock option plan, stock appreciation
plan, stock purchase plan, profit sharing plan, or retirement or deferred
compensation plan (collectively "Plans"). Acorn has no liability (contingent or
otherwise) to any other person (including a Plan trust or Plan) in respect of
any profit sharing, retirement, deferred compensation or other employee benefit
plan that is maintained, sponsored or contributed to by another person.
3.25 Bank Accounts and Safe Deposit Arrangements. Schedule 3.25 sets
-------------------------------------------
forth a correct and complete list of each bank account, brokerage account,
similar account and safe deposit box maintained by Acorn, and the names of all
authorized signatories on such accounts.
3.26 Powers of Attorney. No person has any power of attorney to act on
------------------
behalf of Acorn in connection with any of the properties or business affairs of
Acorn.
3.27 No Finder. Except as provided for in Section 2.7, neither Acorn nor
---------
the Key Shareholders has taken any action which would give to any person a right
to a consultant's or finder's fee or any type of brokerage commission in
relation to or in connection with the transactions contemplated by this
Agreement.
3.28 No Material Adverse Change. Except as set forth in Schedule 3.28,
--------------------------
since the Acorn Balance Sheet Date:
3.28.1. Acorn has not entered into any Material transaction
which was not in the ordinary course of its business except as contemplated or
disclosed by this Agreement;
3.28.2. There has been no Material adverse change to the
business operations or financial condition of Acorn other than changes in the
ordinary course of its business, none of which, individually or in the
aggregate, has a Material adverse effect;
3.28.3. There has been no damage to, destruction of or loss
of physical property (whether or not covered by insurance) that has had a
Material adverse effect on the business or operations of Acorn;
3.28.4. There has been no resignation or termination of
employment of any officer or key employee of Acorn, and Acorn does not have any
actual knowledge or reason to know of the impending resignation or termination
of employment of any
27
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
officer or key employee of Acorn that would have a Material adverse effect on
the business of Acorn;
3.28.5. All loans or advances made by Acorn to any of its
employees, officers or directors are disclosed on Schedule 3.21, which Schedule
sets forth the name of such employee, officer or director, the loan amount, the
date of the loan, the maturity date and the other terms of each such loan.
3.28.6. Acorn has not made or granted any employee a bonus,
or any general or specific wage or salary increase, outside the ordinary course
of business (and in any event less than 10%), engaged any new officer, or
engaged any new employee outside the ordinary course of business;
3.28.7. Acorn has not made any increase in or commitment to
increase any employee benefits or adopted or made any commitments to adopt any
additional employee benefit plan;
3.28.8. Acorn has not declared or paid any distribution to
its Key Shareholders, whether in the nature of dividends or otherwise, or
purchased or redeemed any of its outstanding shares of capital stock or other
securities, or paid any debt for borrowed money to any Shareholder or any
affiliate of a Shareholder; and
3.28.9. Acorn has not issued or sold any shares of its
capital stock or any other securities, or granted any options or other rights
for the purchase of any shares of its capital stock or other securities.
3.29 Investment Representations. Each Shareholder individually
--------------------------
represents and warrants to Intek that:
3.29.1. he or she is acquiring Intek Shares, if applicable,
for his or her own account for investment, not for the interest of any other
person, not for resale to any other person and not with a view to or in
connection with a sale or distribution;
3.29.2. he or she has provided the information requested in
written due diligence requests of Intek to the Shareholder related to the
Shareholder, and that such information provided by him or her is true and
correct in all respects;
3.29.3. he or she has had an opportunity to ask questions of
and receive answers from representatives of Intek with respect to the
acquisition of the Intek Shares. Intek has made available to him or her all
documents requested and has provided answers to all such persons' questions
relating to receipt of the Intek Shares, including the Intek Financial
Statements (as defined in Section 4.7);
28
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.29.4. he or she acknowledges that, because the Intek
Shares will not have been registered under the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws, any resale
inconsistent with the Act may create liability on his or her part and/or the
part of Intek, and agrees not to assign, sell, pledge, transfer or otherwise
dispose of or transfer any of the Intek Shares unless registered under the
Securities Act and applicable state securities laws or he has delivered an
opinion of counsel satisfactory to Intek that such registration is not required;
3.29.5. he or she is able to bear the economic risk of an
investment in the Intek Shares and, by reason of his or her business or
financial experience or the business or financial experience of his or her
professional advisors who are unaffiliated with and who are not compensated by
Intek, directly or indirectly, has the capacity to protect his or her own
interests in connection with the transactions contemplated hereby; and
3.29.6. he or she acknowledges that all certificates of the
Intek Shares and the Spider Shares issued pursuant hereto, shall contain
substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY
MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE
UNLESS (I) A REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT IS IN EFFECT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO, AND ARE SUBJECT TO A SHARE PURCHASE AGREEMENT AMONG INTEK INFORMATION,
INC., ACORN INFORMATION SERVICES, INC. AND CERTAIN ACORN KEY SHAREHOLDERS
NAMED THEREIN, DATED ________________, 1999, AS AMENDED FROM TIME TO TIME,
AND A CERTAIN SHAREHOLDERS AGREEMENT AMONG INTEK INFORMATION, INC. AND
CERTAIN SHAREHOLDERS NAMED THEREIN, DATED ___________, ________ AS AMENDED
FROM TIME TO TIME COPIES OF SUCH AGREEMENTS ARE AVAILABLE AT THE OFFICES OF
THE ISSUER.
3.29.7. his or her state of residence and mailing address is
as shown on Schedule 3.29.7.
29
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
3.29.8. Each Shareholder hereby agrees that, to the extent such
Shareholder receives Intek Shares which become issuable pursuant to the terms
and conditions of this Agreement at any time subsequent to the date of the
Closing, such Shareholder will reaffirm, in writing for the benefit of Intek,
the representations set forth in this Section 3.29 as of the date of the
issuance of the Intek Shares.
3.29.9. Neither Acorn nor any Shareholder, nor any "associate" of
Acorn or any Shareholder as such term is defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended, is, or has a relationship with, a member of
the National Association of Securities Dealers, Inc. ("NASD"), or is an officer,
director, registered representative, lender, employee or beneficial owner of 10%
or more of a NASD member or any corporation or entity which owns a 10% or
greater ownership interest in an NASD member.
3.30 Suppliers and Customers. Except as set forth in Schedule 3.30, there
-----------------------
are no Material agreements of over twelve (12) months in duration which commit
Acorn to carry on business at fixed prices or prices determined by an
established formula. No supplier or customer accounted for more than five
percent (5%) of Acorn's consolidated sales or purchases in either the past
fiscal year or in the interim period ended as of the Balance Sheet Date, and no
supplier or customer Material to Acorn's business has terminated its
relationship with Acorn, or has since the Balance Sheet Date decreased or
delayed Materially, or threatened to decrease or delay Materially, its services
or supplies to Acorn.
3.31 Securities Act, Etc. Neither Acorn, nor its respective officers,
-------------------
directors, or controlling persons (a) have been convicted within the ten years
preceding the date of this Agreement of any felony or misdemeanor of the types
described in Rule 262 (b)(1) under the Securities Act, (b) are subject to an
order, judgment or decree of the types described in Rule 262(b)(2) under the
Securities Act, (c) are subject to an order of the SEC of the types described in
Rule 262(b)(3) under the Securities Act, (d) have been suspended or expelled
from, or suspended or barred from association with a member of, a national
securities exchange or as described in Rule 262(b)(4) under the Securities Act
or (e) are subject to an order or injunction as described in Rule 262(b)(5)
under the Securities Act.
3.32 Lawyers and Accountants. Acorn and the Key Shareholders are not
-----------------------
relying upon any investigation made by Intek's counsel or accountants or the
presence of such counsel or accountants as an indication that counsel or the
accountants has reviewed or passed upon the representations, warranties,
projections or business plan of Intek or the wisdom of an investment in Intek.
3.33 Accounting Controls. Neither Acorn, nor any director, officer,
-------------------
agent, employee, consultant or other person associated with or acting on behalf
of any Acorn, has (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses
30
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
relating to political activity or (b) made any direct or indirect unlawful
payments to government officials or others from corporate funds or established
or maintained any unlawful or unrecorded funds.
3.34 Names. Since the date of its inception, Acorn has not used any trade
-----
name, d/b/a, or other name to identify itself, except Acorn Information
Services, Inc.
3.35 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Acorn or any Key Shareholder in this Agreement, or any document,
exhibit, statement, certificate or schedule furnished to Intek by a representing
party pursuant hereto, or in connection with the transactions contemplated
hereby, intentionally contains any untrue statement of a Material fact, or
intentionally omits to state any Material fact necessary to make the statements
or facts contained herein or therein in the context in which they were made not
misleading. Any forecasts or projections, including in the Business Plan,
delivered by or on behalf of Acorn are not guarantees or representations as to
performance and Acorn and the Key Shareholders expressly disclaim any warranty
as to the profitability or future prospects of Acorn.
3.36 Not A United States Real Property Interest. Acorn has delivered to
------------------------------------------
Intek an affidavit in the form attached as Exhibit 3.36 hereto certifying that
Acorn is not and has never been a United States Real Property Holding Company as
defined in the Code.
3.37 Other. Acorn has delivered to Intek Certificates of the Secretary of
-----
State (or other authorized officer) of the State of Delaware certifying as of a
date within thirty (30) days before the Closing Date that Acorn is, as of such
date, in good standing and authorized to transact business as a domestic
corporation. Acorn has delivered to Intek Certificates of the Secretary of
State (or other authorized officer) of each jurisdiction in which Acorn is
qualified to do business as a foreign corporation, certifying as of a date
within thirty (30) days before the Closing Date that Acorn is, as of such date,
in good standing and authorized to transact business as a foreign corporation in
such jurisdiction. Acorn has delivered the written resignations, effective as
of the Closing, of all officers and members of the Board of Directors of Acorn
except those persons to remain as directors or officers, as applicable,
hereunder. The approvals and all consents from third parties and governmental
agencies (including under Blue Sky laws) required by Acorn, or a Shareholder
(other than approvals or consents required by Acorn the absence of which would
not have a Material adverse effect on the ability of Intek or Acorn to operate
their respective business after the Closing) required to consummate the
transactions contemplated hereby and any additional regulatory consents have
been obtained.
3.38 Year 2000 Compliance. In all Material respects, products used by
--------------------
Acorn, and products sold and/or licensed by Acorn in the conduct of its business
and all other products used in combination with products sold and/or licensed by
Acorn, are designed to be used prior to, during and after the calendar year
2000 A.D. and will be capable of accurately processing date data, without error,
delay or the need for manual input with respect to date data, specifically
31
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
including without limitation date data which represents or references the 20/th/
and 21/st/ centuries, including the years 1999 and 2000 and February 29, 2000.
Without limiting the generality of the foregoing:
(i) The equipment, hardware, software and intellectual properties
included in the Acorn assets will not abnormally end or provide invalid or
incorrect results as a results of date data, specifically including date data
which represents or references different centuries or more than one century.
(ii) The equipment, hardware, software and Intellectual Property owned,
licensed, leased or used by Acorn have been designed to ensure year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century.
(iii) The equipment, hardware, software and Intellectual Property owned,
licensed, leased or used include "Year 2000 capabilities". "Year 2000
capabilities" means the equipment, hardware, software and Intellectual Property:
(a) will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an abnormally
ending scenario within the application or generate incorrect values or invalid
results involving such dates; and
(b) provides that all date-related user interface functionalities and
data fields include the indication of century; and
(c) provides that all date-related data interface functionalities
include the indication of century.
Intek expressly acknowledges that Acorn has relied on the representations
and warranties of third party vendors with respect to such vendors' products
used, sold or licensed by Acorn.
3.39 Due Diligence. Acorn has provided to Intek the information requested
-------------
in the due diligence request dated August 27, 1999, and the information so
provided was true and correct in all Material respects.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INTEK
---------------------------------------
Intek represents and warrants (as limited by ARTICLE 8) to Acorn and the
Shareholders as follows as of the Closing:
32
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
4.1 Organization; Good Standing; Power; Etc. Intek (i) is a corporation
---------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware; (ii) is authorized or licensed to do business as a foreign
corporation and is in good standing in the jurisdictions listed in Schedule 4.1;
(iii) is not required to be authorized or licensed to do business as a foreign
corporation in any other jurisdiction (within or without the United States)
except jurisdictions in which Intek's failure to qualify to do business will
have no Material adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of Intek or, if Intek
is not so qualified in any such jurisdiction, it can become so qualified in such
jurisdiction without any Material adverse effect; and (iv) has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as currently conducted.
4.2 Restrictions; Burdensome Agreements. Intek is not a party to any
-----------------------------------
contract, commitment or agreement, and its properties and assets are not subject
to or bound or affected, by any charter, bylaw or other corporate restriction,
or any order, judgment, decree, law, statute, ordinance, rule, regulation or
other restriction of any kind or character, which would: (i) prevent Intek from
entering into this Agreement or the Documents or from consummating the
transactions contemplated hereby; or (ii) have a Material adverse effect on the
business, properties, prospects or the condition, financial or otherwise, of
Intek. To the best of Intek's knowledge, none of Intek's contracts or
agreements are on terms more burdensome to Intek than typical contracts and
agreements in its industry for companies the size and scope of Intek.
4.3 Subsidiaries. Intek does not own and Intek has never owned, any
------------
interest, directly or indirectly, in any other corporation, person, company,
limited liability company, business, trust, partnership, limited partnership,
joint venture, or other entity or association, except Brokerage Administrators
Corporation, Intek Insurance, Inc., Intek Teleservices, Inc., and Spider.
4.4 Capitalization; Outstanding Shares. The authorized capital stock of
----------------------------------
Intek consists solely of 105,805,860 shares of Common Stock, with a stated par
value of $0.0001 per share, of which 40,506,547 shares are or will be issued and
outstanding (on an as converted to common stock basis) immediately prior to the
Closing and 63,321,322 shares of outstanding Preferred Stock, which have been
designated as Series A, Series B, Series C, Series D and Series E Preferred
Stock as set forth in the Capitalization Table attached hereto as in Schedule
4.4. The outstanding shares of capital stock of Intek have been duly authorized
and validly issued, and are fully paid and non-assessable. A complete and
accurate schedule listing all shareholders of Intek and the number of shares
held by each such shareholder on an as converted to common stock basis is set
forth in Schedule 4.4 and such Schedule will be updated as of the Closing by an
officer's certificate of Intek. As of the Closing and at all times thereafter,
Intek shall have reserved the maximum number of shares which could constitute
Intek Shares for issuance hereunder. Except as set forth in (i) Schedule 4.4;
(ii) the Intek Amended and Restated
33
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Certificate of Incorporation, as amended; and (iii) the Amended and Restated
Shareholders Agreement, dated as of October 1, 1999, there are no preemptive
rights or rights of first refusal with respect to Intek's capital stock, and
there are no written or oral agreements, understandings, arrangements or
commitments, certificate of incorporation, bylaw or instrument (including
options, warrants or convertible securities) which creates any rights in any
person with respect to shares of the capital stock or any other securities of
Intek including any which relates to the voting of, restricts the transfer of,
requires Intek to issue or sell, or creates rights in any person with respect to
the capital stock or other securities of Intek (or warrants or rights with
respect thereto).
4.5 Charter and Bylaws; Officers and Directors. Complete and correct
------------------------------------------
copies of: (i) Intek's corporate charter or articles of incorporation, as
amended to date ("Intek Charter"), certified by the Secretary of State of
Delaware; and (ii) Intek's Bylaws, as amended to date ("Intek Bylaws"), are
attached as Schedule 4.5.A. Such Charter and Bylaws are fully in force and
effect, and Intek is not in violation of any of the provisions thereof. A
complete and correct list of all officers and directors of Intek is set forth in
Schedule 4.5.B.
4.6 Authorization. Intek has all requisite power and authority to
-------------
execute, deliver and perform this Agreement, and any ancillary agreements
hereto, and to consummate the transactions contemplated hereby. All corporate
action on the part of Intek, its directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Documents by Intek has been taken. This Agreement constitutes, and the
Documents constitute, valid and binding obligations of Intek, enforceable in
accordance with their respective terms, except as may be limited by principles
of public policy and except as indemnification provisions may be limited by
securities laws, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The Intek
Shares, when issued in compliance with the provisions of this Agreement at their
respective times of issuance, (i) will be validly issued, fully paid and non
assessable, will be free of any liens or encumbrances, and will not be subject
to any restrictions on transfer (except for those set forth in the Shareholders
Agreement or herein), provided, however, that such shares may be subject to
--------
restrictions on transfer under the state and/or federal securities laws as set
forth herein, and (ii) are not and will not be subject to any preemptive rights
or rights of first refusal except for those in the Shareholders Agreement, the
Intek Charter, as may be amended from time to time, and herein.
4.7 Financial Statements. Intek's audited balance sheets dated as of the
--------------------
fiscal years ended 1997 and 1998 and Intek's audited statements of operations
for the fiscal years ended 1997 and 1998, and Intek's unaudited balance sheet
and statement of operations for the interim period ended June 30, 1999 (the
"Intek Financial Statements") are attached as Schedule 4.7. The Intek Financial
Statements have been prepared in accordance with GAAP, and fairly present, in
34
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
all Material respects, the financial condition and results of operations of
Intek as of the dates indicated.
4.8 No Material Adverse Change. Since August 1, 1999 (the "Intek
--------------------------
Reference Date"), there has not been any Material adverse change in the
business, financial position or results of operation or prospects of Intek.
4.9 Material Liabilities. Except as described in the Intek Financial
--------------------
Statements, herein, or Schedule 4.9, Intek does not have any obligations or
liabilities (whether accrued, absolute or contingent) other than obligations or
liabilities incurred in the ordinary course of business since the Intek
Reference Date, in excess of $500,000 in any one case or which is Material to
Intek.
4.10 Material Contracts. All contracts, agreements and instruments to
------------------
which Intek is a party are valid, binding and in full force and effect in all
Material respects, and are valid, binding and enforceable by Intek in accordance
with their respective terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Neither
Intek nor, to the best of Intek's knowledge, any other party to such contracts,
agreements or instruments is in default in any Material respect under such
contracts, agreements or instruments, except as listed on Schedule 4.10.
4.11 Compliance with Other Instruments, None Burdensome, Etc. Intek is
--------------------------------------------------------
not in violation of any Material term or provision of the Intek Charter or Intek
Bylaws, or any Material mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree, and to its knowledge is not in violation of any
order, statute, rule or regulation applicable to Intek. The execution, delivery
and performance of and compliance with this Agreement, and the issuance of the
Intek Shares, have not resulted and will not result in any violation of, or
conflict with, or constitute a default under, any of the terms of the Intek
Charter or Intek Bylaws or any corporate restriction or of any indenture,
mortgage, deed of trust, pledge, bank loan or credit agreement, or any
instrument, document or agreement by which Intek or its properties may be bound
or affected, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of Intek.
4.12 Litigation, Etc. Except as set forth in Schedule 4.12, there is no
---------------
claim, action, suit, proceeding, arbitration, investigation or inquiry pending
before any federal, state, municipal, foreign or other court or any
governmental, administrative or self-regulatory body or agency, or any private
arbitration tribunal, (or to the best of Intek's knowledge is there any threat,
or basis for, any such claim, action, suit, proceeding arbitration,
investigation or inquiry), which may have any Material adverse effect upon the
assets, properties or business of Intek or the transactions contemplated by this
Agreement. Neither Intek nor any officer, director, partner, agent or employee
of Intek has been permanently or temporarily enjoined or barred by order,
35
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
judgment or decree of any court or other tribunal or any agency or self-
regulatory body from engaging in or continuing any conduct or practice in
connection with the business engaged in by Intek. There is not in existence at
present any order, judgment or decree of any court or other tribunal or any
agency or self-regulatory body to which Intek or the business, properties or
assets, of Intek are subject or by which they are bound. Intek is not in
Material default under any order, license, tariff, regulation or demand of any
federal, state, municipal, foreign or other governmental, administrative or
self-regulatory body or with respect to any order, writ, injunction or decree of
any court or arbitration body.
4.13 Governmental Consents. No consent, approval or authorization of, or
---------------------
exemption by, or filing with any governmental, public or self regulatory body or
authority is required by Intek for the consummation of this Agreement or any of
the instruments or agreements referred to, or the taking of any action, herein
contemplated, except for the qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) of the
issuance of the Intek Shares under applicable Blue Sky laws or SEC rules and
regulations, which filings and qualifications, if required, will be accomplished
by Intek in a timely manner prior to or within ten (10) days after the date of
issuance of the Intek Shares).
4.14 Intek Tax Matters.
-----------------
4.14.1. Intek's fiscal year for income tax reporting
purposes ends December 31.
4.14.2. Intek has timely filed (including extensions) all
Tax Returns that are required to have been filed by it with appropriate federal,
state, county and local government agencies or instrumentalities, that would
have a Material adverse effect if not filed, except as provided in Schedule
4.14. Intek has paid or established reserves for all income, franchise, payroll
and other Taxes except as set forth in Schedule 4.14. There is no pending
dispute with any taxing authority relating to any of Intek's Returns. To the
best of Intek's knowledge, Intek is not subject to any proposed Material
liability for any Tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Intek Financial Statements or
accrued since the date of the Intek Financial Statements. No federal or state
income or sales Tax Returns of Intek have been audited. An estimate of accrued
Taxes is set forth in Schedule 4.14. Intek has not executed or filed with any
Taxing authority any agreement extending the period for assessment or collection
of any Taxes. Intek has not consented to having the provisions of Section 341(f)
(which relates to collapsible corporations) of the Code apply to it.
4.14.3. Intek has never been taxed pursuant to Subchapter S
of the Code.
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<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
4.15 Offering. Subject to the accuracy of Acorn's and the Shareholders'
--------
representations in ARTICLE 3 hereof, which representations shall be reaffirmed
as of the date of any issuances of Intek Shares pursuant hereto, the offer, sale
and issuance of the Intek Shares constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act and applicable Blue
Sky laws. Neither Intek nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
4.16 Brokers or Finders. Except as set forth in Section 2.7 hereof,
------------------
Intek has not incurred, and will not incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement. Intek will indemnify and hold Acorn
and the Shareholders harmless for any breach of this Section 4.16.
4.17 Compliance; Licenses and Permits.
--------------------------------
4.17.1. Intek has all requisite corporate power and authority,
and all permits, licenses, tariffs, orders and approvals of governmental and
administrative authorities which are Material, to own, lease and operate its
properties and to carry on its business as presently or previously conducted.
All such presently existing permits, licenses, tariffs, orders and approvals
Material to the conduct of the business of Intek are in full force and effect,
and no suspension or cancellation of any of them is pending or, to the best of
Intek's knowledge, threatened.
4.17.2. Intek has complied in all respects with, and is not in
violation in any respect of, all or any Legal Requirements applicable to the
business of Intek as presently or previously conducted, or as currently proposed
to be conducted except where such non-compliance or violation has not had, and
could not reasonably be expected to have, a Material adverse effect upon Intek.
Intek (including to the best of Intek's knowledge all applicable employees) has
all Permits which are required for the conduct of its business presently or
previously conducted by Intek, which Permits are in full force and effect, and
no violations are outstanding or uncured with respect to any such Permits and no
proceeding is pending or, to the best of Intek's knowledge, threatened to revoke
or limit any thereof. No condition or event has occurred which, with notice or
the passage of time or both, would constitute a violation of a Legal Requirement
or Permit except where such noncompliance or violation has not had, and could
not reasonably be expected to have, a Material adverse effect upon Intek. To
the best of Intek's knowledge, its current and currently contemplated activities
will not violate any Legal Requirement in such a fashion as to have a Material
adverse effect on Intek.
4.18 Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by Intek in this Agreement, or any Document, exhibit, statement,
certificate or schedule furnished by Intek to a Key Shareholder or Acorn
pursuant hereto, or in connection with the transactions contemplated hereby, to
the best of Intek's knowledge intentionally contain any untrue statement of a
Material fact, or intentionally omit to state any Material fact necessary to
make the
37
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
statements or facts contained herein or therein in the context in which they
were made not misleading.
4.19 Lawyers and Accountants. Intek is not relying upon any
-----------------------
investigation made by Acorn's counsel or accountants or the presence of such
counsel or accountants as an indication counsel or the accountants has reviewed
or passed upon the representations, warranties, projections or business plan of
Acorn or the wisdom of an investment in Acorn.
4.20 Effect of Agreement, Etc. The execution, delivery and performance
------------------------
of this Agreement by Intek and the consummation of the transactions contemplated
hereby will not, with or without the giving of notice of the lapse of time, or
both: (i) violate any provision of law, statute, rule or regulation to which
Intek is subject; (ii) violate any judgment, order, writ or decree of any court,
arbitrator or governmental agency applicable to Intek; (iii) have any effect on
any of Intek's permits, licenses, tariffs, orders or approvals or the ability of
Intek to make use of such permits, licenses, tariffs, orders or approvals,
except as set forth in Schedule 4.20; or (iv) result in the breach of or
conflict with any term, covenant, condition or provision of, result in the
modification or termination of, constitute a default under, or result in the
creation or imposition of, any lien, security interest, charge or encumbrance
upon any of the properties or assets of Intek pursuant to any charter, bylaw,
commitment, contract or other agreement or instrument to which Intek is a party
or by which any of its assets or properties are or may be bound or affected or
from which Intek derives benefit.
4.21 Other. Intek has delivered to Acorn Certificates of the Secretary
-----
of State (or other authorized officer) of the State of Delaware certifying as of
a date within thirty (30) days before the Closing Date that Intek is, as of such
date, in good standing and authorized to transact business as a domestic
corporation. Intek has delivered to Acorn Certificates of the Secretary of
State (or other authorized officer) of Delaware, Colorado, California and Kansas
certifying as of a date within thirty (30) days before the Closing that Intek
is, as of such date, in good standing and authorized to transact business as a
foreign corporation in such jurisdiction. Intek has obtained the approvals and
all consents from third parties and governmental agencies (including under Blue
Sky laws, except to the extent obligations to obtain such approvals and consents
are not yet required) required to consummate the transactions contemplated
hereby and any additional regulatory consents have been obtained (other than
approvals or consents required by Intek the absence of which would not have a
Material adverse effect on the ability of Intek or Acorn to operate their
respective business after the Closing).
ARTICLE 5
OTHER COVENANTS AND AGREEMENTS
------------------------------
Acorn, the Shareholders and Intek covenant that as of the Closing (and
continuing after the Closing as to the parties named in and covenants contained
in Sections 5.1, 5.9, 5.11, 5.12,
38
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
5.13, 5.14, 5.15, 5.16 and 5.17):
5.1 Access to Information.
---------------------
5.1.1. Financial Information. Intek shall:
---------------------
5.1.1.1. deliver to each of the Shareholders as soon as
practicable, but in any event within forty-five (45) days after available
to Intek, an income statement, balance sheet and statement of shareholder's
equity as of the end of such fiscal year, prepared in accordance with GAAP
and audited and certified by independent public accountants of nationally
recognized standing selected by Intek.
5.1.1.2. upon request, deliver to each Shareholder such
financial and other business information relating to Intek as Intek
routinely provides to Intek executives of similar responsibility and
compensation levels as the Key Shareholders who are not also members of the
Intek Executive Management Committee (as provided in Section 5.17 below);
and
5.1.1.3. make available for inspection at Intek's offices all
financial statements and other written materials relating to Intek's
financial condition that is distributed to the Intek Executive Management
Committee.
5.1.2. Inspection. Intek shall permit each Shareholder at such
----------
Shareholder's expense, to visit and inspect Intek's properties, to examine its
books of account and records and to discuss Intek's finances and accounts with
its officers, all at such reasonable times as may be requested by the
Shareholder and in accordance with applicable law.
5.1.3. Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Section 5.1.1 and 5.1.2 herein shall terminate as to each
Shareholder and be of no further effect upon the effective date of an IPO or
when Intek first becomes subject to the periodic reporting requirements of the
Exchange Act (or similar provisions then in effect), or if such Shareholder is
no longer a holder of Intek Shares, whichever event shall first occur.
Notwithstanding the foregoing, Intek shall not be required to comply with the
requirements in Section 5.1.1.3 upon the termination of employment of any Key
Shareholder with Acorn for any reason.
5.2 Business Relationships. Acorn shall use all reasonable efforts to
----------------------
preserve present relationships with suppliers, customers, employees, vendors,
and others having relationships with the businesses of Acorn. Acorn will
conduct its operations and business only in the normal course of business
consistent with past practices and in compliance with all applicable laws,
statutes, rules, regulations, ordinances and orders.
39
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
5.3 No Shop. As an inducement to Intek to provide the Bridge Loan, Acorn
-------
executed and delivered to Intek a Standstill Agreement, dated June 4, 1999,
incorporated herein by reference and attached hereto as Exhibit 5.3, which
governs the rights and obligations of Acorn and Intek with respect to
discussions or agreements with other parties concerning the transactions
contemplated by this Agreement. Such Standstill Agreement remains in effect.
5.4 Amendments. Acorn agrees not to amend, revoke or suspend any
----------
provision in the Acorn Charter or Bylaws except as requested by Intek in
connection herewith.
5.5 Resignations and Closing Date Board. The Key Shareholders and Acorn
-----------------------------------
as of the Closing will have caused the resignation of all necessary officers and
directors, and the election of officers and directors, so that immediately after
the Closing the Board of Directors and officers of Acorn may be as contemplated
in Schedule 5.5.
5.6 Signature Cards. Acorn shall prepare new signature cards for each
---------------
bank, depository, savings, brokerage or similar account, of Acorn, effective as
of the Closing.
5.7 Additional Financial Statements. Acorn shall, on a monthly basis,
-------------------------------
deliver to Intek the reconciled bank statements, check registers, accounts
receivable aging reports and accounts payable aging reports of Acorn, prepared
in the ordinary course of business, but in no event shall any such monthly
statements be delivered later than thirty (30) days after the end of the
applicable period.
5.8 Satisfaction of Conditions. The parties hereto each shall use their
--------------------------
best efforts to satisfy any Conditions of Closing set forth in ARTICLE 6 herein
or in any other document executed in connection with this Agreement or the
transactions contemplated herein.
5.9 Tax Elections - Post Closing Change. No new elections with respect
-----------------------------------
to taxes or any changes in current elections with respect to taxes affecting
Acorn shall be made after the date of this Agreement without the prior written
consent of Intek.
5.10 This Section intentionally left blank.
-------------------------------------
5.11 Confidentiality. Intek, Acorn and each Shareholder acknowledge and
---------------
agree that each party will have access to certain "Confidential Information" (as
defined below) of the other parties, and in the future may gain additional
Confidential Information. For the purpose of this Agreement, "Confidential
Information" shall mean (x) information regarding the business of Intek or of
Acorn which is not generally known and which gives such entity an advantage over
competitors who do not know or use it, including but not limited to Intek's or
Acorn's plans for future products or developments and (y) confidential
information concerning third persons (including employees) which is not
generally known. Notwithstanding the foregoing, Confidential Information shall
not include: (i) information which is, or was at the time it was
40
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
disclosed, generally or readily obtainable by the public or the trade, (ii)
information which is publicly known or becomes known, through no fault or
activity of the party to whom the Confidential Information was disclosed, (iii)
information disclosed pursuant to the requirement of a court, administrative
agency, or other governmental body, or (iv) information which is disclosed
pursuant to applicable law, rule or regulation. Intek and Acorn (on a post-
Closing basis as to Confidential Information of the Shareholders), and each of
the Shareholders (as to Confidential Information of Intek and Acorn) agree at
all times to regard and preserve as confidential such Confidential Information,
and to refrain from publishing or disclosing any part of it and from using,
copying or duplicating it in any way or by any means whatsoever. Each of the
Shareholders agrees to certify the destruction of or to return any Confidential
Information to the owner of such Confidential Information upon request.
5.12 Covenant Not to Compete.
-----------------------
5.12.1. Covenant. In exchange for the consideration provided by
--------
Intek and the entering into of this Agreement, and in order to protect the trade
secrets of the Subject Company (as defined below), each Key Shareholder
severally, not jointly, hereby agrees with Intek that such Key Shareholder shall
not compete directly or materially with a Subject Company in the business of (i)
inbound or outbound telemarketing or teleservicing; (ii) outsourced
teleservicing; (iii) customer direct e-servicing business, which includes,
without limitation, the design, development, marketing and sale of business
tools (including business rules and processes) and computer software that assist
businesses and other organizations in selling products directly to consumers on
the Internet, or (iv) "data mining" by which demographic data is either gathered
or analyzed in order to direct or improve marketing or customer service
activities (collectively the "Business"), during the Non-Compete Period (as
defined below). The parties agree that they shall not during such period make
public statements in derogation of each other, except as may be required by law.
For the purposes of this Section, the term "Subject Company" shall mean Intek
and any direct or indirect subsidiaries, parents and affiliates of Intek
including Acorn. Competing directly or materially with the Subject Company shall
mean (a) either (i) engaging or (ii) having a material interest (any ownership
or profit interest over 5% always being material), directly or indirectly, as
owner, employee, officer, director, partner, venturer, shareholder, capital
investor, consultant, agent, principal, advisor or otherwise, either alone or in
association with others, in the operation of any individual or entity engaged in
(b) the Business within Canada or the continental United States, including the
California counties which would appear here if each county in California was
listed here. Competing directly or materially with the Subject Company, as used
in this Agreement, shall be deemed not to include an ownership interest as an
inactive investor, which for purposes of this Section shall mean the beneficial
ownership of less than five percent (5%) of the outstanding shares of any series
or class of securities of any competitor of the Subject Company, which shares
are publicly traded in the securities markets. The Key Shareholders agree that
the Business is inherently nationwide in scope.
41
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
5.12.2. The Key Shareholders each acknowledge that he or she has
had or will have contacts with employees and/or customers of the Subject
Company. Accordingly, the Key Shareholders each covenant and agree that during
the term of the Non-Compete Period, he or she will not (i) solicit or hire any
of the employees of a Subject Company who were employed by a Subject Company at
or within one month before the Closing or during the Key Employee's employment
by a Subject Company, (ii) interfere with the relationship of the Subject
Company with any such employees, or (iii) personally target or solicit, or
assist another to target or solicit, customers of Acorn for activities related
to the Business, or attempt to influence any of the customers of the Subject
Company not to do business with the Company.
5.12.3. Remedies. Each of the Key Shareholders acknowledges and
--------
agrees that his or her obligations provided herein are necessary and reasonable
in order to protect the Subject Company and its business, and each Key
Shareholder expressly agrees that monetary damages may be inadequate to
compensate the Subject Company for any breach by any Key Shareholder of his or
her covenants and agreements set forth herein. Accordingly, each Key Shareholder
agrees and acknowledges that, in addition to any other remedies that may be
available, in law, in equity or otherwise, the Subject Company, and any
successor or assign thereof, shall be entitled to obtain specific performance of
this Section.
5.12.4. Term. The term of the Covenant Not to Compete set forth
----
herein (the "Non-Compete Period") shall begin on the Closing Date and end either
(i) if the Date of Termination is before the EBITDA Threshold is achieved, the
longer of one (1) year after the Date of Termination or three (3) years after
the Closing Date; or (ii) if the Date of Termination is after the EBITDA
Threshold is achieved, the earlier of one (1) year after the Date of Termination
or three (3) years after the Closing Date. Notwithstanding the foregoing
provisions of this Section 5.12, the Covenant Not to Compete may be reduced in
scope, geographic area or time as to a particular Key Shareholder pursuant to
the written employment agreements that have been attached as Exhibit 6.1.1. A
Key Shareholder shall have no obligation under this Section 5.12 if the Intek
Chief Executive Officer consents, which consent shall not be unreasonably
withheld, to a Key Shareholder's employment or performance of services for a
business that does not directly compete with the Business. This provision does
not prohibit the Subject Company and any other person from entering into any
other covenant not to compete or other agreement, including the Employment
Agreements, with different provisions and the obligations of the Key
Shareholders under this Section 5.12 are independent from any such other
covenant not to compete or other agreements.
5.12.5. Severability. Should any one or more of the provisions of
------------
this Section 5.12 be determined to be illegal or unenforceable, then such
illegal or unenforceable provision shall be modified by the proper court or
arbitrator to the extent necessary and possible to make such provision
enforceable, and such modified provision and all other provisions of this
Section and of each other agreement entered into pursuant to this Section shall
be given effect separately from the provision or portion thereof determined to
be illegal or unenforceable and
42
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
shall not be affected thereby. If any of the provisions of Section 5.12 relating
to the scope, periods or geographic area of restriction shall be deemed to
exceed the maximum scope, periods of time or geographic area which a court of
competent jurisdiction would deem enforceable, the scope, times and geographic
area shall, for the purposes of Section 5.12, be deemed to be the maximum scope,
time periods and geographic area which a court of competent jurisdiction would
deem valid and enforceable in any state in which such court of competent
jurisdiction shall be convened. The invalidity or unenforceability of any such
provision in one jurisdiction shall not affect its validity or enforceability in
another jurisdiction.
5.13 Governmental Filings. If any filings are required under federal,
--------------------
state or other securities laws for the delivery of the stock portion of the
Contingent Earn-Out Consideration or for the delivery of the Intek or Spider
Shares, the parties will cooperate in such filings.
5.14 Good Faith. The parties will act in good faith in connection with
----------
the matters described herein.
5.15 Existing Acorn Loans; Bridge Loan.
---------------------------------
5.15.1. Chase and Fleet Loans. Upon the earlier of Acorn's
---------------------
achievement of Sustained Profitability or November 30, 1999, Intek will obtain a
release of the Key Shareholders from their obligations under their personal
guaranties on loans provided to Acorn by The Chase Manhattan Bank ("Chase") and
Fleet Bank ("Fleet"). Acorn will not make any prepayments on the Chase and
Fleet loans without Intek's prior written consent; provided, however, that
--------
Intek's consent will not be required to make interest payments on the Chase and
Fleet loans and principal payments necessary to maintain the minimum draw under
such loans.
5.15.2. Bridge Loan. Upon the earlier of Acorn's achievement of
-----------
Sustained Profitability or November 30, 1999, Intek will (a) release the Key
Shareholders from their obligations under their personal guaranties of the
Bridge Loan and (b) reduce the interest rate on the Bridge Loan to six percent
(6%) per annum effective as of the month following achievement of Sustained
Profitability or November 30, 1999 (whichever is earlier) and until the Bridge
Loan is paid in full.
5.15.3. Acorn Officers Loans. Upon the achievement of Sustained
--------------------
Profitability by Acorn and cumulative EBITDA from June 1, 1999 as reported by
Acorn of an amount equal to or greater than $1,500,000, the Acorn Officers Loans
will be repaid in full by Acorn. If Acorn fails to achieve either or both of
these tests by January 1, 2001, then the Acorn Officers Loans will be will be
paid in full by Intek or Acorn on January 1, 2001.
5.16 Unwind Provision; Changes in Control; Intek IPO.
-----------------------------------------------
5.16.1. If, within three (3) years from the Closing, Intek
becomes
43
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
insolvent or sells all or substantially all of the stock or assets of Acorn to a
third party, the Key Shareholders will have a right of first refusal to purchase
the stock or assets of Acorn as the case may be on the same price and terms as
the proposed sale, or Acorn's appraised value if Intek is insolvent and Acorn is
not being sold.
5.16.2. In the event of a Change in Control of Intek or an
IPO of Intek securities:
a. the stock portion of the Contingent Earn-Out
Consideration payable under Section 2.2 (and subject to Section 2.4) for any
prior years during the Earn Out Period shall be delivered to the Key
Shareholders within thirty (30) days of such event free and clear of any liens,
charges, security interests or encumbrances of any kind other than the
Shareholders Agreement or other agreements generally applicable to Intek's
common stock.
b. for any full year Contingent Earn-Out
Consideration payable under Section 2.2 (and subject to Section 2.4) for the
year in which the Change in Control or IPO occurs, the cash portion will be paid
to the Shareholders Representative (less any amounts to be paid into Escrow
pursuant to Section 8.8.3 herein) and the stock portion will be delivered to the
Shareholders upon the calculation by Intek of the Contingent Earn-Out
Consideration payable for that full year but not later than thirty (30) days
after Intek's determination of the amount of such Earn-Out Consideration.
5.17 Board Observer; Executive Management Committee.
----------------------------------------------
5.17.1. Venkat Sharma, as of the Closing, shall be designated as
a nonvoting observer on the Intek Board of Directors and will be entitled to
attend Board meetings. Observer status on the Intek Board of Directors will
terminate if the Acorn Key Shareholders sell more than fifty percent (50%) of
their Intek Shares or upon an IPO of Intek's securities, or upon an Intek Change
in Control.
5.17.2. Venkat Sharma and Shoba Murali, as of the closing, shall
be designated members of the Intek Executive Management Committee ("EMC") and
will be entitled to participate in EMC meetings. Solely at the discretion of
Intek's Chief Executive Officer, EMC participation may terminate if the Acorn
Key Shareholders sell more than fifty percent (50%) of their Intek Shares, upon
Intek Change in Control or if the individual ceases being an Acorn employee.
5.17.3. The above rights shall terminate as to any person who
has been terminated as an Acorn employee for Cause (as defined in the Employment
Agreement), or who has violated the confidentiality, non-compete or another
material term of this Agreement.
44
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
ARTICLE 6
CONDITIONS OF CLOSING
---------------------
6.1 Intek's Conditions of Closing. The obligation of Intek to consummate
-----------------------------
the Closing shall be subject to and conditioned upon the satisfaction at the
Closing of each of the following conditions and no other conditions (any of
which maybe waived in writing by Intek, in whole or in part):
6.1.1. Employment Agreements. Intek shall have received
---------------------
executed Employment Agreements, in substantially the form attached hereto as
Exhibit 6.1.1, signed by Intek and each of the Key Shareholders.
6.1.2. Representations and Warranties. All representations and
------------------------------
warranties of Acorn and the Shareholders shall be true and correct in all
Material respects as of the Closing as though such representations and
warranties had been made on and as of that date, and certificates to the
foregoing effect, in substantially the form attached hereto as Exhibit 6.1.2,
dated as of the date of the Closing and signed by the President or any Vice
President of Acorn, on behalf of Acorn, and by each of the Shareholders,
individually, shall have been delivered to Intek.
6.1.3. Performance of Obligations. All of the terms, covenants
--------------------------
and conditions of this Agreement to be complied with and performed by Acorn and
the Shareholders on or before the Closing shall have been duly complied with and
performed in all Material respects on or before the date of the Closing, and
certificates to the foregoing effect, substantially in the form attached hereto
as Exhibit 6.1.2, dated as of the date of the Closing and signed by the
President or any Vice President of Acorn, on behalf of Acorn, and by each of the
Shareholders, individually, shall have been delivered to Intek.
6.1.4. Consents and Approvals. All necessary consents of and
----------------------
filings required to be obtained or made by Acorn relating to the consummation of
the transactions contemplated herein shall have been obtained and made.
6.1.5. Certified Certificate of Incorporation and Certificate of
---------------------------------------------------------
Good Standing. Acorn shall have delivered to Intek (i) Acorn's Certificate of
- -------------
duly certified by the Secretary of State of Delaware no less than
thirty (30) days prior to the date of Closing and (ii) a certificate, dated as
of a date no earlier than thirty (30) days prior to the date of Closing, duly
issued by the Secretary of State of Delaware, certifying that Acorn is in good
standing and authorized to do business.
6.1.6. Secretary's Certificate. Intek shall have received a
-----------------------
certificate, substantially in the form attached hereto as Exhibit 6.1.6, dated
as of the Closing Date and signed by the Secretary of Acorn, certifying as to
(i) the authenticity of the signatures
45
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
of the President or any Vice President of Acorn who is authorized to act on
behalf of Acorn with respect to the transactions contemplated by this Agreement,
and (ii) the truth and correctness of attached copies of Acorn's Certificate of
Incorporation (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and shareholders of Acorn
approving Acorn's execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
6.1.7. Opinion of Counsel. Intek shall have received an opinion
------------------
from counsel for Acorn and the Shareholders, dated as of the date of Closing, in
substantially the form attached hereto as Exhibit 6.1.7.
6.1.8. Additional Documents. Intek shall have received such
--------------------
other documents as Intek may reasonably request to evidence the accuracy of any
representation or warranty made by Acorn or the Shareholders, or the performance
of or compliance with any covenants or obligations required by Acorn or the
Shareholders, or to otherwise facilitate the consummation of any of the
transactions contemplated by this Agreement.
6.1.9. Termination of Agreements Pertaining to Acorn Stock.
---------------------------------------------------
Intek shall have received evidence of the expiration or termination of any and
all agreements (other than with Intek) relating in any way to the Acorn Shares
or ownership thereof.
6.2 Acorn's Conditions of Closing. The obligation of Acorn and the
-----------------------------
Shareholders to consummate the Closing are subject to and conditioned upon the
satisfaction at the Closing of each of the following conditions and no other
conditions (any of which may be waived in writing by Acorn and the Shareholders,
in whole or in part):
6.2.1. Employment Agreements. The Key Shareholders shall have
---------------------
received Acorn Employment Agreements, in substantially the form attached hereto
as Exhibit 6.1.1, signed by Intek.
6.2.2. Representations and Warranties. All representations and
------------------------------
warranties of Intek shall be true and correct in all Material respects as of the
Closing as though such representations and warranties had been made on and as of
that date, and certificates to the foregoing effect, substantially in the form
attached hereto as Exhibit 6.2.2, dated as of the date of the Closing and signed
by the President or any Vice President of Intek, shall have been delivered to
Acorn and the Shareholders.
6.2.3. Performance of Obligations. All of the terms, covenants
--------------------------
and conditions of this Agreement to be complied with and performed by Intek on
or before the Closing shall have been duly complied with and performed in all
Material respects on or before the date of the Closing, and certificates to the
foregoing effect, substantially in the form attached hereto as Exhibit 6.2.2,
dated as of the date of the Closing and signed by the President or any
46
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Vice President of Intek, shall have been delivered to Acorn the Shareholders.
6.2.4. Certified Articles of Incorporation and Good
--------------------------------------------
Standing Certificate. Intek shall have delivered to Acorn and the Shareholders
- --------------------
(i) Intek's Certificate of Incorporation, duly certified by the Secretary of
State of Delaware no less than thirty (30) days prior to the Closing Date and
(ii) a certificate, dated as of a date no earlier than thirty (30) days prior to
the Closing Date, duly issued by the Secretary of State of Delaware, certifying
that Intek is in good standing and authorized to do business.
6.2.5. Secretary's Certificate Acorn and the Shareholders
-----------------------
shall have received a certificate, substantially in the form attached hereto as
Exhibit 6.2.5, dated as of the Closing Date and signed by the Secretary of
Intek, certifying as to (i) the authenticity of the signatures of the President
or any Vice President of Intek who is authorized to act on behalf of Intek with
respect to the transactions contemplated by this Agreement, and (ii) the truth
and correctness of attached copies of Intek's Certificate of Incorporation
(including amendments thereto), Bylaws (including amendments thereto), and
resolutions of the board of directors of Intek approving Intek entering into
this Agreement and the consummation of the transactions contemplated hereby.
6.2.6. Opinion of Counsel. Acorn and the Shareholders shall
------------------
have received an opinion from counsel for Intek, dated as of the date of
Closing, in substantially the form attached hereto as Exhibit 6.2.6.
6.2.7. Transaction Fee. Intek shall have paid a Transaction
---------------
Fee in accordance with Section 2.7 above.
6.2.8. Additional Documents. Acorn and the Shareholders
--------------------
shall have received such other documents as Acorn and the Shareholders may
reasonably request to evidence the accuracy of any representation or warranty
made by Intek, or the performance of or compliance with any covenants or
obligations required by Intek, or to otherwise facilitate the consummation of
any of the transactions contemplated by this Agreement.
6.2.9. Consent to Registration Right. Intek shall have
-----------------------------
received the consent of holders of registration rights with respect to Intek
Shares, as required prior to a grant of registration rights to the Shareholders,
if any, pursuant to Section 2.2.4 above.
ARTICLE 7
AMENDMENT
---------
This Agreement may be amended by Intek, Acorn and the Shareholders by
action taken by the respective Boards of Directors of Intek and Acorn and by the
Shareholders individually at
47
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
any time before or after approval hereof by the Shareholders, but no amendment
after approval by the Shareholders of Acorn shall be made which changes any of
the principal terms of this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of Intek, Acorn and the
Shareholders.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Shareholders' General Indemnification Covenants. Subject to the
-----------------------------------------------
provisions of this ARTICLE 8, the Shareholders, jointly and severally in
proportion to their respective ownership of the Acorn Shares as of the Closing
Date, shall indemnify, defend, save and keep Intek and its affiliates (including
Acorn), and their respective officers, directors, successors and assigns
(collectively, the "Intek Indemnitees"), harmless against and from all
liability, demands, claims, actions or causes of action, assessments, losses,
fines, penalties, costs, damages and expenses, including without limitation,
reasonable attorneys' fees, court costs and other fees, disbursements and
expenses, including any diminution in the value of Acorn or the Acorn Shares
held by Intek, (collectively "Damages"), sustained or incurred by any of the
Intek Indemnitees as a result of, arising out or by virtue of any
misrepresentations, breach of any warranty or representation, or non-fulfillment
of any agreement or covenant on the part of Acorn or the Shareholders, whether
contained in this Agreement, any Document or any exhibit or schedule hereto or
thereto, or any written statement or certificate furnished or to be furnished to
Intek pursuant hereto or in any closing document delivered by Acorn or the
Shareholders to Intek in connection herewith. Such obligations apply regardless
of the presence of a Third Party Claim (as defined below). For purposes of
determining the amount of Damages for which indemnification is provided
hereunder (but not for the purpose whether a breach of a representation,
warranty or covenant has occurred), each of the representations, warranties and
covenants made by any party in this Agreement or in any certificate or other
instrument delivered pursuant hereto, including, without limitation, the
Documents, shall be deemed to have been made without the inclusion of
limitations or qualifications as to materiality such as the word "Material," if
with the inclusion of such limitation or qualification the representation,
warranty or covenant was breached.
8.2 Procedures for Indemnification Pursuant to Section 8.1.
------------------------------------------------------
8.2.1. Promptly following the receipt by a Intek Indemnitee of notice
of a demand, claim, action, assessment or proceeding made or brought by a third
party, including a governmental agency (a "Third Party Claim") or Intek
receiving notice of the basis of a claim for Damages, the Intek Indemnitee
receiving the notice of the Third Party Claim or knowledge of the basis for a
claim: (i) shall notify the Shareholders of its existence, setting forth the
facts and circumstances of which such Intek Indemnitee has received notice or
knowledge; and (ii) if the Intek Indemnitee giving such notice is a person
entitled to indemnification under this ARTICLE
48
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CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
8 (an "Indemnified Party"), specifying the basis hereunder upon which the
Indemnified Party's claim for indemnification is asserted; provided, however,
-------- -------
that a failure to provide prompt notification shall not prevent or prejudice a
claim under this ARTICLE 8 except to the extent such failure has prejudiced the
rights or defenses of the Shareholders.
8.2.2. The Indemnified Party shall, upon reasonable notice by the
Shareholders, tender the defense of a Third Party Claim to the Shareholders. If
the Shareholders accept responsibility for the defense of a Third Party Claim,
then the Shareholders shall have the right to contest, defend and litigate the
Third Party Claim and shall have the exclusive right, in their discretion
exercised in good faith and upon the advice of counsel, and subject to the
consent of the Indemnified Party (which shall not be unreasonably withheld) to
settle any such matter, either before or after the initiation of litigation,
provided that at least ten (10) days prior to any such settlement, they shall
- --------
give written notice of their intention to settle to the Indemnified Party. The
Indemnified Party shall have the right to be represented by counsel at its own
expense in any defense conducted by the Shareholders.
8.2.3. Notwithstanding the foregoing, in connection with any
settlement negotiated by the Shareholders, no Indemnified Party shall be
required to: (i) enter into or be bound by or obligated under any settlement (a)
that does not include the delivery by the claimant or plaintiff to the
Indemnified Party of a release from all liability in respect of such claim or
litigation, (b) if the Indemnified Party shall, in writing to the Shareholders
within the ten (10) day period prior to such proposed settlement, unreasonably
withhold its consent with respect to such settlement proposal as contemplated by
Section 8.2.2, and desire to have the Shareholders tender the defense of such
matter back to the Indemnified Party, or (c) that requires an Indemnified Party
to take any unreasonable affirmative actions as a condition of such settlement;
or (ii) consent to the entry of any judgment that does not include a full
dismissal of the litigation or proceeding against the Indemnified Party with
prejudice; provided, however, that should the Indemnified Party disapprove of a
-------- -------
settlement proposal pursuant to clause (b) above, the Indemnified Party shall
thereafter have all of the responsibility for defending, contesting and settling
such Third Party Claim but shall not be entitled to indemnification by the
Shareholders to the extent that, upon final resolution of such Third Party
Claim, the Shareholders' liability to the Indemnified Party but for this proviso
exceeds what the liability to the Indemnified Party would have been if the
Shareholders were permitted to settle such Third Party Claim in the absence of
the Indemnified Party exercising its right under clause (b) above.
8.2.4. If, in accordance with the foregoing provisions of this
Section 8.2, an Indemnified Party shall be entitled to indemnification against a
Third Party Claim, and if the Shareholders shall fail to accept the defense of a
Third Party Claim which has been tendered in accordance with this Section 8.2,
the Indemnified Party shall have the right, without prejudice to its rights of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such
49
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
terms as the Indemnified Party deems fair and reasonable, provided at least ten
(10) days prior to any such settlement, written notice of its intention to
settle is given to the Shareholders. If, pursuant to this Section 8.2, the
Indemnified Party defends or settles a Third Party Claim for which it is
entitled to indemnification hereunder, as hereinabove provided, the Indemnified
Party shall be reimbursed by the Shareholders for the reasonable attorneys'
fees, expert fees and other expenses of defending the Third Party Claim which
are incurred from time to time, forthwith following the presentation to
Shareholders of itemized bills for said attorneys' fees, court costs and other
expenses. No failure by the Shareholders to acknowledge in writing their
indemnification obligations under this ARTICLE 8 shall relieve them of such
obligations to the extent they exist.
8.3 Certain Information. The parties hereto shall furnish or cause to be
-------------------
furnished to each other (at reasonable times and at no charge) upon request as
promptly as practicable such information (including access to books and records)
pertinent to Acorn, the Shareholders, or Intek and assistance relating to Acorn
or Intek as is reasonably necessary for the preparation, review and audit of
financial statements, the preparation, review, audit and filing of any Tax
Return, the preparation for any audit or the prosecution or defense of any
claim, suit or proceeding relating to any proposed adjustment or which may
result in Shareholders or Intek being liable under the indemnification
provisions of this ARTICLE 8.
8.4 Release by Shareholders. Shareholders, as of the Closing Date, hereby
-----------------------
release and discharge Acorn and its officers and directors from, and agree and
covenant that in no event will Shareholders commence any litigation or other
legal or administrative proceeding against, Acorn or any of its officers or
directors, either in law or equity, relating to any and all claims and demands,
known and unknown, suspected and unsuspected, disclosed and undisclosed, for
damages, actual, consequential, or otherwise, past, present and future, arising
out of or in any way connected with their ownership of the equity securities of
Acorn or any employment or consulting relationship (other than for wages or
employee benefits accrued but not yet paid, or under debts for borrowed money as
listed on a Schedule hereto) prior to or at the Closing Date. Except for this
Agreement and the agreements entered into hereunder, as of the Closing without
further action, all shareholders, voting, preemptive, buy-sell, first refusal or
similar rights, employment or consulting rights, by agreement or statute, of a
Shareholder of Acorn, shall terminate as to securities of Acorn and as to Acorn.
This Section shall in no way release, waive or extinguish claims that any
Shareholder or Acorn has or will have against Intek arising in the past, present
or future, including under this Agreement and the agreements entered into
hereunder.
8.5 Indemnification by Intek. Subject to the provisions of this ARTICLE
------------------------
8, Intek agrees to indemnify, defend and hold each of the Shareholders harmless
against, and will reimburse the Shareholders on demand for, any Damages (as
defined in Section 8.1) sustained or incurred by any of the Shareholders as a
result of, arising out of or by virtue of any misrepresentation, breach of any
warranty or representation, or non-fulfillment of any agreement
50
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
or covenant on the part of Intek, whether contained in this Agreement, any
Document or any exhibit or schedule hereto or thereto or any written statement
or certificate furnished or be to furnished to Intek pursuant hereto or in any
Document delivered by Intek to Acorn or the Shareholders in connection herewith.
The procedures set forth in Sections 8.2 and 8.3 shall be applied mutatis
-------
mutandis to any claim under this Section by a Shareholder, and the Shareholders
- --------
shall be the "Intek Indemnitees" and "Indemnified Party" for such purposes and
Intek shall be the "Shareholders." Such obligations apply regardless of the
presence of a Third Party Claim.
8.6 Exclusive Remedy. The remedies provided in this ARTICLE 8 are, to the
----------------
extent permitted by law, the sole and exclusive remedies related to
representations, warranties or covenants made or to be performed at or before
the Closing, and there are no other remedies otherwise available to any of the
parties, for any claim by one party against any other party under this Agreement
or with respect to the transactions contemplated by it related to
representations, warranties or covenants made or to be performed at or before
the Closing, except for equitable injunctive relief. No party shall make any
claim under any theory, in tort, contract, statute or otherwise, which could not
be brought directly hereunder due to the time or dollar limitations set forth in
Section 8.8.
8.7 No Rights of Shareholders Against Acorn. No Shareholder has any claim
---------------------------------------
or cause of action, directly, by contribution, by subrogation or otherwise,
against Acorn for any matter for which a Shareholder must provide
indemnification, defense or hold harmless hereunder or under any other document
or agreement.
8.8 Limits on Indemnification; Escrow.
---------------------------------
8.8.1. Neither Intek, Acorn nor the Shareholders shall
assert any claim for indemnification hereunder against the other until such time
as, and solely to the extent that, the aggregate of all claims which such party
may have against the other shall exceed $75,000 (the "Indemnification
Threshold"). For purposes of determining whether a claim is subject to
indemnification under this ARTICLE 8, and counted toward the Indemnification
Threshold, claims which in the aggregate are Material shall be counted toward
the Indemnification Threshold and indemnifiable hereunder even if any such
claims individually are not Material.
8.8.2. No indemnification payment hereunder shall exceed
the aggregate maximum Purchase Price payable hereunder in cash and Intek Shares,
valued at $3.00 per share (adjusted for stock splits, stock dividends, stock
combinations, and recapitalizations, and without adjustment for the Spider spin
off), whether actually paid or not as of the date of the claim for
indemnification, such amount to be calculated net of Taxes payable on receipt of
such cash and Intek Shares less any Tax benefit as a result of the
indemnification payment.
8.8.3. Key Shareholders' Escrow. Intek and the Key
------------------------
51
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
Shareholders shall enter into an agreement in the form of Exhibit 8.8.3 with a
mutually agreed upon escrow agent for the creation of an interest-bearing escrow
account (the "Escrow") into which an amount equal to ten percent (10%) of the
Purchase Price paid (exclusive of the Base Consideration) within the a period
expiring fifteen (15) months after the Closing (the "Escrow Consideration") will
be placed. The Escrow Consideration will be held in the Escrow until the
expiration of eighteen (18) months after the Closing, at which time the portion
of the Escrow Consideration which remains in the Escrow and is not reserved
against for the payment of any indemnification claims made by Intek prior to
such expiration, along with accrued interest and less the cost of establishing
and maintaining the Escrow, shall be disbursed to the Key Shareholders according
to each Key Shareholder's proportionate ownership of such Escrow Consideration
as of such date of disbursement. Intek shall make claims initially against, and
such claims shall be paid by, the Escrow and only after that Escrow
Consideration has been exceeded will a claim be made against the Key
Shareholders.
8.8.4. Indemnity obligations hereunder may be satisfied
through the payment of cash or the delivery of Intek Shares, or a combination
thereof. Solely for purposes of calculating the value of the Intek Shares
received or delivered pursuant hereto for indemnification purposes (including
for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), Intek Shares shall be valued at $3.00 per share (adjusted for
stock splits, stock dividends, stock combinations, and recapitalizations, and
without adjustment for the Spider spin off).
8.8.5. Intek shall have the right, upon written notice, to
offset indemnification amounts due to it pursuant to this Agreement against
payments due to the Shareholders under this Agreement or any contract
contemplated by, or referred to in, this Agreement except for Base Compensation
payable under and as defined in the Employment Agreements.
8.8.6. Notwithstanding any other term of this Agreement, no
Shareholder shall be liable under this Section 8.8 for an amount which exceeds
the amount of proceeds received by such Shareholders in cash and Intek Shares,
valued at $3.00 per share (as adjusted pursuant to Section 8.8.4), in connection
with the sale of the Acorn stock.
8.8.7. The foregoing limitations on damages do not apply to
violations of Sections 5.11 ("Confidentiality") or 5.12 ("Covenant Not to
Compete").
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Notice. Any notice required or permitted hereunder shall be in
------
writing and shall be sufficiently given if (i) personally delivered, (ii) mailed
by certified or registered United
52
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
States mail, return receipt requested, or (iii) sent by recognized air express
courier for next business day delivery, addressed as follows:
If to Intek: Intek Information Inc.
5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
Attn: Timothy C. O'Crowley
Telephone: (303) 357-3000
Facsimile: (303) 323-4213
Copy to: Chrisman, Bynum & Johnson, P.C.
1900 15th Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Telephone: (303) 546-1300
Facsimile: (303) 449-5426
If to the Key Shareholders: Acorn Information Services, Inc.
4 Corporate Drive
Shelton, CT 06484
Telephone: (800) 279-3889
Facsimile: (203) 225-7610
Copy to: Wiggin & Dana
Three Stamford Plaza
Stamford, CT 06901
Attn: William A. Perrone
Telephone: (203) 363-7604
Facsimile: (203) 363-7676
If to the Richard Wayne: Richard Wayne
55 Valley Road
Easton, CT
Telephone:
Facsimile:
(or to such other address as any party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered, three business days after so mailed, or one business day after the
date delivered to the air express courier.
9.2 Execution of Additional Documents. The parties hereto will at any
---------------------------------
time, and from time to time after the Closing Date, upon reasonable request of
the other party, execute,
53
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to carry out
the intent of this Agreement, and to transfer and vest title to any securities
being transferred hereunder, and to protect the right, title and interest in and
enjoyment of all of the securities transferred, delivered and conveyed pursuant
to this Agreement; provided, however, that this Agreement shall be effective
--------
regardless of whether any such additional documents are executed.
9.3 Binding Effect; Benefits. This Agreement shall be binding upon and
------------------------
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
9.4 Entire Agreement. This Agreement, together with the exhibits,
----------------
schedules and other documents contemplated hereby, constitute the final written
expression of all of the agreements between the parties, and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this Agreement and the exhibits, schedules and other documents
contemplated hereby, shall be given no force or effect. The parties
specifically represent, each to the other, that there are no additional or
supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing. This Agreement does not, however, supersede the Bridge
Loan, or the security agreement and personal guarantees execution in connection
therewith, nor does it supersede Standstill Agreement, dated June 4, 1999,
between Acorn and Intek, which is incorporated herein by reference.
9.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado exclusive of the conflict of
law provisions thereof.
9.6 Arbitration; Consent to Jurisdiction. Except as provided below in
------------------------------------
this paragraph, any and all disputes arising under or related to this Agreement
shall be submitted to binding arbitration before the American Arbitration
Association ("AAA") in accordance with its rules of Commercial Arbitration. The
decision of the arbiter shall be final and binding upon the parties, and it may
be entered in any court of competent jurisdiction. The arbitration shall take
place in Chicago, Illinois. The arbiter shall be bound by the laws of the State
of Colorado applicable to all relevant privileges and the attorney work product
doctrine. The arbiter shall have the power to grant equitable relief where
applicable under Colorado law and shall not be entitled to make an award of
punitive damages. The arbiter
54
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
shall issue a written opinion setting forth its decision and the reasons
therefor within thirty (30) days after the arbitration proceeding is concluded.
The obligation of the parties to submit any dispute arising under or related to
this Agreement to arbitration as provided in this Section shall survive the
expiration or earlier termination of this Agreement. Notwithstanding the
foregoing, any party may seek an injunction or other appropriate relief from a
court of competent jurisdiction to preserve or protect the status quo with
respect to any matter pending conclusion of the arbitration proceeding, but no
such application to a court shall in any way be permitted to stay or otherwise
impede the progress of the arbitration proceeding.
The Shareholders, Intek, and Acorn hereby consent to the jurisdiction
of the AAA and the courts of the State of Illinois and the United States
District Courts for the Northern District of Illinois, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any arbitration, suit, action or other proceeding arising out
of any of their obligations arising hereunder or with respect to the
transactions contemplated hereby and expressly waive any and all objections they
may have as to venue in any of such courts.
9.7 Attorneys' Fees and Costs. In the event of any arbitration or
-------------------------
litigation being filed or instituted between two or more of the parties
concerning this Agreement, the Prevailing Party will be entitled to receive from
the other party or parties its attorneys' fees, experts' fees, costs and
expenses, whether or not such controversy, claim or action is prosecuted to
judgment or other form of relief. The "Prevailing Party" is that party which is
awarded judgment or other legal or equitable relief as a result of trial or
arbitration, or who receives or is entitled to receive a payment of money from
the other party in settlement of claims asserted by such party. If both parties
receive a judgment or other award of relief, the court or the arbiter shall
determine which party is the Prevailing Party, taking into consideration the
merits of the claims asserted by each party, the relative values of the
judgments or other forms of relief received by each party, and the relative
equities between the parties.
9.8 Survival. All of the terms, covenants, conditions, warranties and
--------
representations contained in this Agreement and any Document shall survive the
execution hereof and the Closing hereunder in accordance with their terms and
all representations and warranties shall survive for forty (40) months following
the Closing.
9.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.10 Headings. Headings of the Sections of this Agreement are for the
--------
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
9.11 Waivers. Intek, the Shareholders, or Acorn may, by written notice
-------
to the other: (i) extend the time for the performance of any of the obligations
or other actions of the other under
55
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
this Agreement; (ii) waive any inaccuracies in the representations or warranties
of the other contained in this Agreement or in any document delivered pursuant
to this Agreement; (iii) waive compliance with any of the conditions or
covenants of the other contained in this Agreement; or (iv) waive performance of
any of the obligations of the other under this Agreement. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereunder
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provision hereunder nor as a waiver of any claim for
breach of representation, warranty or covenant.
9.12 Merger of Documents. This Agreement and all agreements and
-------------------
documents contemplated hereby constitute one agreement and are interdependent
upon each other in all respects.
9.13 Incorporation of Exhibits and Schedules. All exhibits and schedules
---------------------------------------
attached hereto are by this reference incorporated herein and made a part hereof
for all purposes as if fully set forth herein.
9.14 Severability. If for any reason whatsoever any one or more of the
------------
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
9.15 Assignability. Neither this Agreement nor any of the parties'
-------------
rights or obligations hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto. No assignment shall
relieve a party of its obligations hereunder.
9.16 No Action for Failure to Deliver Opinions, Etc. No party shall have
----------------------------------------------
any claim or right of action against the legal counsel or accountants of the
other party for the failure or refusal of such counsel or accountants to deliver
any opinion, certification or letter requested hereunder.
56
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
9.17 Effectiveness of Agreement. Notwithstanding any other provision
--------------------------
herein, the parties acknowledge and agree that for consolidated financial
accounting purposes and for purposes of calculating EBITDA against the Minimum
EBITDA Targets, the effective date of this Agreement, and the transactions
contemplated herein, shall be deemed to be October 1, 1999. For all other
purposes, including the indemnification obligations and the date as of which
representations and warranties are made hereunder, this Agreement shall become
effective and binding on the parties hereto on the date when signed and
delivered by each of the parties hereto. There are no third party beneficiaries
of this Agreement.
9.18 Reference to Shareholders Agreement. This Agreement refers to the
-----------------------------------
Shareholders Agreement. The parties acknowledge that they have reviewed and
understand the Shareholders Agreement, including, without limitation, the
provisions regarding amendment and termination, and that the Shareholders
Agreement may be amended from time to time or may be terminated in accordance
with the terms of the Shareholders Agreement and Section 2.2.5 herein, whether
before or after the time Intek Shares are issued.
9.19 Action by Shareholders. Any consent, approval or similar act which
----------------------
requires the act of the "Shareholders" or the "Key Shareholders" is authorized
if approved by those Shareholders holding 80% or more of the Acorn Shares before
the Closing.
9.20 Shareholder Family LLC's. Notwithstanding anything to the contrary
------------------------
herein, certain Shareholders have transferred their Acorn Shares to the limited
liability companies listed on the signature page hereof for estate planning
purposes (the "Shareholder Family LLC's"). All ownership interests of the
Shareholder Family LLC's are held by the respective Shareholder and his or her
spouse, lineal descendents and/or immediate family members, and no transfer,
assignment or disposition of any membership or ownership interest in, or
admission of new members to, a Shareholder Family LLC, other than to the spouse,
line descendent and/or immediate family members of the respective Shareholder,
may be made without the prior written consent of Intek. All of the rights of
the respective Shareholder hereunder shall inure to, and all of the obligations
(including the indemnification obligations under ARTICLE 8) of the respective
Shareholder hereunder shall bind, the Shareholder Family LLC, and any permitted
assignees thereof, to which a Shareholder Transferred his or her Acorn Shares.
The Shareholder Family LLC's shall execute and deliver a copy of the
Shareholders Agreement upon receipt of any Intek Shares hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
57
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
IN WITNESS WHEREOF, the parties hereby execute this Share Purchase
Agreement as of the date first written above.
INTEK INFORMATION, INC., ACORN INFORMATION SERVICES, INC.,
a Delaware corporation a Delaware corporation
By: __________________________ By: ___________________________
Timothy O'Crowley, President Venkat Sharma, President
By: __________________________ By: ___________________________
Its: Secretary Its: Assistant Secretary
KEY SHAREHOLDERS:
_______________________________
Venkat Sharma
_______________________________
Shoba Murali
_______________________________
Raja Ramnarayan
_______________________________
Sunil Gupta
SHAREHOLDER
_______________________________
Richard Wayne
58
<PAGE>
CONFIDENTIAL TREATMENT OF REDACTED PORTIONS APPLIED FOR
SHAREHOLDER FAMILY LLC'S:
Sharma Family LLC
By: _________________________________
Its: _________________________________
Murali Family LLC
By: _________________________________
Its: _________________________________
Ramnarayan Family LLC
By: _________________________________
Its: _________________________________
59
<PAGE>
Exhibit 10.29
INTEK INFORMATION, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into effective as of
the ____ day of ____________, 2000 by and between Intek Information, Inc., a
Delaware corporation (the "COMPANY") and ______________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, 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,
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, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitees 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 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, any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith 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, 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, agent or fiduciary
of another corporation, partnership, joint venture, limited liability
company, trust or other enterprise, or by reason of any action or inaction
on the part of Indemnitee while serving in such capacity (hereinafter an
"INDEMNIFIABLE EVENT") against any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection
with investigating, defending, being 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
Page 1
<PAGE>
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 twenty days after Indemnitee
presents written demand therefor 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 7(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) 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). The 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
7(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) 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 and Expense Advances 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 7(d)
hereof) shall be selected by 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 and the Company agrees to abide by such opinion. The
Company agrees 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.
d) Mandatory Payment of Expenses. Notwithstanding any other provision of this
-----------------------------
Agreement other than Section 5 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any action,
suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any
Page 2
<PAGE>
claim, issue or matter therein, the Company shall indemnify Indemnitee
against all Expenses incurred by Indemnitee in connection therewith.
2. Expenses; Indemnification Procedure.
a) Advancement of Expenses. Subject to the other terms and conditions of this
-----------------------
Agreement, 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 twenty days after
written demand by Indemnitee therefor to the Company.
b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent
--------------------------------
to Indemnitee's right to be indemnified under this Agreement, 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). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
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 the respective policies. The
Company shall thereafter take all 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 Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by 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) Indemnitee shall have the
right to employ Indemnitee's counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of counsel by 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 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 the Indemnitee so long as in the case of the
settlement (I) the Company has the financial ability to satisfy any monetary
obligation involving
Page 3
<PAGE>
Indemnitee under such settlement and (ii) the settlement does not impose
injunctive type relief on the activities of Indemnitee. In all events,
Indemnitee will not unreasonably withhold its consent to any settlement.
3. Additional Indemnification Rights; Nonexclusivity.
a) Scope. The Company hereby agrees to indemnify Indemnitee to the fullest
-----
extent permitted by law, notwithstanding that 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, agent or fiduciary, it is the intent and agreement 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 5 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 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
Agreement shall continue as to Indemnitee for any action Indemnitee took or
did not take while serving in an indemnified capacity even though Indemnitee
may have ceased to serve in such capacity.
c) 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, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
d) Partial Indemnification. If Indemnitee is entitled under any provision of
-----------------------
this Agreement to indemnification by the Company for some or a 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.
e) Mutual Acknowledgement. Both 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, 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 right under public policy to indemnify
Indemnitee.
4. Liability Insurance. The Company shall, from time to time, make the good
faith determination whether or not it is practicable for the Company to obtain
and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of directors' and
officers' liability insurance, Indemnitee shall be named as an insured 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, if Indemnitee is
not an officer or director
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<PAGE>
but is a key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
5. Exceptions. Notwithstanding any other provision herein to the contrary, the
Company shall not be obligated pursuant to the terms of this Agreement:
a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses resulting
----------------------------
from acts, omissions or transactions for which Indemnitee is prohibited from
receiving indemnification under this Agreement or applicable law;
b) 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 brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to Claims for 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;
c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by
------------------
Indemnitee with respect to any proceeding instituted by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
d) 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 Securities Exchange Act of
1934, as amended, or any similar successor statute.
6. 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 two 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 two-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.
7. 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 or
other entity (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 or fiduciary of such constituent
corporation or other entity, or is or was serving at the request of such
constituent corporation or other entity as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture,
limited liability company, 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 or entity
as Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
Page 5
<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, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such
capacity 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, becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than 50% 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 (2/3)
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 related 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 provisions of
Section 1(c) hereof, who shall not have otherwise performed services for the
Company or Indemnitees within the last three years (other than with respect
to matters concerning the rights of Indemnitees 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 are 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.
8. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original.
9. 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
Page 6
<PAGE>
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 or fiduciary of the
Company or of any other enterprise at the Company's request.
10. Attorneys' Fees. In the event that any action is instituted by 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,
Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in
defense of such action (including costs and expenses incurred with respect to
Indemnitee's 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 each of Indemnitee's material defenses to such action was made in bad faith
or was frivolous.
11. 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 business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) the next business day after delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid; and shall be addressed if to Indemnitee, at
the Indemnitee's address as set forth beneath Indemnitee's signature to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Chief Executive Officer) or at such other address as such
party may designate by ten days' advance written notice to the other party
hereto.
12. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Colorado
and 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
state courts of the State of Colorado or Delaware, which shall be the exclusive
and only proper forum for adjudicating such a claim.
13. 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.
14. 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.
15. 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.
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<PAGE>
16. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the 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.
17. 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.
18. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INTEK INFORMATION, INC.
a Delaware corporation
By: ____________________________________
(signature)
Name: __________________________________
Title: _________________________________
Address: 5619 DTC Parkway, 12/th/ Floor
Englewood, CO 80111
AGREED TO AND ACCEPTED BY:
__________________________
Address: ________________
Page 8
<PAGE>
Exhibit 10.30
KANSAS ECONOMIC OPPORTUNITY INITIATIVES FUND Project #99-KEOIF-020
LOAN AGREEMENT and PROMISSORY NOTE
This Loan Agreement and Promissory Note (the Agreement), effective
April 21, 199 9 , is entered into between the following parties:
- -------- ---
Lender: Kansas Department of Commerce & Housing
Business Development Division
700 SW Harrison Street, Suite 1300
Topeka, Kansas 66603-3712
Phone: (785) 296-5298; FAX: (785) 296-3490
Contact Person/Title: Steve Kelly, Director, Business Development
Division
Borrower: Intek Information, Inc.
370 17th Street, Suite 3950
Denver CO 80202-1370
Phone: (303) 357-3006; FAX: (303) 405-8420
Contact Person/Title: Jay Kirksey, Senior VP Human Resources
FEIN: 84-1334615
WHEREAS, K.S.A. 74-50,131, et seq., as amended, establishes a Kansas
Economic Opportunity Initiatives Fund (the Fund); and
WHEREAS, it has been determined by the Secretary of Commerce & Housing (the
Secretary) that an economic emergency or unique opportunity exists which
warrants funding to secure economic benefits or avoid or remedy economic losses,
as defined in K.S.A. 74-50,131, et seq., as amended; and
WHEREAS, the Borrower has specified that this funding will assist in
offsetting costs associated with the development of a business facility at Fort
Scott, Kansas; and
WHEREAS, the Governor has, by approval of the Secretary's recommendation,
authorized an expenditure of up to $400,000 from the Fund for the purpose of
making a loan to the Borrower under such terms and conditions as may be
prescribed by the Secretary;
NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements, the parties agree as follows:
1) Loan Amount and Terms: Subject to the terms and conditions of the
---------------------
Agreement, the Lender hereby agrees to provide the Borrower with the principal
sum of up to four hundred thousand dollars (S400,000) for a sixty (60) month
period. Interest will accrue from the date of disbursement at the rate of zero
percent (0.0%) per annum on the unpaid balance. Should a default occur,
repayment of all principal and interest will be made immediately in accordance
with the provisions shown below. The Borrower shall have the right to prepay any
part or all of the unpaid principal and interest balance at any time without
penalty. This loan is not transferable.
2) Forgiveness of Debt: The Borrower promises to create and maintain minimum
-------------------
employment and payroll levels in each of five (5) years as shown in the
following schedule:
Year 1 Year 2 Year 3 Year 4 Year 5
Jobs 210 400 400 400 400
Payroll $3,941,340 $7,375,350 $7,563,075 $7,755,475 $7,952,700
Job figures reflect full-time equivalent (FTE) positions only. One FTE is equal
to 2080 hours earned per year, including vacation. Payroll is based on gross
earnings taxable to the individual employee. The start of Year 1 will coincide
with the final disbursement of these loan monies, but under no circumstance will
it begin later than 12 months after the initial disbursement of these loan
monies.
1
<PAGE>
At each scheduled anniversary, the outstanding principal balance will be divided
by the number of remaining anniversary dates. The resultant amount and all
interest accrued since the previous anniversary date will be forgiven if the
scheduled job and payroll commitments have been met. However, in the event the
facility is vacated during the term of this agreement, any principal and
interest which has been forgiven will be repaid in accordance with item (17)
below.
In the event of a technical default under this section, the Borrower has the
right of appeal, if compelling evidence can be presented demonstrating that the
default is the result of dramatic, unforeseen changes in economic or market
conditions. In the event of an appeal, the Secretary will have the sole
discretion to enforce the provisions as set forth in item (17) below.
3) Availability of Loan Funds: Disbursement of the loan proceeds from Lender
--------------------------
to Borrower is made contingent upon the availability of funds appropriated for
and deposited in the Fund. Loan monies will be disbursed from the Fund on a
reimbursement basis when the Borrower submits to the Lender copies of invoices
generated by the Borrower's suppliers in connection with the project activities
outlined below. All disbursement requests must be made within eighteen (18)
months of the date of this agreement. Without prior written agreement by the
Secretary, funds not requested within this time-frame will be unencumbered and
unavailable to the project
4) Collateral: None is required under this Agreement.
----------
5) Mortgage/Security Agreement: Not applicable.
---------------------------
6) Insurance: The Borrower agrees to provide and maintain at its own expense
---------
casualty and hazard insurance covering loss by fire or wind with extended
coverage insuring all of the real estate, buildings, fixtures and improvements
and all business machinery, equipment, furnishings and furniture at its Fort
Scott, Kansas facility. Evidence of such coverage will be provided to the
Lender. The total amount of the insurance policy shall be sufficient to pay all
indebtedness to lien holders and other parties with an interest in this
property, and pay the Lender the entire outstanding principal balance and
accrued interest. The State of Kansas shall be named as a beneficiary on the
insurance policy.
7) Force Majeure: In the event that operations at the worksite are impaired
-------------
or suspended due to uncontrollable forces of nature, the Borrower will be given
a reasonable period of time, as determined in the sole discretion of the
Secretary, in which to reestablish any lost jobs. The term of this agreement
will be extended by the length of this period, and no contractual penalty will
be imposed on the company during this period.
8) Release of Mortgage/Security Agreement: Not applicable.
--------------------------------------
9) Life Insurance: Not applicable.
--------------
10) Use of Funds: The monies from this loan shall be used by the Borrower to
------------
pay for costs related to offsetting costs associated with the development of a
business facility for the Borrower at Fort Scott; Kansas.
Any machinery and equipment obtained using these KEOIF funds will be promptly
identified to the Lender, including narrative description and serial number, and
will remain in the Fort Scott, Kansas facility for the duration of this
agreement. The Lender or its representative shall be afforded the right of
inspection of such machinery and equipment throughout the term of this
agreement.
11) Services Provided to Borrower: The Lender is not obligated to provide any
-----------------------------
services to the Borrower other than those specified in the Agreement.
12) Related Contracts: The Borrower shall provide copies of all contracts
-----------------
entered into by the Borrower for activities covered by the loan monies.
13) Period of Performance: The Borrower may be reimbursed with loan funds for
---------------------
expenses incurred prior to the date of this Agreement, if they were made in
connection with activities defined in item (10) above.
Activities will terminate when all conditions of the Agreement have been met
within any specified time frames, or by mutual consent of all parties to the
Agreement, or when a default situation arises, unless the Lender chooses not to
terminate the Agreement.
2
<PAGE>
14) Financial Management: Borrower shall keep accounting records in
---------------------
conformance with generally accepted accounting principles, and make such records
and all related reports, files, documents and other papers pertaining to the
funds provided under this Agreement available for audits, examinations and
monitoring if requested by Lender; such records will be retained for a period of
three (3) years after termination of the loan period or repayment of the debt in
full. The accounting system used by the Borrower shall clearly establish records
of budgets and expenditures for the activities funded with the loan monies.
15) Monitoring: A random audit, or audits, may be conducted by the Lender, or
-----------
a designated representative of the Lender, to assure accountability of loan
expenditures and examine the status of any machinery and equipment acquired with
this KEOIF funding.
Following the period of performance, the Lender, or a designated representative
of the Lender, will conduct a final program audit of all loan expenditures and
the status of KEIOF-acquired machinery and equipment. At the Lender's option any
unauthorized or unaccountable expenditures may be subject to repayment by the
Borrower to the Lender. If deemed necessary by the Lender, an outside audit will
be conducted at the expense of the Borrower.
16) Waivers: The Borrower hereby waives presentment, demand of payment,
--------
protest, and any and all other notices and demands whatsoever. No waiver of any
payment or other right under this Agreement shall operate as a waiver of any
other payment or right.
17) Default: This Agreement shall be considered in default:
--------
(A) Upon any default or failure to properly perform under any clause in
this Agreement (or the provisions of any security agreement(s) or
mortgage documents which secure this Agreement).
(i) If, on the scheduled anniversary, job or payroll levels are
below the minimums specified in item (2) of this Agreement,
the following repayment is required within thirty (30) days:
a) job and payroll components will be weighted equally, so
that a blended percentage of overall job and payroll
accomplishment is determined; the outstanding principal
balance will be divided by the number of remaining
anniversary dates, with the resultant portion of the
principal balance multiplied by the inverse of the
blended percentage to produce the proportionate
principal amount due, plus
b) interest accrued since the previously scheduled
anniversary date will be multiplied by the inverse of
the blended percentage to produce the proportionate
amount of interest due.
(ii) If the Borrower vacates the Fort Scott, Kansas facility during
the term of this Agreement, the following repayment is
required:
a) the entire outstanding principal amount is immediately
due and payable, plus
b) any principal and interest previously forgiven as
specified in item (2) above, plus
c) interest penalties equal to a twelve percent (12%)
compounded annual rate calculated for a 5 year period
against the highest outstanding principal amount over the
term of the loan.
(iii) Upon audit, any loan funds shown to have been used for other
than the intended purposes shall be repaid with interest
to Lender by Borrower. Such unintended purposes would
include, but not be limited to, the acquisition of
machinery and equipment which is not used at the Fort
Scott, Kansas facility throughout the term of this loan.
The amount to be repaid shall be such principal plus
twenty-five percent (25%) compounding interest accrued
from the date of the initial draw-down against this loan.
(iv) If the Borrower otherwise defaults in any manner on the
obligations set forth in this Agreement, the following
repayment is required:
a) any principal balance outstanding on the loan is due
and payable; and
b) interest penalties equal to a twelve percent (12%)
compounded annual rate calculated against the principal
balance for the period during which it has been
outstanding.
(B) Upon any occurrence under this Agreement or security agreements or
mortgage documents by which this loan may or shall become due and
payable.
(C) At any time that the Lender determines in good faith that the
prospect of any payment required by this note is impaired.
In the event of continued default following a fifteen (15) day written notice of
default, the Lender may, at its option, declare all unpaid indebtedness
evidenced by this Agreement and any modifications thereof, immediately due and
payable, without further notice, regardless of date of maturity. The Lender's
failure to exercise this option when available at any point in time shall in no
way invalidate its right to exercise the option in future default situations.
Should it become necessary to collect the monetary obligations of this Agreement
through an attorney, the Borrower agrees to pay all costs of collecting these
monies, including reasonable attorneys' fees to the extent permitted by law,
whether collected by suit, foreclosure, or otherwise.
INTEK.DOC 3
<PAGE>
18) Indemnification: The Borrower shall indemnify, defend, and hold harmless
---------------
the State, the County, and the City and their respective officers and employees
from any liabilities, claims, suits, judgments, and damages arising as a result
of the performance of the obligations under this Agreement by the Borrower or
any party in a relationship with the Borrower which is a result of this
Agreement. The liability of the Borrower under this Agreement shall continue
after the termination of the Agreement with respect to any liabilities, claims,
suits, judgments and damages resulting from acts occurring prior to the
termination of this Agreement.
19) Other Requirements: The Borrower will provide to the Secretary, on an
------------------
annual basis and for a period of five (5) years after completion of the term, a
report for the Borrower's Fort Scott, Kansas facility which lists the number of
full-time equivalent employees, the total payroll as defined in item (2) of this
Agreement, and a record of capital investment for the most recent report period
and accumulated since the beginning of the report periods. The Borrower will
also provide its current gross annual sales, and gross annual sales each year
for the duration of this agreement. The first report will coincide with the
first anniversary date as defined in item (2) of this Agreement.
20) Amendments: Changes to this Agreement will not be effective or binding
----------
unless in writing and signed by both parties to the Agreement.
21) Contractual Provisions Attachment: The provisions found in Contractual
---------------------------------
Provisions Attachment (form DA-146a), which is attached hereto, are hereby
incorporated in this contract and made a part thereof
22) Compliance with the Law: The Borrower agrees to operate its Fort Scott,
-----------------------
Kansas facility in full compliance with applicable federal, state and local laws
without limitation.
23) Authorization to Contract: Before or at the time of execution of the
-------------------------
Agreement, the Borrower must be able to provide evidence that it is duly
incorporated, in good standing in the state of its incorporation, authorized to
do business in the State of Kansas, and authorized to borrow money; and evidence
shall be provided that the person executing the Agreement and any supporting
documents is authorized to act on behalf of the Borrower in such a transaction.
24) Termination of Agreement: Lender may terminate the loan, in whole or in
------------------------
part, if the Borrower has failed to comply with the conditions of the Agreement.
The Borrower will receive written notice and the reasons for termination.
25) Divisibility: The invalidity of any one or more phrases, sentences,
------------
clauses, or section contained in this Agreement shall not affect the remaining
portions of this Agreement, or any part thereof. Further, various headings
included in this Agreement exist purely as an aid to locate particular wording,
and do not in and of themselves in any way affect the substance of this
Agreement.
26) Complete Document: The parties agree this Agreement is a complete
-----------------
document in which all obligations have been reduced to writing, and there are no
understandings, agreements, conventions or covenants not included herein.
27) Assignment: The parties further agree that this Agreement may not be
----------
assigned by the Borrower without prior written approval by the Lender.
28) Binding Effect: The provisions of this Agreement shall both bind and
--------------
benefit the Borrower's successors, assigns, guarantors, endorsers, and any other
person or entity now or hereafter liable hereon.
4
<PAGE>
IN WITNESS WHEREOF, the parties have signed their names below.
/s/ Gary Sherrer 4/21/99
--------------------------------------------------- -----------------------
Gary Sherrer, Lt. Governor/ Secretary Date
Notary:
[Seal of Notary Public - State of Kansas
GAYLA L W STARKEY /s/ Gayla L W Starkey 4/21/99
My Appt. Exp. 8/26/01]
Intek Information, Inc.
By: /s/ Timothy C. O'Crowley April 13, 1999
--------------------------------------------------- -----------------------
Signature Date
Timothy C. O'Crowley
----------------------------------------------------------------------------
Print Name
----------------------------------------------------------------------------
Title
Notary:
STATE OF COLORADO )
)ss:
CITY AND COUNTY OF DENVER )
On this 13th day of April, 1999, before me, a Notary Public, appeared Timothy C.
O'Crowley, known personally to me to be the Chief Executive Officer and
President of Intek Information, Inc. and acknowledged that he, as an officer
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as an
officer.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal.
[SEAL]
/s/ Nanette E. Gary, Notary Public
----------------------------------
Nanette E. Gray, Notary Public
My Commission Expires: March 8, 2003
5
<PAGE>
State of Kansas Agency No. 300 Contract No.99-KEDIF-020
Department of Administration
Division of Accounts and Reports
DA-146a (Rev. 9-93)
CONTRACTUAL PROVISIONS ATTACHMENT
Important: This form contains mandatory contract provisions and must be
attached to or incorporated in all copies of any contractual
agreement. If it is attached to the vendor/ contractor's standard
contract form, then that form must be altered to contain the
following provision:
"The provisions found in Contractual Provisions Attachment (form DA-
146a), which is attached hereto, are hereby incorporated in this
contract and made a part hereof".
The parties agree that the following provisions are hereby incorporated into the
contract to which it is attached and made a part thereof, said contract being
the__ day of , 19__.
1. TERMS HEREIN CONTROLLING PROVISIONS
-----------------------------------
It is expressly agreed that the terms of each and every provision in this
attachment shall prevail and control over the terms of any other conflicting
provision in any other document relating to and a part of the contract in
which this attachment is incorporated.
2. AGREEMENT WITH KANSAS LAW
-------------------------
All contractual agreements shall be subject to, governed by, and construed
according to the laws of the State of Kansas.
3. TERMINATION DUE TO LACK OF FUNDING APPROPRIATION
------------------------------------------------
If, in the judgment of the Director of Accounts and Reports, Department of
Administration, sufficient funds are not appropriated to continue the
function performed in this agreement and for the payment of the charges
hereunder, State may terminate this agreement at the end of its current
fiscal year. State agrees to give written notice of termination to contractor
at least 30 days prior to the end of its current fiscal year, and shall give
such notice for a greater period prior to the end of such fiscal year as may
be provided in this contract, except that such notice shall not be required
prior to 90 days before the end of such fiscal year. Contractor shall have
the right at the end of such fiscal year, to take possession of any equipment
provided State under the contract. State will pay to the contractor all
regular contractual payments incurred through the end of such fiscal year,
plus contractual charges incidental to the return of any such equipment. Upon
termination of the agreement by State, title to any such equipment shall
revert to contractor at the end of State's current fiscal year. The
termination of the contract pursuant to this paragraph shall not cause any
penalty to be charged to the agency or the contractor.
4. DISCLAIMER OF LIABILITY
-----------------------
Neither the State of Kansas nor any agency thereof shall hold harmless or
indemnify any contractor beyond that liability incurred under the Kansas Tort
Claims Act (K.S.A. 75-6101 et seq.).
5. ANTI-DISCRIMINATION CLAUSE
--------------------------
The contractor agrees: (a) to comply with the Kansas Act Against
Discrimination (K.S.A. 44-1001 et seq.) and the Kansas Age Discrimination in
Employment Act (K.S.A. 44-1111 et M.) and the applicable provisions of the
Americans With Disabilities Act (42 U.S.C. 12101 et seq.) (ADA) and to not
discriminate against any person because of race, religion, color, sex,
disability national origin or ancestry, or age in the admission or access to,
or treatment or employment in, its programs or activities; (b) to include in
all solicitations or advertisements for employees, the phrase "equal
opportunity employer"; (c) to comply with the reporting requirements set out
at K.S.A. 44-1031 and K.S.A. 44-1116; (d) to include those provisions in
every subcontract or purchase order so that they are binding upon such
subcontractor or vendor, (e) that a failure to comply with the reporting
requirements of (c) above or if the contractor is found guilty of any
violation of such acts by the Kansas Human Rights Commission, such violation
shall constitute a breach of contract and the contract may be canceled,
terminated or suspended, in whole or in part, by the contracting state agency
or the Kansas Department of Administration; (0 if it is determined that the
contractor has violated applicable provisions of the ADA, such violation
shall constitute a breach of contract and the contract may be canceled,
terminated or suspended, in whole or in part, by the contracting state agency
or the Kansas Department of Administration.
Parties to this contract understand that the provisions of this paragraph
number 5 (with the exception of those provisions relating to the ADA) are not
applicable to a contractor who employs fewer than four employees during the
term of such contract or whose contracts with the contracting state agency
cumulatively total $5,000 or less during the fiscal year of such agency.
6. ACCEPTANCE OF CONTRACT
----------------------
This contract shall not be considered accepted, approved or otherwise
effective until the statutorily required approvals and certifications have
been given.
7. ARBITRATION, DAMAGES, WARRANTIES
--------------------------------
Notwithstanding any language to the contrary, no interpretation shall be
allowed to find the State or any agency thereof has agreed to binding
arbitration, or the payment of damages or penalties upon the occurrence of a
contingency. Further, the State of Kansas shall not agree to pay attorney
fees and late payment charges beyond those available under the Kansas Prompt
Payment Act (K.S.A. 75-6403), and no provision will be given effect which
attempts to exclude, modify, disclaim or otherwise attempt to limit implied
warranties of merchantability and fitness for a particular purpose.
8. REPRESENTATIVE'S AUTHORITY TO CONTRACT
--------------------------------------
By signing this document, the representative of the contractor thereby
represents that such person is duly authorized by the contractor to execute
this document on behalf of the contractor and that the contractor agrees to
be bound by the provisions thereof.
9. RESPONSIBILITY FOR TAXES
------------------------
The State of Kansas shall not be responsible for, nor indemnify a contractor
for, any federal, state or local taxes which may be imposed or levied upon
the subject matter of this contract.
10.INSURANCE
---------
The State of Kansas shall not be required to purchase, any insurance against
loss or damage to any personal property to which this contract relates, nor
shall this contract require the State to establish a *self-insurance" fund to
protect against any such loss or damage. Subject to the provisions of the
Kansas Tort Claims Act (KS.A. 75-6101 et M.), the vendor or lessor shall bear
the risk of any loss or damage to any personal property in which vendor or
lessor holds title.
11.INFORMATION
-----------
No provisions of this contract shall be construed as limiting the Legislative
Division of Post Audit from having access to information pursuant to K.S.A.
46-1101 et seq.
<PAGE>
Exhibit 10.31
AGREEMENT
AMONG
Intek Information, Inc.
as Employer
Fort Scott Community College
as Educational Institution
and
Kansas Department of Commerce & Housing
Dated as of
March 15,1999
EXECUTION COPY
FINAL DRAFT DATED: March 8,1999
<PAGE>
TABLE OF CONTENTS
PARTIES........................................................................1
RECITALS.......................................................................1
ARTICLE I
DEFINITIONS....................................................................1
ARTICLE II
REPRESENTATIONS AND WARRANTIES.................................................4
Section 2.1 Representations and Warranties of the Educational Institution......4
Section 2.2 Representations, Warranties and Covenants of the Employer..........4
ARTICLE III
PROJECT; PROGRAM SERVICES......................................................6
Section 3.1 The Project........................................................6
Section 3.2 Performance of the Project.........................................6
Section 3.3 IMPACT Program Services Fund Account for the Project; SKILL
Project Fund; Subaccounts; Payment of Project Costs................7
Section 3.4 Insufficient Funds.................................................8
ARTICLE IV
EVENTS OF DEFAULT..............................................................9
Section 4.1 Events of Default..................................................9
Section 4.2 Termination or Breach of this Agreement; Payments for
Termination or Breach Required by the IMPACT Act..................10
Section 4.3 Remedies..........................................................14
Section 4.4 No Remedy Exclusive...............................................15
Section 4.5 Waivers...........................................................15
Section 4.6 Educational Institution Defaults..................................15
ARTICLE V
MISCELLANEOUS.................................................................16
Section 5.1 Execution in Counterparts.........................................16
Section 5.2 Severability......................................................16
Section 5.3 Governing Law ....................................................16
Section 5.4 Notices...........................................................16
Section 5.5 Immunity of Officers, Board Members, and Employees................16
Section 5.6 Assignment........................................................17
Section 5.7 Obligations to Fund Limited.......................................17
Section 5.8 Books and Records.................................................17
Section 5.9 Additional Provisions and Exhibits Incorporated...................17
-i-
<PAGE>
EXECUTION.....................................................................18
EXHIBIT A General Information
EXHIBIT B Project Description
EXHIBIT C Project Costs and Sources of Payments
EXHIBIT D Additional Provisions
-ii-
<PAGE>
This Agreement entered into as of the Date of Agreement indicated on
Exhibit A hereto, by and among the Educational Institution indicated in Exhibit
A hereto, the Employer indicated on Exhibit A hereto and the Kansas Department
of Commerce & Housing ("KDOCH").
WITNESSETH
WHEREAS, the Secretary of KDOCH pursuant to the provisions of K.S.A. 74-
50,102 through 74-50,112 (the "IMPACT Act") has developed a program (the "IMPACT
Program") to provide for the establishment of projects to provide financial
assistance to defray business costs and/or training of workers for new jobs for
a new or expanding Kansas basic enterprise; and
WHEREAS, the Employer desires to participate in the IMPACT Program and to
develop a project to provide training of workers and other program services for
new jobs to be created by the Employer; and
WHEREAS, the Employer and the Educational Institution have agreed on an
arrangement for such training and for dispensing such other program services and
have entered into this Agreement to set forth their respective undertakings with
respect thereto; and
WHEREAS, the Secretary of KDOCH is responsible for administering the IMPACT
Program and has an interest in the development and accomplishment of such
arrangement and the enforcement of certain of the provisions hereof,
NOW THEREFORE in consideration of the premises and the mutual
representations and agreements hereinafter contained the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
As used herein, the following words and phrases shall have the following
meanings:
"Agreement" means this Agreement.
"Compliance Determination Date" means each date as of which KDOCH
determines if the Employer has complied with its covenants in this Agreement, as
set forth in Section 4.2(c) hereof.
"Contract Year" means each 12 month period ending on an anniversary date of
the Date of this Agreement.
"Date of Agreement" means the date identified as such on Exhibit A hereto.
"Educational Institution" means the entity as described on Exhibit A
hereto, its successors and assigns.
1
<PAGE>
"Employer" means the entity as described on Exhibit A hereto, its
successors and assigns.
"Existing Job" means any job or position of employment with the Employer at
any of its facilities in the State of Kansas which is filled by an employee of
the Employer on the Date of Agreement, or at any time during the 18 month period
immediately preceding the Date of Agreement.
"Existing Jobs Performance Percentage" means the Existing Jobs Performance
Percentage as set forth in Exhibit C hereto.
"Expiration Date" means the earlier of (a) the Termination Date described
in Exhibit A and (b) the date on which the Employer's Net Withholding Tax equals
or exceeds the Gross Funded Cost of the Project.
"Gross Funded Cost" means the Gross Funded Cost as set forth in Exhibit C
hereto.
"IMPACT Act" means K.S.A. 74-50,102 through 74-50,112, as from time to time
amended, and the Rules and Regulations promulgated thereunder.
"IMPACT Program" means the program established by the Secretary pursuant to
the IMPACT Act.
"IMPACT Program Services Fund" means the fund by that name created pursuant
to the IMPACT Act.
"KDOCH" means the Kansas Department of Commerce & Housing.
"New Job" means a "new job" as defined in the IMPACT Act, and shall include
all transfers of the Employer's employees from positions outside of the State of
Kansas to positions at the New Job Facilities.
"New Job Facilities" or "Project Facilities" means the facilities of the
Employer at which the New Jobs will be created, as identified in Exhibit A
hereto.
"New Jobs Performance Percentage" means the New Jobs Performance Percentage
as set forth in Exhibit C hereto.
"Program Costs of the Project" or "Program Costs of the SKILL Project"
means those Project Costs which are authorized to be financed from the IMPACT
Program Services Fund pursuant to the IMPACT Act and which are being so financed
under the terms of this Agreement.
"Project"or "SKILL Project" means the Project or SKILL Project as defined
in Exhibit B hereto.
2
<PAGE>
"Project Costs" or "SKILL Project Costs" means the Program Costs of the
SKILL Project and all other costs of the SKILL Project identified in, Exhibit C
hereto.
"Project Fund" or "SKILL Project Fund" means the fund by that name created
in the Project Bank pursuant to Section 3.3 hereof.
"Project Services" or "SKILL Project Services" means the items identified
as such on Exhibit C hereto.
"Qualified Investments" means such investments in which the Educational
Institution is authorized by law to invest its funds.
"Quarterly Report" means the Quarterly Reports required to be submitted by
the Employer pursuant to Section 4.2(b) hereof.
"Quarterly Report Date" means each of the Quarterly Report Dates set forth
in Exhibit C hereto.
"Remainder Account" means the subaccount by that name in the Project Fund
created pursuant to Section 3.3 hereof.
"Secretary" means the Secretary of KDOCH.
"SKILL Project Bank" means the bank identified as such in Exhibit A hereto.
"SKILL Program Services Project Account" means the subaccount by that name
in the SKILL Project Fund created pursuant to Section 3.3 hereof.
"Term of this Agreement" means the period from the Date of Agreement to the
Expiration Date.
"Training Equipment" means the equipment identified as such in Exhibit C
hereto to be acquired or leased by the Educational Institution in connection
with the SKILL Project.
"Training Facilities" means the facilities identified as such in Exhibit A
hereto owned by the Educational Institution at which the training, instruction
and testing for the SKILL Project will be conducted and the Training Equipment.
3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Educational Institution.
-------------------------------------------------------------
The Educational Institution represents and warrants as follows:
(a) it is an educational institution as described in the IMPACT Act;
(b) it is not in violation of or conflict with any provisions of the laws
of the State of Kansas which would impair its ability to carry out its
obligations hereunder;
(c) it is empowered to enter into the transactions comtemplated by this
Agreement;
(d) during the Term of this Agreement the Training Facilities will at all
times be adequate to provide the SKILL Project Services contemplated hereby;
(e) during the Term of this Agreement the Educational Institution will
have or employ sufficient teachers, trainers, instructors and other personnel to
provide the training, instruction, and other services included in the SKILL
Project Services;
(f) the Program Costs of the SKILL Project do not include (i) any wages
to be paid to persons receiving education or training under the SKILL Project,
(ii) any costs for the purchase or lease of the Training Equipment in excess of
50% of the Program Costs of the SKILL Project, and (iii) any costs for
administrative expenses of the Educational Institution in excess of 10% of the
Program Costs of the SKILL Project;
(g) amounts received to finance the Program Costs of the SKILL Project
from the IMPACT Program Services Fund shall be applied by the Educational
Institution only to finance or pay Program Services, as defined in the IMPACT
Act;
(h) the Educational Institution will at all times during the Term of this
Agreement comply with the provisions of the IMPACT Act; and
(i) the Educational Institution will at all times during the Term of this
Agreement comply with any restrictions that might be imposed by the Kansas
Development Finance Authority or KDOCH on the use of proceeds of any bonds
issued to finance the Program Costs of the SKILL Project in order to maintain
the tax-exempt status of such bonds.
Section 2.2 Representations, Warranties and Covenants of the Employer:
---------------------------------------------------------
The Employer represents, warrants, and covenants as follows:
(a) it is a Kansas basic enterprise as defined in the IMPACT Act;
4
<PAGE>
(b) it is an entity of the type identified on Exhibit A hereto, duly
organized and validly existing under the laws of the State of Organization
identified on Exhibit A hereto, and is authorized to do business in the State of
Kansas;
(c) it has full power and authority to execute, deliver and perform this
Agreement and all other instruments given by the Employer to secure its
performance and to enter into and carry out the transactions contemplated
herein. Such execution, delivery and performance are not in contravention of law
or the Employer's organizational documents or any indenture, agreement,
mortgage, lease, undertaking or any other restriction, obligation or instrument
to which the Employer is a party or by which the Employer is bound. This
Agreement has by proper action or authorization, been executed and delivered by
the Employer and all steps necessary have been taken to constitute this
Agreement a valid and binding obligation of the Employer;
(d) there is no litigation or proceeding pending, or to the knowledge of
the Employer threatened, against the Employer or any other person affecting in
any manner whatsoever the right of the Employer to execute the Agreement or to
otherwise comply with its obligations contained in the Agreement;
(e) each of the jobs included in the SKILL Project is a New Job;
(f) the portion of the training costs for each New Job paid from the
IMPACT Program Services Fund shall be for training that occurs within 36 months
from the date such New Job is first filled by the Employer;
(g) all information contained on the Exhibits hereto which have been
provided by the Employer is true, complete and accurate in all material
respects;
(h) it will cooperate with and coordinate its employment activities with
all state and federal programs for which all or any part of the Project may
qualify;
(i) it will at all times during the Term of this Agreement comply with
the applicable provisions of the IMPACT Act; and
(j) it acknowledges that it has no ownership claim to any Training
Equipment purchased with funds made available under this Agreement or otherwise
provided by the Educational Institution and has no claim for reimbursement for
any in-kind services or any funds or other contributions it has provided or will
provide for the project. It may retain ownership of any equipment purchased with
its own funds and utilized during the project.
5
<PAGE>
ARTICLE III
PROJECT; PROGRAM SERVICES
Section 3.1 The Project.
------------
The Project shall consist of the training, instruction, testing, and
services described in Exhibit B hereto and the creation of the New Jobs and the
employment of the employees to fill such New Jobs for the periods and with wages
and with employee benefits at least as favorable as those set forth in Exhibit B
hereto. To the extent that the Project consists of components that are not
Program Services, within the meaning of the IMPACT Act, or which require funding
beyond the limits prescribed in the IMPACT Act or available funding from the
IMPACT Program Services Fund, such components or such excess funding shall be
financed from sources other than the IMPACT Program Services Fund. The Project
Costs, the Program Costs of the Project and the Project Costs payable from (i)
the IMPACT Program Services Fund, (ii) tuition, student fees or special charges,
(iii) the Educational Institution, (iv) grants or donations from federal
agencies or other public or private sources and (v) funds provided by the
Employer are set forth on Exhibit C hereto.
The Project or any of its components, including but not limited to Employer
and Educational Institution matching funds or in-kind services, employee wages
and employee benefits, and the training plan in its entirety, may be amended or
modified only with the express written approval of the Educational Institution,
the Employer and KDOCH, except that amendments or modifications that increase
the Project Costs payable from the IMPACT Program Services Fund or decrease the
Repayment Amount shall also require the approval of the Governor's Council on
Work Force Training and Investment; provided however that the Employer (i) may
increase employee wages or employee benefits without notice to or approval of
any entity, and (ii) may make adjustments in the wages or benefits of any
employee which do not result in a reduction in aggregate value of such
employee's wages and benefits without notice to or approval of any entity.
Section 3.2 Performance of the Project.
--------------------------
(a) The Educational Institution. The Educational Institution agrees to
-----------------------------
provide, either directly or indirectly through contracted or subcontracted
services, the training, instruction, testing and services constituting the
Project in accordance with the Training Schedule set forth in Exhibit B, to
acquire and install the Training Equipment, if any, included as part of the
Project at the Training Facilities, and to make the necessary modifications,
additions and improvements to the Training Facilities, if any, included as a
part of the Project. The Educational Institution may, in its discretion,
contract or subcontract with other entities or persons to provide and accomplish
all or part of the components of the Project.
6
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(b) The Employer.
-------------
(i) New Jobs. The Employer agrees to create the New Jobs described
in Exhibit B hereto at the New Jobs Facilities, hire the
employees and/or transfer employees from its out-of-state
facilities to fill the New Jobs at the New Jobs Facilities at
the times and for the periods of time, at wages and with
employee benefits at least as favorable as set forth in Exhibit
B hereto.
(ii) Existing Jobs. The Employer agrees not to reduce the Existing
Jobs below the levels set forth in Exhibit A hereto nor to
reduce the wages paid or employee benefits received with
respect to such Existing Jobs during the term of this
Agreement.
Section 3.3 IMPACT Program Services Fund Account for the Project; SKILL Project
--------------------------------------------------------------------
Fund; Subaccounts; Payment of Project Costs.
- --------------------------------------------
KDOCH agrees to create a separate and distinct account within the IMPACT
Program Services Fund for the Project and to transfer money to such account to
be available for the payment of Program Costs of the Project in accordance with
the Schedule of Deposit of Funds and/or Performance of In-Kind Services set
forth in Exhibit C hereto. KDOCH agrees to transfer funds from time to time from
such separate account in the IMPACT Program Services Fund pursuant to the IMPACT
Act to the SKILL Project Bank to pay for all or part of the Program Costs of the
SKILL Project upon the receipt from the Educational Institution of a written
request, satisfactory in form and content to the Secretary, requesting payment
or reimbursement for the payment of Program Costs of the SKILL Project.
The Educational Institution shall establish at the Project Bank a separate
and distinct account to be known as the Project Fund and shall establish therein
two subaccounts to be known as the SKILL Program Services Project Account and
the Remainder Account. Unless otherwise precluded by law, such accounts shall be
interest bearing accounts.
All amounts received by the Educational Institution from KDOCH from amounts
on deposit in the IMPACT Program Services Fund shall be deposited into the SKILL
Program Services Project Account, may be invested as hereinafter provided, and
shall be withdrawn and applied only to the payment of Program Costs of the SKILL
Project. The investment earnings from amounts on deposit in the SKILL Program
Services Project Account shall be retained therein. Any excess on deposit in the
SKILL Program Services Project Account after the earlier of (i) the completion
of the Project, or (ii) the payment in full of the Program Costs of the SKILL
Project shall be transferred to KDOCH for deposit into the IMPACT Program
Services Fund.
All amounts received from all other funding sources to be used to pay SKILL
Project Costs shall be deposited into the Remainder Account, may be invested as
hereinafter provided, and shall be withdrawn and applied to the payment of SKILL
Project Costs not being paid from the SKILL Program Services Project Account;.
provided, however, that the Employer is
7
<PAGE>
authorized to pay all or any part of its portion of the SKILL Project Costs
directly and will get credit for the same so long as the Employer includes in
the Quarterly Report immediately following the date of such payment, an
accounting of such payment setting forth the amount and purpose of such payment,
the date of such payment, the recipient of such payment and such other
information as KDOCH may deem necessary to determine that such payment was for
an authorized SKILL Project Cost. The investment earnings from amounts on
deposit in the Remainder Account shall be retained therein. Any excess on
deposit in the Remainder Account after the payment in full of SKILL Project
Costs shall be paid on a pro rata basis in accordance with the amount of their
contributions to the entities and persons providing funding for the Remainder
Account, or otherwise as determined by KDOCH.
Amounts on deposit in the SKILL Project Fund may be invested by the
Educational Institution only in Qualified Investments. Any investment earnings
on such Qualified Investments shall be deposited into the appropriate subaccount
of the SKILL Project Fund from which such investment was made.
Section 3.4 Insufficient Funds.
------------------
In the event that there are insufficient funds in the SKILL Project Fund
to pay all of the SKILL Project Costs, the Employer may deposit additional
funds into the SKILL Project Fund to provide for such payment and/or make such
payment directly and account for the same in the manner as is set forth in
Section 3.3 hereof or may determine which portions of the Project shall not be
accomplished or completed. Notwithstanding the foregoing, in no event shall
amounts on deposit in the IMPACT Program Services Fund or the SKILL Program
Services Project Account be used to pay for anything but Program Costs of the
SKILL Project. In addition, nothing herein shall relieve the Employer from
fulfilling its obligations herein to provide New Jobs for the periods of time,
at the wages and with the employee benefits set forth in Exhibit B hereto.
If the Employer should deposit any additional funds in the SKILL Project
Fund to make up any deficiencies therein as aforesaid or make any direct
payments to make up such deficiencies as aforesaid, it shall not be entitled to
any reimbursement therefor from the Educational Institution or KDOCH, nor shall
it be entitled to any abatement, diminution or postponement of any other
payments required to be paid by the Employer hereunder; provided however, that
the Employer shall be entitled to reimbursement for such deficiency payments
from either the IMPACT Program Services Fund, the SKILL Program Services
Project Account or the Remainder Account when a surplus exists and the
Educational Institution and KDOCH determine that such surplus is not needed to
satisfy other Project Costs.
Notwithstanding anything in this Agreement to the contrary, in no event
shall KDOCH be construed as agreeing to provide funding for Project Costs in a
manner or amount inconsistent with the requirements and limitations of the
IMPACT Act.
8
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ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Events of Default.
-----------------
Each of the following shall be an "event of default":
(a) the Employer shall cease operation of its New Job Facilities without
relocation to a comparable facility located within the State of Kansas during
the Term of this Agreement;
(b) the Employer shall fail to pay or advance any amount required to be
made by the Employer on or prior to the date on which such payment is due and
payable and continuing for more than five (5) business days thereafter;
(c) (1) the Employer shall fail as of any Compliance Determination Date
(as hereinafter defined) to create and maintain New Jobs at levels projected by
the Employer as set forth in Exhibit B hereto, to maintain Existing Jobs at
levels in existence on the Date of Agreement as set forth in Exhibit A hereto,
or to pay wages for New Jobs at levels projected by the Employer as set forth in
Exhibit B hereto or the Employer discontinues substantial operations at the New
Jobs Facilities and (2) such failure or action shall result in a termination or
breach of this Agreement pursuant to Section 4.2 hereof;
(d) the Employer shall fail to observe and perform any other agreement,
term or condition contained in this Agreement, if such failure continues for a
period of thirty (30) days after notice of such failure is given to the Employer
by the Educational Institution or KDOCH, or for such longer period as the
Educational Institution and KDOCH may agree to in writing; provided, that if the
failure is other than the payment of money and is of such a nature that it
cannot be corrected within the applicable period, such failure shall not
constitute an event of default so long as the Employer institutes curative
action acceptable to KDOCH within the applicable period and diligently pursues
such action in a manner acceptable to KDOCH until such failure is corrected;
(e) the Employer shall: (i) admit in writing its inability to pay its
debts generally as they become due; (ii) have an order for relief entered in any
case commenced by or against it under the federal bankruptcy laws, as now or
hereafter in effect; (iii) commence a proceeding under any other federal or
state bankruptcy, insolvency, reorganization or other similar law, or have such
a proceeding commenced against it and either have an order of insolvency or
reorganization entered against it or have the proceeding remain undismissed and
unstayed for ninety (90) days; (iv) make an assignment for the benefit of
creditors other than assignments made in the ordinary course of business; or (v)
have a receiver or trustee appointed for it or for the whole or any substantial
part of its property; or
(f) any representation or warranty made by the Employer herein or any
statement in any report, certificate, financial statement or other instrument
furnished in connection with this
9
<PAGE>
Agreement shall at any time prove to have been false or misleading in any
material respect when made or given.
The declaration of an event of default under Subsection (e) above, and
the exercise of any remedies upon any such declaration shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding such
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
Section 4.2 Termination or Breach of this Agreement; Payments for Termination or
-------------------------------------------------------------------
Breach Required by the IMPACT Act.
- ---------------------------------
(a) The parties hereto acknowledge that the amount of the Program Costs
of the Project to be financed from the IMPACT Program Services Fund was
determined in the following manner:
Step 1. The Employer projected (a) the number of New Jobs (each a
"Projected New Job") to be created and filled at the New Jobs
Facilities during the Term of this Agreement, (b) the gross
wages projected to be paid (the "Projected Gross Wages") for
each Projected New Job for each Contract Year (or portion
thereof) during the Term of this Agreement (for each Projected
New Job for a period not exceeding 10 full years from the date
such Projected New Job is expected to be first filled by the
Employer) and (c) the duration (the "Projected Duration") of
each Projected New Job during the Term of this Agreement.
Step 2. KDOCH determined the amount of withholding tax (the "Projected
New Job Withholding Taxes") that will be withheld for each
Projected New Job during the Term of this Agreement by applying
the appropriate Estimated Rate of Withholding Tax for each
Contract Year (or portion thereof) to the Projected Gross Wages
for each Projected New Job for such Contract Year (or portion
thereof) and totalling the results of each Contract Year (or
portion thereof). These calculations are set forth in Exhibit C
hereto.
Step 3. The Projected New Job Withholding Taxes for all of the
Projected New Jobs were added together to produce a projected
aggregate amount (the "Total Projected New Job Withholding
Taxes") of withholding taxes that will be withheld for all
Projected New Jobs during the Term of this Agreement. The Total
Projected New Job Withholding Taxes is set forth in Exhibit C
hereto.
Step 4. In accordance with the IMPACT Act, the Total Projected New Job
Withholding Taxes was multiplied by 90% to produce an amount
(the "Maximum Funding Amount") equal to the maximum amount
for which the Project is eligible under the IMPACT Act. The
Maximum Funding Amount is set forth on Exhibit C hereto.
10
<PAGE>
Step 5. The portion of the Project Costs to be funded from the IMPACT
Program Services Fund (the "Program Costs of the Project") was
determined by KDOCH and is set forth in Exhibit C hereto. The
Program Costs of the Project equal a percentage (the "Funding
Percent") of the Maximum Funding Amount. The Funding Percent is
set forth in Exhibit C hereto.
(b) The Employer agrees to submit quarterly reports (the "Quarterly
Reports") to the Secretary within 10 days of each Quarterly Report Date set
forth in Exhibit C hereto during the Term of this Agreement setting forth (i)
the number of New Jobs created by the Employer which are covered by this
Agreement, (ii) the date of commencement (the "Date of Commencement") and, if
appropriate, of termination of employment (the "Date of Termination") of each
employee filling each such New Job (iii) the gross wages paid to each such
employee for each such New Job from the respective Date of Commencement through
the respective Date of Termination or the Quarterly Report Date for which the
Quarterly Report is being submitted (iv) the total amount of withholding taxes
that were withheld for each such New Job during the periods covered by the
Quarterly Report, (v) the number of Existing Jobs filled by employees of the
Employer as of the Quarterly Report Date, (vi) the number of Existing Jobs that
were discontinued or unfilled as of the Quarterly Report, Date, the date on
which each such Existing Job was discontinued or unfilled and the average
monthly salary and withholding taxes paid with respect to each such Existing Job
immediately prior to its discontinuation or vacancy, and (vii) such other
information relating to New Jobs, Existing Jobs, wages, benefits or the Project
as KDOCH may request.
(c) On the basis of the Quarterly Reports submitted by the Employer,
KDOCH will determine from time to time at least once annually at the end of a
Contract Year and in any case, as of a Quarterly Report Date (the date of each
determination being a "Compliance Determination Date") the Net Withholding Taxes
in the following manner:
Step 1. For each New Job created by the Employer from the Date of
this Agreement to the Compliance Determination Date (the
"Compliance Period"), KDOCH shall calculate the total amount of
gross wages actually paid with respect to such New Job during
the Compliance Period and the total amount of withholding taxes
that were withheld with respect to such New Job during the
Compliance Period.
Step 2. The total withholding taxes (the "Total New Jobs Withholding
Taxes") that were withheld with respect to all New Jobs created
by the Employer during the Compliance Period shall be
determined by adding the withholding taxes for each New Job so
created.
Step 3. For each Existing Job that was in existence on the Date of
this Agreement and which was discontinued or unfilled (each, a
"Lost Existing Job") for any period (the "Vacancy Period")
during the Compliance Period, KDOCH shall calculate the total
amount of gross wages that would have
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<PAGE>
been paid with respect to such Lost Existing Job during such
Vacancy Period and the total amount of withholding taxes that
would have been withheld with respect to such Lost Existing
Job during such Vacancy Period.
Step 4. The total withholding taxes (the "Total Existing Jobs Lost
Withholding Taxes") that would have been withheld with respect
to all Lost Existing Jobs during the Compliance Period shall be
determined by adding the withholding taxes that would have been
withheld during each Vacancy Period for the Lost Existing Job
corresponding to such Vacancy Period.
Step 5. The net withholding taxes ("Net Withholding Taxes") for the
Compliance Period shall be determined by subtracting the Total
Existing Jobs Lost Withholding Taxes for the Compliance Period
from the Total New Jobs Withholding Taxes for the Compliance
Period (the Net Withholding Taxes may be a negative amount).
(d) If KDOCH determines as of any Compliance Determination Date for the
Compliance Period ending on such Compliance Determination Date (w) that the
Employer has failed to create and maintain New Jobs during such Compliance
Period in an amount at least equal to the amount determined by multiplying the
New Jobs Performance Percentage times the number of New Jobs to be created and
maintained by the Employer during such Compliance Period as set forth in Exhibit
B hereto or (x) that the Employer has failed to maintain Existing Jobs during
such Compliance Period in an amount at least equal to the amount determined by
multiplying the Existing Jobs Performance Percentage times the number of
Existing Jobs to be maintained by the Employer during such Compliance Period as
set forth in Exhibit A hereto or (y) that the Employer has failed to pay wages
for the New Jobs created and maintained during such Compliance Period at levels
projected by the Employer for such New Jobs as set forth in Exhibit B hereto, or
(z) that the Employer discontinued substantial operations at the New Jobs
Facilities during such Compliance Period (other than temporarily for short
periods of time to perform normal maintenance or repairs), then (i): KDOCH may
declare this Agreement to be terminated as of such Compliance Determination
Date, or, in the case of discontinued substantial operations of the New Jobs
Facilities, as of the date on which KDOCH becomes aware of such discontinued
operations or the Quarterly Report Date immediately succeeding the date of such
discontinued substantial operations, whichever occurs first (such date being
referred to herein as a "Termination Date") and (ii) the Employer shall
immediately pay to KDOCH for deposit in the IMPACT Program Services Fund a
portion, of the Gross Funded Cost (the "Repayment Amount") determined in
accordance with the Repayment Formula set out in subsection (f) or (g) of this
Section 4.2, as the case may be. In addition, upon such termination any
unexpended amounts (the "Non-Disbursed Funds") on deposit in the SKILL Program
Services Project Account and the separate account for the Project in the IMPACT
Program Services Fund shall revert to KDOCH for its use in connection with the
IMPACT Program.
(e) Unless this Agreement shall have been deemed to have been terminated
pursuant to subsection (d) of this Section 4.2, if on the Expiration Date of
this Agreement (which shall
12
<PAGE>
also be a Compliance Determination Date), KDOCH determines that the Employer has
failed to create and maintain New Jobs during the Term of this Agreement in an
amount at least equal to the amount determined by multiplying the New Jobs
Performance Percentage times the number of New Jobs to be created and maintained
by the Employer during the Term of this Agreement as set forth in Exhibit A
hereto, or that the Employer has failed to maintain Existing Jobs during the
Term of this Agreement in an amount at least equal to the amount determined by
multiplying the Existing Jobs Performance Percentage times the number of
Existing Jobs to be maintained by the Employer during the Term of this Agreement
as set forth in Exhibit A hereto, or that the Employer has failed to pay wages
for the New Jobs created and maintained during the Term of this Agreement at
levels projected by the Employer for such New Jobs as set forth in Exhibit B
hereto, this Agreement shall be deemed to have been breached and the Employer
shall immediately pay to KDOCH for deposit in the IMPACT Program Services Fund
the Repayment Amount determined in accordance with the Repayment Formula set out
in subsection (f) of this Section 4.2.
(f) The Repayment Amount for termination or breach of this Agreement (other
than because of discontinuation of substantial operations of the New Jobs
Facilities) shall be determined in accordance with the following Repayment
Formula (provided however, that the Repayment Amount shall not exceed the Gross
Funded Cost):
RA = GFC - NDF - NWT - RPNWT
Where:
RA = Repayment Amount
GFC = the Gross Funded Cost as shown on
Exhibit C hereto
NDF = Non-Disbursed Funds
NWT = Net Withholding Taxes
RPNWT = Revised Projected Net Withholding Taxes
(determined as hereinafter provided)
Determination of Revised Projected Net Withholding Taxes: KDOCH shall calculate
the total projected gross wages for all New Jobs in existence as of the
Termination Date and projected by KDOCH to be maintained by the Employer until
the Expiration Date and the total withholding taxes (the "Revised Projected New
Jobs Withholding Taxes") that are projected by KDOCH to be withheld with respect
to such New Jobs during the period beginning on the Termination Date and ending
on the Expiration Date (the "Remaining Test Period") in the same manner as set
forth in subsection (c) of this Section 4.2 for determining the Total New Jobs
Withholding Taxes using revised information relating to New Jobs, the projected
wages relating thereto, their projected duration, and other information that
KDOCH deems pertinent. In addition, KDOCH shall
13
<PAGE>
calculate the total projected gross wages for each Existing Job that was in
existence on the Date of this Agreement and which will, in the judgment of
KDOCH, be discontinued or unfilled (each a "Projected Lost Existing Job") for
any period (the "Projected Vacancy Period") during the Remaining Test Period,
the total amount of withholding taxes that would have been withheld, in the
judgment of KDOCH, with respect to each such Projected Lost Existing Job during
such Projected Vacancy Period if such Projected Lost Existing Job were not
discontinued or unfilled during the Projected Vacancy Period and the total
withholding taxes (the "Total Existing Jobs Projected Lost Withholding Taxes")
that would have been withheld, in the judgment of KDOCH, with respect to all
Projected Lost Existing Jobs during the Remaining Test Period in the manner set
forth in subsection (c) of this Section 4.2 for determining the Total Existing
Jobs Lost Withholding Taxes using revised information relating to Existing
Jobs, the discontinuance or vacancies therein, the wages and withholding taxes
relating thereto, and other information that KDOCH deems pertinent. Absent clear
and convincing evidence to the satisfaction of KDOCH to the contrary, any
Existing Job which has been discontinued or unfilled at any time during the six
month period immediately preceding the Compliance Determination Date shall be
treated as a Projected Lost Existing Job for the Remaining Test Period. The
Revised Projected Net Withholding Taxes shall be determined by subtracting the
Total Existing Jobs Projected Lost Withholding Taxes for the Remaining Test
Period from the Revised Projected New Jobs Withholding Taxes for the Remaining
Test Period (the Revised Projected Net Withholding Taxes may be a negative
amount).
(g) The Repayment Amount for termination of this Agreement because of
discontinuation of substantial operations of the New Jobs Facilities shall be
determined in accordance with the following Repayment Formula (provided however,
that the Repayment Amount shall not exceed the Gross Funded Cost):
RA = GFC - NDF - NWT
Where:
RA = Repayment Amount
GFC = Gross Funded Cost as- shown on Exhibit C hereto
NDF = Non-Disbursed Funds
NWT = Net Withholding Taxes
Section 4.3 Remedies.
---------
Whenever an event of default shall have happened and be subsisting,
KDOCH may terminate disbursement of any unexpended amounts on deposit in the
SKILL Program Services Project Account and the separate account for the Project
in the IMPACT Program Services Fund and divert such amounts to KDOCH for its use
in connection with the IMPACT Program and the Educational Institution or KDOCH
may take whatever action at law or in equity may appear
14
<PAGE>
necessary or desirable to collect any payment and other amounts then due and
thereafter to become due by the Employer hereunder, or to enforce performance
and observance of any other obligation or agreement of the Employer under this
Agreement. Notwithstanding the foregoing, neither the Educational Institution
nor KDOCH shall be obligated to take any step which in its opinion will or might
cause it to expend time money or otherwise incur liability unless and until a
satisfactory indemnity bond has been furnished to it at no cost or expense to
it. Notwithstanding any provision herein to the contrary, if the Educational
Institution and KDOCH cannot agree on a course of action in the event of an
occurrence of an event of default, KDOCH shall have the right to determine the
proper course of action.
Section 4.4 No Remedy Exclusive.
-------------------
No remedy conferred upon or reserved to the Educational Institution or
KDOCH by this Agreement is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy now or hereafter existing at law, in equity
or by statute. No delay or omission to exercise any right or power accruing upon
any default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Educational
Institution and KDOCH to exercise any remedy reserved to it in this Article, it
shall not be necessary to give any notice, other than such notice as may be
expressly required herein.
Section 4.5 Waivers.
-------
In the event any agreement contained in this Agreement should be breached
by either party and thereafter waived by the other party, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
Section 4.6 Educational Institution Defaults.
--------------------------------
If the Educational Institution fails to observe and perform any obligation,
term or condition contained in this Agreement for a period of thirty (30) days
after notice of such failure is given by the Employer or KDOCH, or for such
longer period as the Employer and KDOCH may agree to in writing, such action or
omission will be considered a default and Employer or KDOCH may take whatever
action, at law or in equity, may appear necessary or desirable, to enforce
performance and the observance of any obligation or term of this Agreement.
15
<PAGE>
ARTICLE V
MISCELLANEOUS
Section 5.1 Execution in Counterparts.
-------------------------
This Agreement may be executed in any number of counterparts, each of
which shall be regarded as an original and all of which shall constitute but one
and the same instrument.
Section 5.2 Severability.
------------
If any provisions of this Agreement, or any covenant, stipulation,
obligation, agreement, act or action, or part thereof made, assumed, entered
into or taken thereunder or any application thereof, is for any reason held to
be illegal or invalid, such illegality or invalidity shall not affect any other
provision or any other covenant, stipulation, obligation, agreement, act or
action or part thereof, made, assumed, entered into, or taken, each of which
shall be construed and enforced as if such illegal or invalid portion were not
contained herein. Nor shall such illegality or invalidity of any application
thereof affect any legal and valid application thereof, and each such provision,
covenant, stipulation, obligation, agreement, act, or action, or part shall be
deemed to be effective, operative, made, entered into or taken in the manner and
to the full extent permitted by law.
Section 5.3 Governing Law.
-------------
This Agreement shall be governed exclusively by and construed in
accordance with the laws of the State of Kansas.
Section 5.4 Notices.
-------
All notices, requests or other communications hereunder shall be in
writing and shall be deemed to be sufficiently given when mailed by registered
or certified mail, postage prepaid, addressed to the Educational Institution or
the Employer at their respective addresses shown in Exhibit A hereto and to
KDOCH at:
Kansas Department of Commerce & Housing
Business Development Division
700 S.W. Harrison Street, Suite 1300
Topeka, Kansas 66603-3712
The Educational Institution, the Employer and KDOCH may, by notice given
hereunder, designate any further or different addresses to which subsequent
notices, requests or other communications shall be sent.
Section 5.5 Immunity of Officers, Board Members, and Employees.
--------------------------------------------------
All covenants, stipulations, obligations and agreements of the parties
contained in this Agreement shall be effective to the extent authorized and
permitted by applicable law. No such
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<PAGE>
covenant, stipulation, obligation or agreement shall be deemed to be a covenant,
stipulation, obligation or agreement of any present or future member, director,
officer, agent or employee of the Employer or its affiliates, the Educational
Institution, the Kansas Board of Regents, the Governor's Council on Work Force
Training and Investment, or KDOCH or the Board of Trustees, Secretary or any
governing authority of an Educational Institution, other than in his or her
official capacity, and neither the Secretary, nor the members of the Board of
Directors shall be subject to any personal liability or accountability by reason
of the covenants, stipulations, obligations or agreements of the Educational
Institution or KDOCH contained in this Agreement.
Section 5.6 Assignment.
----------
This Agreement shall inure to the benefit of and shall be binding in
accordance with its terms upon the Educational Institution, KDOCH, the Employer
and their respective permitted successors and assigns provided that this
Agreement may not be assigned by the Employer without the express written
consent of the Educational Institution and KDOCH, nor by the Educational
Institution without the express written consent of the Employer and KDOCH.
Section 5.7 Obligations to Fund Limited.
---------------------------
The obligation of KDOCH to fund the SKILL Program Services Project
Account or to pay for Program Costs of the SKILL Project shall be limited by the
availability for such purpose from time to time of amounts on deposit in the
IMPACT Program Services Fund.
Section 5.8 Books and Records.
-----------------
The Educational Institution and KDOCH shall keep accurate books and
records of the SKILL Project Fund, the SKILL Program Services Project Account,
the Remainder Account and the separate account for the Project within the IMPACT
Program Services Fund and the deposits to and disbursements from such funds and
accounts, the amounts expended for Project Costs and all other data, statistics
and information relating to the Project and shall maintain the same for at least
5 years after the Termination Date. The Employer shall keep accurate books and
records of its activities relating to the Project including data, statistics and
information relating to the New Jobs created pursuant to this Agreement, the
wages and benefits for the employees in the New Job, the dates and amounts of
any in-kind contributions of Project Costs and the performance of its
obligations under this Agreement. The Educational Institution, KDOCH and the
Employer shall make such books and records available for inspection by the other
parties hereto at any time upon reasonable notice and shall provide the other
parties hereto with quarterly reports (on each Quarterly Report Date) detailing
such activities and other data relating to the Project during the Term of this
Agreement.
Section 5.9 Additional Provisions and Exhibits Incorporated.
-----------------------------------------------
The parties hereto agree to the Additional Provisions set forth on
Exhibit D hereto and the other matters set out in the other Exhibits hereto and
such Additional Provisions and other matters and Exhibits are incorporated
herein as if fully set out herein.
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IN WITNESS WHEREOF, the Educational Institution, the Employer and KDOCH
have caused this Agreement to be duly executed all as of the Date of the
Agreement.
Fort Scott Community College
----------------------------
as Educational Institution
By: /s/ Laura Meeks
----------------------------
Name: Laura Meeks
--------------------------
Title: President
-------------------------
Intek Information, Inc.,
------------------------
as Employer
By: /s/Timothy C. O'Crowley
----------------------------
Name: Timothy C. O'Crowley
--------------------------
Title: Chairman/CEO
-------------------------
Kansas Department of Commerce & Housing
By: /s/ John Rolfe
----------------------------
Name: John Rolfe
--------------------------
Title: Deputy Secretary
-------------------------
Pursuant to the provisions of the IMPACT Act, this Agreement and the Project
have been approved by the Governor's Council on Work Force Training and
Investment.
Governor's Council on Work
Force Training and Investment
By:**Signature illegible**
----------------------------
Chairperson
18
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF INTEK INFORMATION, INC.
Intek Teleservices, Inc.
Intek Insurance Agency, Inc.
Brokerage Administrators Corp.
Acorn Information Services, Inc.
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado,
January 13, 2000.
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of Intek
Information, Inc. of our report dated June 28, 1999, except as to the proposed
acqusition described in the second and third paragraphs of Note 10 which is as
of July 16, 1999, relating to the financial statements of Acorn Information
Services, Inc., which appear in such Registration Statement. We also consent to
the reference to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 13, 2000
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
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