<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-75353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SALESLOGIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 86-0808340
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION CLASSIFICATION CODE NUMBER)
OR ORGANIZATION)
</TABLE>
8800 N. GAINEY CENTER DRIVE, SUITE 200
SCOTTSDALE, ARIZONA 85258
(602) 368-3700
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
PATRICK M. SULLIVAN, PRESIDENT
SALESLOGIX CORPORATION
8800 N. GAINEY CENTER DRIVE, SUITE 200
SCOTTSDALE, ARIZONA 85258
(602) 368-3700
FAX (602) 368-3799
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS H. CURZON, ESQ. JEFFREY D. SAPER, ESQ.
WILLIAM M. HARDIN, ESQ. ROBERT G. DAY, ESQ.
CHRISTOPHER S. STACHOWIAK, ESQ. RICHARD JAY SILVERSTEIN, ESQ.
OSBORN MALEDON, P.A. ALLISON L. BERRY, ESQ.
2929 NORTH CENTRAL AVENUE WILSON SONSINI GOODRICH & ROSATI, PC
PHOENIX, ARIZONA 85012-2794 650 PAGE MILL ROAD
(602) 207-1288 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>
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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.
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
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. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY , 1999
PROSPECTUS
3,325,000 SHARES
[SALES LOGIX LOGO]
COMMON STOCK
This is an initial public offering of common stock by SalesLogix
Corporation. We are selling 3,325,000 shares of common stock. The estimated
initial public offering price is between $9.00 and $11.00 per share. Shares of
common stock are being reserved for sale at the initial public offering price to
resellers of our products and services, directors, officers, and employees. Such
persons will not purchase more than 10% of the common stock offered hereby.
------------------
The shares of common stock have been proposed to be listed for quotation on
the Nasdaq National Market under the symbol SLGX.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to SalesLogix, before expenses..................... $ $
</TABLE>
SalesLogix has granted the underwriters an option for a period of 30 days
to purchase up to 498,750 additional shares of common stock.
------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
CHARLES SCHWAB & CO., INC.
, 1999
<PAGE> 3
INSIDE FRONT COVER
[SALESLOGIX LOGO]
What you need to sell today.
<PAGE> 4
[INSIDE PULL-OUT]
[ARTWORK--INTERACTIVE SELLING NETWORK]
DESCRIPTION
Conceptual overview of the SalesLogix solution. Includes visual
representation of sales, marketing and customer support networked together
through the Internet to create a platform to serve a number of clients. Five
will be pictured in the visual--telesales, field sales, partner sales,
e-commerce sales and customer relationships. All will include accompanying text
to explain a relevant component of the solution.
TEXT
Will include the following:
- HEADING--SalesLogix. Enabling mid-market companies to sell.
- COPY--Three blocks:
The future of the front office is here. It's SalesLogix. A solution that
has been designed from the start to empower mid-market companies to sell
more through interactive selling networks. To build online communities
that link field sales, telesales, value added resellers, partners and
commerce channels together with the customers that require their
products and services. To create prospect and customer interactions that
use the Internet to streamline and personalize communications.
SalesLogix makes the selling process faster, easier and more effective.
Through a network that connects sales, marketing and support operations
across multiple channels of distribution, SalesLogix automates all the
key elements of selling -- providing more time to allow long-lasting
relationships to be built.
It's a solution that enables mid-market companies to grow, innovate and
compete. Which is what a front office should be all about.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Corporate Information....................................... 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 29
Management.................................................. 46
Certain Transactions........................................ 55
Principal Stockholders...................................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 66
Index To Financial Statements............................... F-1
</TABLE>
Information contained on SalesLogix' website does not constitute part of
this prospectus.
SALESLOGIX and SUPPORTLOGIX are registered trademarks of SalesLogix
Corporation. This prospectus also contains trademarks and tradenames of other
companies.
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all the information you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including "Risk Factors" and the financial statements, before making
an investment decision.
OUR BUSINESS
SalesLogix is a leading provider of software that enables mid-market
businesses to automate sales, marketing and customer support interactions. By
automating these interactions, which may include an outbound phone call, a field
sales meeting, or a customer inquiry over the web, our products allow companies
to record, track and share customer information more effectively. Our products
utilize the Internet to create interactive selling networks that connect mobile
sales, internal telesales, marketing and support organizations as well as third
party resellers and other partners. Our products enhance the speed, quality and
effectiveness of selling through this network by:
- Providing salespeople with personalized and easy to use sales automation
software;
- Automating the key elements of selling--marketing, contact management,
account management, opportunity management, order management and customer
support;
- Integrating processes for selling through multiple distribution
channels--direct sales, telesales, indirect sales and e-commerce; and
- Capturing information generated by selling activities in a repository of
customer interaction data, which can be used to enable collaborative
selling, marketing and customer support.
Sales automation software has recently emerged as a critical requirement
for organizations seeking to gain a competitive advantage in their sales,
marketing and customer support activities. While a number of these front office
automation applications have been introduced over the past decade, a majority of
them have been targeted at large corporations and have been expensive and time
consuming to deploy and maintain. As a result, many businesses have not
implemented these applications, particularly those in the mid-market. Mid-market
businesses include mid-sized companies and divisions of larger companies with
annual revenues between $10 million and $1 billion. We believe that there is a
strong demand among mid-market businesses for sales automation software that
addresses the limitations of the current generation of applications.
Mid-market businesses, which are becoming the driving forces of growth and
innovation in many industries, have adopted dynamic business models that utilize
interactive selling networks to compete with larger organizations. For example,
many of these businesses now seek to use the Internet as a low-cost, global
infrastructure through which they can easily share information across the
enterprise as well as with outside partners. The Internet has also created an
entirely new channel for mid-market businesses to reach and cost-effectively
support their customers directly. We believe mid-market businesses increasingly
require sales automation software that is easy to use, cost-effective and can
support new models of collaborative and Internet-based selling.
SalesLogix provides sales automation software designed specifically for the
mid-market. We have built our software to be easy to use, rapid to deploy and
implement and to deliver high performance with a low total cost of ownership.
Our software provides both the built-in functionality necessary to quickly
derive benefits, as well as the flexibility to create a solution tailored to the
specific and evolving requirements of our customers. Our software for remote
users of mobile devices such as laptops was recently awarded Best Mobile Sales
Solution by Microsoft. This software includes high performance synchronization
technology that allows mobile users to synchronize the data on their mobile
device with the data stored on a central database. We recently acquired Enact
Incorporated, a provider of sales configuration technology for managing product
catalogs and marketing encyclopedias and generating proposals, quotes and
orders.
1
<PAGE> 7
We believe that a distribution channel of independent resellers is the best
and most cost-effective way to reach mid-market businesses. As a result, we sell
our software primarily through our network of more than 225 resellers, whom we
refer to as "Business Partners." Our Business Partners provide local
implementation and customization services, deliver industry-specific expertise
and extend our domestic and international reach. We have built our products
specifically for this indirect distribution channel by making them easy to use
and implement as well as highly customizable and able to integrate with other
systems. We intend to complement our indirect distribution channel by expanding
our targeted direct sales force to pursue key strategic accounts. In addition,
we intend to further develop our telesales channel and establish an e-commerce
channel to sell entry-level and customer add-on products. We have licensed our
software to over 1,300 domestic and international customers in a variety of
industries, including high technology, financial services, telecommunications,
utilities, retail, banking, health care and real estate.
Our principal executive offices are located at 8800 N. Gainey Center Drive,
Suite 200, Scottsdale, Arizona 85258 and our telephone number is (602) 368-3700.
We were incorporated in Delaware in 1995.
THE OFFERING
Common stock offered by SalesLogix...... 3,325,000 shares
Common stock to be outstanding after
this offering........................... 17,891,682 shares
Use of proceeds......................... For general corporate purposes,
including working capital and
capital expenditures, and to
repay existing indebtedness. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. SLGX
Common stock to be outstanding after this offering as set forth above is
based on shares outstanding on March 31, 1999. It includes 362,694 shares of
common stock to be issued in a concurrent private placement described below,
assuming an initial public offering price of $10.00 per share. It also includes
609,424 shares of common stock issued in connection with the closing of the
Enact acquisition. It excludes 1,691,432 shares of common stock issuable upon
exercise of outstanding options and warrants granted at a weighted average
exercise price of $1.58 a share.
CONCURRENT PRIVATE PLACEMENT
Concurrent with this public offering, The Goldman Sachs Group, L.P., and
two of its affiliates, all of which are existing stockholders of SalesLogix,
have agreed to purchase an aggregate of $3.5 million of our common stock in a
private placement at a price per share equal to the initial public offering
price, less 3.5%. The sale of these shares to Goldman Sachs will not be
registered in this offering and, unless registered, will be subject to the
one-year holding period requirement of Rule 144 under the Securities Act of
1933. See "Description of Capital Stock -- Registration Rights" and "Shares
Eligible For Future Sale."
2
<PAGE> 8
The summary consolidated financial data presented below is derived from the
consolidated financial statements of SalesLogix and its subsidiaries.
The pro forma consolidated balance sheet data summarized below gives effect
to (a) the conversion of all outstanding shares of preferred stock and Class B
common stock into shares of common stock, and (b) in connection with the
acquisition of Enact, the payment of $4.1 million in cash, the issuance of
609,424 shares of common stock, and the related estimated purchase accounting
adjustments.
The pro forma as adjusted consolidated balance sheet data summarized below
reflects the application of net proceeds from the sale of 3,325,000 shares of
common stock offered by SalesLogix at an assumed initial public offering price
of $10.00 per share and net proceeds from the concurrent $3.5 million private
placement of shares of common stock to The Goldman Sachs Group, L.P. and two of
its affiliates.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues................................... $ -- $ 4,779 $15,643 $ 3,162 $ 6,302
Loss from operations............................. (3,543) (5,306) (6,722) (994) (1,094)
Net loss......................................... (3,349) (5,140) (6,592) (1,036) (1,047)
Historic basic and diluted net loss per share.... $ (0.87) $ (1.30) $ (1.75) $ (0.25) $ (0.30)
Pro forma basic and diluted net loss per share... $ (0.54) $ (0.08)
Shares used in computation of historic basic and
diluted net loss per share..................... 3,872 3,951 3,771 4,096 3,443
Shares used in computation of pro forma
net loss per share............................. 12,311 13,488
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED QUARTERLY STATEMENT OF OPERATIONS DATA:
Total revenues.............. $ 1,593 $2,527 $ 3,162 $ 3,014 $ 4,062 $ 5,405 $ 6,302
Loss from operations........ (1,047) (987) (994) (2,183) (2,089) (1,456) (1,094)
Net loss.................... (1,016) (995) (1,036) (2,181) (1,972) (1,403) (1,047)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,354 $ 5,137 $ 37,611
Working capital........................................... 9,736 4,318 37,183
Total assets.............................................. 24,261 28,503 60,977
Stockholders' equity...................................... 15,679 18,832 52,382
</TABLE>
Unless stated otherwise, we present information in this prospectus assuming
(1) the conversion of all outstanding shares of preferred stock and Class B
common stock into a total of 10,118,263 shares of common stock at the closing of
this offering, (2) the concurrent $3.5 million private placement of 362,694
shares of common stock to Goldman Sachs, assuming an initial public offering
price of $10.00 per share, and (3) no exercise of the underwriters'
over-allotment option.
3
<PAGE> 9
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks, as well as other risks and uncertainties that are not yet
identified or that we currently think are immaterial, could harm our business,
financial condition and operating results and could result in a complete loss of
your investment.
WE HAVE A LIMITED OPERATING HISTORY AND FACE RISKS ENCOUNTERED BY EARLY STAGE
COMPANIES
We commenced operations in January 1996 and released our first commercial
version of SalesLogix in April 1997. Accordingly, we have a limited operating
history and we face all of the risks and uncertainties encountered by early
stage software companies in rapidly evolving markets. These risks and
uncertainties include:
- significant fluctuations in quarterly operating results and expected
future losses;
- risks that competition, technological change or evolving customer
preferences could adversely affect market acceptance of our products;
- challenges we encounter in expanding and managing our sales, support and
distribution channels;
- risks that new products and product enhancements will not be timely
developed or introduced;
- significant dependence on our key personnel; and
- risks that management will not be able to effectively manage planned
growth and potential acquisitions.
Our limited operating history makes it difficult to forecast our future
operating results. The new, competitive, fragmented and rapidly changing nature
of our market increases these risks and uncertainties. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks and the risks detailed below.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES
We incurred net losses in each quarter from inception through March 31,
1999. As of March 31, 1999, we had an accumulated deficit of approximately $18.4
million. We have not achieved profitability and expect to continue to incur net
losses for the foreseeable future. We expect to continue to devote substantial
resources to our product development, sales, marketing and customer support
activities. As a result, we will need to generate significant quarterly revenues
to achieve and maintain profitability. Although our revenues have increased over
recent quarters, we cannot assure you that we will realize sufficient revenues
to achieve and sustain profitability in any future period.
OUR FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY FAIL
TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS,
CAUSING OUR STOCK PRICE TO DECLINE
Our operating results are difficult to predict and are likely to fluctuate
significantly on a quarterly and an annual basis due to a number of factors,
many of which are outside of our control. It is particularly difficult to
predict the timing or amount of our license revenues because our products are
typically shipped shortly after orders are received and therefore the amount of
unfilled orders for our products is small. Furthermore, because of customer
buying patterns that we do not expect to change, we recognize a substantial
portion of our license revenues in the last
4
<PAGE> 10
month and often in the last weeks or days of a quarter. Other factors that may
contribute to the difficulty of predicting our operating results include, but
are not limited to, the following:
- the lengthiness and unpredictability of sales cycles for our products;
- the mix of revenues generated by product licenses and customer service
and support;
- the mix of sales channels through which our products are sold;
- new product announcements and introductions by our competitors; and
- our ability to develop, market and manage product transitions and
acquisitions.
Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results should not be relied upon as indicative of future
performance.
We plan to increase our operating expenses to expand our product
development, sales, marketing and customer support activities. We base our
decisions regarding our operating expenses on anticipated revenue trends and
many of our expenses are relatively fixed in the short term. We may not be able
to reduce our expenses if our revenues are lower than anticipated, which could
cause our operating results to be below the expectations of public market
analysts or investors, causing the price of our common stock to fall.
SEASONALITY AFFECTS OUR REVENUES AND MAY NEGATIVELY IMPACT OUR OPERATING RESULTS
In the past, we have experienced significant seasonality in our quarterly
revenues. Our revenues have tended to be stronger in the fourth quarter than in
each of the first three quarters of a year. Our license revenues may be lower in
our first quarter than in the preceding fourth quarter. We believe that these
fluctuations are caused primarily by customer buying patterns, which are often
influenced by year-end budgetary pressures as well as by our sales force
compensation policies and those of our resellers, which tend to reward sales
personnel who meet or exceed year-end sales quotas. We expect this trend to
continue for the foreseeable future.
OUR OPERATING RESULTS PRIMARILY RELY ON MARKET ACCEPTANCE OF OUR SALESLOGIX
PRODUCT
Our future financial performance will depend substantially on our ability
to develop and maintain market acceptance of SalesLogix and new and enhanced
versions of SalesLogix and other new products. During 1998 and the three months
ended March 31, 1999, license revenues from our SalesLogix product accounted for
approximately 94% and 93% of our total license revenues, respectively. We expect
product license revenues from SalesLogix to continue to account for a
substantial majority of our revenues for the foreseeable future. As a result,
factors adversely affecting the pricing or demand for SalesLogix, such as
competition, technological change or evolution in customer preferences, could
materially adversely affect our business, financial condition and operating
results. Many of these factors are beyond our control and difficult to predict.
WE RELY PRIMARILY UPON OUR RESELLERS FOR THE SALE AND IMPLEMENTATION OF OUR
PRODUCTS
Our success will continue to depend significantly on our ability to develop
and cultivate relationships with our resellers, whom we refer to as our Business
Partners, as well as on the success of their sales efforts. Our sales and
distribution strategy focuses primarily on developing and expanding indirect
distribution channels through our network of resellers and, to a lesser extent,
expanding our direct sales organization. Sales to or initiated by our resellers
accounted for 86% and 75% of license revenues in 1998 and the three months ended
March 31, 1999, respectively. The ability of our resellers to generate sales may
from time to time be restricted due to their resource and capacity constraints
caused by implementation project backlog and other factors. We are currently
investing, and intend to continue to invest significantly, to support and expand
our indirect distribution channel. We cannot assure you that we will be able to
retain our existing
5
<PAGE> 11
resellers or add new resellers and distributors to market, sell, implement and
support our products effectively. Our failure to do so could materially
adversely affect our business.
OUR RELIANCE ON RESELLERS MAKES IT MORE DIFFICULT TO MAINTAIN QUALITY CONTROL
AND FORECAST SALES
Our focus on indirect distribution may adversely affect our business,
financial condition and operating results if we are unable to:
- adequately train and certify a sufficient number of resellers;
- provide adequate incentives to our resellers;
- provide adequate service and support to our end users through our
resellers;
- retain company and brand loyalty with our resellers and end user
customers;
- manage conflict among our resellers, whose contracts with us are
generally non-exclusive; or
- manage collection of receivables from resellers on a timely basis.
OUR RESELLERS MAY HANDLE COMPETING PRODUCTS, DIVERTING ATTENTION AWAY FROM OUR
PRODUCTS
Many of our resellers also sell products that compete with our products and
we cannot assure you that our resellers will continue to devote the resources
necessary to provide us with effective sales, marketing and technical support.
If our resellers do not continue to support our products, our business may be
materially adversely affected.
IF WE EXPERIENCE DIFFICULTY EXPANDING OUR DIRECT SALES CAPABILITY, WE MAY NOT BE
ABLE TO EXPAND OUR BUSINESS AS PLANNED
In mid-1998, we established a direct sales organization to focus on key
strategic accounts and larger opportunities and we plan to expand the size of
our direct sales force. We have limited experience in establishing and
maintaining a direct sales force. Accordingly, this internal expansion may not
be successfully completed and the cost of this expansion may exceed the revenues
generated. Our expanded sales organization may not be able to compete
successfully against the significantly more extensive and well-funded sales and
marketing operations of many of our current or potential competitors. In
addition, expansion of our direct sales force may lead to conflict with our
resellers. We have experienced and continue to experience difficulty in
recruiting qualified sales personnel. We cannot assure you that we will be able
to effectively maintain and expand our direct sales force.
WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR BUSINESS
The market for front office automation software is intensely competitive,
fragmented and rapidly changing. We primarily compete with a variety of software
vendors that provide marketing, sales and customer support automation products.
While numerous solutions can be cited as potential competitors, direct
competitors of SalesLogix can be broadly categorized into three groups:
- Front Office Vendors such as Onyx, Pivotal, Siebel and Vantive. These
companies generally seek to provide front office software through direct
sales forces. They also offer customized solutions through consulting
services. Several of these companies have announced strategies to target
the mid-market opportunities we are pursuing.
- Contact Manager Vendors such as Symantec with its ACT! product, Goldmine,
which recently merged with Bendata, Inc., and Microsoft with its Outlook
product. These products support a single user or small workgroup of users
and are sold primarily through a retail channel. Several of these
companies have also announced strategies to target the mid-market
opportunities we are pursuing.
6
<PAGE> 12
- Internal Development by our customers' or potential customers' own
technology departments. These organizations have invested significant
resources in developing their own proprietary selling systems.
Many of our competitors have longer operating histories and significantly
greater resources and name recognition. We cannot assure you that we will
compete successfully against these companies. We expect that competition will
increase as other established and emerging companies enter our market and as new
products and technologies are introduced. For example, several companies that
traditionally focused on back office systems software for financial, reporting,
distribution, payroll, human resources and manufacturing functions have built or
acquired front office products to manage sales, customer service and electronic
commerce functions. Increased competition may result in price reductions, lower
gross margins, loss of our market share and loss of resellers and personnel, any
of which could materially adversely affect our business, financial condition and
operating results.
THE MARKET FOR SALES AUTOMATION SOLUTIONS IS EMERGING AND BROAD MARKET
ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
The market for sales automation products is still emerging and continued
growth in demand for and acceptance of sales automation products remains
uncertain. The success of our business in the face of intense competition will
depend on growth of the overall market for sales automation products. We have
spent, and will continue to spend, considerable resources targeting the mid-
market segment of the sales automation market, educating potential customers
about our products and sales automation software solutions in general and
developing products that are compatible with Microsoft's browser technology and
the Internet. However, even with these efforts, sales of our products may not
increase unless the market for our products continues to grow. If the market for
our products does not grow or grows more slowly than we anticipate, the demand
for Internet-related front office products and services does not continue to
grow, or the mid-market segment turns out to have significantly less potential
than we estimate, our business, financial condition and operating results would
be materially adversely affected.
MARKET ACCEPTANCE OF OUR PRODUCTS DEPENDS ON CONTINUED MARKET ACCEPTANCE OF
MICROSOFT TECHNOLOGY
We have designed our products to operate using Microsoft technologies,
including Windows NT, Windows 98 and SQL Server. Although we believe that
Microsoft technologies are and will continue to be widely utilized by mid-market
businesses, no assurance can be given that these businesses will actually adopt
such technologies as anticipated or will not in the future migrate to other
computing technologies that we do not support. Moreover, our strategy requires
us to enhance our products and technology to be compatible with new developments
in Microsoft's technology.
WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR GROWTH
Our recent growth has placed significant demands on management as well as
on our administrative, operational and financial resources. We intend to
continue to expand our operations to pursue existing and potential market
opportunities. To manage additional growth, we must expand our sales, marketing
and customer support organizations and improve our operational processes,
systems and management controls on a timely basis. Our inability to sustain or
manage additional growth could materially and adversely affect our business,
financial condition and operating results.
7
<PAGE> 13
WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS AND WE MAY NOT BE ABLE TO
RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED
Our future performance will largely depend on the continued efforts and
abilities of our key technical, customer support, sales and management
personnel, many of whom would be difficult to replace. In particular, we believe
that our future success is highly dependent on Patrick Sullivan, our Chief
Executive Officer and President. Except for Mr. Sullivan, Doug Nicholas, Vice
President Business Development and Bruce Chase and Matt Chase, former officers
of Enact, none of our key personnel are subject to non-compete covenants. We
experienced significant management changes at the executive officer level during
the fourth quarter of 1998 when we hired a Vice President of Worldwide Sales and
a Vice President of Marketing. Accordingly, our executive management's ability
to function effectively as a team is unproven. Competition for highly skilled
employees with technical, management, marketing, sales, product development and
other specialized training is intense and there can be no assurance that we will
be successful in attracting and retaining such personnel. In addition, we may
experience increased costs in order to attract and retain skilled employees. The
loss of any of our senior management or other key technical, customer support,
sales and marketing personnel, particularly if lost to competitors, could
materially and adversely affect our business, financial condition and operating
results. See "Management."
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE ENACT AND FUTURE ACQUISITIONS
In April 1999, we acquired Enact Incorporated, a privately-held provider of
sales configuration technology for managing product catalogs and marketing
encyclopedias and generating proposals, quotes and orders. The process of
integrating the Enact business with our business is subject to risks commonly
encountered in integrating acquisitions, including, among others, risk of loss
of key personnel; difficulties associated with assimilating technologies,
products, personnel and operations; potential disruption of our ongoing
business; the ability of our sales force, resellers, consultants and development
staff to adapt to the new product line and unanticipated costs associated with
the acquisition. We may not successfully overcome these risks or any other
problems encountered in connection with the acquisition of Enact. As part of our
business strategy, we expect to consider acquiring other companies. In the event
of such acquisitions, we could issue equity securities which would dilute
current stockholders' percentage ownership, incur substantial debt or assume
contingent liabilities. Additionally, we may not be able to successfully
integrate any technologies, products, personnel or operations of companies that
we may acquire in the future. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. If we
are unable to successfully address any of these risks, our business, financial
condition and operating results could be materially adversely affected.
OUR ABILITY TO INCREASE REVENUES WILL DEPEND IN PART ON SUCCESSFUL EXPANSION OF
OUR INTERNATIONAL
OPERATIONS
To date, we have sold our products internationally primarily through our
resellers located in other countries and have supported our international
customers with our domestic customer support staff. Recently we opened a sales
office in the United Kingdom and we intend to continue to expand our
international operations and enter new international markets, primarily through
existing and new resellers and, to a lesser extent, through direct sales. This
expansion will require significant management attention and financial resources
and may not produce desired levels of revenue. We currently have limited
experience in marketing and distributing our products internationally and have
not yet developed non-U.S. versions of our products. In addition, our
international business is subject to inherent risks which could materially and
adversely affect our business, financial condition and operating results,
including:
- longer accounts receivable collection cycles;
- difficulties in managing operations across disparate geographic areas;
8
<PAGE> 14
- difficulties in enforcing agreements and intellectual property rights;
- fluctuations in local economic, market and political conditions;
- need for compliance with a wide variety of U.S. and foreign export
regulations;
- potential adverse tax consequences; and
- currency exchange rate fluctuations.
We are still assessing the impact and cost that conversion to the Euro will have
on both our internal systems and the products we sell. We will attempt
appropriate corrective actions based on the results of our assessment. This
issue and its related costs could materially adversely affect our business,
financial condition and operating results.
WE MAY NOT RECOGNIZE REVENUE WHEN ANTICIPATED, WHICH MAY CAUSE OUR OPERATING
RESULTS TO VARY WIDELY
The sales cycles for our products are variable, typically ranging between a
few weeks to six months from initial contact with the customer to the signing of
a license agreement, although occasionally sales require substantially more
time. Delays in executing customer contracts may affect revenue recognition and
may cause our operating results to vary widely. We believe that an enterprise's
decision to purchase sales automation software is discretionary, involves a
significant commitment of its resources and is influenced by its budget cycles.
To successfully sell our products, we and our resellers generally must educate
our potential customers regarding the use and benefit of our products, which can
require significant time and resources. Consequently, the period between initial
contact and the purchase of our products is often long and subject to delays
associated with the lengthy budgeting, approval and competitive evaluation
processes that typically accompany significant capital expenditures.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES
We incorporate into our products software that is licensed to us by third
parties, including Inprise Corporation, Verity, Inc. and IQ Software
Corporation, and we intend to expand this practice in the future. Because our
products incorporate, or are created using, software developed and maintained by
third parties, we depend on such parties' abilities to deliver, support and
enhance reliable products, develop new products and respond to emerging industry
standards and other technological changes. We also rely heavily on Inprise
Corporation's Delphi Rapid Application Development (RAD) tool to build many key
components of our application programs. The RAD tools market is constantly
evolving and highly competitive as Microsoft and other well-financed competitors
develop and market competing tools. If Delphi becomes unavailable, we may be
required to adopt a replacement RAD tool and substantially modify our
application programs, requiring a substantial amount of time to rewrite our
products in a new language, which could have a material adverse effect on our
business, financial condition and operating results. The third-party software
currently incorporated into or used in our products may become obsolete or
incompatible with future versions of our products. Our sales could be materially
adversely affected if we are unable to replace the functionality of that
software. See "Business--Products."
OUR PRODUCTS MAY SUFFER FROM DEFECTS OR ERRORS, RESULTING IN ADDITIONAL EXPENSES
OR LOST SALES
Software products as complex as ours frequently contain errors or defects,
especially when first introduced or when new versions are released. In some
cases, we have had to delay commercial release of versions of our products until
software problems were corrected and in some cases have provided product
enhancements to correct errors in released products. Our current and future
products or releases may not be free from errors after commercial shipments have
begun. Any errors that are discovered after commercial release could result in
loss of revenues or delay in market acceptance, diversion of development
resources, damage to our reputation or increased
9
<PAGE> 15
service and warranty costs, all of which could materially adversely affect our
business, financial condition and operating results.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR AVOID
INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS, WHICH COULD RESULT IN COSTLY
LITIGATION
Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely primarily on a combination of
copyright, patent, trade secret and trademark laws, confidentiality agreements
with employees and third parties and protective contractual provisions such as
those contained in license agreements with consultants, resellers and customers,
although we have not signed such agreements in every case. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts
with us and we may not become aware of, or have adequate remedies in the event
of, such breach. We employ shrink-wrap licenses designed to restrict the
unauthorized use of our products but such licenses may be difficult to enforce.
It may be more difficult to protect our proprietary rights outside the United
States. We also cannot assure you that a third party will not assert a claim
that our technology violates its intellectual property rights. As the number of
software products in our markets increases and product functionalities
increasingly overlap, companies such as ours may become increasingly subject to
infringement claims. Any claims relating to the infringement of proprietary
rights of third parties, regardless of their merit, could result in costly
litigation, divert our management's attention and our company's resources, cause
us to delay product shipments or require us to pay damages or enter into royalty
or license agreements on terms that are not advantageous to us. Any of these
results could materially adversely affect our business, financial condition and
operating results.
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL BE ABLE TO SUBSTANTIALLY INFLUENCE
MATTERS REQUIRING STOCKHOLDER APPROVAL
We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately 37%
of our outstanding common stock following the completion of this offering. These
stockholders may be able to exercise substantial influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of SalesLogix. See
"Management" and "Principal Stockholders."
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER
Certain provisions of our restated certificate of incorporation and bylaws
and Delaware law may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions:
- authorize our board of directors to issue up to 20,000,000 additional
shares of preferred stock;
- limit the persons who may call special meetings of stockholders;
- prohibit stockholder action by written consent;
- require advance notice for nominations for election of our board of
directors or for proposing matters that can be acted on by stockholders
at stockholders meetings; and
- establish a classified board of directors as of the first annual meeting
of stockholders following this offering.
10
<PAGE> 16
For a further description of provisions which could discourage a takeover,
see "Description of Capital Stock--Anti-Takeover Effects of Certain Provisions
of Restated Certificate and Restated Bylaws" and "-- Effect of Delaware
Antitakeover Statute."
MANAGEMENT COULD SPEND OR INVEST THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH THE STOCKHOLDERS MAY NOT AGREE
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital and capital expenditures and for
the retirement of a $1.1 million bank loan. Pending such use, we intend to
invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities. The Board of Directors and management of the
Company will have substantial flexibility in applying the net proceeds of this
offering. The failure of management to apply such funds effectively could have a
material adverse effect on the Company's business and financial condition. See
"Use of Proceeds".
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, we will have outstanding 17,891,682 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could materially adversely affect the market
price of our common stock. All of the shares sold in this offering will be
freely tradable. The remaining shares of common stock outstanding after this
offering will be available for sale in the public market as follows:
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET
<TABLE>
<S> <C>
At effective date...................................... 0
180 days after the effective date...................... 12,546,707
Thereafter upon expiration of one year holding
periods.............................................. 2,019,975
</TABLE>
See "Shares Eligible for Future Sale" and "Underwriting."
PURCHASERS OF SALESLOGIX COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE
AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. Accordingly, purchasers of common stock will experience immediate
and substantial dilution of approximately $7.78 in net tangible book value per
share, or approximately 78% of the offering price of $10.00 per share.
YEAR 2000 ISSUES MAY EXPOSE US TO LIABILITY OR ADVERSELY AFFECT REVENUES
Many existing computer systems and software products do not properly
recognize and process dates after December 31, 1999. This "Year 2000" problem
could result in miscalculations, data corruption, system failures or disruptions
of operations. We are subject to potential Year 2000 problems affecting our
products, our customers' systems, our internal systems and the systems of our
vendors, any of which could have a material adverse effect on our business,
financial condition and operating results.
We have conducted a review of the current versions of our products and have
researched or sought assurances from vendors of the third-party products
embedded into our products and believe that our products are substantially Year
2000 compliant--that is, they are capable of adequately distinguishing and
interjecting dates falling after December 31, 1999. We expect that modifications
with respect to any remaining Year 2000 issues will be made by the end of
calendar
11
<PAGE> 17
year 1999. However, there can be no assurances that the implementation of
modifications to any embedded products will not be delayed or that we will not
experience unexpected Year 2000 problems with our products. Although we believe
the current versions of our software products are Year 2000 compliant, we may
face claims based on Year 2000 issues arising from the integration of multiple
products within an overall system. We may also experience reduced sales of our
products, especially in the last two calendar quarters of 1999, as potential
customers reduce their budgets for sales automation software due to increased
expenditures on their own Year 2000 compliance efforts, or are generally
unwilling to purchase any software systems until after January 1, 2000 when the
adverse effects of Year 2000 issues are known. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT OUR FUTURE OPERATING RESULTS
We recognize revenues from software license agreements based upon the
following criteria:
- persuasive evidence of an arrangement exists, such as an executed license
agreement, unconditional purchase order or contract;
- delivery of the product has occurred;
- collection of the resulting receivable is probable; and
- the fee is fixed or determinable based upon vendor-specific objective
evidence of the elements of the arrangement.
We recognize customer support or maintenance revenues ratably over the
contract term, typically one year, and recognize revenues for consulting and
training services as such services are performed.
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition,"
was issued in October 1997 by the American Institute of Certified Public
Accountants and amended by Statement of Position 98-4 ("SOP 98-4"). We adopted
SOP 97-2 effective January 1, 1998. Based on our interpretation of SOP 97-2 and
SOP 98-4, we believe our current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. However, full implementation guidelines
for this standard have not yet been issued. Once available, such implementation
guidance could lead to unanticipated changes in our current revenues accounting
practices, which changes could materially adversely affect our business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Additionally, the accounting standard setters, including the Securities and
Exchange Commission and the Financial Accounting Standards Board, are reviewing
the accounting standards related to business combinations and stock-based
compensation. Any changes to either of these standards or any other accounting
standards could materially adversely affect our operating results.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus that are subject
to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of operations of SalesLogix. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. You should note that an
investment in securities of SalesLogix involves risks and uncertainties that
could affect the future financial results of SalesLogix. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth in
"Risk Factors" and elsewhere in this prospectus.
There may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this prospectus,
12
<PAGE> 18
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could materially and adversely affect our business,
financial condition and operating results.
USE OF PROCEEDS
Assuming an initial public offering price of $10.00 per share, we will
receive net proceeds of approximately $30.2 million from the sale of 3,325,000
shares of common stock, or $34.8 million if the underwriters exercise their
over-allotment option in full.
The principal purposes of this initial public offering are to create a
public market for our common stock, facilitate future access to capital markets
and enhance our ability to use our common stock as consideration for potential
acquisitions and as a means of attracting and retaining key employees. We intend
to use the net proceeds of this offering primarily for general corporate
purposes, including working capital and capital expenditures and for the
retirement of an existing bank term loan of approximately $1.1 million at March
31, 1999. This term loan is payable in equal monthly installments of principal
plus interest at the bank's prime rate plus 1% through December 31, 2001, and
the current interest rate is 8.75%. We may also use a portion of the net
proceeds to acquire additional businesses, products and technologies or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific plans, agreements or commitments, oral or
written, to do so and are not currently engaged in any negotiations for any such
acquisition or joint venture. The amounts that we actually expend for working
capital purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, the amount of cash we generate from
operations and the progress of our product development efforts. As a result, our
management will retain broad discretion in the allocation of the net proceeds of
this offering. Pending use of net proceeds for the above purposes, we intend to
invest in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not currently anticipate paying any
cash dividends in the foreseeable future. In addition, the terms of our current
credit facility prohibit us from paying dividends without our lender's consent.
CORPORATE INFORMATION
SalesLogix Corporation has four wholly owned subsidiaries, Opis Support
Express, Inc., SalesLogix International, Inc., SalesLogix Europe, Ltd. and Enact
Incorporated, formerly known as SLX Merger Company. Our principal executive
offices are located at 8800 N. Gainey Center Drive, Suite 200, Scottsdale,
Arizona 85258 and our telephone number is (602) 368-3700. We were initially
incorporated in Delaware in 1995 under the name Quest Sales Software, Inc.
13
<PAGE> 19
CAPITALIZATION
The following table sets forth our cash position, total capitalization and
outstanding share information at March 31, 1999:
- On a pro forma basis to give effect to the conversion of all 15,140,949
outstanding shares of convertible preferred stock and Class B common
stock into 10,118,263 shares of common stock, and to reflect the payment
of $4.1 million in cash and 609,424 shares of common stock issued in
connection with our acquisition of Enact, of which 201,893 shares are
restricted subject to three year monthly vesting based upon the continued
employment of former officers of Enact, and the estimated effect of the
related purchase accounting adjustments; and
- On a pro forma as adjusted basis to reflect (a) net proceeds from the
sale of 3,325,000 shares of common stock at an assumed initial public
offering price of $10.00 per share and (b) net proceeds from the sale of
362,694 shares of common stock, assuming an initial public offering price
of $10.00 per share, in the concurrent $3.5 million private placement to
The Goldman Sachs Group, L.P. and two of its affiliates.
The outstanding share information excludes 114,559 shares of common stock
reserved for issuance under outstanding options and warrants to purchase
preferred stock with a weighted average common share exercise price of $1.57 and
3,395,365 shares of common stock reserved for issuance under our employee
incentive and Business Partner stock plans. Of the common stock reserved under
our employee incentive and Business Partner stock plans, options to purchase
1,576,873 shares with a weighted average exercise price of $1.58 are
outstanding, 186,761 of which are currently exercisable.
This information is qualified by and should be read in conjunction with our
historical financial statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 9,354 $ 5,137 $ 37,611
======== ======== ========
Long-term debt and capital lease obligations, net of
current portion....................................... $ 1,044 $ 1,044 $ 359
Stockholders' equity:
Convertible Preferred Stock, par value $0.001 per
share, issuable in series; 15,900,000 shares
authorized, 15,068,122 shares issued and
outstanding, actual; none pro forma or pro forma as
adjusted........................................... 33,482 -- --
Class A Common Stock, par value $0.001 per share,
17,900,000 shares authorized, 3,477,968 issued and
3,476,301 outstanding, actual; 14,205,655 shares
issued and 14,203,988 shares outstanding, pro
forma; 17,893,349 shares issued and 17,891,682
shares outstanding, pro forma as adjusted.......... 3 14 18
Class B Common Stock, par value $0.001 per share;
authorized 2,280,000 shares; 72,827 shares issued
and outstanding, actual; none pro forma or pro
forma as adjusted.................................. -- --
Additional paid-in capital............................ 1,781 38,405 71,951
Accumulated deficit................................... (18,376) (18,376) (18,376)
Less unearned compensation............................ (1,210) (1,210) (1,210)
Less shares of common stock held in treasury; 1,667
shares at cost..................................... (1) (1) (1)
-------- -------- --------
Total stockholders' equity.................... 15,679 18,832 52,382
-------- -------- --------
Total capitalization.......................... $ 16,723 $ 19,876 $ 52,741
======== ======== ========
</TABLE>
14
<PAGE> 20
DILUTION
The pro forma net tangible book value of SalesLogix at March 31, 1999,
after assuming the conversion of all outstanding shares of redeemable
convertible preferred stock and Class B common stock into shares of common stock
and the issuance of 609,424 shares of common stock for the acquisition of Enact
and the related purchase accounting adjustments, was $6.2 million, or $0.43 per
share. Net tangible book value per share represents the amount of total tangible
assets less total liabilities divided by 14,203,988, the number of shares of
common stock treated as outstanding. After giving effect to the sale of the
3,325,000 shares of common stock at an assumed initial public offering price of
$10.00 per share, less underwriting discounts and commissions and estimated
expenses we expect to pay in connection with this offering, and the sale of
362,694 shares of common stock, at a 3.5% discount from the assumed initial
public offering price of $10.00 per share, to be issued in a concurrent private
placement to The Goldman Sachs Group, L.P. and two of its affiliates, the pro
forma as adjusted net tangible book value of SalesLogix at March 31, 1999 would
be $39.7 million, or $2.22 per share. This represents an immediate increase in
the as adjusted pro forma net tangible book value of $1.79 per share to existing
stockholders and an immediate dilution of $7.78 per share to new investors, or
approximately 78% of the assumed offering price of $10.00 per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share at March 31,
1999................................................... $0.43
Increase per share attributable to new investors.......... 1.79
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.22
------
Dilution per share to new investors......................... $ 7.78
======
</TABLE>
The following table sets forth on a pro forma as adjusted basis as of March
31, 1999, after giving effect to the 609,424 shares issued in connection with
the acquisition of Enact, included in existing stockholders amounts, and the
number of shares of common stock purchased from us; the total consideration paid
to us; and the average price paid per share by existing stockholders and by new
investors purchasing common stock in this offering and the concurrent Goldman
Sachs private placement:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
--------------------- ---------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 14,203,988 79% $37,761,478 51% $2.66
New stockholders.......... 3,687,694 21% 36,750,000 49% $9.97
---------- --- ----------- ---
Total........... 17,891,682 100% $74,511,478 100%
========== === =========== ===
</TABLE>
The foregoing computations assume the exercise of no stock options after
March 31, 1999. At March 31, 1999, we had outstanding options to purchase a
total of 1,576,873 shares of common stock at a weighted average exercise price
of $1.58 per share, as illustrated below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
1996 option plan................................... 1,493,870 $1.50
1998 Business Partner option plan.................. 83,003 $3.08
--------- -----
Total.................................... 1,576,873 $1.58
=========
</TABLE>
In the event that SalesLogix issues additional shares of common stock in
the future, purchasers of common stock in this offering may experience further
dilution.
15
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with selected consolidated financial
data of SalesLogix. We have prepared this information using the historical
consolidated financial statements of SalesLogix for the three years ended
December 31, 1998 and the three months ended March 31, 1998 and 1999. The
consolidated financial statements for the three years ended December 31, 1998
have been audited by Ernst & Young LLP, independent auditors. The consolidated
financial statements for the three months ended March 31, 1998 and 1999 are
unaudited. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for those periods.
When you read this selected consolidated financial data, it is important
that you read along with it the historical financial statements and related
notes included in this prospectus, as well as the section of this prospectus
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Historical results are not necessarily indicative of future
results. See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method used to calculate pro forma basic and diluted net loss
per share.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses............................................... $ -- $ 3,505 $10,105 $ 2,088 $ 4,225
Services............................................... -- 1,274 5,538 1,074 2,077
------- ------- ------- ------- -------
Total revenues....................................... -- 4,779 15,643 3,162 6,302
Costs of revenues:
Licenses............................................... -- 118 604 91 332
Services............................................... -- 1,733 4,299 886 1,351
------- ------- ------- ------- -------
Total costs of revenues.............................. -- 1,851 4,903 977 1,683
------- ------- ------- ------- -------
Gross profit............................................. -- 2,928 10,740 2,185 4,619
Operating expenses:
Sales and marketing.................................... 1,009 4,953 10,030 1,762 3,561
Research and development............................... 1,290 1,865 3,845 671 1,286
General and administrative............................. 902 1,056 2,151 387 587
Amortization of acquisition related intangible
assets............................................... 342 360 1,436 359 279
------- ------- ------- ------- -------
Total operating expenses............................. 3,543 8,234 17,462 3,179 5,713
------- ------- ------- ------- -------
Loss from operations..................................... (3,543) (5,306) (6,722) (994) (1,094)
Interest and other income (expense), net................. 194 166 130 (42) 47
------- ------- ------- ------- -------
Net loss................................................. $(3,349) $(5,140) $(6,592) $(1,036) $(1,047)
======= ======= ======= ======= =======
Historic basic and diluted net loss per share............ $ (0.87) $ (1.30) $ (1.75) $ (0.25) $ (0.30)
======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share........... $ (0.54) $ (0.08)
======= =======
Weighted average shares:
Historic............................................... 3,872 3,951 3,771 4,096 3,443
Pro forma.............................................. 12,311 13,488
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------- AS OF MARCH 31,
1996 1997 1998 ---------------
------ ------ ------- 1999
(IN THOUSANDS)---------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $1,975 $3,189 $11,377 $ 9,354
Working capital........................................... 1,401 1,650 10,843 9,736
Total assets.............................................. 2,596 12,948 23,974 24,261
Long-term debt and capital lease obligations, less current
portion................................................. 259 1,608 1,241 1,044
Total stockholders' equity................................ 1,586 7,075 16,600 15,679
</TABLE>
16
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements of SalesLogix and the notes thereto and the Pro Forma
Condensed Consolidated Financial Statements and notes thereto included elsewhere
in this prospectus. Our discussion contains forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our
plans, objectives, expectations and intentions. SalesLogix' actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under "Risk Factors," "Business" and elsewhere in this prospectus.
OVERVIEW
SalesLogix is a leading provider of software that enables mid-market
businesses to automate sales, marketing and customer support interactions.
SalesLogix was incorporated in September 1995 and commenced operations in
January 1996. From January 1996 until April 1997, our operating activities
related primarily to research and development and the initial development of our
independent Business Partner channel. In April 1997, we released the first
commercial version of SalesLogix, our client-server based sales automation
solution. Thereafter, we continued to focus on developing the Business Partner
channel, marketing the SalesLogix brand and developing new and enhanced versions
of our product. In December 1997, we acquired Opis Corporation, a customer
support automation software company, to expand our product offering to include
automation of customer support functions. We changed the name of Opis' product
to SupportLogix and developed a link to SalesLogix.
During the second half of 1998, we established a direct sales force to
focus on key strategic accounts and work with our Business Partners on larger
opportunities. In 1998, we also hired managers in the United Kingdom and
Australia to commence the recruitment and training of international Business
Partners. In December 1998, we released the first major upgrade of SalesLogix
and a version of the product that can be deployed over the Internet. Since
inception, we have incurred significant losses and as of March 31, 1999 we had
an accumulated deficit of $18.4 million.
We derive revenues principally from the sale of software licenses and fees
for maintenance, technical support, consulting and training services. We market
and sell our products primarily through our Business Partners and to a lesser
extent through our direct sales force. Sales to or initiated by our Business
Partners accounted for 86% and 75% of license revenues in 1998 and the three
months ended March 31, 1999, respectively, and we expect that a substantial
majority of our license revenues will continue to be generated from sales to our
Business Partners. The contractual arrangements we enter into with our Business
Partners provide for license fees payable to us based upon a percentage of our
list price.
We recognize revenue in accordance with the provisions of the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition," which we adopted beginning January 1, 1998. We sell our
products under perpetual licenses and recognize license revenues when all of the
following conditions are met: an executed license agreement, unconditional
purchase order or contract has been received; the product has been delivered to
the customer; collection of the receivable is deemed probable; and the fee is
fixed or determinable based upon vendor specific objective elements of the
arrangements. Maintenance and technical support revenues are recognized ratably
over the contract term, typically one year. Revenues for consulting and training
services are recognized as such services are provided.
In December 1998, we recorded unearned compensation of $1.3 million
representing the difference between the exercise price of options granted to
acquire shares of stock during 1998 and
17
<PAGE> 23
the deemed fair value for financial reporting purposes of our common stock on
the dates of grant. Unearned compensation is amortized over the vesting periods
of the options, generally four years.
Acquisitions
In connection with the Opis acquisition in December 1997, we paid $801,559
in cash, issued 1,228,654 shares of Series D convertible preferred stock and
granted options to purchase 96,836 shares of Series D convertible preferred
stock. We also entered into employment agreements with officers of Opis. The
transaction was recorded under the purchase method of accounting and the results
of operations of Opis and the fair value of the assets acquired and liabilities
assumed were included in our consolidated financial statements beginning on the
acquisition date. In connection with this acquisition, we recorded $5.9 million
in capitalized technology and other intangible assets that are being amortized
over periods of up to five years.
In April 1999, we acquired Enact Incorporated in a merger transaction.
Enact was a privately-held provider of sales configuration software for managing
product catalogs and marketing encyclopedias and generating proposals, quotes
and orders. We anticipate that the Enact products will be sold and serviced by
our direct sales force and consulting services group and Business Partner
channel. In connection with the Enact acquisition, we issued 609,424 shares of
our common stock, of which 201,893 shares are restricted subject to three year
monthly vesting based upon the continued employment of the officers of Enact. We
paid $4.1 million in cash for merger consideration, plus transaction expenses,
repayment of debt of Enact and out-of-pocket expenses associated with the
integration of Enact's business into ours. We also entered into employment
agreements with officers of Enact in connection with the acquisition. The
transaction will be recorded under the purchase method of accounting and the
results of operations of Enact and the fair value of the assets acquired and
liabilities assumed will be included in our consolidated financial statements
beginning on April 30, 1999. In connection with this acquisition, based on
financial information of Enact as of March 31, 1999, we anticipate recording
approximately $8.5 million in capitalized technology and other intangible assets
that will be amortized over periods of up to five years, and expensing
approximately $900,000 of in-process research and development based upon an
independent appraisal. For the fiscal years ended December 31, 1997 and 1998,
Enact had revenues of approximately $521,000 and $564,000, respectively and net
losses of approximately $502,000 and $1,280,000, respectively. For the three
months ended March 31, 1998 and 1999, Enact had revenues of approximately
$186,000 and $83,000, respectively and net losses of approximately $138,000 and
$406,000, respectively.
18
<PAGE> 24
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth historical operating results for SalesLogix
as a percentage of total revenues. We believe that period-to-period comparisons
of our operating results are not indicative of results for any future period.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
------------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- ----------------
1997 1998 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Licenses...................................... 73.3% 64.6% 66.0% 67.0%
Services...................................... 26.7 35.4 34.0 33.0
------ ------ ------ ------
Total revenues............................. 100.0 100.0 100.0 100.0
Costs of revenues:
Licenses...................................... 2.5 3.8 2.9 5.3
Services...................................... 36.3 27.5 28.0 21.4
------ ------ ------ ------
Total costs of revenues.................... 38.8 31.3 30.9 26.7
------ ------ ------ ------
Gross profit.................................... 61.2 68.7 69.1 73.3
Operating expenses:
Sales and marketing........................... 103.7 64.1 55.7 56.5
Research and development...................... 39.0 24.6 21.2 20.4
General and administrative.................... 22.1 13.8 12.2 9.3
Amortization of acquisition related intangible
assets..................................... 7.5 9.2 11.4 4.4
------ ------ ------ ------
Total operating expenses................... 172.3 111.7 100.5 90.6
------ ------ ------ ------
Loss from operations............................ (111.1) (43.0) (31.4) (17.3)
Interest and other income, net.................. 3.5 0.9 (1.4) 0.7
------ ------ ------ ------
Net loss........................................ (107.6)% (42.1)% (32.8)% (16.6)%
====== ====== ====== ======
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Revenues
Total revenues increased from $3.2 million in the three months ended March
31, 1998 to $6.3 million in the three months ended March 31, 1999, an increase
of 99%. No customer accounted for more than 10% of revenues in the three months
ended March 31, 1998 and 1999. Our revenues outside of the United States
increased from approximately $61,000 in the three months ended March 31, 1998 to
approximately $900,000 in the three months ended March 31, 1999.
License Revenues. Our license revenues increased from $2.1 million in the
three months ended March 31, 1998 to $4.2 million in the three months ended
March 31, 1999, an increase of 102%. The increase in license revenues was due
primarily to increases in the size and productivity of our Business Partner
network, increased market awareness and acceptance of our products and, to a
lesser extent, the establishment of our direct sales force which occurred in the
second half of 1998. Our license revenues represented 66.0% of our total
revenues in the three months ended March 31, 1998 and 67.0% in the three months
ended March 31, 1999.
Service Revenues. Service revenues include fees for maintenance, technical
support, consulting and training services. Our service revenues increased from
$1.1 million in the three months ended March 31, 1998 to $2.1 million in the
three months ended March 31, 1999, an increase of 93%. The
19
<PAGE> 25
increase resulted primarily from the increase in the number of licenses sold as
well as renewals of existing maintenance and technical support contracts from
the growing installed base of SalesLogix customers. Customers are required to
enter into one-year support and maintenance contracts at the time of purchase
and have the option to renew for additional one-year periods thereafter. Our
service revenues represented 34.0% of our total revenues in the three months
ended March 31, 1998 and 33.0% in the three months ended March 31, 1999.
Costs of Revenues
Cost of License Revenues. Cost of license revenues includes the cost of
media, product packaging, documentation and other production costs and third
party royalties. Cost of license revenues increased from $91,000 in the three
months ended March 31, 1998 to $332,000 in the three months ended March 31,
1999, representing 4.3% of license revenues in the three months ended March 31,
1998 and 7.9% of license revenues in the three months ended March 31, 1999. Cost
of license revenues as a percentage of license revenues increased as a result of
increased product royalties for third-party technology, primarily report writing
software, embedded in our products.
Cost of Service Revenues. Cost of service revenues consists of the costs
of providing technical support, training and consulting services to SalesLogix
customers and Business Partners. Cost of service revenues increased from
$886,000 in the three months ended March 31, 1998 to $1.4 million in the three
months ended March 31, 1999. The increase was primarily attributable to hiring
and training of additional personnel to support our growing customer base and
Business Partner network. Cost of service revenues represented 82.5% of service
revenues in the three months ended March 31, 1998 and 65.0% in the three months
ended March 31, 1999. This decrease reflected the growth of service revenues and
a reduction in the time and expenses our consulting organization incurred while
providing free support to Business Partners in their early implementations of
our product.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel-related expenses, costs related to the recruitment and support of our
Business Partner channel and marketing and promotional costs to increase brand
awareness in the marketplace and to generate leads for our sales channels. Sales
and marketing expenses increased from $1.8 million in the three months ended
March 31, 1998 to $3.6 million in the three months ended March 31, 1999, an
increase of 102%. The increases in sales and marketing expenses from the three
months ended March 31, 1998 to the three months ended March 31, 1999 reflected
the hiring of additional sales and marketing personnel, expanded advertising and
other promotional activities and increased sales commissions and bonuses related
to increased license revenues. Sales and marketing expenses represented 55.7% of
our total revenues in the three months ended March 31, 1998 and 56.5% of our
total revenues in the three months ended March 31, 1999. We anticipate that we
will continue to invest significantly in sales and marketing and that these
expenses will increase in absolute dollars.
Research and Development. Research and development expenses consist
primarily of personnel-related costs for software developers, quality assurance
and product documentation personnel and payments to outside contractors.
Research and development expenses increased from $671,000 in the three months
ended March 31, 1998 to $1.3 million in the three months ended March 31, 1999,
an increase of 92%. This increase was primarily due to an increase in the number
of software developers, quality assurance personnel and outside developers to
support our product development, testing and documentation activities related to
the development and release of both the client-server and Internet versions of
SalesLogix. Research and development expenses represented 21.2% of our total
revenues in the three months ended March 31, 1998 and 20.4% of our total
revenues in the three months ended March 31, 1999. We anticipate that we will
continue to invest significantly in research and development and that these
expenses will increase in absolute dollars.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, as well as outside professional fees. General and
administrative expenses increased from $387,000 in the three months
20
<PAGE> 26
ended March 31, 1998 to $587,000 in the three months ended March 31, 1999. This
increase was primarily due to increased staffing and related expenses necessary
to manage and support the expansion of our operations. General and
administrative expenses represented 12.2% of our total revenues in the three
months ended March 31, 1998 and 9.3% of our total revenues in the three months
ended March 31, 1999. The decrease was primarily attributable to the more rapid
growth of revenues compared to the growth of general and administrative expenses
during this period. We believe that general and administrative expenses will
continue to increase in absolute dollars as a result of the anticipated
expansion of our administrative staff and the expenses associated with becoming
a public company, including but not limited to annual and other public reporting
costs, directors' and officers' liability insurance, investor relations programs
and professional service fees.
Amortization of Acquisition Related Intangible Assets. Amortization of
acquisition related intangible assets consisted primarily of the amortization of
specifically identified intangible assets and goodwill. Amortization of
acquisition related intangible assets decreased from $359,000 in the three
months ended March 31, 1998 to $279,000 in the three months ended March 31,
1999. The decrease was due to an intangible asset relating to the December 1997
acquisition of Opis becoming fully amortized on December 31, 1998.
Income Taxes. As of March 31, 1999, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $14,118,000. The federal carryforwards expire at various dates
beginning 2011. The Internal Revenue Code contains provisions that limit the use
in any future period of net operating loss and tax credit carryforwards upon the
occurrence of specific events, including a significant change in ownership
interests. We had deferred tax assets, including net operating loss and tax
credit carryforwards, totaling approximately $6,895,000 as of March 31, 1999. A
valuation allowance has been recorded for the entire net deferred tax asset
balance as a result of uncertainties regarding its realization. See Note 13 to
Consolidated Financial Statements.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues
SalesLogix was a development stage company during 1996 and, accordingly,
did not record revenues. Total revenues increased from $4.8 million in 1997 to
$15.6 million in 1998, an increase of 227%. No customer accounted for more than
10% of revenues in 1997 or 1998. Our revenues outside of the United States
increased from approximately $137,000 in 1997 to $1.4 million in 1998.
License Revenues. Our license revenues increased from $3.5 million in 1997
to $10.1 million in 1998, an increase of 188%. The increase in license revenues
was due primarily to increases in the size and productivity of our Business
Partner network, increased market awareness and acceptance of our products and,
to a lesser extent, the establishment of our direct sales force in the second
half of 1998. Our license revenues represented 73.3% of our total revenues in
1997 and 64.6% in 1998.
Service Revenues. Our service revenues increased from $1.3 million in 1997
to $5.5 million in 1998, an increase of 334%. The increase from 1997 to 1998
resulted primarily from the increase in the number of licenses sold in 1998 as
well as renewals of existing maintenance and technical support contacts from the
growing installed base of SalesLogix customers. Our service revenues represented
26.7% of our total revenues in 1997 and 35.4% in 1998.
Costs of Revenues
Cost of License Revenues. Cost of license revenues increased from $118,000
in 1997 to $604,000 in 1998, representing 3.4% of license revenues in 1997 and
6.0% of license revenues in 1998. Cost of license revenues as a percentage of
license revenues has increased as a result of increased product royalties for
third-party technology, primarily report writing software, embedded in our
products.
Cost of Service Revenues. Cost of service revenues increased from $1.7
million in 1997 to $4.3 million in 1998. The increase was primarily attributable
to hiring and training of additional personnel to support our growing customer
base and Business Partner network. Cost of service revenues as a percentage of
service revenues represented 136.0% in 1997 and 77.6% in 1998. This
21
<PAGE> 27
decrease is the result of the growth of service revenues and a reduction in the
time and expenses our consulting organization incurred while providing free
support to Business Partners in their early implementations of our product.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $1.0
million in 1996 to $5.0 million in 1997, an increase of 391%, and to $10.0
million in 1998, an increase of 102%. The increases in sales and marketing
expenses from 1996 to 1998 reflected the hiring of additional sales and
marketing personnel, expanded advertising and other promotional activities and
increased sales commissions and bonuses related to increased license revenues.
Sales and marketing expenses represented 103.7% of our total revenues in 1997
and 64.1% of our total revenues in 1998. The decrease in sales and marketing
expenses as a percentage of total revenues from 1997 to 1998 primarily reflected
the more rapid growth of revenues compared to the growth of sales and marketing
expenses during this period.
Research and Development. Research and development expenses increased from
$1.3 million in 1996 to $1.9 million in 1997, an increase of 45%, and to $3.8
million in 1998, an increase of 106%. The increases from 1996 through 1998 were
primarily due to an increase in the number of software developers, quality
assurance personnel and outside developers to support our product development,
testing and documentation activities related to the development and release of
both the client-server and Internet versions of SalesLogix. Research and
development expenses represented 39.0% of our total revenues in 1997 and 24.6%
of our total revenues in 1998. The decrease was primarily attributable to the
more rapid growth of revenues compared to the growth of research and development
expenses during this period.
General and Administrative. General and administrative expenses increased
from $902,000 in 1996 to $1.1 million in 1997 and to $2.2 million in 1998. These
increases from 1996 to 1998 were primarily due to increased staffing and related
expenses necessary to manage and support the expansion of our operations as well
as increased legal fees in 1998. General and administrative expenses represented
22.1% of our total revenues in 1997 and 13.8% of our total revenues in 1998. The
decrease was primarily attributable to the more rapid growth of revenues
compared to the growth of general and administrative expenses during this
period.
Amortization of Acquisition Related Intangible Assets. Amortization of
acquisition related intangible assets consisted primarily of amortization of
specifically identified intangible assets and goodwill and to a lesser extent
acquired in-process research and development from our acquisitions. Amortization
of acquisition related intangible assets increased from $342,000 in 1996 to
$360,000 in 1997 and to $1.4 million in 1998. The 342,000 in 1996 represented
the full amortization of intangible assets acquired from Kennedy Systems, Inc.
in January 1996. The increase from 1996 to 1997 was related to a charge for
in-process research in development of $360,000 relating to the December 1997
acquisition of Opis. The in-process research and development related primarily
to a future version of the Opis Support Express product that was in process at
the time of acquisition geared toward enhanced functionality. Some of these
enhancements included tracking and resolution of customer requests and product
defects, the development of "links" to external systems such as phone or email
as well as web "links". The increase from 1997 to 1998 was attributable to a
full years' amortization of specifically identified intangible assets and
goodwill acquired in the Opis acquisition in 1998. Acquisition related
intangible assets are amortized over the estimated useful life of the acquired
assets, over periods of up to five years.
22
<PAGE> 28
SELECTED UNAUDITED HISTORICAL QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited consolidated statement of
operations data for the seven quarters ended March 31, 1999. You should read the
following table in conjunction with our Consolidated Financial Statements and
related notes thereto included elsewhere in this prospectus. We have prepared
this unaudited information on the same basis as the audited Consolidated
Financial Statements. This table includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of our financial position and operating results for the quarters presented. You
should not draw any conclusions about our future results from the results of
operations for any historical quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses......................................... $ 1,101 $2,040 $ 2,088 $ 1,810 $ 2,583 $ 3,624 $ 4,225
Services......................................... 492 487 1,074 1,204 1,479 1,781 2,077
------- ------ ------- ------- ------- ------- -------
Total revenues................................. 1,593 2,527 3,162 3,014 4,062 5,405 6,302
------- ------ ------- ------- ------- ------- -------
Costs of revenues:
Licenses......................................... 30 81 91 103 118 292 332
Services......................................... 504 628 886 1,052 1,120 1,241 1,351
------- ------ ------- ------- ------- ------- -------
Total costs of revenues........................ 534 709 977 1,155 1,238 1,533 1,683
------- ------ ------- ------- ------- ------- -------
Gross profit...................................... 1,059 1,818 2,185 1,859 2,824 3,872 4,619
------- ------ ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.............................. 1,372 1,433 1,762 2009 2,946 3,313 3,561
Research and development......................... 483 597 671 959 1,086 1,129 1,286
General and administrative....................... 251 415 387 715 522 527 587
Amortization of acquisition related intangible
assets......................................... -- 360 359 359 359 359 279
------- ------ ------- ------- ------- ------- -------
Total operating expenses....................... 2,106 2,805 3,179 4,042 4,913 5,328 5,713
------- ------ ------- ------- ------- ------- -------
Loss from operations.............................. (1,047) (987) (994) (2,183) (2,089) (1,456) (1,094)
Interest and other income, net.................... 31 (8) (42) 2 117 53 47
------- ------ ------- ------- ------- ------- -------
Net loss.......................................... $(1,016) $ (995) $(1,036) $(2,181) $(1,972) $(1,403) $(1,047)
======= ====== ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------------------
Revenues:
Licenses......................................... 69.1% 80.7% 66.0% 60.1% 63.6% 67.0% 67.0%
Services......................................... 30.9 19.3 34.0 39.9 36.4 33.0 33.0
------- ------ ------- ------- ------- ------- -------
Total revenues................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------- ------- -------
Costs of revenues:
Licenses......................................... 1.9 3.2 2.9 3.4 2.9 5.4 5.3
Services......................................... 31.6 24.9 28.0 34.9 27.6 23.0 21.4
------- ------ ------- ------- ------- ------- -------
Total costs of revenues........................ 33.5 28.1 30.9 38.3 30.5 28.4 26.7
------- ------ ------- ------- ------- ------- -------
Gross profit...................................... 66.5 71.9 69.1 61.7 69.5 71.6 73.3
------- ------ ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.............................. 86.1 56.7 55.7 66.7 72.5 61.3 56.5
Research and development......................... 30.3 23.6 21.2 31.8 26.7 20.9 20.4
General and administrative....................... 15.8 16.4 12.2 23.7 12.9 9.8 9.3
Amortization of acquisition related intangible
assets......................................... 0.0 14.2 11.4 11.9 8.8 6.6 4.4
------- ------ ------- ------- ------- ------- -------
Total operating expenses....................... 132.2 110.9 100.5 134.1 120.9 98.6 90.6
------- ------ ------- ------- ------- ------- -------
Loss from operations.............................. (65.7) (39.0) (31.4) (72.4) (51.4) (27.0) (17.3)
Interest and other income, net.................... 1.9 (0.3) (1.4) 0.0 2.9 1.0 0.7
------- ------ ------- ------- ------- ------- -------
Net loss.......................................... (63.8%) (39.3%) (32.8%) (72.4%) (48.5%) (26.0%) (16.6%)
======= ====== ======= ======= ======= ======= =======
</TABLE>
23
<PAGE> 29
The trends discussed in the annual comparisons of operating results from
1996 through 1998 and in the comparison for the three months ended March 31,
1998 and 1999 generally apply to the quarterly comparisons of operating results
for the seven quarters ended March 31, 1999.
During the quarter ended June 30, 1998, license sales declined from the
previous quarter. This decline was primarily attributable to two factors. First,
the capacity of our Business Partner channel to make new sales was restricted by
a large backlog of customer project implementations. Second, purchase decisions
were affected by the expectations of our Business Partners and end users as to
the timing of a major new product upgrade, which was ultimately delayed until
later in 1998. The ability of our resellers to generate sales may from time to
time be restricted due to their resource and capacity constraints caused by
implementation project backlog and other factors.
During the quarter ended March 31, 1998, service revenues increased
significantly from the previous quarter. This increase was attributable to
consulting service revenues related to the substantial increase in the software
licenses sold in the previous quarter as well as the increase in customer
support and maintenance revenues resulting from the full quarter's amortization
of prepaid support and maintenance contracts sold with software licenses in the
previous quarter.
During the quarter ended June 30, 1998, general and administrative expenses
increased significantly from the previous quarter. This increase was primarily
attributable to legal fees incurred in connection with a lawsuit involving a
former officer of SalesLogix that was settled in July 1998.
While our limited operating history, rapid growth in software license sales
and factors involving the rate of growth and productivity of our evolving
Business Partner channel have made it more difficult to discern and predict
seasonality, we have noted greater demand for our products in the fourth quarter
than in other quarters. For example in 1998, 35% of total revenues were
recognized in the fourth quarter, including 36% of license revenues and 32% of
service revenues. We believe that these fluctuations are caused primarily by
customer buying patterns, which are often influenced by year-end budgetary
pressures, as well as our sales force compensation policies and those of our
Business Partners, which tend to reward sales personnel who meet or exceed sales
quotas. We have no reason to expect that seasonal trends will not continue for
the foreseeable future.
Our quarterly operating results have fluctuated significantly in the past
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. These factors include:
- demand for our products and services;
- size and timing of specific sales;
- level of product and price competition;
- timing and market acceptance of new product introductions and product
enhancements by us and our competitors;
- changes in pricing policies by us and our competitors;
- our ability to attract, hire, train and retain sales and consulting
personnel to meet the demand, if any, for our products;
- the length of sales cycles;
- our ability to establish and maintain relationships with our Business
Partners, third-party implementation services providers and strategic
partners;
- mix of distribution channels through which products are sold;
- mix of international and domestic revenues;
24
<PAGE> 30
- software defects and other product quality problems;
- personnel changes;
- general domestic and international economic and political conditions; and
- budgeting cycles of our customers.
We have in the past experienced delays in the planned release dates of new
software products or upgrades and have discovered software defects in new
products after their introduction. There can be no assurance that new products
or upgrades will be released according to schedule, or that when released they
will not contain defects. Either of these situations could result in adverse
publicity, loss of revenues, delay in market acceptance or claims by customers
brought against us, any of which could have a material adverse effect on our
business, results of operations and financial condition. In addition, the timing
of individual sales has been difficult for us to predict and large individual
sales have, in some cases, occurred in quarters subsequent to those we
anticipated. There can be no assurance that the loss or deferral of one or more
significant sales will not have a material adverse effect on our quarterly
operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed operations through private
placements of our preferred stock. Through March 31, 1999, proceeds from private
placements of preferred stock totaled $29.5 million. To a lesser extent, we have
financed our operations through equipment financing and traditional bank
financing arrangements.
As of March 31, 1999, we had cash and cash equivalents of $9.4 million, a
decrease of $2.0 million from December 31, 1998. Our working capital at March
31, 1999 was $9.7 million, compared to $10.8 million at December 31, 1998. We
have a working capital revolving line of credit with a financial institution
that is secured by our accounts receivable. This facility allows us to borrow up
to the lesser of 75% of our eligible accounts receivable or $2.5 million. As of
March 31, 1999, we had borrowed $300,000 under the facility. The agreement under
which the line of credit was established contains certain covenants, including a
provision requiring us to maintain specified financial ratios. We were in
compliance with these covenants at March 31, 1999.
Our operating activities resulted in net cash outflows of $2.9 million in
1996, $5.6 million in 1997 and $5.4 million in 1998 and $1.2 million in the
three months ended March 31, 1999. The operating cash outflows resulted
primarily from significant investments in sales, marketing and product
development, which led to operating losses. The cash outflows from operating
losses, increases in accounts receivable, prepaid expenses and other current
assets were partially offset by increases in accounts payable and accrued
expenses and deferred revenues.
Cash used in investing activities was $36,000 in 1996, $793,000 in 1997 and
$1.7 million in 1998 and $588,000 in the three months ended March 31, 1999,
resulting primarily from the purchase of capital equipment and the total cash
consideration and related expenses paid in connection with the Opis acquisition.
Cash provided by financing activities totaled $4.9 million in 1996, $7.6
million in 1997 and $15.3 million in 1998, resulting primarily from the issuance
of Series A, C and E preferred stocks, respectively, and $1.5 million proceeds
from a bank term loan received in December 1997 payable in equal monthly
installments of principal plus interest at the bank's prime rate plus 1% through
December 31, 2001, partially offset by payments on capital equipment lease
obligations and the bank term loan. Cash used in financing activities totaled
$197,000 for the three months ended March 31, 1999 resulting primarily from
payments on capital equipment lease obligations and the bank term loan,
partially offset by proceeds from the exercise of stock options.
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<PAGE> 31
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we strive to:
- enter new markets and increase penetration of existing markets for our
products and services;
- introduce new products and product enhancements;
- increase our product development, sales, marketing and customer support
activities;
- develop and expand our network of Business Partners and direct sales
force; and
- expand our international operations.
Such operating expenses will consume a material amount of our cash
resources, including a portion of the net proceeds of this offering. We believe
that the net proceeds of this offering, together with our existing cash and cash
equivalents and available bank borrowings, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next twelve months. Thereafter, we may require additional funds to support
our working capital requirements or for other purposes.
We require substantial capital to fund our business, particularly to
finance inventories and accounts receivable and for capital expenditures and
potential acquisitions. Our future capital requirements will depend on many
factors, including the rate of revenue growth, the timing and extent of spending
to support product development efforts and expansion of sales and marketing, the
timing of introductions of new products and enhancements to existing products
and market acceptance of our products. As a result, we could be required to
raise substantial additional capital. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to existing stockholders. If
additional funds are raised through the issuance of debt securities, the debt
would have rights, preferences and privileges senior to holders of common stock
and the terms of the debt could impose restrictions on our operations. We cannot
assure you that such additional capital, if required, will be available on
acceptable terms, or at all. If we are unable to obtain needed additional
capital, we may be required to reduce the scope of our planned product
development and sales and marketing efforts, which would materially adversely
affect our business, financial condition and operating results.
YEAR 2000 COMPLIANCE
Many existing computer systems and software products do not properly
recognize and process dates after December 31, 1999. This "Year 2000" problem
could result in miscalculations, data corruption, system failures or disruptions
of operations. We are subject to potential Year 2000 problems affecting our
products, our customers' systems, our internal systems and the systems of our
vendors, any of which could have a material adverse effect on our business,
operating results and financial condition. Significant uncertainty exists in the
software industry and other industries concerning the scope and magnitude of the
Year 2000 problem. We recognize the need to take reasonable steps to reduce the
risk that our operations will be adversely affected by Year 2000 software
failures.
We have completed our initial assessment of the potential overall impact of
the Year 2000 problem on our products, business, financial condition and
operating results, and expect to complete our risk assessment for potential Year
2000 problems by August 1, 1999. We have conducted a review of the current
versions of our products and have researched or sought assurances from vendors
of the third-party products embedded into our products and believe that our
products are substantially Year 2000 compliant--that is, they are capable of
adequately distinguishing and interpreting dates falling after December 31,
1999. We expect that modifications with respect to any remaining Year 2000
issues will be made by the end of calendar year 1999. Nevertheless, there can be
no assurances that the implementation of modifications to any embedded products
will not be delayed or that we will not experience unexpected Year 2000
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<PAGE> 32
problems with our products. Although we believe the current versions of our
software products are Year 2000 compliant, our customers often integrate our
products into enterprise systems involving sophisticated hardware and complex
software products that we cannot adequately evaluate for Year 2000 compliance.
We may face claims based on Year 2000 problems in other companies' products, or
issues arising from the integration of multiple products within an overall
system. Although we have not been a party to any litigation or arbitration
proceeding involving our products or services related to Year 2000 compliance
issues, we may in the future be required to defend our products or services in
such proceedings, or to negotiate resolutions of claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes,
regardless of the merits of such disputes and any liability we have for Year
2000-related damages, including consequential damages, could materially
adversely affect our business, financial condition and operating results.
In addition, the pressing need of many customers and potential customers to
address Year 2000 issues is affecting their purchasing patterns as they focus
their existing manpower and reallocate information technology and other
significant resources to inventory, assess, test, correct, upgrade and replace
their current software systems for Year 2000 compliance. In particular, to the
extent our business targets larger customers we may encounter greater resistance
to the purchase of new software products and systems by such customers until
they have completed or resolved their outstanding Year 2000 programs. These
changes in purchasing patterns, which may increase in the last two calendar
quarters of 1999, may result in reduced funds available to purchase software
products such as those we offer. To the extent Year 2000 issues cause a
significant delay in, or cancellation of, decisions to purchase our products or
services, our business, financial condition and operating results would be
materially adversely affected.
We have reviewed and continue to review our internal management information
and other critical business systems to identify any Year 2000 problems relating
to those systems. We also have communicated and are continuing to communicate
with the owner and manager of our headquarters building, external vendors that
supply us with material software and information systems and with our other
significant suppliers to determine their potential exposure to Year 2000
problems and any resulting impacts such problems could have on our business. In
the course of these investigations to date, we have not encountered any material
Year 2000 problems with these third-party products and services.
To date we have sought written assurances from several but not all third
party vendors who provide critical products or services to our business that
their provision of products and services will not be disrupted by Year 2000
problems. We expect to complete this project by August 1, 1999. We license
certain technology from third parties, including software that is integrated
with and used in our software product offerings and performs key functions in
our products. We have investigated the Year 2000 disclosures and readiness
statements of the third party vendors of these embedded products and are in the
process of requesting further written assurances from these third party vendors.
We expect to complete this project by August 1, 1999. We have also performed
independent testing and analysis of product architectures to confirm that the
interaction between the embedded third party products and our own products will
not itself create Year 2000 problems. The third party software embedded in our
products is generally generic in nature and subject to standard software license
agreements which, by their terms, severely limit the scope and period of
performance warranties and also the recoverability of consequential and similar
type damages in the event of product failures. For these reasons, we may not
have significant remedies against third party software vendors if in fact year
2000 problems arise because of problems in the embedded products. Even if we are
able to assert significant claims against one or more third party vendors of
products with Year 2000 problems, the relevant vendors may be thinly capitalized
or otherwise essentially judgment proof because of other Year 2000 claims
asserted against them.
We have not incurred to date and do not anticipate incurring in the future,
any material costs directly associated with our Year 2000 compliance efforts,
except for compensation expenses associated with our salaried employees who have
devoted some of their time to our Year 2000
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<PAGE> 33
assessment and remediation efforts. As discussed above, we do not expect the
total cost of Year 2000 problems to be material to our business, financial
condition and operating results. However, we have not completed our risk
assessment for potential Year 2000 problems and cannot be certain at this time
that any later discovered Year 2000 problems will not require material costs to
address.
We believe that our most significant risk with respect to Year 2000 issues
relates to the performance and readiness status of third parties. A reasonable
worst case Year 2000 scenario would be the result of failures of third parties,
including without limitation, governmental entities, utilities, and financial
and telecommunications systems, or a general infrastructure collapse, that
negatively impact our ability, or the ability of our distribution partners, to
provide products and services to our customers, or the ability of our customers
to purchase products, or events affecting regional, national or global economies
generally. The impact of these failures cannot be estimated at this time;
however, we are considering contingency plans to limit, to the extent possible,
the financial impact of these failures on our results of operations.
During the months prior to the century change, we will continue to evaluate
new versions of our software products, new software and information systems
provided to us by third parties and any new infrastructure systems that we
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. Year 2000 compliance efforts may involve significant time and
expense and unremediated problems could materially adversely affect our
business, financial condition and operating results. Although we have adopted
and are in the process of improving a disaster recovery plan to allow our
business to continue in the event of a failure of our internal information
systems, we currently have no Year 2000-specific contingency plans to address
the risks associated with unremediated Year 2000 problems. We are in the process
of reviewing the need for a Year 2000-specific contingency plan and, if such a
plan is advisable, we expect to adopt such a plan no later than August 1, 1999.
We have adopted and are in the process of improving a disaster recovery
plan to allow our business to continue in the event of a failure of our internal
information systems. We intend to adapt much of this contingency planning to
address Year 2000 problems that, to the extent they arise, might threaten the
continued operation of the same systems. We expect to complete this and other
Year 2000 contingency planning by August 1, 1999. When completed, our
contingency plans will address plans for internal system failures as well as
plans to limit, to the extent reasonably possible, the financial impact of the
worst case scenarios described above on our results of operations. Any such
contingency planning will necessarily be limited to matters over which we have
some reasonable control. If we fail to complete our contingency planning, we may
not have enough time to complete remedial measures, or to implement contingency
planning in the event Year 2000 problems arise.
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BUSINESS
OVERVIEW
SalesLogix is a leading provider of software that enables mid-market
businesses to automate sales, marketing and customer support interactions. By
automating these interactions, which may include an outbound phone call, a field
sales meeting, or a customer inquiry over the web, our products allow companies
to record, track and share customer information more effectively. Our products
utilize the Internet to create interactive selling networks that connect mobile
sales, internal telesales, marketing and support organizations as well as third
party resellers and other partners. Our products enhance the speed, quality and
effectiveness of selling through this network by:
- Providing salespeople with personalized and easy to use sales automation
software;
- Automating the key elements of selling--marketing, contact management,
account management, opportunity management, order management and customer
support;
- Integrating processes for selling through multiple distribution
channels--direct sales, telesales, indirect sales and e-commerce; and
- Capturing information generated by selling activities in a repository of
customer interaction data, which can be used to enable collaborative
selling, marketing and customer support.
We sell our software primarily through our network of more than 225
resellers, whom we refer to as our "Business Partners." Our Business Partners
provide the local support and implementation services required to install,
configure and customize our products. We have designed our software to be easy
to use, rapid to deploy and implement and to deliver high performance with a low
total cost of ownership. We believe that our software provides both the built-in
functionality necessary to quickly derive benefits, as well as the flexibility
to create a solution tailored to the specific and evolving requirements of our
customers. We now have licensed our software to more than 1,300 domestic and
international customers in a variety of industries, including high technology,
financial services, telecommunications, utilities, retail, banking, health care
and real estate.
INDUSTRY BACKGROUND
Sales automation software has recently emerged as a critical requirement
for organizations seeking to gain a competitive advantage in their front office
operations. Many businesses spend considerable time and resources implementing
software applications aimed at increasing the efficiency of selling processes
and improving the effectiveness of customer interactions. In recent years,
selling processes have begun to include increased interaction among marketing,
sales, service and support organizations, as well as executive and finance
staff, independent partners, resellers and even the customers themselves. These
interactions provide windows of opportunity for collecting and using information
to facilitate selling activities. As a result, businesses are looking for
technology solutions that can help them more effectively utilize new and
established selling resources and to better manage sales information to increase
revenues.
The market for these software applications, often described as "front
office" or "customer relationship management" software, is large and growing
rapidly. AMR Research estimates that the size of this market will increase from
approximately $762 million in license revenues in 1997 to more than $7.5 billion
in 2002. AMR also estimates that sales force automation is the fastest growing
segment of this market with an annual growth rate of 64%.
A number of applications designed to address the front office automation
market have been introduced over the past decade, the majority of which were
targeted at Fortune 1000 companies. While many of these applications have
achieved some degree of market acceptance, significant limitations remain. These
applications are typically very expensive and difficult to deploy and support.
They generally entail substantial investments, often millions of dollars, to
cover new
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software, hardware and implementation services. Also, many salespeople resist
using these applications because they are complex and cannot be easily adapted
or customized to personal selling processes or methodologies. The often
extensive customization and integration work required results in long
implementation cycles that can range from six to 18 months or more and makes
these applications poorly suited to address rapidly changing business
environments.
As a result, many businesses have failed to implement first or second
generation versions of these applications successfully. The Gartner Group has
estimated that over 50% of front office automation projects fail to produce
measurable returns on investment. Accordingly, many businesses have not
implemented these applications, particularly those in the mid-market. Mid-
market businesses include mid-sized companies and divisions of larger companies
with annual revenues between $10 million and $1 billion. The Gartner Group
estimates that less than 4% of businesses or divisions of large organizations
with $25 million to $500 million in annual revenues have adopted front office
applications. We believe that there is a strong demand among mid-market
businesses for sales automation software that addresses the limitations of the
current generation of these applications.
The Emerging Mid-Market Opportunity
Mid-market businesses are becoming the driving forces of growth and
innovation in many industries. To compete with larger organizations with greater
resources, many mid-market businesses have adopted dynamic business models that
leverage partnership networks to scale their operations. As a result, these
models of doing business require sales automation solutions that provide
extensive functionality to support team selling, collaborative marketing and
indirect selling models. These solutions need to be rapidly implemented and
easily customized and supported because mid-market businesses typically have
limited information technology resources.
To accomplish their growth objectives, many mid-market businesses are
turning to the Internet. The Internet provides a unique opportunity for
mid-market businesses to create competitive advantages that were previously only
available to larger corporations. It substantially alters the way businesses can
communicate internally and externally and execute sales. By providing a
low-cost, global infrastructure, the Internet also allows mid-market businesses
to share information easily across the enterprise as well as with outside
partners and customers. In addition, the Internet enables mid-market businesses
to integrate their selling cycles across broad networks of partners,
distributors and resellers.
The Internet has also created an entirely new channel for mid-market
businesses to reach and cost-effectively support their customers directly.
Forrester Research estimates that by the year 2002, more than $327 billion in
goods and services will be sold over the Internet. The ubiquitous nature of the
Internet provides mid-market companies with the ability to extend the geographic
breadth of their sales and marketing operations without large investments in
people and IT resources. Through their web sites, mid-market businesses can now
reach and sell to customers worldwide as well as launch highly targeted
marketing campaigns that deliver higher returns. In addition, mid-market
businesses can interact with their customers in a personalized and relevant
context and support and service them around the clock.
We believe that mid-market businesses seek to establish interactive selling
networks that automate prospect and customer interactions through networks of
mobile sales, internal telesales, marketing and support organizations as well as
third party resellers, supply chain participants and other partners. These
mid-market businesses require software that:
- is easy for salespeople and partners to use;
- is designed to utilize the Internet and mobile technologies;
- can be easily extended and customized to meet specific and evolving
business needs;
- can be deployed rapidly and at a low cost;
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- seamlessly integrates with back office systems software for financial,
reporting, distribution, payroll, human resources, and manufacturing
functions, and corporate information databases; and
- can support new models of collaborative and Internet-based selling.
We believe that most existing solutions for sales, marketing and customer
support automation have failed to address these requirements.
THE SALESLOGIX SOLUTION
SalesLogix provides software that enables mid-market businesses to enhance
the speed, quality and effectiveness of selling through their interactive
selling networks. Our products integrate the key elements of contact management,
account management, opportunity management, order management and relationship
management functions. We support multiple selling channels, including direct
sales, telesales, indirect sales and e-commerce and enable collaborative team
selling. Finally, our patented guided selling technology allows customers to
define and automate complex selling processes and to deploy customized sales
automation solutions.
We believe our software delivers the following benefits:
- Complements the way selling professionals work. We designed our software
to be intuitive, using simple navigational commands to present key
selling and customer information in a single view. Our products
incorporate popular Microsoft user interface standards and the
ease-of-use functions of leading contact management programs. In
addition, the flexibility of our software enables salespeople to
customize the functionality to support their individual methods of
selling. We believe this not only adds value to the selling process, but
also increases the rate of adoption among salespeople.
- Utilize the Internet and mobile technologies. SalesLogix can be deployed
over the Internet and we use Internet technologies to provide web-based
online lead capture, partner management, product knowledge bases and
order entry functionality. Our remote client, which Microsoft recently
awarded Best Mobile Sales Solution, uses our synchronization technology
to enable remote users to easily access our software through mobile
devices such as laptops and personal digital assistants. Our robust,
multi-level security allows key sales management functions to be
distributed while addressing customers' concerns about the integrity of
the database.
- Deploys rapidly at a low cost. Our products and services are designed to
ensure that the software is implemented and deployed quickly--typically
in a few weeks--to deliver a rapid return on investment. The suggested
retail price of our software is less than $1,000 per end user. SalesLogix
software provides the built-in functionality necessary to quickly derive
benefits and requires little customization. In addition, our
synchronization technology facilitates the distribution of relevant
updates to users across the enterprise, thereby reducing maintenance
costs. We use industry standard technologies and Microsoft Windows NT and
Microsoft BackOffice platforms to deliver a low total cost of ownership.
- Can be easily extended and customized to support new selling models. Our
flexible architecture and authoring tools enable customers to easily
adapt our software to reflect their unique selling processes and business
rules. Our authoring tools and guided selling technology allow Business
Partners and customers to develop extensions and interfaces for specific
vertical markets. Using a graphical design interface, administrators can
create workflow diagrams that define dynamic selling processes and
automation steps to guide new users or invoke automated responses to
specific selling events.
- Scales to support large selling operations and integrates with back
office systems. Our technology foundation enables hundreds of users to
access our software locally, remotely or
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over the Internet. Our software utilizes the scalability of Microsoft SQL
Server and Oracle databases. To date, customer implementations have
ranged from as small as 10 users to over 400 users. To meet the needs of
rapidly growing, dynamic mid-market businesses, we have designed our
software to integrate seamlessly with back office software systems and
other databases with information relevant to the selling process.
BUSINESS STRATEGY
Our objective is to be the leading provider of software that addresses the
key aspects of selling for mid-market businesses. The following are elements of
our strategy:
- Target the large mid-market opportunity. Our target market is
businesses, including divisions of larger companies, with annual revenues
between $10 million and $1 billion. We believe that there are
approximately 150,000 organizations in North America that comprise this
market. We also believe that our products and business model are uniquely
suited to address this market opportunity. We intend to continue to focus
on developing software that targets the needs of mid-market businesses
and on selling through channels that can best reach and support this
market segment.
- Focus on automating interactive selling networks. We believe that
selling is a uniquely important and rapidly evolving business process and
that automating this process can result in rapid and significant return
on investment. We are focused on building marketing, customer support,
e-commerce and team selling functionality around SalesLogix and intend to
continue to add features to increase the speed, effectiveness and quality
of selling network interactions.
- Expand our network of Business Partners. We believe that utilizing a
channel of value added resellers is the best way to reach mid-market
businesses. Accordingly, we have focused on rapidly capturing market
share by building a network of more than 225 Business Partners to sell
our products. Our Business Partners provide a cost-effective means to
provide local implementation and customization services, deliver
industry-specific expertise and extend our domestic and international
reach. We have built our products specifically for this indirect
distribution channel by making them easy to use and implement while at
the same time making them highly customizable and able to integrate with
other systems. We have a formal certification program and offer our
Business Partners ongoing training. We plan to increase the number of
Business Partners in the channel and focus on adding partners with
industry-specific specialization.
- Utilize the Internet for faster growth. We believe that the Internet is
a key enabling technology for mid-market companies. The recent
introductions of our Web Client, Web Viewer+, Web Lead Capture and Web
Knowledge Base reflect our strategy to rely primarily on an
Internet-based architecture and infrastructure. We intend to provide
additional products that use Internet technologies to support and enhance
all aspects of interactive selling and the web browser will increasingly
represent the standard user interface for our software. In addition, IBM
has selected SalesLogix as the front office automation vendor for its
application hosting services offering that will be targeted at small and
mid-sized businesses, subject to negotiation and execution of a
definitive IBM business partner agreement.
- Broaden our direct sales channel and international presence. We intend
to complement our Business Partner channel by expanding our targeted
direct sales force to pursue key strategic accounts and by further
developing our telesales channels and establishing an e-commerce channel
to sell entry-level and customer add-on solutions. We believe that there
is a strong demand for our software internationally. We currently sell
our products internationally in both Europe and the Pacific Rim through
Business Partners located in 13 countries. We intend to continue to
pursue international opportunities aggressively by expanding our
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network of international Business Partners, entering new markets,
localizing our software to support additional languages and currencies
and increasing our direct presence.
- Expand our technology partner program. Our software provides an open,
extensible platform for third party software vendors, service providers,
Business Partners and customers to develop add-on products that extend
our software. To date, we have certified more than 20 applications
developed by third parties through our Open CRM Initiative. We intend to
increase the number of third party developers of extensions and add-ons
for our software and actively market these solutions across our customer
base.
PRODUCTS
Our software for automating the interactive selling network currently
consists of two major products: SalesLogix, a distributed multi-user sales
information system and SupportLogix, an online customer service and support
environment for customer support and help desk professionals. We also offer
CrossLogix, a platform for integrating third party databases, as well as other
integration and customization products for extending SalesLogix. In addition, we
recently acquired Enact Incorporated, a provider of sales configuration
technology used to manage product catalogs, marketing encyclopedias and generate
proposals, quotes and orders. We intend to build an integrated suite of
applications around our core SalesLogix product that utilizes our centralized
Customer Interaction Repository to address the key aspects of an interactive
selling network.
Our products enable each individual involved in the interactive selling
network to automate and use prospect and customer interactions to sell more
effectively. Our software supports the day-to-day interactions of sales,
marketing and support professionals by:
- Capturing in the Customer Interaction Repository information on all
individuals identified as contacts, which are typically individuals,
accounts, which are typically companies, opportunities or potential deals
and relationships, which include service and support histories; and
- Using this information to automate a variety of selling cycle activities,
from the design and execution of marketing campaigns, to the generation
of qualified leads, to the management of direct and indirect sales
processes, to order management and post-sales support.
Our applications use a variety of client interfaces, including industry
standard Web browsers, Windows-based laptops and desktops and personal digital
assistants, to ensure high availability and ease-of-use. We also provide tools
and extensions to centrally implement, configure, customize and manage our
applications. The Administrator console allows customers to centrally manage the
SalesLogix system and includes user administration, system administration,
database administration and the installation and update of third party and
custom components.
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SALESLOGIX AUTOMATES THE INTERACTIVE SELLING NETWORK
[INTERACTIVE SALES CHAIN FLOWCHART]
[GRAPHICAL DEPICTION OF THE INTERACTIVE SELLING PROCESS LEVELS WITH THE
FOLLOWING COPY: SALESLOGIX AUTOMATES THE INTERACTIVE SELLING NETWORK; PROSPECTS;
FIELD SALES, TELESALES, PARTNERS, ESELLING, CUSTOMERS; INTERNET/WINDOWS/PDAS;
SALES, MARKETING, SUPPORT; CUSTOMER INTERACTION REPOSITORY, MS SQL OR ORACLE;
ADMINISTRATION/SECURITY/CONFIGURATION.]
SalesLogix
SalesLogix can be deployed as a client/server application, an
Internet-based application, or both simultaneously to automate the
business-critical daily activities of front line sales and marketing
professionals. The product includes contact, account and opportunity management
along with a variety of analysis and reporting templates and integrated guided
selling processes that streamline prospect and customer interactions. SalesLogix
provides a comprehensive view of all customer communication, sales cycle
activities, forecasted opportunities, analysis statistics, management reports
and a consolidated view of all notes and schedules of individuals connected to
the system. In addition, SalesLogix provides organizations with guided selling
technology to create processes that standardize and automate any aspect of the
selling cycle. SalesLogix also includes fast, reliable and adaptable
synchronization technology and an extensive data security model for
consolidating and distributing sales information across the enterprise.
SalesLogix includes the following client interfaces:
Sales Client is a client/server direct channel application for
sales professionals connected remotely or centrally located. This
application offers integrated account, contact and opportunity
management, scheduling, reporting, email, faxing, word processing and
sales library access. Telesales professionals are supported by our
guided selling technology, which automates lead qualification and
follow-up activities.
Remote Sales Client is a client/server application for mobile sales
professionals. This application offers integrated account, contact and
opportunity management, scheduling, reporting, email, faxing, word
processing and sales library access. Synchronization technology
efficiently manages the distribution of database updates across LAN,
WAN, email or Internet connections.
Web Sales Client is a web-based direct channel solution for
professionals connected remotely or centrally located that offers
integrated account, contact and opportunity management, scheduling,
reporting and sales library access using a Microsoft Internet Explorer
or Netscape 4.0+ browser.
Web Partner Client is a web-based indirect channel solution that
provides reseller channels and marketing partners with lead, contact,
account and opportunity management information using a Microsoft
Internet Explorer or Netscape 4.0+ browser.
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Web Viewer+ Client is a web-based solution for sales support users
who need limited access to information in SalesLogix. It includes the
ability to schedule activities, write notes and view account, contact
and opportunity information using a Microsoft Internet Explorer or
Netscape 4.0+ browser.
SalesLogix also includes the following products:
Web Lead Capture collects prospect information from a web site and
directly populates the SalesLogix database. This client interface also
automates qualification and lead distribution using our guided selling
technology.
Back Office Integration provides extensive integration with
Dynamics, Great Plains' back office software for the mid-market. This
integration is differentiated by its support of remote disconnected
users and LAN and WAN users. Integration with Dynamics allows users of
SalesLogix to access important product, pricing and inventory
information when making quotes or taking orders. It also provides
SalesLogix users with customer information such as credit status,
invoices, payments, credit card data and account balances. Dynamics
account and contact information is automatically updated from SalesLogix
reducing the time and cost of duplicate data entry.
Integration and Customization Tools enable customers and resellers
to customize and integrate our software with other software applications
and systems.
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The following table describes significant features of SalesLogix.
<TABLE>
<S> <C>
CONTACT MANAGEMENT
-----------------------------------------------------------------------------------------------
Lead Management Supports collection of prospect information, including
prospects captured from the web. Automates the qualification
and lead distribution processes and follow up activities.
-----------------------------------------------------------------------------------------------
Scheduling & Graphic Calendar Supports activity and event scheduling, on an individual and
group basis. Provides integration with Microsoft Outlook,
GroupWise and Lotus Notes.
-----------------------------------------------------------------------------------------------
Communication and Notes Allows users to attach any file or document to accounts,
contacts and opportunities. Supports integrated faxing,
email and word processing. Records notes of customer
interactions or other important information.
-----------------------------------------------------------------------------------------------
ACCOUNT MANAGEMENT
-----------------------------------------------------------------------------------------------
Relationships Defines the relationships between an account, related
contacts and opportunities and associated information,
providing a comprehensive picture of customer interactions.
-----------------------------------------------------------------------------------------------
Accounting Information Provides users with customer outstanding balance,
receivables aging, credit term, credit card, invoice and
payment information.
-----------------------------------------------------------------------------------------------
Team Selling Supports management of customers and opportunities by
individual sales representatives or sales teams.
-----------------------------------------------------------------------------------------------
OPPORTUNITY MANAGEMENT
-----------------------------------------------------------------------------------------------
Opportunity Assessment Enables the qualification of sales opportunities and the
assignment of characteristics such as probability of closing
the sale, revenue potential, estimated and actual closing
dates and competitor information. Tracks related activities
and history.
-----------------------------------------------------------------------------------------------
Sales Process Definition, Allows sales managers to establish highly structured selling
Management and Analysis processes that embody best selling practices to guide the
salesperson through the sales cycle. Improves forecasting
accuracy by providing consistent information for analysis.
-----------------------------------------------------------------------------------------------
Quote Generation, Order Entry Creates sales orders and quotes and applies business rules
and Advanced Pricing Model to improve accuracy of orders. Manages and organizes large
numbers of products, supports multiple price schedules,
pricing programs and customer based pricing. Provides
product substitution and inventory information.
-----------------------------------------------------------------------------------------------
ANALYSIS AND REPORTING
-----------------------------------------------------------------------------------------------
Graphical Forecasting Provides the ability to graphically organize and analyze
lead sources, the impact of competitors, product lines and
many other factors on the sales pipeline.
-----------------------------------------------------------------------------------------------
Reporting (IQ Software Allows users to create reports using an object-based,
Corporation) graphical, report designer that delivers a broad range of
functionality, including centralized or decentralized report
management distribution.
-----------------------------------------------------------------------------------------------
What's New (Change Tracks additions, updates and deletions to a user's local
Notification) database, sales library and report deliveries.
</TABLE>
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<PAGE> 42
<TABLE>
<S> <C>
INFORMATION AND WORKFLOW MANAGEMENT
-----------------------------------------------------------------------------------------------
Guided Selling Technology Provides a visual environment that allows sales
administrators to quickly and easily define processes that
automate any aspect of the selling cycle. This includes any
series of tasks that must be executed in a specific order in
a specific timeframe. Tasks may include scheduling meetings,
phone calls, to-dos, literature requests, logging notes,
sending letters, faxing, emailing, testing for changes in
data, changing data, running reports or running a
sub-process. Customers use these processes to automate
repetitive tasks, implement sales processes, provide a
consistent way of following up with customers and for
marketing automation.
-----------------------------------------------------------------------------------------------
List Management Organizes subsets of contact, account or opportunity
information into lists that can prioritize leads,
opportunities and customers to help users focus on important
items.
-----------------------------------------------------------------------------------------------
Sales Library Provides a central repository for sales, marketing and
support information such as product details and price
sheets, sales literature, policies and procedures,
presentation and manuals accessible from the web or LAN by
the entire user community. Includes distribution mechanism
to support remote disconnected users.
-----------------------------------------------------------------------------------------------
</TABLE>
CUSTOMIZATION AND INTEGRATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Architect Provides an easy to use visual development tool for creating
reports, customized data views, scripts and guided selling
processes.
-----------------------------------------------------------------------------------------------
CrossLogix Allows customers to exchange data between SalesLogix and
other Microsoft SQL Server or Oracle databases, to
consolidate separate databases, create a data warehouse,
link to back office applications and scale in large
environments.
-----------------------------------------------------------------------------------------------
Software Development A set of high-level functions that allow other applications
Kit to interact with the SalesLogix database and client.
-----------------------------------------------------------------------------------------------
Computer Telephony Allows SalesLogix to work with telephone systems to manage
Integration inbound and outbound calling activity, route calls and
trigger events.
-----------------------------------------------------------------------------------------------
Bundler Provides the ability to package custom components created by
partners, third party integrators or SalesLogix for
simplified installation and management in a SalesLogix
production system.
-----------------------------------------------------------------------------------------------
</TABLE>
SupportLogix
SupportLogix extends SalesLogix to provide an integrated client/server
customer support application for managing customer accounts after the sale.
SupportLogix provides customer support professionals with a comprehensive view
of customer information, including key contact data and call status summaries,
problem tracking and status information, including records of resolutions and
upgrades and relationship management information, including service statistics
and contractual obligations. SupportLogix also provides knowledge management
tools to assist with problem resolution including the search and retrieval of
previous incidents, product knowledge and external sources. For management, the
system provides categorization, statistics and reporting for staffing, training,
resource planning, utilization and cost analysis. In addition, web-based tools
are available for customers to interact with the support system via the
Internet.
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<PAGE> 43
The following table describes significant features of the SupportLogix
product.
<TABLE>
<S> <C>
PROBLEM MANAGEMENT
-----------------------------------------------------------------------------------------------
Call and Incident Tracking Tracks problems reported by customers, supports searches for
solutions and automates customer follow-up.
-----------------------------------------------------------------------------------------------
Escalation Ensures customer expectations and service agreements are met
by triggering notifications for time sensitive or critical
issues.
-----------------------------------------------------------------------------------------------
Product Returns Authorizes and tracks defective products and returns.
-----------------------------------------------------------------------------------------------
Telephone Link Integrates SupportLogix with a telephone system to
streamline customer support interaction by automatically
creating trouble tickets pre-filled with customer details on
inbound calls and auto dialing on outbound calls.
-----------------------------------------------------------------------------------------------
Workflow Automation Routes tickets to individuals or teams based on the type of
request. Emails responses to customers when requests are
closed or status changes.
-----------------------------------------------------------------------------------------------
Contract Management Monitors customer support agreements and work performed
against those agreements for billing purposes.
-----------------------------------------------------------------------------------------------
Defect Tracking/Quality Tracks defects, product changes and feature requests as
Assurance products pass through the development and testing process
and into production.
-----------------------------------------------------------------------------------------------
Support Center Management Provides categorization, statistics and reporting for
training, resource planning, cost analysis and overall
support department management.
-----------------------------------------------------------------------------------------------
ASSISTED PROBLEM RESOLUTION
-----------------------------------------------------------------------------------------------
Dynamic Knowledge Collection Builds a knowledge base of standard problems and solutions
based on the resolution of incidents and trouble tickets.
-----------------------------------------------------------------------------------------------
SpeedSearch Performs indexed full text search and retrieval of the
knowledge base, previous incidents, defect reports and
external sources for quick, consistent problem resolution.
-----------------------------------------------------------------------------------------------
WEB-BASED CUSTOMER CARE
-----------------------------------------------------------------------------------------------
Web Knowledge Base Allows customers, partners and field staff to access the
knowledge base via the web to avoid call queues and to
search for their own support at their own pace.
-----------------------------------------------------------------------------------------------
Mail Link and Web Link Routes customer email messages to the support system and
allows representatives and customers to submit call tickets
and check their status with a standard web browser over an
intranet or the Internet.
-----------------------------------------------------------------------------------------------
</TABLE>
Third-Party Solutions
Our Open CRM Initiative allows our Business Partners, third-party software
vendors and systems integrators, to cooperatively develop and certify their own
customer relationship management, or CRM, applications based on SalesLogix. This
initiative currently includes solutions from more than 20 partners providing
applications that operate as fully integrated extensions to SalesLogix for:
- marketing campaign management;
- computer telephony integration;
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<PAGE> 44
- configuration management;
- fax and email services;
- SAP integration;
- enhanced security for e-commerce; and
- wireless communications.
Through the Open CRM initiative, SalesLogix becomes a platform for
integrating a broad portfolio of CRM applications that enable customers to grow
their front office sales, marketing and customer support organizations quickly
and cost-effectively, without investing sizable budgets and manpower in custom
consulting services. Through the relationships established in this initiative,
we expect to expand the base of products sold through our channels.
PRODUCTS IN DEVELOPMENT
Enact. We recently acquired Enact, a provider of sales configuration
software for managing product catalogs and marketing encyclopedias and
generating proposals, quotes and orders. Enact will enable SalesLogix customers
to create online interactive sales solutions that promote best practices and
error-free orders. By integrating the selling knowledge and experience of an
organization into a central repository, Enact simplifies the product selection
process for salespeople, and will allow vendors and resellers to track orders
through the SalesLogix system. In addition, customers will be able to explore
product configuration and pricing on their own through a company's web site,
potentially reducing the length of sales cycles. SalesLogix will license Enact
software as a configuration solution to be used by sales professionals, and
intends to develop electronic commerce solutions accessible through the Internet
that enable electronic catalogs, product training and marketing knowledge base
systems. The Enact solution is based on the following two major components:
Author is a tool used to define the relationship between products,
product details and specifications, pricing, their application and rules
that govern how products are purchased.
Selector is an interactive selling tool used by a sales professional
guiding a customer or by a customer independently to navigate and select
products to purchase based on the relationships and rules defined in the
Author tool.
Web Order Capture. The web allows companies to cost-effectively offer
personalized services to customers and partners around the clock. An integral
part of that service is the ability to look at a product catalog and place an
order for products and services. SalesLogix will provide a product order system
that:
- publishes the products and services maintained in SalesLogix on the web;
- allows contacts managed in SalesLogix, including partners, customers or
internal employees, to access product and order information on the web
with a secure user name and password; and
- enables all authorized contacts to place an order that is posted in the
Customer Interaction Repository to be visible to SalesLogix users and
integrated directly with back-office accounting systems.
Web Order Capture facilities will integrate with our Web Lead Capture to
enable new customers to gain authorization for placing orders immediately upon
entering the system.
Localization. Our Localization Kit adds external language dictionaries and
currency conversion functionality to the standard solution, enabling Business
Partners and customers to translate SalesLogix products into their local
environments.
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<PAGE> 45
SERVICES
SalesLogix and SupportLogix are typically sold with bundled services that
are delivered either by SalesLogix or a certified third party implementation
provider. Services may include training, certification and project management
consulting. For customers requiring onsite services to install, implement and
customize our products, we offer both our own professional services group as
well as third party certified implementation specialists, many with vertical
industry specialization, to help ensure successful implementation of the
product.
Our services are based on a rapid deployment and gradual customization
program. Typical SalesLogix implementations enable call center and mobile field
sales participants to integrate existing databases, install new client software
and synchronize updates within the first 30 days of the purchase of the
software.
Our Professional Services Group provides project implementation services to
supplement our Business Partners when needed, including the following services:
- analysis and requirements definition;
- system specification and design;
- project implementation;
- software installation;
- data conversion; and
- customization for external systems integration.
Our SalesLogix Systems Administrator Training class is designed for our
customers' IT professionals responsible for the maintenance, synchronization and
customization of the SalesLogix database and for administering the user settings
needed to manage the installation.
TECHNOLOGY
To create, maintain and expand SalesLogix, we use Delphi's rapid
application development tool. This significantly reduces development time and
enables us to respond rapidly to changing market demand in comparison to
applications that are built with traditional programming languages such as C and
C++.
Deployed as client server applications, SalesLogix and SupportLogix are
pure 32-bit applications that conform to open standards. They are Microsoft
BackOffice compatible and their user interfaces are consistent with technologies
currently used by Microsoft in its popular suite of office applications.
SalesLogix can be deployed as a true thin client that uses HTML and Java
Scripting. Our Web DLL is the interface between the web server and the
SalesLogix database that processes web templates on the server and generates web
pages in the user's browser. In addition, the Web DLL also handles data
integrity, security and synchronization functions for each of the records
written to the SalesLogix database. Our Internet-based products can be accessed
through Netscape (4.08 and 4.5) and Microsoft Internet Explorer (4.0) browsers
and support Netscape and Microsoft web servers.
Other key elements of our technology foundation include the following:
Sophisticated Data Model
At the core of SalesLogix is an object-oriented system that uses a
universal database engine to provide high performance and high throughput
connections to leading databases such as Microsoft SQL Server and Oracle. The
same technology is used whether users are working from their desktops with a
local database, or if they are working on their laptops at a remote location.
Users of SalesLogix Web Client work with the same database and data model as do
LAN and remote users. SalesLogix also uses a database scheme that can be easily
extended.
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<PAGE> 46
The SalesLogix database architecture is designed to be scalable, flexible
and highly configurable and supports the addition and deletion of tables and
fields. Database access queries are optimized for the database in use, resulting
in high speed and performance. SalesLogix supports Microsoft SQL Server, Oracle
and Inprise InterBase databases.
Synchronization Architecture
SalesLogix' Synchronization client and Synchronization server work together
to reconcile changing and disparate data residing on the host database, on
remote office databases or on remote user databases. SalesLogix employs an
offline "store and forward" scheme to collect, exchange, consolidate and apply
synchronization changes to the applicable databases using connect time only to
exchange relevant data. Changes are applied to the database after the connection
is broken, significantly reducing connect time charges and making the computer
available for other purposes. The SalesLogix synchronization server can be
scheduled to run during off-peak hours, when the network traffic is minimal.
Data packets are compressed and encrypted for transmission to the remote users
when they dial in or connect through one of several supported connection
methods.
SalesLogix' Subscription mechanism and other tools allow the end user and
the system administrator to tailor the amount and type of data the remote user
receives giving significant control of the amount of information exchanged and
maintained on remote databases.
Security
SalesLogix includes several layers of security to control access to data,
aspects of the interface and underlying functionality. Accounts are owned by a
single user, a team of users or all users. Account ownership determines a user's
access to records. Each user has a default security profile that determines
their access to read, write, or view tables and fields for the accounts they
own, as well as the ability to create and maintain sales teams. Sales teams
contain users who need access to the same accounts. For example, a customer
might create teams based on region, territory, type of account or department.
Users can belong to more than one team and their security profiles can be
different for each team. Users can have different field level data security as a
member of a team or as an individual. Access to data is also based on a user's
position within the organization. In addition, SalesLogix supports the concept
of public and private accounts. Public accounts can be owned by an individual
user, a team of users, or all users, while personal contacts are kept private.
In addition, customers can also define each user's access to other users'
calendars. Access to aspects of the SalesLogix interface and underlying
functionality can also be controlled at a user level.
CUSTOMERS
We have licensed our software to more than 1,300 domestic and international
customers in a variety of industries including high-technology, financial
services, telecommunications, utilities, retail, banking, health care and real
estate. To date, customer implementations have ranged from as small as 10 users
to over 400 users. Set forth below is a representative list of customers that
have licensed our software.
ABN-AMRO Asia Pacific
ADT Securities Services
Affiliated Research Centers
Anatol Automation
Anthony & Sylvan Pools
ADP
Blackbaud
BlueCross BlueShield of
Tennessee
Boise Cascade
Books Are Fun
Center for Creative Leadership
Century Business Services
CheckFree
Community Bank
Concur Technologies
CSK Auto
Del Webb
Dictaphone
Diversified Communications
DoubleClick
ESCO Electronics
First Sierra Financial
Frost & Sullivan
FullTime Software
Gensym
Global Asset Management
Hewlett-Packard
IKON Office Solutions
ILOG
Information Advantage
International Network Services
InterVoice
Iron Mountain
Kaplan Educational Centers
Lender's Service
Lexmark
MCI WorldCom
McGraw-Hill
Medic Computer Systems
MicroWarehouse
Montgomery Clearing Services
Musco Lighting
NationsBank
net.Genesis
New York Stock Exchange
Nextel Communications
Novartis
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<PAGE> 47
P&O Nedlloyd
Paine Webber
Pennsylvania Physicians Care
PIMS UK
PPG Industries
Pyxis
Ronald Blue
TELES AG
The Cobalt Group
Stone Co.
The Finova Group
Tiffany & Co.
Time Distribution Services
U.S. Xchange
United Concordia
Van Dyne-Crotty
Waterhouse Securities
Watlow Electric Manufacturing
Wyndham International
Workgroup Technology
SALES
We market and sell our software primarily through our indirect Business
Partner channel and, to a lesser extent, through our direct sales force.
Indirect Channels
We sell and implement our products primarily through our Business Partner
channel consisting of value added resellers, as well as systems integrators and
independent software vendors. Our Business Partners are independent
organizations that sell and market our products and perform implementation,
integration and customization services. We actively recruit Business Partners
through channel development groups within SalesLogix. More importantly, we
assist our Business Partners through comprehensive training and support and
cooperative marketing programs. All Business Partners are required to undergo
training and certification procedures before being authorized to sell and
implement our products and must maintain minimum standards and sales volumes to
retain this authorization. As of March 31, 1999, we had more than 225 certified
Business Partners, 34 of which are located internationally. We plan to expand
our international presence through recruiting of additional Business Partners.
We typically enter into Software Business Partner Agreements with our
Business Partners, under which they purchase our products and sell our licenses
to designated end-users. No ownership rights are granted to our Business
Partners on any intellectual property relating to our products. Original
SalesLogix licenses are included in our product materials, which are provided
directly to end-users by our Business Partners. The Business Partners are solely
responsible for determining retail prices. However, our revenue from the sale of
our product to a Business Partner is based on a percentage of our list price and
is independent of the Business Partner's ability to collect payment from an
end-user. In addition, we generally provide the ongoing technical support and
maintenance for our products and our Business Partners are paid a commission if
they sell the support contract to the end-user. We have not granted exclusive
sales territories to our Business Partners, but may do so in the future if a
proposed distribution transaction merits such an arrangement.
We believe that our Business Partners have a significant influence over
product choices by customers and that our relationship with our Business
Partners is an essential element in our marketing, sales and implementation
efforts. Through our Business Partner network, we are able to provide customers
with trained and knowledgeable solution professionals who are available to
implement our systems locally. Many of our Business Partners customize our
systems to fit individual business needs and develop industry-specific
applications that integrate with and extend the functionality of our products.
See "Risk Factors -- We rely primarily on our resellers for the sale and
implementation of our products."
Direct Sales
We recently established a targeted direct sales force to complement our
indirect sales channel and pursue larger opportunities, typically companies with
over $250 million in revenue, as well as key strategic accounts in selected
vertical markets. As of March 31, 1999, we employed seven direct salespeople.
Our direct sales cycles average 90 to 120 days from initial contact to
close. We have four phone-based representatives to support our direct sales
effort and help generate leads for our Business Partners. We intend to further
develop our telesales and e-commerce channel to sell
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<PAGE> 48
entry-level and customer add-on solutions to our existing customer base and
target small opportunities of less than 10 seats.
MARKETING
Our marketing programs include a variety of advertising, telemarketing,
events, public relations and teleseminar campaigns that are designed to reach
target prospects in the mid-market and cultivate relationships with industry
leaders. These programs are targeted at key executives within these mid-market
companies such as the vice president of sales, vice president of marketing,
chief information officer and chief executive officer. As of March 31, 1999, we
employed 25 people in marketing, organized generally around the areas of product
management, marketing communications and channel marketing.
Our marketing programs are designed to:
- Increase brand awareness for SalesLogix products -- We have implemented a
variety of brand awareness programs, including magazine advertising,
direct mail, public relations and trade show displays. These programs
have generated significant awareness for our products and a leading
position in brand recognition surveys.
- Generate leads for our channels -- Through targeted profiling techniques
and direct telemarketing calls from our database, we attempt to reach a
significant percentage of our target audience on a quarterly basis.
Through a variety of automated web and phone-based call scripts in our
contact center, we are able to rapidly qualify and assign leads across
our channels.
- Ensure efficient and effective partner-based sales cycles -- To take
advantage of the ease-of-use of our product and to improve selling
productivity, we have deployed a web infrastructure that enables dynamic
teleseminars, user-driven product demonstrations and an information
repository to automatically guide prospects and our Business Partners
through key decision points in the selling cycle.
Each of these programs can be run on both our web-based marketing
infrastructure and our own implementations of SalesLogix products to streamline
key prospect and customer interactions and automate selling cycle activities.
COMPETITION
The market for front office automation software is intensely competitive,
fragmented and rapidly changing. We primarily compete with a variety of software
vendors that provide marketing, sales and customer support automation products.
While numerous solutions can be cited as potential competitors, direct
competitors of SalesLogix can be broadly categorized into three groups:
- Front Office Vendors such as Onyx, Pivotal, Siebel and Vantive. These
companies generally seek to provide front office software through direct
sales forces. They also offer customized solutions through consulting
services. Several of these companies have announced strategies to target
the mid-market opportunities we are pursuing.
- Contact Manager Vendors such as Symantec with its ACT! product, Goldmine,
which recently merged with Bendata, Inc., and Microsoft with its Outlook
product. These products support a single user or small workgroup of users
and are sold primarily through a retail channel. Several of these
companies have also announced strategies to target the mid-market
opportunities we are pursuing.
- Internal Development by our customers' or potential customers' own
technology departments. These organization have invested significant
resources in developing their own proprietary selling systems.
We believe that the principal competitive factors in our market include, or
are likely to include, product performance and features, price, ease-of-use,
quality of support and service, time
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<PAGE> 49
to implement, ease of customization, sales and distribution capabilities,
strength of brand name and overall cost of ownership. We believe that we compete
effectively with our competitors with respect to these factors. However, many of
our competitors have longer operating histories, significantly greater resources
and greater name recognition. They also may be able to devote greater resources
to the development, promotion and sale of their products than we can to ours,
which could allow them to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. We cannot assure you that our
competitors will not offer or develop products that are superior to our products
or that achieve greater market acceptance.
We expect that competition will increase as other established and emerging
companies enter our market and as new products and technologies are introduced.
For example, several back-office software companies have built or acquired sales
automation and other front office products. Increased competition may result in
price reductions, lower gross margins and loss of our market share, any of which
could materially adversely affect our business, financial condition and
operating results.
RESEARCH AND DEVELOPMENT
As of March 31, 1999, SalesLogix employed 46 people in research and
development. This team is responsible for the design, development and release of
SalesLogix products. Research and development is organized into three groups:
development, quality assurance and documentation. Members from each of these
groups, along with a product manager from our marketing department, form
separate product teams that work closely with sales, marketing, Business
Partners, customers and prospects to better understand market needs and
requirements. When required, we use third-party development firms to expand the
capacity and technical expertise of our internal research and development team.
Additionally, we occasionally license third-party technology that is
incorporated into our products. We believe this approach significantly shortens
our time to market and we expect to continue to utilize third-party resources in
the foreseeable future.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret, patent and trademark laws, confidentiality agreements
with employees and third parties and protective contractual provisions such as
those contained in license agreements with our Business Partners, consultants,
vendors and customers, although we have not signed such agreements in every
case. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that we
regard as proprietary. Other parties may breach confidentiality agreements and
other protective contracts we have entered into and we may not become aware of,
or have adequate remedies in the event of, such breach. We employ shrink-wrap
licenses designed to restrict the unauthorized use of our products, but such
licenses may be difficult to enforce.
We pursue the registration of some of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States and effective copyright, trademark and trade secret protection may
not be available in other jurisdictions. We license proprietary rights to third
parties. Such licensees may not abide by compliance and quality control
guidelines with respect to such proprietary rights and may take actions that
would materially adversely affect our business, financial condition and
operating results.
The computer software market is characterized by frequent and substantial
intellectual property litigation, which is often complex and expensive and
involves a significant diversion of resources and uncertainty of outcome. We may
need to litigate to enforce and protect our intellectual property or to defend
against a claim of infringement or invalidity. We may be subject to legal
proceedings and claims from time to time in the ordinary course of our business,
including
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<PAGE> 50
claims of alleged infringement of third-party proprietary rights by us and our
licensees. In addition, we expect that software developers will be increasingly
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products in different industry segments
overlaps. Furthermore, former employers of our present and future employees may
assert claims that our employees have improperly disclosed confidential or
proprietary information to us. If we discover that any elements of our products
violate third-party proprietary rights, we may be unable to obtain licenses on
commercially reasonable terms, if at all and to avoid or settle litigation
without substantial expense and damage awards. Any claims relating to the
infringement of third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to pay damages or enter into royalty or
license agreements on terms that are not advantageous to us. Any of these
results could materially adversely affect our business, financial condition and
operating results.
We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products, to perform key functions. Although we are generally indemnified
against claims that such third-party technology infringes the proprietary rights
of others, such indemnification is not always available for all types of
intellectual property rights and in some cases the scope of such indemnification
is limited. Even if we receive broad indemnification, third-party indemnitors
are not always well capitalized and may not be able to indemnify us in the event
of infringement, resulting in substantial exposure to us. Infringement or
invalidity claims arising from the incorporation of third-party technology and
claims for indemnification from our customers resulting from such claims, may be
asserted or prosecuted against us. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources in
addition to potential product redevelopment costs and delays and could
materially adversely affect our business, financial condition and operating
results.
EMPLOYEES
As of March 31, 1999, we had a total of 177 employees, excluding
independent contractors and other temporary employees, including 46 people in
research and development, 57 people in sales and marketing, 57 people in
professional services, customer support and training and 17 people in general
and administrative services. Our future performance depends in significant part
on the continued service of our key technical, sales, marketing and senior
management personnel. The loss of the services of one or more of our key
employees could have a material adverse effect on our business, financial
condition and operating results. Our future success also depends on our
continuing ability to attract, train and retain highly qualified technical,
sales, marketing and managerial personnel. Competition for such personnel is
intense. We cannot provide any assurance that we can retain our key technical,
sales, marketing and managerial personnel in the future. None of our employees
is represented by a labor union and we consider our employee relations to be
good.
FACILITIES
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 41,200 square feet of space
in Scottsdale, Arizona and our lease expires on July 31, 2004. We also maintain
an international office in the United Kingdom.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any litigation
that, if adversely determined, would have a material adverse effect on our
business, financial condition and operating results.
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<PAGE> 51
MANAGEMENT
The following table sets forth information regarding the executive officers
and directors of SalesLogix as of March 31, 1999:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Patrick M. Sullivan............ 45 President, Chief Executive Officer and Chairman of the
Board
Gary R. Acord.................. 46 Vice President, Chief Financial Officer, Secretary and
Treasurer
Kevin R. Bethke................ 34 Vice President, Worldwide Sales
R. Kevin Carson................ 39 Vice President, Professional Services
Philip J. Myers................ 40 Vice President, Marketing
Doug J. Nicholas............... 38 Vice President, Business Development
Sunil Padiyar.................. 38 Vice President, Product Development
Deepak Kamra(a)................ 42 Director
Harry D. Lambert(a),(b)........ 59 Director
Anthony P. Morris(b)........... 52 Director
David C. Schwab(b)............. 41 Director
Craig A. Conway(a)............. 44 Director
John B. Carrington............. 54 Director
</TABLE>
- ------------------------------
(a) Member of compensation committee
(b) Member of audit committee
Patrick M. Sullivan is SalesLogix' founder and has served as SalesLogix'
President and Chief Executive Officer and as a member of SalesLogix' board of
directors since September 1995 and as Chairman of the board of directors since
March 1999. Prior to founding SalesLogix, Mr. Sullivan served as President and
Chief Executive Officer for Contact Software International, Inc., the developer
of ACT! Software, from October 1985 until June 1993, at which time Contact
Software was acquired by Symantec Corp. Mr. Sullivan continued as Vice President
of the Contact Management Division for Symantec until November 1993. Mr.
Sullivan pursued personal interests from November 1993 until founding
SalesLogix. Mr. Sullivan holds a BS in Marketing from Eastern Illinois
University.
Gary R. Acord has served as SalesLogix' Vice President and Chief Financial
Officer since September 1997. From April 1996 until September 1997, Mr. Acord
served as Vice President and CFO for Artisoft, Inc., which provides networking,
communications, computer telephony and Internet solutions for small and growing
businesses. From April 1995 until April 1996, Mr. Acord served as Senior Vice
President and CFO for Elsinore Corporation, a gaming company. From August 1979
until April 1995, Mr. Acord was employed by the international accounting firm of
KPMG Peat Marwick. From July 1993 to April 1995, Mr. Acord served as managing
partner of the firm's Las Vegas office. Mr. Acord, a Certified Public
Accountant, holds a BS from James Madison University and a Master of Accountancy
from the University of Arizona.
Kevin R. Bethke has served as SalesLogix' Vice President of Worldwide Sales
since November 1998. From January 1994 until November 1998, Mr. Bethke served in
various capacities, most recently as Vice President of Sales, for QAD, Inc., a
leading provider of enterprise resource planning solutions for the mid-market.
Mr. Bethke holds a BS in Zoology from Southern Illinois University and an MBA
from Northern Illinois University.
R. Kevin Carson has served as SalesLogix' Vice President of Professional
Services since March 1996. From February 1986 until March 1996, Mr. Carson
served as President of Sales Automation, Inc., a systems implementation firm
focused on assisting corporations with complete
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turn-key sales automation systems. Mr. Carson holds a BS in Computer Science
from the Arizona Institute.
Philip J. Myers has served as SalesLogix' Vice President of Marketing since
December 1998. From October 1992 until December 1998, Mr. Myers served as Vice
President of Marketing for Novadigm, Inc. From August 1990 until November 1991,
Mr. Myers served as Vice President and General Manager of Workstation Products
for Pansophic Corp. From August 1986 until July 1990, he served as Director of
Product Marketing for Viasoft, Inc. Mr. Myers holds a BA in Accounting and an
MBA from Penn State University.
Doug J. Nicholas has served as SalesLogix' Vice President of Business
Development since December 1997. From October 1990 until its acquisition by
SalesLogix in December 1997, Mr. Nicholas served as President and CEO of Opis
Corporation, a developer of customer support applications, which he founded. Mr.
Nicholas holds a BA in Public Relations from the University of Northern Iowa.
Sunil Padiyar has served as SalesLogix' Vice President of Product
Development since February 1996. From March 1993 until February 1996, Mr.
Padiyar served as Vice President of Engineering for Artisoft, Inc. and most
recently as Senior Vice President of Technology and Business Development prior
to his joining SalesLogix. From December 1989 until March 1993, Mr. Padiyar
served in various development management roles at Novell, Inc., a leading
provider of networking and communication solutions to corporations and
enterprises. Mr. Padiyar holds a BSEE from Bangalore University in India and an
MBA from the University of Iowa.
Deepak Kamra has served as a member of SalesLogix' board of directors since
January 1996. Since March 1993, Mr. Kamra has been a principal of Canaan
Partners, a provider of consulting and venture financing to technology
companies. Mr. Kamra became a general partner of Canaan Partners in October
1995. Mr. Kamra also serves as a member of the board of directors for Concord
Communications, Inc., a developer of web-based network reporting and analysis to
evaluate the effectiveness of customers' IT investments. Mr. Kamra also serves
on the boards of directors for numerous privately-held technology companies. Mr.
Kamra holds a BS in Commerce from Carleton University and an MBA from Harvard
University.
Harry D. Lambert has served as a member of SalesLogix' board of directors
since January 1996. Since June 1993, Mr. Lambert has been a General Partner of
Innocal, L.P., a provider of venture financing to technology companies.
Previously, Mr. Lambert served as a general partner of two other venture capital
firms and as president of a telecommunications components company. Mr. Lambert
has served as a member of the board of directors for GeoCities, a leader in the
area of web-based communities online. He also serves on the board of directors
of Trega Biosciences, Inc. and several privately-held technology companies. Mr.
Lambert holds a BS from the U.S. Military Academy, West Point, New York and is a
graduate of the Columbia University Graduate School of Business Administration
Executive Program in Business Administration and the Harvard Graduate School of
Business Administration Advanced Management Program.
Anthony P. Morris has served as a member of SalesLogix' board of directors
since October 1996. Since 1987, Mr. Morris has been a principal in Morris &
Associates, a provider of strategy consulting and venture financing to
technology companies and investors. Mr. Morris also serves as a member of the
board of directors for Phoenix Technologies, Ltd., a developer of software
fundamental to the design and use of personal computers, information appliances
and peripherals. Mr. Morris holds an AB from the University of Pennsylvania and
an MBA from Stanford University.
David C. Schwab has served as a member of SalesLogix' board of directors
since March 1999. Since June 1996, Mr. Schwab has been a general partner of
Sierra Ventures, a provider of consulting and venture financing to technology
companies. From August 1991 until June 1996, Mr. Schwab served as Vice President
of Sales for Scopus Technologies, Inc. Mr. Schwab also serves as a member of the
board of directors for Micromuse, Inc., a provider of software solutions for
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monitoring and management of IT infrastructure, Computer Literacy, Inc., an
online seller of computer and technical books, and numerous privately-held
technology companies. Mr. Schwab holds a BA from the University of California
San Diego, an MS and ENG in Aerospace Engineering from Stanford University and
an MBA from Harvard University.
Craig A. Conway has served as a member of SalesLogix' board of directors
since March 1999. From April 1997 until March 1999, Mr. Conway served as
President and Chief Executive Officer for One Touch Systems, Inc., a provider of
solutions to integrate video, voice and data over high bandwidth networks. From
November 1993 until May 1996, Mr. Conway served as President and CEO for TGV
Software, Inc., a developer of TCP/IP network protocol and application software
used to build corporate intranets. Prior to that Mr. Conway served as Executive
Vice President for Oracle Corporation. Mr. Conway holds a BS in Computer Science
from SUNY Brockport.
John B. Carrington has served as a member of SalesLogix' board of directors
since May 1999. Mr. Carrington has also served on the board of directors for
Digital Lava, Inc., a publicly traded provider of video publishing and
management tools since May 1999. Previously, Mr. Carrington served as Chairman
and Chief Executive Officer of Artios, Inc., a privately held CAD/CAM and ERP
supplier to the packaging industry, from August 1996 until it was acquired by
BARCO n.a. in December 1998. Prior to that, Mr. Carrington served as President
and Chief Executive Officer of Digitalk, Inc., a privately held object-oriented
client/server/internet application development tools company, from September
1991 until Digitalk was merged with ParcPlace Inc. in August 1995, after which
time Mr. Carrington served on the ParcPlace-Digitalk board of directors until
September 1998. Prior to joining Digitalk, Mr. Carrington was Chairman of the
Board and Chief Executive Officer of Cogensys Corporation, co-founded State of
the Art, Inc., and held senior positions with the Del Mar Group, Harte-Hanks
Communications, and Honeywell. Mr. Carrington holds a BBA from the University of
Texas, Austin.
BOARD COMMITTEES
The compensation committee currently consists of Messrs. Kamra, Lambert and
Conway. The compensation committee reviews and approves the compensation and
benefits for our executive officers, reviews in general our overall employee
compensation policies and makes recommendations to our board of directors
regarding such matters. Upon request of our board of directors, the committee
may grant stock options under our stock plans.
The audit committee currently consists of Messrs. Lambert, Morris and
Schwab. The audit committee makes recommendations to our board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and reviews
and evaluates our internal audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the compensation committee and
the board of directors or compensation committee of any other company, nor has
any such interlocking relationship existed in the past.
DIRECTOR COMPENSATION
We reimburse nonemployee directors for reasonable expenses they incur in
attending meetings of our board of directors and its committees. Directors of
SalesLogix are eligible to participate in our 1996 Equity Incentive Plan. As of
March 31, 1999, options to purchase 45,000 shares of common stock had been
granted to Anthony Morris, and options to purchase 6,250 shares of common stock
had been granted to two former SalesLogix directors under this plan. Immediately
following consummation of this offering, we intend to grant options to purchase
12,500 shares of common stock to each of our non-employee directors under our
1999 Non-Employee Director Stock Option Plan. Following the completion of this
offering and as long as the director stock option plan
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remains in effect, each non-employee director who remains a director immediately
after each annual meeting of our stockholders shall receive a non-discretionary
option grant to purchase 12,500 shares of our common stock. All non-employee
director options vest in sixteen equal quarterly installments following the date
of grant and have an exercise price equal to the fair market value of our common
stock on the date of grant. Vesting is automatically accelerated prior to a
change in control of SalesLogix. See "Incentive Stock Plans -- 1999 Non-Employee
Director Stock Option Plan."
EXECUTIVE COMPENSATION
The table below sets forth information concerning the compensation awarded
to, earned by or paid for services rendered to SalesLogix in all capacities
during the year ended December 31, 1998 by our President and Chief Executive
Officer and our next four most highly compensated executive officers whose
salary and bonus for 1998 exceeded $100,000. These executive officers are
referred to as the Named Executive Officers elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
- --------------------------- -------- ------- ------------------
<S> <C> <C> <C>
Patrick M. Sullivan
President and Chief Executive Officer........... $145,385 $52,083 --
Gary R. Acord
Secretary and Chief Financial Officer........... 122,596 16,250 --
R. Kevin Carson
Vice President--Professional Services........... 138,923 61,834 33,333
Doug J. Nicholas
Vice President--Business Development............ 100,944 18,334 --
Sunil Padiyar
Vice President--Product Development............. 160,000 63,334 33,333
</TABLE>
OPTION EXERCISES DURING 1998 AND YEAR-END OPTION VALUES
The following table sets forth information regarding option exercises
during fiscal 1998 and the number and value of securities underlying unexercised
stock options held by our Named Executive Officers as of December 31, 1998. The
calculations of the value realized and of the unexercised in-the-money options
are based on the midpoint of the proposed offering price range, less the
exercise price payable for such shares, multiplied by the number of shares
issuable upon exercise of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patrick M.
Sullivan........... -- $ -- -- -- $ -- $ --
Gary R. Acord........ -- -- 30,833 92,500 300,930 902,800
R. Kevin Carson...... 145,000 1,428,250 36,250 142,083 357,063 1,353,519
Doug J. Nicholas..... -- -- 16,667 50,000 158,670 476,000
Sunil Padiyar........ 199,375 1,963,844 -- 123,959 -- 1,174,997
</TABLE>
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OPTION GRANTS DURING 1998
The following table sets forth information with respect to stock options
granted to each of the Named Executive Officers during 1998, including the
potential realizable value over the 10 year term of the options based on assumed
rates of stock appreciation of 5% and 10%, compounded annually, over the per
share exercise price of the option, which was the per share market price at the
time of the grant. These assumed rates of appreciation comply with the rules of
the SEC and do not represent our estimate of future stock price. Actual gains,
if any, on stock option exercises will be dependent on the future performance of
our common stock. In 1998, we granted options to acquire up to an aggregate of
911,171 shares to employees. These options were all granted under our 1996
Equity Incentive Plan and all at an exercise price equal to not less than the
fair market value of our common stock on the date of grant as determined in good
faith by the board of directors. The factors considered by the board included
the progress of SalesLogix in its business, the share prices of recently
completed equity financings, current operating results and financial condition,
the effect of the liquidation rights of the preferred stock on the value of the
common stock, increasingly vigorous competition in the marketplace and the
current equity market environment. Optionees may pay the exercise price by cash,
check, promissory note, delivery of already-owned shares of SalesLogix common
stock or, upon approval by our board of directors, pursuant to a cashless
exercise procedure. Options granted in 1998 vest over four years with 25% of the
shares subject to option vesting on the first anniversary of the grant date and
the remaining option shares vesting ratably quarterly thereafter.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED 1998 SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Patrick M. Sullivan.......... -- --% $ -- -- $ -- $ --
Gary R. Acord................ -- -- -- -- -- --
R. Kevin Carson.............. 33,334 3.4 1.53 12/10/2008 32,074 81,282
Doug J. Nicholas............. -- -- -- -- -- --
Sunil Padiyar................ 33,334 3.4 1.53 12/10/2008 32,074 81,282
</TABLE>
INCENTIVE STOCK PLANS
1996 Equity Incentive Plan. Our 1996 Plan was adopted by our board in
January 1996 and subsequently approved by our stockholders. The purpose of our
1996 Plan is to enhance long-term stockholder value by offering opportunities to
employees, directors, officers, consultants, advisors and independent
contractors of SalesLogix and its subsidiaries to participate in SalesLogix'
growth and success and to encourage them to remain in the service of SalesLogix
and its subsidiaries and to own SalesLogix stock. Our 1996 Plan provides for
awards of stock options, stock appreciation rights, performance units,
restricted stock and other stock reference awards. To date, we have not awarded
any stock appreciation rights, performance units, restricted stock or other
stock reference awards. A total of 3,366,667 shares are reserved for issuance
under the 1996 Plan. Our board recently authorized an increase in the total
number of shares issuable under the 1996 Plan to 4,500,000 shares, which was
subsequently approved by our stockholders. The number of issuable shares
automatically increases annually on the first day of each fiscal year beginning
in 2000, in an amount equal to the lesser of:
- 1,500,000 shares;
- 5% of the average common shares outstanding used to calculate fully
diluted earnings per share as reported in SalesLogix' Annual Report for
the preceding year; or
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- a lesser amount determined by our board of directors.
As of March 31, 1999, options to purchase 1,493,870 shares of common stock
were outstanding under our 1996 Plan with exercise prices ranging from $0.15 to
$9.00 per share, options to purchase 1,751,995 shares were available for grant
and options to purchase 1,254,135 shares had been exercised. Stock options are
granted to employees on a fixed basis, subject only to time vesting. The timing
of grants and related number of shares are made in the ordinary course of
business based principally on employee job classification, hire date, and length
of service.
The board of directors, or at its request, the compensation committee,
serves as the plan administrator of our 1996 Plan. The plan administrator has
the authority to select individuals to receive awards under the plan, to specify
the terms and conditions of each award granted and to modify, with optionholder
consent, the terms, conditions and exercise prices of outstanding options. The
1996 Plan does not limit our right to adopt other incentive compensation
arrangements, including, without limitation, the granting of stock options or
other rights otherwise than under the 1996 Plan.
In the event of a merger, consolidation or other reorganization, the board
may provide, without limitation:
- for the continuation of outstanding options by the company, if the
company is a surviving corporation;
- for their assumption by the surviving corporation or its parent or
subsidiary;
- for the substitution by the surviving corporation or its parent or
subsidiary of its own awards for such options;
- for accelerated vesting, accelerated expiration and/or lapse of
restrictions; or
- for settlement in cash or cash equivalents.
If the board does not provide for one of the alternatives above, then all
outstanding options become fully exercisable upon the effectiveness of such
transaction.
1999 Employee Stock Purchase Plan. Our board of directors adopted our
purchase plan in March 1999, which was subsequently approved by our stockholders
to be implemented upon the consummation of this offering. We intend for this
plan to qualify under Section 423 of the Internal Revenue Code. The purchase
plan permits eligible employees of SalesLogix and its subsidiaries to purchase
common stock through payroll deductions of up to 15% of their compensation.
Under this plan, no employee may purchase common stock worth more than $25,000
in any calendar year, valued as of the first day of each offering period. In
addition, owners of 5% or more of SalesLogix' or a subsidiary's common stock may
not participate in the purchase plan.
We authorized the issuance under the purchase plan of a total of 300,000
shares of common stock, plus an automatic annual increase, to be added on the
first day of each fiscal year beginning in 2000, equal to the lesser of:
- 300,000 shares;
- 1% of the adjusted average common shares outstanding used to calculate
fully diluted earnings per share as reported in SalesLogix' annual report
for the preceding year; or
- a lesser amount determined by our board of directors.
Any shares from increases in previous years that are not actually issued shall
be added to the aggregate number of shares available for issuance under the
purchase plan.
We will implement our purchase plan with 24-month offering periods and
six-month purchase periods. The first offering period will commence on the
consummation of this offering and end on June 30, 2001. Subsequent overlapping
offering periods will begin on each January 1 and July 1
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thereafter. The first purchase period will commence on the consummation of this
offering and end on December 31, 1999. Subsequent purchase periods will begin on
each January 1 and July 1 thereafter. The price of the common stock purchased
under the purchase plan will be the lesser of 85% of the fair market value on
the first day of an offering period and 85% of the fair market value on the last
day of a purchase period, except that the purchase price for the first purchase
period will be equal to the lesser of 85% of the initial public offering price
of the common stock and 85% of the fair market value on December 31, 1999. The
purchase plan includes a reset provision pursuant to which a participating
employee is automatically withdrawn from his current 24 month offering period
and reenrolled in the subsequent offering period in the event that our stock
price declines during any six-month purchase period. Our board of directors has
discretion to modify certain provisions of the purchase plan, including the
shortening of offering periods, if it determines that its operation may result
in unfavorable accounting consequences. The purchase plan terminates ten years
after the date of adoption by our board of directors, but the board may
terminate it at any earlier time. We have not yet issued any shares of common
stock under this plan.
In the event of a merger, consolidation or acquisition by another
corporation of all or substantially all of our assets, each outstanding option
to purchase shares under our purchase plan shall be assumed or an equivalent
option substituted by the successor corporation. If the successor corporation
refuses to assume or substitute for the option, the offering period during which
a participant may purchase stock will be shortened to a specified date before
the proposed merger or sale. Similarly, in the event of a proposed liquidation
or dissolution of SalesLogix, the offering period during which a participant may
purchase stock will be shortened to a specified date before the date of the
proposed liquidation or dissolution.
1998 Business Partner Stock Option Plan. Our board of directors and
stockholders adopted our Business Partner option plan in March 1998 and reserved
an aggregate of 150,000 shares of common stock for grants of stock options under
the plan. The Business Partner option plan provides for the grant of
non-qualified options to purchase common stock to consultants and advisors of
SalesLogix or its subsidiaries, including independent marketers and resellers of
SalesLogix' products. As of March 31, 1999, options to purchase 83,003 shares of
common stock were outstanding under this plan, 58,500 at an exercise price of
$0.60 per share and 24,503 at an exercise price of $9.00 per share, 500 options
have been exercised and options to purchase up to 66,497 shares remain available
for grant. Options were granted after the end of calendar years 1997 and 1998 to
Business Partners meeting certain minimum sales levels and other performance
standards established for each year.
Our Business Partner option plan is administered by our board of directors.
Our board of directors has the authority to select individuals who are to
receive options under this plan and to specify the terms and conditions of each
option so granted. Options granted under the Business Partner option plan must
be exercised within 30 days after SalesLogix contractual relationship with the
Business Partner is terminated due to any reason other than for cause and are
not exercisable after termination if such termination is for cause.
In the event of a merger, consolidation or other reorganization, the board
may provide, without limitation, (a) for the continuation of outstanding options
by the company, if the company is a surviving corporation, (b) for their
assumption by the surviving corporation or its parent or subsidiary, (c) for the
substitution by the surviving corporation or its parent or subsidiary of its own
awards for such options, (d) for accelerated vesting, accelerated expiration
and/or lapse of restriction, or (e) for settlement in cash or cash equivalents.
If the board does not provide for one of the alternatives in (a), (b), (c), (d)
or (e) above, then all outstanding options become fully exercisable upon the
effectiveness of such transaction.
1999 Non-Employee Director Stock Option Plan. Our board of directors
adopted our director plan in March 1999, which was subsequently approved by our
stockholders, to be implemented upon consummation of this offering. Immediately
following consummation of this offering, we intend to grant options to purchase
12,500 shares of common stock to each of our non-employee
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directors under the director plan. Following the completion of this offering and
as long as the director plan remains in effect, each non-employee director who
remains a director immediately after each annual meeting of our stockholders
shall receive a non-discretionary option grant to purchase 12,500 shares of our
common stock. All non-employee director options vest in sixteen equal quarterly
installments following the date of grant and have an exercise price equal to the
fair market value of our common stock on the date of grant. Vesting is
automatically waived prior to a change in control of SalesLogix. We reserved for
issuance under the director plan a total of 200,000 shares of common stock, plus
an automatic annual increase, to be added at the conclusion of each annual
meeting of our stockholders following the consummation of this offering, equal
to (a) the aggregate number of shares determined by multiplying the total number
of non-employee directors then in office by 12,500 or (b) a lesser amount
determined by our board of directors. Any shares from increases in previous
years that are not actually issued shall be added to the aggregate number of
shares available for issuance under this plan. The plan does not limit our right
to adopt other incentive compensation arrangements, including, without
limitation, the granting of stock options or other rights otherwise than under
the director plan.
401(k) Plan. We maintain a 401(k) Plan that covers all our employees who
satisfy eligibility requirements relating to minimum age, length of service and
hours worked. We may make an annual contribution for the benefit of eligible
employees in an amount determined by our board of directors. We have not made
any such contribution to date and have no current plans to do so. Eligible
employees may make pretax elective contributions of up to 15% of their eligible
compensation, subject to maximum limits on contributions prescribed by law.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
We generally require each employee to enter into a proprietary rights
agreement prohibiting the employee from disclosing or using any of our
confidential or proprietary information without our permission. In addition, the
agreements generally provide that the employee agrees to assign to SalesLogix
all inventions developed during the course of employment and not to work for a
competitor during his or her employment with SalesLogix. At the time of
commencement of employment, our key employees also generally sign offer letters
specifying certain basic terms and conditions of employment. Most of our
employees are not subject to written employment agreements. However, we have
employment agreements with Messrs. Sullivan and Nicholas that include a
non-compete provision and provide severance benefits and offer letters with
Messrs. Acord, Bethke and Myers that provide for six months' severance on
termination without cause.
Mr. Sullivan's agreement is dated January 17, 1996 and provides that if he
is terminated without cause or resigns for good reason, as defined in the
agreement, Mr. Sullivan is entitled to receive a payment equal to six months'
base salary. The agreement also includes Mr. Sullivan's covenants not to compete
or solicit customers for a period of two years following termination of
employment and his covenant not to solicit employees for a three year period
following such termination.
Mr. Nicholas' agreement, which was entered into in connection with our
acquisition of Opis in December 1997, provides benefits in the event of
termination within the four year period after the date of the agreement. If Mr.
Nicholas is terminated for performance reasons, we must pay him three months'
salary and benefits as severance and if he is terminated without cause, we must
pay him six months salary and benefits. The agreement also includes Mr.
Nicholas's covenants not to compete or solicit customers for a period of one
year following termination of his employment and his covenant not to solicit
employees or contractors for a three year period following such termination.
In connection with our acquisition of Enact, we also entered into
employment agreements with Bruce Chase and Matt Chase, former officers of Enact.
Bruce Chase's agreement provides that if he is terminated without cause, as
defined in the agreement, he is entitled to receive a payment equal to three
months' base salary. The agreement also includes Bruce Chase's covenant not to
compete or solicit customers for a period of one year following termination of
employment and his covenant not to solicit employees for a three year period
following such termination. Matt Chase's agreement provides that if he is
terminated without cause, as defined in the agreement, he is entitled to
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receive a payment equal to three months' base salary. The agreement also
includes Matt Chase's covenant not to compete for a period of three months
following termination of employment, his covenant not to solicit customers for a
period of one year following termination of employment and his covenant not to
solicit employees for a three year period following such termination.
Our option award agreements provide for the waiver of vesting periods upon
a change in control of SalesLogix.
LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Our certificate of incorporation includes a provision that limits the
liability of directors to the fullest extent permitted by the Delaware general
corporate law as it currently exists or as it may be amended in the future.
Consequently, subject to the Delaware general corporate law, no director shall
be personally liable to SalesLogix or its stockholders for monetary damages
resulting from his or her conduct as a director of SalesLogix, except liability
for:
- breach of the director's duty of loyalty to SalesLogix or its
stockholders;
- acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;
- unlawful distributions; or
- transactions from which the director derived any improper personal
benefit.
Our certificate of incorporation provides that we will indemnify directors,
officers and their legal representatives to the fullest extent permitted by the
Delaware general corporate law. The Delaware general corporate law contains an
extensive indemnification provision which permits a corporation to 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, 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 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. In suits by or in the
right of a corporation, only expenses and not judgments, fines and amounts paid
in settlement may be indemnified against. In addition, if the director or
officer has been adjudged to be liable to the corporation in such a suit,
indemnification of expenses must be approved by a court. To the extent that a
director or officer is ultimately successful in defending against the foregoing
actions, the Delaware general corporate law provides that such persons shall be
indemnified against expenses. To the extent the provisions of our certificate of
incorporation provide for indemnification of directors for liabilities arising
under the Securities Act of 1933, those provisions are, in the opinion of the
Commission, against public policy as expressed in the Securities Act and they
are therefore unenforceable.
We maintain a liability insurance policy, pursuant to which our directors
and officers are indemnified against liability they may incur for serving in
their capacities as directors and officers of SalesLogix.
We believe that the limitation of liability and indemnification provisions
under the Delaware general corporate law and the liability insurance policy
facilitate our ability to continue to attract and retain qualified individuals
to serve as directors and officers of SalesLogix.
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CERTAIN TRANSACTIONS
Patrick M. Sullivan may be considered the "promoter" of SalesLogix within
the meaning of the rules and regulations promulgated under the Securities Act of
1933, as amended. In September 1995, we sold and issued 1,667 shares of common
stock to Mr. Sullivan for an aggregate purchase price of $3,000. In January
1996, Mr. Sullivan's shares were split into 2,280,000 shares of Class A common
stock. Also in January 1996, we acquired intellectual property rights through a
statutory merger with Kennedy Systems, Inc., an Illinois corporation. In
connection with this transaction, we issued 1,813,333 shares of Class B Common
Stock and 700,000 shares of Series B preferred stock to W. Daniel Kennedy and
trusts controlled by Mr. Kennedy or his family, the stockholders of Kennedy
Systems.
In connection with our merger with Kennedy Systems, Messrs. Sullivan and
Kennedy, and trusts controlled by Mr. Kennedy or his family, agreed to deposit
all of their shares into a voting trust, pursuant to a voting trust agreement
designating Mr. Sullivan as Trustee with the power to vote the shares under
specified conditions. The voting trust agreement was agreed to by SalesLogix and
the investors participating in our venture offering of Series A preferred stock
in January 1996. The parties to the voting trust agreement also entered into two
other agreements, a Stockholders' Agreement that provided SalesLogix and the
investors with repurchase rights and rights of first refusal and co-sale with
respect to shares controlled by Messrs. Sullivan and Kennedy and a Voting
Agreement, which generally required Mr. Kennedy and Mr. Sullivan to vote shares
each controlled in accordance with the majority of SalesLogix voting stock not
including his shares. Investors in subsequent venture financing transactions
were granted rights under the Stockholders' Agreement on par with the Series A
preferred stock investors by executing a Series A, C & E Sharing Agreement.
Those investors also entered into a Series A, C & E Voting Agreement, pursuant
to which the investors were given approval rights over the two at-large
directorships elected pursuant to the Voting Agreement and certificate of
incorporation and agreed, with specified class exceptions, to vote their shares
in a manner consistent with the majority of shares held by all venture
investors. Each of the voting trust agreement, Stockholders' Agreement, Voting
Agreement, Series A, C & E Sharing Agreement and Series A, C & E Voting
Agreement will terminate upon the consummation of this offering.
In March 1996, Messrs. Sullivan and Kennedy each contributed 90,000 shares
of common stock back to SalesLogix in order to make additional shares available
under our 1996 Equity Incentive Plan. In July 1998, pursuant to the termination
of Mr. Kennedy's employment with SalesLogix and subsequent release of all claims
among SalesLogix and Messrs. Sullivan and Kennedy, and trusts controlled by Mr.
Kennedy or his family, we repurchased from Mr. Kennedy and those trusts all but
72,827 shares of Class B common stock and 666,760 shares of Series B preferred
stock held by them.
In May 1996, we purchased sales forecasting software from R. Kevin Carson,
Laura P. Carson and Sales Automation, Inc., an entity controlled by Mr. and Mrs.
Carson, in exchange for 33,333 shares of our Class A common stock. These shares
were sold by the Carsons in the December 1998 transaction described below.
In December 1997, in connection with our acquisition of Opis Corporation,
we issued to the former stockholders of Opis an aggregate of 1,228,654 shares of
Series D preferred stock at a purchase price of $3.21 per share and options to
purchase an aggregate of 96,836 shares of Series D preferred stock at an
exercise price of $.8515 per share. Doug Nicholas, our Vice President of
Business Development, received 528,463 shares of Series D preferred stock in the
transaction. In connection with this acquisition, we entered into the Opis
Investors' Rights Agreement that provides the former Opis stockholders with
piggyback registration rights equivalent to the piggyback registration rights
held by the holders of Series A, and Series C Preferred Stock.
In December 1998, Sierra Ventures VI, L.P., SV Associates, L.P. and Canaan
Equity, L.P., Deepak Kamra, Eric Young and Gregory Kopchinski purchased an
aggregate of 474,667 shares of Class A common stock, 208,000 shares of Series B
preferred stock and 63,463 shares of Series D
55
<PAGE> 61
preferred stock from various stockholders at a purchase price of $4.50 per
share, on an as converted basis. These entities purchased 253,333 shares of
Class A common stock from Patrick M. Sullivan and 208,000 shares of Series B
preferred stock from W. Daniel Kennedy and various trusts controlled by Mr.
Kennedy or his family. We facilitated these transactions by agreeing to release
the transferred shares from various restrictions on transfer. As part of this
transaction, Sierra Ventures VI, L.P. and SV Associates VI, L.P. were granted
options to purchase 53,333 shares, 40,000 shares and 33,333 shares of Class A
Common Stock from Messrs. Padiyar, Head and Carson, executive officers of
SalesLogix, respectively. The option to purchase 53,333 shares from Mr. Padiyar
was exercised on March 9, 1999. The remaining options were exercised on April
16, 1999.
In January and October 1996, we sold 4,500,000 shares and 85,000 shares,
respectively, of our Series A preferred stock at a price of $1.00 per share. In
March 1997, we sold 4,031,057 shares of our Series C preferred stock at a price
of $1.61 per share. In June and December 1998, we sold 3,940,887 shares and
615,764 shares, respectively of our Series E preferred stock at a price of $4.06
per share. Upon the consummation of this offering, all outstanding shares of
preferred stock will automatically convert into shares of common stock on a
two-for-three basis. The following directors, executive officers and holders of
more than 5% of a class of voting securities have purchased shares of Series A
preferred stock, Series C preferred stock and Series E preferred stock:
<TABLE>
<CAPTION>
SERIES A SERIES C SERIES E
--------- --------- ---------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Anthony Morris.......................................... 25,000 15,528 6,431
Deepak Kamra............................................ 25,000 6,211 5,020
FIVE PERCENT STOCKHOLDERS
Innocal, L.P............................................ 2,000,000 621,118 110,837
Canaan Partners affiliated persons...................... 1,500,000 621,118 646,917
Newtek Ventures II, L.P................................. 1,000,000 186,335 73,892
Sigma Partners III, L.P. and affiliated persons......... -- 1,086,957 295,567
Brinson Partners, Inc. affiliated persons............... -- 1,381,988 110,837
Sierra Ventures VI, L.P. and affiliated persons......... -- -- 2,535,068
</TABLE>
See the notes to the table of beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.
In connection with the foregoing venture financing transactions, we entered
into an investors' rights agreement with the investors. The Amended and Restated
Investors' Rights Agreement dated June 4, 1998 grants to such investors certain
registration rights discussed below in "Description of Capital Stock," rights to
receive certain financial information and rights to purchase a pro rata share of
new issuances of capital stock. The rights to purchase a pro rata share of new
issuances will terminate upon consummation of this offering. Under the Amended
and Restated Investors' Rights Agreement, Sierra Ventures VI, L.P. and The
Goldman Sachs Group, L.P. and two of its affiliates were granted board
observation rights. Pursuant to management rights agreements, Brinson, Sigma and
Sierra were granted additional board observation rights and rights to consult
with management and examine our books and records. These management rights
agreements will terminate upon consummation of this offering. Prior to
consummation of this offering, we will enter into a new management rights
agreement with Newtek Ventures II, L.P. and Brinson Partners, Inc. to provide
these investors with the same board observation rights granted to Sierra and
Goldman Sachs under the Amended and Restated Investors' Rights Agreement.
Concurrent with this public offering, The Goldman Sachs Group, L.P. and its
affiliates, all of which are existing stockholders, have agreed to purchase an
aggregate of $3.5 million of our common stock in a private placement at a price
per share equal to the initial public offering price, less 3.5%. The sale of
such shares to Goldman Sachs will not be registered in this offering.
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<PAGE> 62
In April 1999, we issued 407,531 shares of common stock to the former
stockholders of Enact Incorporated in connection with our acquisition of Enact.
In connection with this acquisition, we entered into employment agreements with
Bruce Chase and Matt Chase, former executive officers of Enact. In addition, we
issued 201,893 restricted shares to Bruce Chase, which restricted shares vest in
equal monthly installments over a thirty-six month period based upon the
continued employment of Bruce Chase. One-half of Bruce Chase's restricted shares
that would otherwise vest during the initial twelve month period are subject to
forfeiture based upon the continued employment of Matt Chase during such twelve
month period. In connection with this acquisition, we also entered into an
investors' rights agreement that provides the former Enact stockholders with
piggyback registration rights substantially equivalent to the piggyback
registration rights held by the holders of the Series A, Series C, and Series E
Preferred Stock. In addition, we entered into a consulting agreement with
Griffin Burgh, pursuant to which Mr. Burgh agreed to provide us with consulting
and advisory services over a three year period in exchange for an up front
payment of $100,000. Ten percent of the merger consideration, the 201,893 shares
of common stock issued to Bruce Chase and the $100,000 consulting fee paid to
Griffin Burgh has been escrowed in our favor for a period of 9 months after the
closing for the purposes of covering any necessary adjustments to the purchase
price.
In exchange for consulting and advisory services, SalesLogix pays $2,000
per month to Morris Ventures, an investor in SalesLogix of which Anthony Morris,
one of our directors, is a principal.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table summarizes information regarding the beneficial
ownership of our outstanding common stock as of March 31, 1999 by:
- each person or group that we know owns more than 5% of the common stock;
- each of our directors;
- each of the Named Executive Officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the following officers, directors and stockholders
can be reached at the principal offices of the Company. Unless otherwise
indicated, the number of shares beneficially owned assumes the conversion of all
outstanding shares of preferred stock at the closing of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
BENEFICIALLY OWNED(1)
NUMBER OF SHARES ----------------------
BENEFICIALLY OWNED BEFORE THE AFTER THE
PRIOR TO OFFERING OFFERING OFFERING
------------------ ---------- ---------
<S> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS
Sierra Ventures VI, L.P.(2)................... 2,407,385 17.6% 13.4%
Canaan Partners affiliated persons(3)......... 1,937,898 14.3% 10.8%
Innocal, L.P.(4).............................. 1,821,305 13.4% 10.2%
Brinson Partners, Inc. affiliated
persons(5)................................. 995,218 7.3% 5.6%
Sigma Partners III, L.P.(6)................... 921,684 6.8% 5.2%
Newtek Ventures II, L.P.(7)................... 840,153 6.2% 4.7%
DIRECTORS AND EXECUTIVE OFFICERS
Deepak Kamra(8)............................... 1,937,898 14.3% 10.8%
Patrick M. Sullivan(9)........................ 1,936,667 14.2% 10.8%
Harry D. Lambert(10).......................... 1,821,305 13.4% 10.2%
Craig A. Conway(11)........................... 53,500 * *
Doug J. Nicholas(12).......................... 365,350 2.7% 2.0%
Sunil Padiyar(13)............................. 182,292 1.3% 1.0%
R. Kevin Carson(14)........................... 221,249 1.6% 1.2%
Anthony P. Morris(15)......................... 65,055 * *
Gary R. Acord(16)............................. 46,250 * *
All directors and executive officers as a
group (12 persons)(17)..................... 6,625,150 48.3% 36.8%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Applicable percentage ownership is based on 13,594,564 shares of common
stock outstanding as of March 31, 1999 and 17,891,682 shares outstanding
immediately following the completion of this offering. Beneficial ownership
is determined in accordance with rules of the Commission and includes
shares over which the indicated beneficial owner exercises voting and/or
investment power. Shares of common stock subject to options currently
exercisable or exercisable within 60 days are deemed outstanding for
computing the percentage ownership of the person holding the options but
are not deemed outstanding for computing the percentage ownership of any
other person. Except as otherwise indicated, we believe the beneficial
owners of the common stock listed below, based on information furnished by
them, have sole voting and investment power with respect to the number of
shares listed opposite their names.
(2) Includes shares held by affiliates: SV Associates VI, L.P. (175,856
shares); G&H Partners (8,210 shares); and Robert Simon (1,642 shares). Also
includes 67,775 shares subject to an option exercisable within 60 days of
March 31, 1999 and 5,558 shares subject to an option exercisable within 60
days of March 31, 1999 held by SV Associates VI, L.P. The address of Sierra
Ventures VI, L.P. is 3000 Sand Hill Road; Building 4, Suite 210; Menlo
Park, CA 94025.
(3) Includes shares held by the following affiliated persons: Canaan Ventures
II Offshore Limited Partnership (865,416 shares); Canaan Ventures II
Limited Partnership (548,663 shares); Canaan Equity, L.P. (486,504 shares);
Deepak Kamra, a SalesLogix director and principal of Canaan (27,405
shares); Eric Young (4,955 shares); and Gregory
58
<PAGE> 64
Kopchinski (4,955 shares). The address of Canaan Ventures Offshore Limited
Partnership, C.V. is 2884 Sand Hill Road, Suite 115; Menlo Park, CA 94025.
(4) Harry Lambert, a SalesLogix director, is a principal of Innocal. The
address of Innocal, L.P. is 600 Anton Blvd., Suite 1270; Costa Mesa, CA
92626.
(5) Includes shares held by Brinson Partners, Inc. entities, including the
Brinson Venture Capital LP Fund III, (855,668 shares) and the Brinson Trust
Company as Trustee of the Brinson MAP Venture Capital Fund III (139,550
shares). The address of Brinson Partners, Inc. is 209 S. LaSalle Street,
Chicago, IL 60604.
(6) Includes shares held by affiliates: Sigma Associates III, L.P. (178,898
shares); and Sigma Investors III, L.P. (19,909 shares). The address of
Sigma Partners III, L.P. is 2884 Sand Hill Rd., Suite 121; Menlo Park, CA
94025.
(7) The address of Newtek Ventures II, L.P. is 500 Washington Street, Suite
720; San Francisco, CA 94111.
(8) Includes 1,910,488 shares held by Canaan and its affiliates. See Footnote
3. Mr. Kamra disclaims beneficial ownership of shares held by Canaan and
its affiliates.
(9) Includes 426,067 shares held by The Sullifam Limited Partnership, 319,550
shares held by The Cyndee K. Sullivan Fifteen Year Grantor Retained Annuity
Trust, dated December 18, 1998, 319,550 shares held by The CyndeewK.
Sullivan Ten Year Grantor Retained Annuity Trust, 319,550 shares held by
The Patrick M. Sullivan Fifteen Year Grantor Retained Annuity Trust, dated
December 18, 1998, 319,550 shares held by the Patrick M. Sullivan Ten Year
Grantor Retained Annuity Trust, dated December 18, 1998 and 232,400 shares
held by The PCS Trust, dated September 10, 1998, trusts for the benefit of
Mr. Sullivan's children, for which Mr. Sullivan has sole voting power, all
of which shares are held in the name of the Trustee of The Quest Sales
Software, Inc. Voting Trust, for which Patrick Sullivan is Voting Trustee.
The Voting Trust will terminate upon the closing of this offering.
(10) Represents 1,821,305 shares held by Innocal. See Footnote 6. Mr. Lambert
disclaims beneficial ownership of such shares.
(11) Includes 53,500 shares subject to an option exercisable within 60 days of
March 31, 1999
(12) Includes 28,185 shares held by Mr. Nicholas' spouse Susan Nicholas. Also
includes 20,832 shares subject to options exercisable within 60 days of
March 31, 1999.
(13) Includes 18,125 shares subject to an option exercisable within 60 days of
March 31, 1999.
(14) Includes 18,125 shares subject to an option exercisable within 60 days of
March 31, 1999 and 416 shares subject to an option held by Mr. Carson's
spouse Laura Carson exercisable within 60 days of March 31, 1999.
(15) Includes 5,626 shares subject to an option exercisable within 60 days of
March 31, 1999 and 27,019 shares held by Morris Ventures, an investor in
which Mr. Morris is a principal. Mr. Morris disclaims beneficial ownership
of shares held by Morris Ventures.
(16) Includes 7,708 shares subject to an option exercisable within 60 days of
March 31, 1999.
(17) Includes 70,832 shares subject to an option exercisable within 60 days of
March 31, 1999.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, the authorized capital stock of
SalesLogix, after giving effect to the conversion of all outstanding preferred
stock and Class B common stock, will consist of 50,000,000 shares of common
stock, $0.001 par value per share and 20,000,000 shares of preferred stock,
$0.001 par value per share. As of March 31, 1999, there were approximately 101
stockholders of record. The following summary of the common stock and preferred
stock is not complete and may not contain all the information you should
consider before investing in the common stock. You should read carefully our
Restated Certificate, which is included as an exhibit to the Registration
Statement, of which this prospectus is a part.
COMMON STOCK
Following this offering and the concurrent $3.5 million private placement
with The Goldman Sachs Group, L.P. and its affiliates, there will be 17,891,682
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. The holders of
common stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences of any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably any dividends
our board of directors declares out of funds legally available for the payment
of dividends. If SalesLogix is liquidated, dissolved or wound up, the holders of
common stock are entitled to share pro rata all assets remaining after payment
of liabilities and liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights or rights to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable and the shares of common stock
to be issued following this offering will be fully paid and nonassessable.
PREFERRED STOCK
Following the closing of this offering, our board of directors will have
the authority, without further action by the stockholders, to issue up to
20,000,000 shares of preferred stock in one or more series. The board also has
the right to fix the designations, powers, preferences, privileges and relative,
participating, optional or special rights and the qualifications, limitations or
restrictions of any preferred stock issues, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. Our board of directors, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms that could delay or prevent a change in
control of SalesLogix or make removal of management more difficult.
Additionally, the issuance of preferred stock may decrease the market price of
the common stock and may adversely affect the voting and other rights of the
holders of common stock. We have no current plans to issue any preferred stock.
REGISTRATION RIGHTS
Following this offering and the concurrent $3.5 million private placement
with Goldman Sachs, the holders of 9,647,302 shares of common stock will be
entitled to demand registration rights under an Amended and Restated Investors'
Rights Agreement, pursuant to which they may require us to file a registration
statement under the Securities Act at our expense with respect to their shares
of common stock. Further, those holders may require us to file additional
registration statements on Form S-3 at our expense. In addition, if we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, those holders, plus the holders of an additional 1,184,325 shares of
common stock and the holders of warrants to purchase 71,225 shares of common
stock, are entitled
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<PAGE> 66
to notice of the registration and to include shares of common stock in the
registration at our expense. All of these registration rights are subject to
specified conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in such registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF RESTATED CERTIFICATE AND RESTATED BYLAWS
As noted above, our board of directors, without stockholder approval, has
the authority under our certificate of incorporation to issue preferred stock
with rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of SalesLogix or make removal of management
more difficult.
Effective with the first annual meeting of stockholders following this
offering, our certificate of incorporation provides for the division of our
board of directors into three classes, as nearly as equal in number as possible,
with the directors in each class serving for a three-year term and one class
being elected each year by our stockholders. Directors may be removed only for
cause. Because this system of electing and removing directors generally makes it
more difficult for stockholders to replace a majority of our board of directors,
it may tend to discourage a third party from making a tender offer, commencing a
proxy contest or otherwise attempting to gain control of SalesLogix and may help
maintain the incumbency of our board of directors.
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
Our certificate of incorporation also requires that, effective upon the
closing of this offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of our stockholders may be called only by our board of
directors, the chairman of the board or the chief executive officer or holders
of at least 25% of the voting power of the outstanding shares. These provisions
may have the effect of delaying, deferring or preventing a change in control of
SalesLogix.
In addition, our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a committee thereof.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder and an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's voting stock.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services, L.L.C., 400 South Hope Street, 4th Floor, Los Angeles, CA
90071.
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<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
After the offering, 17,891,682 shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the 3,325,000 shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.
The following table indicates approximately when the 14,566,682 shares of
our common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES
FOR SALE IN THE PUBLIC MARKET
<S> <C>
At effective date...................................... 0
180 days after the effective date...................... 12,546,707
Thereafter upon expiration of one year holding
periods.............................................. 2,019,975
</TABLE>
Most of the restricted shares that will become available for sale in the
public market starting 180 days after the effective date will be subject to
volume and other resale restrictions under Rule 144 because the holders are our
affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 178,916 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days before a sale and who has beneficially
owned the restricted shares for at least two years, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on
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<PAGE> 68
Rule 144, but without complying with certain restrictions, including the holding
period, contained in Rule 144.
LOCK-UP AGREEMENTS
Except for holders of 6,496 shares of our common stock, all of our
executive officers, directors, stockholders and optionees who will hold an
aggregate of 14,560,186 shares of our common stock after this offering are
subject to lock-up agreements under which they have agreed not to transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of SalesLogix and
Hambrecht & Quist.
STOCK OPTIONS
Immediately after this offering we intend to file a registration statement
under the Securities Act covering 5,150,000 shares of common stock reserved for
issuance under our stock option plans. Each year as the number of shares
reserved for issuance under our 1996 Equity Incentive Plan and 1999 Employee
Stock Purchase Plan increases, we will file an amendment to the registration
statement covering the additional shares. As of March 31, 1999, options to
purchase 1,576,873 shares of common stock were issued and outstanding. When the
lock-up agreements described above expire, 186,761 shares of common stock will
be subject to vested options, based on options outstanding as of March 31, 1999.
This registration statement is expected to be filed and become effective as soon
as practicable after the effective date of this offering. Accordingly, shares
registered under that registration statement will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the 180 day lock-up agreements expire.
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<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray and Charles
Schwab & Co., Inc., have severally agreed to purchase from us the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
BancBoston Robertson Stephens Inc. .........................
U.S. Bancorp Piper Jaffray..................................
Charles Schwab & Co., Inc...................................
---------
Total.................................................. 3,325,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us, our counsel and the independent auditors. The
nature of the underwriters' obligation is such that they are committed to
purchase all shares of common stock offered hereby if any shares are purchased.
The following tables show the per share and total underwriting discounts
and commissions we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY US
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per Share......................... $ $
Total............................. $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $750,000.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to dealers at such price less a concession not in excess of
$ per share. The underwriters may allow and the dealers may reallow a
concession not in excess of $ per share to other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters. The representatives have informed us
that the underwriters do not intend to confirm discretionary sales of more than
5% of the shares of common stock offered in this offering.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 498,750 additional
shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated, pursuant to the option, to sell shares to the underwriters
to the extent the option is exercised. The underwriters may exercise this option
only
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<PAGE> 70
to cover over-allotments made in connection with the sale of shares of common
stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act and to contribute to payments the
underwriters may be required to make in respect thereof.
At our request, the underwriters have reserved shares of the common stock
offered hereby for sale at the initial public offering price to Business
Partners, directors, officers and employees of SalesLogix and certain other
persons. These Business Partners, directors, officers, employees and other
persons will have the opportunity to purchase, in the aggregate, less than 10%
of the common stock offered in this offering, of which approximately 5% are
expected to be reserved for purchase by Business Partners. The number of shares
available to the general public will be reduced to the extent that these parties
purchase such reserved shares. Any reserved shares not purchased by these
parties will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus. Business Partners who
purchase reserved shares will be required to execute a lock-up agreement with
the representatives of the underwriters in which they will agree that, without
the prior written consent of the representatives of the underwriters, they will
not sell or otherwise dispose of any shares of common stock during the 180-day
period following the date of this prospectus.
Our stockholders, including executive officers and directors and optionees
who will own in the aggregate 14,560,186 shares of common stock after the
offering, have agreed not to, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock owned by them during the 180-day
period following the date of this prospectus. We have agreed that we will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock during the 180-day period following the date of this prospectus,
except that we may issue shares upon the exercise of options granted prior to
the date hereof and may grant additional options under our stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, the
additional options shall not be exercisable during that period.
In connection with the concurrent $3.5 million private placement of shares
of common stock to The Goldman Sachs Group, L.P. and certain of its affiliates,
SalesLogix will pay to Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc.
and U.S. Bancorp Piper Jaffray a placement fee equal to 3.5% of the gross
proceeds of the Goldman Sachs private placement.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, our revenues and earnings, market
valuations of other companies engaged in activities similar to ours, estimates
of our business potential and our prospects, the present state of our business
operations, our management and other factors deemed relevant.
Persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any
65
<PAGE> 71
bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. This
stabilizing, if commenced, may be discontinued at any time.
We intend to enter into an agreement with Hambrecht & Quist LLC, pursuant
to which Hambrecht & Quist LLC will provide investment banking services from
time to time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Osborn Maledon, P.A., Phoenix, Arizona. Certain legal matters
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of SalesLogix Corporation as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998, as set forth in their report. We have included our financial statements
and schedule in this prospectus and elsewhere in the Registration Statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Opis Corporation as of October 31, 1997 and for the year then
ended and for the period from November 1, 1997 through December 30, 1997, as set
forth in their report. We have included these financial statements in this
prospectus and elsewhere in the Registration Statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Enact Incorporated as of December 31, 1997 and 1998 and for each
of the years then ended as set forth in their report. We have included these
financial statements in this prospectus and elsewhere in the Registration
Statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in this
prospectus to any contract or other document of SalesLogix, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement, including exhibits and schedule
filed therewith, at the Securities and Exchange Commission's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Securities and Exchange Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of such materials from the Public Reference Section
of the Securities and Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities and
Exchange Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as SalesLogix, that file electronically with the Securities
and Exchange Commission.
66
<PAGE> 72
SALESLOGIX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF SALESLOGIX CORPORATION
AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 and March 31, 1999 (unaudited).................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998, and the Three Months
Ended March 31, 1998 and 1999 (unaudited).............. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998, and the
Three Months Ended March 31, 1999 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998, and the Three Months
Ended March 31, 1998 and 1999 (unaudited).............. F-7
Notes to Consolidated Financial Statements................ F-8
FINANCIAL STATEMENTS OF OPIS CORPORATION
Report of Ernst & Young LLP, Independent Auditors......... F-23
Balance Sheet as of October 31, 1997...................... F-24
Statements of Operations for the fiscal year ended October
31, 1997 and the period from November 1, 1997 through
December 30, 1997...................................... F-25
Statement of Stockholders' Deficit for the fiscal year
ended October 31, 1997................................. F-26
Statements of Cash Flows for the fiscal year ended October
31, 1997 and the period from November 1, 1997 through
December 30, 1997...................................... F-27
Notes to Financial Statements............................. F-28
FINANCIAL STATEMENTS OF ENACT INCORPORATED
Report of Ernst & Young LLP, Independent Auditors......... F-32
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................... F-33
Statements of Operations for the years ended December 31,
1997 and 1998, and the Three Months Ended March 31,
1998 and 1999 (unaudited).............................. F-34
Statements of Redeemable Convertible Common Stock and
Warrants and Stockholders' Deficit for the years ended
December 31, 1997 and 1998 and for the Three Months
Ended March 31, 1999
(unaudited)............................................ F-35
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the Three Months Ended March 31,
1998 and 1999 (unaudited).............................. F-36
Notes to Financial Statements............................. F-37
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Balance
Sheet.................................................. F-44
Unaudited Pro Forma Condensed Consolidated Statement of
Operations............................................. F-45
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-47
</TABLE>
F-1
<PAGE> 73
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SalesLogix Corporation
We have audited the accompanying consolidated balance sheets of SalesLogix
Corporation and subsidiaries as of December 31, 1997 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SalesLogix
Corporation and subsidiaries at December 31, 1997 and 1998 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
January 29, 1999, except for Notes 2 and 8 as
to which the date is April 30, 1999
F-2
<PAGE> 74
SALESLOGIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
-------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,189,473 $ 11,377,236 $ 9,354,021
Accounts receivable, net of allowance for
doubtful accounts of $180,812, $455,396 and
$639,866 (unaudited) at December 31, 1997,
1998 and at March 31, 1999, respectively...... 2,153,505 4,569,719 6,107,496
Prepaid expenses and other current assets....... 572,696 922,380 1,705,986
----------- ------------ ------------
Total current assets..................... 5,915,674 16,869,335 17,167,503
Property and equipment, net....................... 1,126,731 2,544,086 2,811,732
Other assets...................................... 5,905,926 4,560,737 4,281,691
----------- ------------ ------------
$12,948,331 $ 23,974,158 $ 24,260,926
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,044,523 $ 1,244,227 $ 1,780,952
Accrued expenses................................ 1,307,866 1,773,939 1,919,286
Current portion of notes payable to bank........ 691,304 691,304 691,304
Current portion of capital lease obligations.... 360,727 558,082 538,484
Deferred revenues............................... 861,142 1,759,056 2,501,966
----------- ------------ ------------
Total current liabilities................ 4,265,562 6,026,608 7,431,992
Notes payable to bank, less current portion....... 1,108,696 782,609 684,782
Capital lease obligations, less current portion... 499,215 458,463 358,947
Deferred rental obligation........................ -- 106,390 106,239
Stockholders' equity:
Series A Convertible Preferred Stock............ 4,585,000 4,585,000 4,585,000 $ --
Series B Convertible Preferred Stock............ 70,000 66,676 66,676 --
Series C Convertible Preferred Stock............ 6,447,860 6,447,860 6,447,860 --
Series D Convertible Preferred Stock............ 3,943,980 3,943,980 3,943,980 --
Series E Convertible Preferred Stock............ -- 18,438,699 18,438,699 --
Class A Common Stock, par value $0.001 per
share; 17,900,000 shares authorized, 2,239,395
shares issued and outstanding at December 31,
1997; 3,228,325 shares issued and 3,226,658
shares outstanding at December 31, 1998;
3,477,968 shares issued and 3,476,301 shares
outstanding at March 31, 1999 (unaudited);
50,000,000 shares authorized, 13,596,231
shares issued, 13,594,564 shares outstanding
pro forma (unaudited)......................... 2,239 3,228 3,478 13,596
Class B Common Stock, par value $0.001 per
share; 2,280,000 shares authorized, 1,723,333
shares issued and outstanding at December 31,
1997; 72,827 shares issued and outstanding at
December 31, 1998 and March 31, 1999
(unaudited); no shares issued or outstanding
pro forma (unaudited)......................... 1,723 73 73 --
Additional paid-in capital...................... 512,912 1,738,343 1,780,914 35,253,084
Accumulated deficit............................. (8,488,856) (17,329,794) (18,376,368) (18,376,368)
Less unearned compensation...................... -- (1,292,777) (1,210,146) (1,210,146)
Less shares of common stock held in treasury;
1,667 shares at cost.......................... -- (1,200) (1,200) (1,200)
----------- ------------ ------------ ------------
Total stockholders' equity........................ 7,074,858 16,600,088 15,678,966 $ 15,678,966
----------- ------------ ------------ ============
Total liabilities and stockholders' equity........ $12,948,331 $ 23,974,158 $ 24,260,926
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
SALESLOGIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses............. $ -- $ 3,504,419 $ 10,105,401 $ 2,088,162 $ 4,224,971
Services............. -- 1,274,391 5,537,210 1,073,949 2,076,787
----------- ----------- ------------ ----------- -----------
Total revenues.... -- 4,778,810 15,642,611 3,162,111 6,301,758
Costs of revenues:
Licenses............. -- 117,808 604,039 90,519 332,311
Services............. -- 1,733,018 4,299,004 886,343 1,350,528
----------- ----------- ------------ ----------- -----------
Total costs of
revenues........ -- 1,850,826 4,903,043 976,862 1,682,839
----------- ----------- ------------ ----------- -----------
Gross profit........... -- 2,927,984 10,739,568 2,185,249 4,618,919
Operating expenses:
Sales and
marketing......... 1,009,143 4,952,983 10,029,741 1,763,324 3,561,070
Research and
development....... 1,290,512 1,865,000 3,845,179 670,584 1,285,747
General and
administrative.... 901,775 1,056,420 2,150,928 386,614 587,253
Amortization of
acquisition
related intangible
assets............ 342,000 360,000 1,436,185 359,046 279,046
----------- ----------- ------------ ----------- -----------
Total operating
expenses........ 3,543,430 8,234,403 17,462,033 3,179,568 5,713,116
----------- ----------- ------------ ----------- -----------
Loss from operations... (3,543,430) (5,306,419) (6,722,465) (994,319) (1,094,197)
Other income (expense):
Interest income...... 151,882 189,343 362,507 22,076 107,084
Interest expense..... (11,451) (86,452) (254,897) (66,071) (59,495)
Other income, net.... 54,125 63,546 23,017 2,300 34
----------- ----------- ------------ ----------- -----------
Loss before provision
for income taxes..... (3,348,874) (5,139,982) (6,591,838) (1,036,014) (1,046,574)
Provision for income
taxes................ -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss............... $(3,348,874) $(5,139,982) $ (6,591,838) $(1,036,014) $(1,046,574)
=========== =========== ============ =========== ===========
Historic basic and
diluted net loss per
share................ $ (0.87) $ (1.30) $ (1.75) $ (0.25) $ (0.30)
=========== =========== ============ =========== ===========
Pro forma basic and
diluted net loss per
share................ $ (0.54) $ (0.08)
============ ===========
Weighted average shares
used in calculating
historic basic and
diluted net loss per
share................ 3,871,507 3,950,913 3,770,703 4,095,945 3,442,778
=========== =========== ============ =========== ===========
Weighted average shares
used in calculating
pro forma basic and
diluted net loss per
share................ 12,310,517 13,488,214
============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
SALESLOGIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE SERIES D CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- --------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996..... -- $ -- -- $ -- -- $ -- -- $ --
Series B Preferred and Class
B Common Stock issued to
acquire intellectual
property................... -- -- 700,000 70,000 -- -- -- --
Cash proceeds from issuance
of Series A Preferred
Stock...................... 4,585,000 4,585,000 -- -- -- -- -- --
Class A Common Stock issued
for purchase of intangible
asset...................... -- -- -- -- -- -- -- --
Contribution of shares to
incentive stock option
plan....................... -- -- -- -- -- -- -- --
Equity based expenses........ -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
--------- ---------- ------- ------- --------- ---------- --------- ----------
Balance at December 31, 1996... 4,585,000 4,585,000 700,000 70,000 -- -- -- --
Cash proceeds from issuance
of Series C Preferred
Stock...................... -- -- -- -- 4,031,057 6,447,860 -- --
Exercise of Class A Common
Stock options.............. -- -- -- -- -- -- -- --
Series D Preferred Stock and
options issued for purchase
of business................ -- -- -- -- -- -- 1,228,654 3,943,980
Equity based expenses........ -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
--------- ---------- ------- ------- --------- ---------- --------- ----------
Balance at December 31, 1997... 4,585,000 4,585,000 700,000 70,000 4,031,057 6,447,860 1,228,654 3,943,980
Cash proceeds from issuance
of Series E Preferred
Stock...................... -- -- -- -- -- -- -- --
Exercise of Class A Common
Stock options.............. -- -- -- -- -- -- -- --
Purchase of treasury stock... -- -- -- -- -- -- -- --
Purchase of Series B
Preferred and Class B
Common Stock............... -- -- (33,240) (3,324) -- -- -- --
Equity based expenses........ -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
--------- ---------- ------- ------- --------- ---------- --------- ----------
Balance at December 31, 1998... 4,585,000 4,585,000 666,760 66,676 4,031,057 6,447,860 1,228,654 3,943,980
Exercise of Class A Common
Stock options
(unaudited)................ -- -- -- -- -- -- -- --
Equity based expenses
(unaudited)................ -- -- -- -- -- -- -- --
Net loss (unaudited)......... -- -- -- -- -- -- -- --
--------- ---------- ------- ------- --------- ---------- --------- ----------
Balance at March 31, 1999
(unaudited).................. 4,585,000 $4,585,000 666,760 $66,676 4,031,057 $6,447,860 1,228,654 $3,943,980
========= ========== ======= ======= ========= ========== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 77
<TABLE>
<CAPTION>
SERIES E CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------ -------------------- PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
--------- ----------- --------- ------ ---------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- 2,280,000 $2,280 -- $ -- $ (2,280) $ -- $ --
-- -- -- -- 1,813,333 1,813 270,187 -- --
-- -- -- -- -- -- -- -- --
-- -- 33,333 33 -- -- 4,967 -- --
-- -- (90,000) (90) (90,000) (90) 180 -- --
-- -- -- -- -- -- 3,250 -- --
-- -- -- -- -- -- -- (3,348,874) --
--------- ----------- --------- ------ ---------- ------- ---------- ------------ -----------
-- -- 2,223,333 2,223 1,723,333 1,723 276,304 (3,348,874) --
-- -- -- -- -- -- -- -- --
-- -- 16,062 16 -- -- 2,393 -- --
-- -- -- -- -- -- 232,406 -- --
-- -- -- -- -- -- 1,809 -- --
-- -- -- -- -- -- -- (5,139,982) --
--------- ----------- --------- ------ ---------- ------- ---------- ------------ -----------
-- -- 2,239,395 2,239 1,723,333 1,723 512,912 (8,488,856) --
4,556,651.. 18,438,699 -- -- -- -- -- -- --
-- -- 988,930 989 -- -- 149,941 -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- (1,650,506) (1,650) (245,926) (2,249,100) --
-- -- -- -- -- -- 1,321,416 -- (1,292,777)
-- -- -- -- -- -- -- (6,591,838) --
--------- ----------- --------- ------ ---------- ------- ---------- ------------ -----------
4,556,651.. 18,438,699 3,228,325 3,228 72,827 73 1,738,343 (17,329,794) (1,292,777)
-- -- 249,643 250 -- -- 44,551 -- --
-- -- -- -- -- -- (1,980) -- 82,631
-- -- -- -- -- -- -- (1,046,574) --
--------- ----------- --------- ------ ---------- ------- ---------- ------------ -----------
4,556,651 $18,438,699 3,477,968 $3,478 72,827 $ 73 $1,780,914 $(18,376,368) $(1,210,146)
========= =========== ========= ====== ========== ======= ========== ============ ===========
<CAPTION>
TREASURY
----------------
SHARES AMOUNT TOTAL
------ ------- -----------
<S> <C> <C> <C>
-- $ -- $ --
-- -- 342,000
-- -- 4,585,000
-- -- 5,000
-- -- --
-- -- 3,250
-- -- (3,348,874)
----- ------- -----------
-- -- 1,586,376
-- -- 6,447,860
-- -- 2,409
-- -- 4,176,386
-- -- 1,809
-- -- (5,139,982)
----- ------- -----------
-- -- 7,074,858
-- -- 18,438,699
-- -- 150,930
1,667 (1,200) (1,200)
-- -- (2,500,000)
-- -- 28,639
-- -- (6,591,838)
----- ------- -----------
1,667 (1,200) 16,600,088
-- -- 44,801
-- -- 80,651
-- -- (1,046,574)
----- ------- -----------
1,667 $(1,200) $15,678,966
===== ======= ===========
</TABLE>
F-6
<PAGE> 78
SALESLOGIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(3,348,874) $(5,139,982) $(6,591,838) $(1,036,014) $(1,046,574)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, including amortization of
leased assets......................... 31,945 253,920 786,529 109,666 342,567
Amortization of acquisition related
intangible assets..................... 342,000 360,000 1,436,185 351,766 279,046
Provision for losses on accounts
receivable............................ -- 180,812 665,862 -- 244,725
Warrant and option issuance expense..... 3,250 1,809 10,657 -- --
Amortization of unearned compensation... -- -- 17,982 -- 80,651
Changes in operating assets and
liabilities, net of effects from
purchase of Opis Corporation:
Accounts receivable................... -- (2,133,177) (3,082,076) (345,793) (1,782,502)
Prepaid expenses and other current
assets.............................. (181,189) (368,914) (349,684) (260,347) (783,606)
Accounts payable...................... 142,343 432,519 199,704 (137,198) 536,725
Accrued expenses...................... 78,101 225,782 466,073 (318,486) 145,347
Deferred revenues..................... -- 570,901 897,914 55,307 742,910
Deferred rental obligation............ -- -- 106,390 -- (151)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities..... (2,932,424) (5,616,330) (5,436,302) (1,581,099) (1,240,862)
INVESTING ACTIVITIES
Purchases of property and equipment....... (35,918) (233,430) (1,596,630) -- (587,787)
Payment for purchase of Opis Corporation,
net of cash acquired.................... -- (559,388) -- -- --
Increase in other assets.................. -- -- (90,996) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (35,918) (792,818) (1,687,626) -- (587,787)
FINANCING ACTIVITIES
Net proceeds (repayments) under bank line
of credit............................... 400,000 (100,000) -- -- --
Proceeds (repayments) from bank term
loan.................................... -- 1,500,000 (326,087) -- (97,827)
Principal payments under capital lease
obligations............................. (41,161) (227,145) (450,651) (96,611) (141,540)
Net proceeds from issuance of preferred
stock................................... 4,585,000 6,447,860 18,438,699 -- --
Purchase of Series B Preferred and Class B
Common Stock............................ -- -- (2,500,000) -- --
Purchase of treasury stock................ -- -- (1,200) -- --
Proceeds from exercise of common stock
options................................. -- 2,409 150,930 38,314 44,801
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 4,943,839 7,623,124 15,311,691 (58,297) (194,566)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 1,975,497 1,213,976 8,187,763 (1,639,396) (2,023,215)
Cash and cash equivalents, beginning of
period.................................. -- 1,975,497 3,189,473 3,189,473 11,377,236
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period.................................. $ 1,975,497 $ 3,189,473 $11,377,236 $ 1,550,077 $ 9,354,021
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Assets acquired under capital lease
obligations............................. $ 430,348 $ 697,900 $ 607,254 $ 224,760 $ 22,443
=========== =========== =========== =========== ===========
Intangible assets acquired with common and
preferred stock and preferred stock
options................................. $ 347,000 $ 4,176,386 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Cash paid for interest.................... $ 11,451 $ 86,452 $ 254,897 $ 66,071 $ 59,495
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 79
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SalesLogix Corporation (Company) is a leading provider of software that
enables mid-market businesses to create interactive selling networks that
automate prospect and customer interactions.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements for the three months ended March 31,
1998 and 1999 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) that the Company considers necessary for a fair
presentation of financial position and results of operations. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for any future period.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with original maturities of three months or less when acquired and which are
readily convertible to cash. The Company's investments have consisted of
commercial paper, certificates of deposit with original maturities of three
months or less and money market accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, capital lease obligations and long-term debt. The carrying value of
cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates their fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of capital
lease obligations and long-term debt approximates fair value based on the market
interest rates available to the Company for debt of similar risk and maturities.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is dispersed across many different geographic areas
throughout North America, Europe and Asia-Pacific and consists of companies in a
variety of industries. No single customer accounted for 10% or more of total
revenues during 1997, 1998 or 1999. The Company does not require collateral or
other security to support credit sales, but provides an allowance for bad debts
based on historical experience and specifically identified risks.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the lower of fair market value or the present value of
minimum lease payments at the inception of the
F-8
<PAGE> 80
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
lease. Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets, generally
three years for furniture, computers and other equipment. Equipment held under
capital leases is amortized over the shorter of the lease term or estimated
useful life of the asset.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. This methodology includes intangible
assets acquired. Goodwill relating to specific intangible assets is included in
the related impairment measurements to the extent it is identified with such
assets.
REVENUE RECOGNITION AND DEFERRED REVENUE
As of January 1, 1998, the Company adopted American Institute of Certified
Public Accountants' Statement of Position 97-2, "Software Revenue
Recognition"(SOP 97-2), as amended by SOP 98-4 which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The adoption of SOP 97-2 had no effect on the revenues or earnings for
the period. The Company recognizes software license revenue when an executed
license agreement, unconditional purchase order or contract is received,
delivery of the product has occurred, collection of the resulting receivable is
assessed as probable and the fee is fixed or determinable based upon
vendor-specific objective evidence of the arrangement. Revenue from services
includes support and maintenance service contracts which are recorded as
deferred revenue when billed and recognized ratably over the contract period and
training and consulting services which are recognized as the services are
performed.
COSTS OF REVENUES
Cost of licenses includes the cost of media, product packaging,
documentation and other production costs and third-party royalties.
Cost of services consists primarily of salaries, related taxes and benefits
and allocated overhead costs related to consulting, training and customer
support personnel.
RESEARCH AND DEVELOPMENT
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the technological
feasibility of the underlying software is not established until substantially
all product development is complete, including the development of a working
model. Accordingly, the Company has no capitalized software development costs.
F-9
<PAGE> 81
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was
approximately $72,000, $872,000 and $1,200,000 for the years ended December 31,
1996, 1997 and 1998 and was approximately $97,000 and $267,000 for the three
months ended March 31, 1998 and 1999, respectively.
INCOME TAXES
Income taxes have been accounted for under the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes" (Statement 109).
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.
EARNINGS PER SHARE COMPUTATION
Earnings per share is computed in accordance with SFAS No. 128, "Earnings
per Share" as well as Staff Accounting Bulletin No. 98, which covers the
determination of and accounting for "cheap stock" in periods prior to an initial
public offering. Basic earnings per share is computed using the weighted average
number of common shares. Diluted earnings per share is computed using the
weighted average number of common share equivalents outstanding during the
period. Dilutive common share equivalents consist of stock options and warrants
using the treasury method and dilutive convertible securities using the
if-converted method.
Pro forma net loss per share presented in the consolidated statements of
operations has been computed as described above, but also gives effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock upon the closing of the Company's initial public offering (determined
using the if-converted method).
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign transactions is the U.S.
dollar. All income and expense items are translated at the prevailing exchange
rate when the transaction occurs. Gains and losses on foreign currency
transactions are included in the consolidated statement of operations as
incurred. To date, gains and losses on foreign currency transactions have not
been significant.
STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123 "Accounting for
Stock-Based Compensation" (Statement 123). APB 25 provides that the compensation
expense relative to the Company's employee stock options is measured based on
the intrinsic value of the stock option. Statement 123 requires companies that
continue to follow
F-10
<PAGE> 82
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
APB 25 to provide a pro forma disclosure of the impact of applying the fair
value method of Statement 123 (see Note 9).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (Statement 130). Statement 130 establishes new rules for
the reporting and display of comprehensive loss and its components.
Comprehensive loss for the Company is the same as net loss for all periods
presented.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (Statement
131). Statement 131 established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers (see Note 12).
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform to the 1998 presentation.
2. ACQUISITIONS
On December 30, 1997, the Company completed the acquisition of Opis
Corporation, a company engaged in the development, marketing and sales of
customer support automation software primarily to mid-sized organizations. The
Company paid $801,559 in cash and issued 1,228,654 shares of its Series D
Convertible Preferred Stock (Series D Preferred Stock) in exchange for all
outstanding capital stock of Opis. The Company also assumed all outstanding Opis
options, which were converted to options to purchase 96,836 shares of Series D
Preferred Stock at $.8515 per share. The aggregate cost of the acquisition was
approximately $6.3 million (including direct acquisition costs). The acquisition
was recorded under the purchase method of accounting and therefore the results
of operations of Opis and the fair values of the acquired assets and liabilities
were included in the Company's financial statements beginning on the acquisition
date. Upon consummation of the transaction, Opis was merged into a wholly-owned
subsidiary of the Company. In connection with the acquisition, the Company
received an independent appraisal of the intangible assets acquired.
F-11
<PAGE> 83
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
2. ACQUISITION (CONTINUED)
The purchase price was allocated to the assets acquired and liabilities
assumed based on their respective fair values on the date of the acquisition as
follows:
<TABLE>
<S> <C>
Purchased technology........................................ $1,200,000
Customer list and other..................................... 320,000
Write-off of in-process research and development............ 360,000
Goodwill.................................................... 4,380,926
Net liabilities acquired, including costs of acquisition.... (1,282,981)
Less Series D Preferred Stock issued........................ (3,943,980)
Less fair value of options to purchase Series D Preferred
Stock..................................................... (232,406)
----------
Cash portion of purchase price.............................. $ 801,559
==========
</TABLE>
Approximately $5.6 million of the purchase price attributed to purchased
technology and goodwill is being amortized over its estimated useful life of
five years. The write-off of in-process research and development of $360,000 has
been included in amortization of acquisition related intangible assets for the
year ended December 31, 1997.
On April 30, 1999, the Company acquired Enact Incorporated. Enact is a
privately-held provider of sales configuration software for managing product
catalogs and marketing encyclopedias and generating proposals, quotes and
orders. The Company paid $4,100,000 in cash and issued 609,424 shares of its
common stock, of which 201,893 shares are subject to three year annual vesting.
The transaction is expected to be accounted for using the purchase method of
accounting.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures................. $ 460,065 $ 825,770 $ 903,675
Computers and other equipment.......... 925,055 2,673,891 3,206,199
Leasehold improvements................. 22,234 111,577 111,577
---------- ---------- ----------
1,407,354 3,611,238 4,221,451
Less accumulated depreciation and
amortization......................... 280,623 1,067,152 1,409,719
---------- ---------- ----------
$1,126,731 $2,544,086 $2,811,732
========== ========== ==========
</TABLE>
F-12
<PAGE> 84
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Purchased technology................... $1,200,000 $1,200,000 $1,200,000
Customer list and other................ 320,000 320,000 320,000
Goodwill............................... 4,380,926 4,380,926 4,380,926
---------- ---------- ----------
5,900,926 5,900,926 5,900,926
Amortization........................... -- 1,436,185 1,715,231
---------- ---------- ----------
Net intangible assets of acquired
businesses........................... 5,900,926 4,464,741 4,185,695
Recoverable deposits and other......... 5,000 95,996 95,996
---------- ---------- ----------
$5,905,926 $4,560,737 $4,281,691
========== ========== ==========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Compensation........................... $ 421,468 $ 685,896 $ 444,607
Benefits............................... -- 379,712 459,291
Direct costs of acquisition............ 642,191 180,618 160,239
Other.................................. 244,207 527,713 855,149
---------- ---------- ----------
$1,307,866 $1,773,939 $1,919,286
========== ========== ==========
</TABLE>
6. NOTES PAYABLE TO BANK
The Company has a credit facility with a commercial bank in the aggregate
amount of $4,000,000. The credit facility provides a revolving line of credit in
the amount of $2,500,000 and a $1,500,000 acquisition term loan facility.
Borrowings under the arrangement are collateralized by substantially all of the
Company's assets and bear interest at the bank's prime rate. The revolving line
of credit matures in March 2000. The acquisition term loan is payable in 48
equal monthly installments of principal plus interest through December 2001. The
agreement provides for certain financial and other covenants and restricts the
Company's ability to pay dividends. As of December 31, 1998, the Company had
outstanding advances under the revolving line of credit of $300,000 and had
borrowed the full $1,500,000 under the acquisition term loan facility used in
connection with the Opis acquisition (refer to Note 2).
F-13
<PAGE> 85
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
6. NOTES PAYABLE TO BANK (CONTINUED)
The aggregate annual maturities of notes payable to bank as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
TERM LINE OF
LOAN CREDIT TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1999............................................ $ 391,304 $300,000 $ 691,304
2000............................................ 391,304 -- 391,304
2001............................................ 391,305 -- 391,305
---------- -------- ----------
1,173,913 300,000 1,473,913
Less current portion............................ 391,304 300,000 691,304
---------- -------- ----------
$ 782,609 $ -- $ 782,609
========== ======== ==========
</TABLE>
7. LEASES
The Company leases furniture and equipment under capital leases that expire
in various years through December 2001. The Company also leases office
facilities under a noncancelable operating lease that expires in July 2004.
Property and equipment includes the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and equipment................ $1,121,294 $1,728,548 $1,750,991
Less accumulated amortization.......... 280,623 752,431 897,098
---------- ---------- ----------
$ 840,671 $ 976,117 $ 853,893
========== ========== ==========
</TABLE>
Amortization of leased assets is included in operating expenses in the
accompanying consolidated statements of operations.
Future minimum annual payments under capital leases and the Company's
noncancelable operating lease with initial terms of one year or more consisted
of the following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
---------- ----------
<S> <C> <C>
1999................................................ $ 627,663 $ 958,225
2000................................................ 375,510 962,519
2001................................................ 117,621 972,822
2002................................................ -- 983,126
2003................................................ -- 993,429
2004................................................ -- 583,006
---------- ----------
Total minimum lease payments........................ 1,120,794 $5,453,127
==========
Amounts representing interest....................... 104,249
----------
Present value of net minimum lease payments
(including current portion of $558,082)........... $1,016,545
==========
</TABLE>
F-14
<PAGE> 86
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
7. LEASES (CONTINUED)
Total rent expense for the operating lease amounted to approximately
$100,000, $273,000 and $685,000 for the years ended December 31, 1996, 1997 and
1998 and was approximately $103,000 and $263,000 for the three months ended
March 31, 1998 and 1999, respectively.
8. CAPITAL STOCK
In September 1995, the Company issued 2,280,000 shares of Class A Common
Stock to its founder to form the Company. Business operations did not commence
until January 1996 when the Company issued 700,000 shares of Series B
Convertible Preferred Stock (Series B Preferred Stock) and 1,813,333 shares of
Class B Common Stock in connection with its acquisition of certain intellectual
property rights through a statutory merger with Kennedy Systems, Inc. Prior to
the merger, Kennedy Systems, Inc. had been in the process of developing a sales
automation software product that the Company believed could accelerate the
release of its first product. Kennedy Systems, Inc. had no net assets at the
date of the merger. Accordingly, the fair value of the stock issued was
allocated to intangible assets that were amortized during 1996, the period in
which they were used. During 1996, the Company ceased development of the
technology acquired through Kennedy Systems, Inc. and began development of its
current software products.
In January 1996, the Company issued 4,500,000 shares of Series A
Convertible Preferred Stock (Series A Preferred Stock) to unrelated third-party
investors for cash of $4,500,000 in a private placement. Holders of Series A
Preferred Stock are entitled to receive noncumulative cash dividends at an
annual rate of nine percent prior to the payment of any dividends to Series B
and Series D Preferred or Common Stockholders. Series A Preferred Stock is
voting.
In February 1996, two of the Company's stockholders contributed 90,000
shares of Class A Common Stock and 90,000 shares of Class B Common Stock,
respectively, for no consideration and the reserved shares for the Company's
1996 Equity Incentive Plan were increased by 180,000 shares of common stock.
In May 1996, the Company issued 33,333 shares of Class A Common Stock to an
employee in exchange for proprietary intellectual property, valued at $5,000
based on the price of other third party equity transactions during 1996.
In October 1996, the Company issued 85,000 shares of Series A Preferred
Stock for cash of $85,000.
In March 1997, the Company issued 4,031,057 shares of Series C Convertible
Preferred Stock (Series C Preferred Stock) for net cash proceeds of $6,447,860.
Holders of the Series C Preferred Stock are entitled to receive noncumulative
cash dividends at an annual rate of nine percent prior to the payment of any
dividends to Series B and Series D Preferred Stock or Common Stockholders.
Series C Preferred Stock is voting.
In December 1997, the Company issued 1,228,654 shares of Series D Preferred
Stock in connection with the acquisition of Opis Corporation (see Note 2). The
Series D Preferred Stock does not bear dividends and is nonvoting.
In June 1998, the Company issued 3,940,887 shares of Series E Convertible
Preferred Stock (Series E Preferred Stock) for net cash proceeds of $15,945,985.
Holders of the Series E Preferred Stock are entitled to receive noncumulative
cash dividends at an annual rate of nine percent prior
F-15
<PAGE> 87
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
8. CAPITAL STOCK (CONTINUED)
to the payment of any dividends to Series B and Series D Preferred Stock or
Common Stockholders. Series E Preferred Stock is voting.
In July 1998, the Company repurchased 33,240 shares of Series B Preferred
Stock and 1,650,506 shares of Class B Common Stock at its fair value of
$2,500,000 in conjunction with the settlement of litigation involving the
termination of an officer of the Company whereby both parties released their
respective claims against each other.
In December 1998, the Company issued an additional 615,764 shares of Series
E Preferred Stock for net cash proceeds of $2,492,714.
Each share of Series A, B, C, D and E Preferred Stock has a par value of
$.001 per share and is convertible, at the option of the holder, into two-thirds
of a share of Class A Common Stock (Class B Common Stock for the Series B
Preferred Stockholders). All Series A, B, C, D and E Preferred Stock will
automatically be converted upon a public offering of common stock meeting
minimum price and proceeds criteria. Upon the conversion of the Class B
Preferred Stock into Class B Common Stock, the Class B Common Stock
automatically converts to Class A Common Stock.
Upon the liquidation, dissolution, or winding up of the Company, the Series
A, Series C and Series E Preferred Stockholders are entitled to receive, prior
to and in preference to any distribution made to other stockholders, a
liquidation preference equal to the $1.00, $1.61 and $4.06 per share issuance
prices of the Series A, Series C and Series E Preferred Stocks, respectively,
plus an amount equal to a cumulative annual return of nine percent on the
original issuance prices. Should the distributable net assets of the Company
exceed this amount, the Series D Preferred Stockholders are entitled to receive
up to $3.21 per share. Should the distributable net assets of the Company exceed
the aggregate preferences above, the Series A, Series C and Series E Preferred
Stockholders are also entitled to receive a pro rata portion of such
distribution calculated on an as if converted basis. Any remaining net assets
will be distributed pro rata on an as if converted basis to the Series B
Preferred and Common Stockholders, unless the Series B Preferred Stockholders
would receive less than $700,000 in aggregate, in which case the Series B
Preferred Stockholders would receive the entire remaining amount.
On April 22, 1999, the Company agreed to sell to The Goldman Sachs Group,
L.P. and two of its affiliates (Goldman Sachs) either common stock or newly
created Series F Convertible Preferred Stock (Series F Preferred Stock) in a
private placement transaction. The transaction will close on the earliest of (a)
July 31, 1999, (b) the third business day following notice by the Company to
Goldman Sachs, or (c) concurrent with the closing of the Company's initial
public offering, in which case the Company will sell to Goldman Sachs $3,500,000
of common stock at a price per share equal to the initial public offering price
less 3.5%. In the event that the initial public offering does not occur by July
31, 1999, Goldman Sachs will purchase 666,667 shares of the Company's Series F
Preferred Stock at $9.00 per share. The terms of the transaction are subject to
customary closing conditions, which include requirements that the Company and
some stockholders execute and deliver documents, that the Company certify to no
changes in representations and warranties, and that there have been no material
adverse changes in the Company's business, prospects or financial condition, or
in the capital structure or long term debt, with certain exceptions.
F-16
<PAGE> 88
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
8. CAPITAL STOCK (CONTINUED)
A summary of the Series A, B, C, D and E Convertible Preferred Stock, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Series A Preferred Stock:
Authorized shares.......................... 4,650,000 4,650,000 4,650,000
Issued and outstanding shares.............. 4,585,000 4,585,000 4,585,000
Liquidation value of shares................ $5,387,919 $ 5,800,569 $ 5,903,732
Series B Preferred Stock:
Authorized shares.......................... 700,000 700,000 700,000
Issued and outstanding shares.............. 700,000 666,760 666,760
Liquidation value of shares................ -- -- --
Series C Preferred Stock:
Authorized shares.......................... 4,100,000 4,100,000 4,100,000
Issued and outstanding shares.............. 4,031,057 4,031,057 4,031,057
Liquidation value of shares................ $6,930,077 $ 7,514,177 $ 7,660,202
Series D Preferred Stock:
Authorized shares.......................... 1,700,000 1,700,000 1,700,000
Issued and outstanding shares.............. 1,228,654 1,228,654 1,228,654
Liquidation value of shares................ -- -- --
Series E Preferred Stock:
Authorized shares.......................... -- 4,750,000 4,750,000
Issued and outstanding shares.............. -- 4,556,651 4,556,651
Liquidation value of shares................ -- $19,333,428 $19,749,648
</TABLE>
The Company has the following shares of Class A Common Stock reserved for
future issuance with respect to issued common stock equivalents:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Conversion of Preferred Stocks.............................. 10,045,436 10,045,436
Conversion of Class B Common Stock.......................... 72,827 72,827
Series A Preferred Stock warrants........................... 43,334 43,334
Series D Preferred Stock options............................ 64,558 64,558
Series D Preferred Stock warrants........................... 6,667 6,667
1996 Equity Incentive Plan.................................. 2,361,674 3,245,865
1998 Business Partner Stock Option Plan..................... 166,667 149,500
---------- ----------
Total............................................. 12,761,163 13,628,187
========== ==========
</TABLE>
9. STOCK OPTIONS
The Company has elected to follow APB 25 in accounting for its employee
stock options. Under APB 25, as long as the exercise price of the Company's
employee stock options equals or
F-17
<PAGE> 89
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
9. STOCK OPTIONS (CONTINUED)
exceeds the fair value of the underlying stock on the date of the grant, no
compensation expense is recognized. All of the Company's employee stock option
grants have been made at fair value for accounting purposes with the exception
of a December 10, 1998 grant of 442,000 shares at $1.53 per share. Subsequent to
the date of grant, the Company determined that the fair value for accounting
purposes at the date of grant should have been $4.50 per share. This
determination was based upon third party transactions subsequent to but near the
date of grant. In December 1998, the Company recorded unearned compensation of
$1,312,740 which is being amortized over the four-year vesting period of these
options.
During 1996, the Board of Directors authorized the implementation of an
equity incentive plan for certain employees, directors, consultants and
independent contractors. Under the plan, options to purchase stock of the
Company will be granted to participants at an exercise price to be determined by
the Board. Incentive stock options granted under the plan may be granted to
employees only and may not have an exercise price less than the fair value of
the stock as of the date of the grant. Incentive stock options have a term of
ten years and vest over four years from the date of grant, with initial vesting
on the one-year anniversary of the employee's hire date. On March 19, 1999, the
Company increased the number of shares reserved for issuance under the plan from
3,366,666 to 4,500,000 which is expected to be effective upon shareholder
approval anticipated in April 1999.
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for all its employee stock options grants under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a minimum value pricing model with the
following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life of the award............................... 4 years
Dividend yield........................................... 0 percent
Risk-free interest rate.................................. 5 percent
</TABLE>
F-18
<PAGE> 90
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
9. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net loss as reported....... $(3,348,874) $(5,139,982) $(6,591,838) $(1,036,014) $(1,046,574)
Pro forma Statement 123
expense.................. (6,438) (16,336) (39,672) -- --
APB 25 expense recognized.. -- -- 17,982 -- 82,631
----------- ----------- ----------- ----------- -----------
Statement 123 Pro forma net
loss..................... $(3,355,312) $(5,156,318) $(6,613,528) $(1,036,014) $ (963,943)
=========== =========== =========== =========== ===========
Statement 123 Pro forma
basic and diluted net
loss per share........... $ (.87) $ (1.31) $ (1.75) $ (0.25) $ (0.28)
=========== =========== =========== =========== ===========
Statement 123 Pro forma
basic and diluted net
loss per share, assuming
conversion of preferred
stock.................... $ (0.54) $ (0.07)
=========== ===========
</TABLE>
Option activity under the equity incentive plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
SHARES PRICE PRICE
--------- ----------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1996...................... -- --
Granted............................................. 1,734,501 $ 0.15 $0.15
Exercised........................................... -- --
Expired or canceled................................. (26,667) 0.15 0.15
--------- ----------- -----
Outstanding at December 31, 1996.................... 1,707,834 0.15 0.15
Granted............................................. 469,171 0.20-0.48 0.33
Exercised........................................... (16,062) 0.15 0.15
Expired or canceled................................. (54,086) 0.15-0.24 0.18
--------- ----------- -----
Outstanding at December 31, 1997.................... 2,106,857 0.15-0.48 0.19
Granted............................................. 911,171 0.60-1.53 1.37
Exercised........................................... (988,930) 0.15-0.48 0.15
Expired or canceled................................. (374,752) 0.15-1.53 0.50
--------- ----------- -----
Outstanding at December 31, 1998.................... 1,654,346 0.15-1.53 0.80
Granted............................................. 109,000 9.00 9.00
Exercised........................................... (249,143) 0.15-0.60 0.18
Expired or canceled................................. (20,333) 0.24-1.53 1.26
--------- ----------- -----
Outstanding at March 31, 1999....................... 1,493,870 $0.15-9.00 $1.50
========= =========== =====
Exercisable at March 31, 1999....................... 103,758 $0.31
========= =====
</TABLE>
F-19
<PAGE> 91
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
9. STOCK OPTIONS (CONTINUED)
The weighted average fair value of options granted in 1996, 1997 and 1998
was $0.03, $0.06 and $0.24, respectively. The weighted average remaining
contractual life at December 31, 1998 was approximately 3.2 years.
At December 31, 1998, a warrant for the purchase of 65,000 shares of Series
A Preferred Stock is outstanding. The warrant issued in 1996 to facilitate a
leasing transaction, is exercisable at $1.00 per share and may be exercised on a
net basis. The warrant expires ten years from the date of grant. In addition,
options to purchase 96,836 shares of Series D Preferred Stock, issued in
connection with the Opis acquisition in 1997, are outstanding (see Note 2). The
options are exercisable at $.8515 per share and expire ten years from the date
of grant. Also in connection with the Opis acquisition, the Company issued
warrants to purchase 10,000 shares of Series D Preferred to the commercial bank
providing the acquisition financing. The warrants are exercisable at $3.21 per
share and expire five years from the date of grant.
The Company has a stock option grant program for its resellers (Business
Partners) entitled the 1998 Business Partner Stock Option Plan (Business Partner
Plan). Under the plan, options to purchase Class A Common Stock are issued to
Business Partners who meet certain minimum sales levels and certain other
performance standards. The Company has reserved 150,000 shares of Class A Common
Stock for issuance under the Plan. The options are granted at an exercise price
equal to the fair value of the Class A Common Stock at the date of grant. Actual
grants are typically made at the first meeting of the Company's Board of
Directors subsequent to each year-end. As the Business Partners are not
employees of the Company, expense is recognized at the time the shares become
issuable based upon the minimum value pricing model. At December 31, 1998, the
Company had issued and exercisable stock options under the Business Partner Plan
as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
PERFORMANCE YEAR SHARES PRICE PRICE
- ---------------- ------ -------- --------
<S> <C> <C> <C>
1997................................................ 63,000 $0.60 $0.60
1998................................................ 24,503 9.00 9.00
------ -----
87,503 $2.95
====== =====
</TABLE>
10. EMPLOYEE STOCK PURCHASE PLAN
On March 19, 1999, the Company's Board of Directors adopted an employee
stock purchase plan. The plan is subject to shareholder approval. The Company
presently authorized 300,000 shares of Common Stock for issuance under the plan
plus an automatic annual increase, to be added on the first day of each fiscal
year beginning in 2000. The Company's Board of Directors also approved the
establishment of a directors stock option plan whereby 200,000 shares of common
stock would be authorized for issuance. Such plan is subject to shareholder
approval and is expected to become effective concurrent with the completion of
the Company's proposed initial public offering.
11. CONTINGENCIES
The Company may, from time to time, become party to legal proceedings.
Based upon advice from outside legal counsel, management is of the opinion that
the Company is not involved in any litigation at December 31, 1998.
F-20
<PAGE> 92
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
12. SEGMENT INFORMATION
The Company operates as a single business segment and licenses and markets
its products through direct and indirect channels in the United States, Canada,
Europe and Asia-Pacific. Information regarding revenues in different geographic
regions is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
United States........... $ -- $4,642,031 $14,204,640 $3,101,026 $5,421,788
International........... -- 136,779 1,437,971 61,085 879,970
---------- ---------- ----------- ---------- ----------
Total revenues.......... $ -- $4,778,810 $15,642,611 $3,162,111 $6,301,758
========== ========== =========== ========== ==========
</TABLE>
13. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
Company...................................... $ 2,629,000 $ 4,720,000
Opis......................................... 600,000 600,000
Other........................................... 999,000 880,000
----------- -----------
4,228,000 6,200,000
Less valuation reserve.......................... (3,700,000) (6,200,000)
----------- -----------
Net deferred tax assets........................... 528,000 --
Deferred tax liabilities.......................... (528,000) --
----------- -----------
Net deferred taxes................................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by $1,900,000 and $2,500,000 at December
31, 1997 and 1998, respectively, due to the respective periods' losses. The
Company has fully reserved for its deferred tax assets due to the uncertainty of
recovery from future operations. The Company has no income tax expense or
benefit and therefore tax expense differs from the federal statutory rate by the
amount of such rate. The reason for such difference is an increase in valuation
reserves provided for deferred tax assets.
At December 31, 1998 the Company has net operating loss carryforwards for
federal income tax purposes of $13,300,000 which begin to expire in 2011, to the
extent not previously utilized. Approximately $1,500,000 of the net operating
loss is attributable to the Company's acquisition of Opis. These losses are
limited for tax purposes under both the separate return limitation year rules
and Internal Revenue Code section 382 which limit the annual utilization of net
operating losses.
14. BENEFIT PLANS
The Company has a 401(k) Retirement Savings Plan (Plan) covering
substantially all employees. Under terms of the Plan, employees may make
voluntary contributions, subject to
F-21
<PAGE> 93
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
Internal Revenue Service limitations. The Company may make discretionary annual
contributions to the Plan. However, no contributions were made during 1996, 1997
or 1998.
15. PROPOSED INITIAL PUBLIC OFFERING
On March 19, 1999, the Company's Board of Directors authorized the Company
to file a Registration Statement with the Securities and Exchange Commission to
sell shares of its common stock in an underwritten initial public offering. The
Company's Board of Directors, subject to shareholder approval, also approved a
change in the articles of incorporation which eliminates the separate classes of
common stock, changes the number of authorized shares of undesignated preferred
stock to 20,000,000 shares and changes the number of authorized shares of common
stock to 50,000,000. These changes are expected to become effective concurrent
with the closing of the initial public offering.
In conjunction with the proposed initial public offering, the Board of
Directors and the shareholders authorized a two-for-three reverse split of its
Class A and Class B Common Stock which became effective on March 23, 1999. The
accompanying consolidated financial statements have been adjusted retroactively
to reflect the reverse split. The conversion ratios of the respective series of
convertible preferred stock were automatically adjusted to reflect the reverse
split.
If the initial public offering is consummated under terms presently
anticipated, all of the currently outstanding preferred stock will automatically
convert into two-thirds of a share of common stock and the Class B Common Stock
will automatically convert into one share of Common Stock. Unaudited pro forma
stockholders' equity as adjusted for the assumed conversion of the Preferred
Stock and Class B Common Stock is set forth in the accompanying balance sheet.
F-22
<PAGE> 94
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Opis Corporation
We have audited the accompanying balance sheet of Opis Corporation as of
October 31, 1997 and the related statements of operations, statement of
stockholders' deficit and cash flows for the fiscal year ended October 31, 1997
and the statements of operations and cash flows for the period from November 1,
1997 through December 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Opis Corporation at October
31, 1997 and the results of its operations and its cash flows for the fiscal
year ended October 31, 1997 and for the period from November 1, 1997 through
December 30, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
January 22, 1999
F-23
<PAGE> 95
OPIS CORPORATION
BALANCE SHEET
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 402,852
Accounts receivable, less allowance of $50,000............ 275,831
Inventories............................................... 13,563
Prepaid expenses and other................................ 4,986
-----------
Total current assets........................................ 697,232
Property and equipment, at cost:
Computer equipment and software........................... 268,752
Office equipment and furniture............................ 75,166
-----------
343,918
Less accumulated depreciation............................. 227,239
-----------
116,679
Other assets:
Deferred licensing costs, less amortization of $116,702... 17,846
Software development costs, less amortization of
$27,261................................................ 109,129
Deferred financing costs, less amortization of $5,313..... 21,349
-----------
Total assets................................................ $ 962,235
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 419,840
Accrued expenses.......................................... 40,646
Deferred revenue.......................................... 305,320
Current portion of long-term debt......................... 575,107
-----------
Total current liabilities................................... 1,340,913
Long-term debt, less current portion........................ 630,049
Commitments and contingencies
Stockholders' deficit:
Convertible preferred stock, no par or stated value;
1,000,000 shares authorized; 47,770 shares issued and
outstanding............................................ 150,000
Common stock, no par or stated value; 1,000,000 shares
authorized; 483,595 shares issued and outstanding...... 284,811
Accumulated deficit....................................... (1,443,538)
-----------
Total stockholders' deficit................................. (1,008,727)
-----------
Total liabilities and stockholders' deficit................. $ 962,235
===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 96
OPIS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL NOVEMBER 1,
YEAR ENDED 1997 THROUGH
OCTOBER 31, DECEMBER 30,
1997 1997
----------- ------------
<S> <C> <C>
Net revenues:
Licenses.................................................. $1,310,703 $ 119,388
Services.................................................. 674,520 80,174
---------- ---------
Total net revenues..................................... 1,985,223 199,562
Costs of revenues:
Licenses.................................................. 138,077 14,431
Services.................................................. 108,043 11,594
---------- ---------
Total costs of revenues................................ 246,120 26,025
---------- ---------
Gross profit................................................ 1,739,103 173,537
Operating expenses:
Sales and marketing....................................... 1,108,704 159,368
Research and development.................................. 579,989 134,846
General and administrative................................ 398,432 193,367
---------- ---------
Total operating expenses............................... 2,087,125 487,581
---------- ---------
Loss from operations........................................ (348,022) (314,044)
Other income (expense):
Interest income........................................... 1,314 306
Interest expense.......................................... (79,118) (7,383)
Other income.............................................. 4,012 2,818
---------- ---------
Loss before provision for income taxes...................... (421,814) (318,303)
Provision for income taxes.................................. -- --
---------- ---------
Net loss.................................................... $ (421,814) $(318,303)
========== =========
</TABLE>
See accompanying notes.
F-25
<PAGE> 97
OPIS CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------- --------------------
NUMBER NUMBER
OF OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- -------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1996....................... -- $ -- 469,620 $265,376 $(1,021,724) $ (756,348)
Preferred stock issued..... 47,770 150,000 -- -- -- 150,000
Net loss................... -- -- -- -- (421,814) (421,814)
Stock issued as
compensation............ -- -- 13,975 19,435 -- 19,435
------ -------- ------- -------- ----------- -----------
Balance at October 31,
1997....................... 47,770 $150,000 483,595 $284,811 $(1,443,538) $(1,008,727)
====== ======== ======= ======== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 98
OPIS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL NOVEMBER 1,
YEAR ENDED 1997 THROUGH
OCTOBER 31, DECEMBER 30,
1997 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(421,814) $(318,303)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 204,478 24,143
Non-cash equity compensation.............................. 19,435 45,530
Amortization of deferred licensing costs.................. 20,900 8,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (122,834) 104,691
Inventories............................................ 14,708 (482)
Prepaid expenses and other current assets.............. 10,472 2,392
Accounts payable....................................... 81,351 49,820
Accrued expenses....................................... (869) 194,567
Deferred revenue....................................... 25,205 (15,079)
--------- ---------
Net cash provided by (used in) operating activities......... (168,968) 95,279
INVESTING ACTIVITIES
Purchases of property and equipment......................... (44,414) --
--------- ---------
Net cash used in investing activities....................... (44,414) --
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 553,888 --
Payments on long-term debt.................................. (82,589) (416,287)
Payments for deferred financing costs....................... (11,000) --
Issuance of preferred stock................................. 150,000 --
Proceeds from exercise of common stock options.............. -- 160,327
--------- ---------
Net cash provided by (used in) financing activities......... 610,299 (255,960)
--------- ---------
Net increase (decrease) in cash............................. 396,917 (160,681)
Cash at beginning of period................................. 5,935 402,852
--------- ---------
Cash at end of period....................................... $ 402,852 $ 242,171
========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest...................................... $ 79,118 $ 8,142
Noncash operating and investing activities--accounts payable
relating to:
Deferred licensing costs.................................. $ 52,678 $ --
</TABLE>
See accompanying notes.
F-27
<PAGE> 99
OPIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Opis Corporation (the Company), develops and markets customer request
tracking and resolution software for customer support centers and corporate help
desks. The Company also provides customer support, training and consulting
services related to its software products. Customers include companies in the
United States and resellers in Australia, Ireland, The Netherlands, Singapore,
South Africa and the United Kingdom.
Subsequent to year-end, the Company was acquired by SalesLogix Corporation
(see Note 7).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Concentrations of credit risk with respect to accounts receivables are
limited due to the number of customers and their geographic dispersion. The
Company performs initial and periodic credit evaluations of its customers and
generally does not require collateral.
INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
DEPRECIATION
Depreciation of property and equipment is provided using straight-line and
accelerated methods over the estimated useful lives of the assets.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the related loan term.
DEFERRED LICENSING COSTS
Deferred licensing costs consist of sublicense fee payments made at the
inception of various license/royalty agreements and are amortized over the terms
of the agreements (ranging from 2 to 3 years) based on related unit sales. In
addition, under these agreements the Company pays ongoing royalties based on
unit sales or a percentage of net sales.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with the
Financial Accounting Standards Board Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." The capitalization of costs begins when a
product's technological feasibility has been established and ends when the
product is available for general release to customers. The Company amortizes
these
F-28
<PAGE> 100
OPIS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs over the estimated economic life of the product. Amortization expense
recorded in 1997 was $27,670.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue from sales of software licenses is recognized upon delivery of the
software product to the customer and satisfaction of significant related
obligations, if any, in accordance with American Institute of Certified Public
Accountants' Statement of Position 91-1, which was effective for all periods
presented. Revenue from customer support is defined and recognized over the
period the customer support services are provided other service revenues are
recognized as services are performed.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
approximately $104,000 in 1997.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
the difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expenses
or credits are based on changes in the asset or liability from period to period.
The temporary differences result primarily from certain reserves and accruals.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations, in accounting for its employee
stock options rather than the alternative fair value accounting allowed by SFAS
No. 123 "Accounting for Stock Based Compensation" (Statement 123). APB 25
provides that compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of the stock option.
2. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable to bank, due in monthly installments of $4,751
including interest at prime plus 1.5 percent (10 percent
at October 31, 1997), through March 18, 2001,
collateralized by a senior security interest in
substantially all assets of the Company, a life insurance
policy and personally guaranteed by the majority
stockholder............................................... $ 179,062
Note payable to bank, due in monthly installments of $7,870
including interest at prime plus 1.5 percent (10 percent
at October 31, 1997), through January 23, 2003,
collateralized by substantially all assets of the Company,
a life insurance policy and personally guaranteed by the
majority stockholder and a limited guaranty by another
stockholder............................................... 400,201
Note payable to investor, due on demand..................... 400,000
</TABLE>
F-29
<PAGE> 101
OPIS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
Note payable to Mid-Iowa Development Fund, due in monthly
installments of $3,600 including interest at 6 percent
through April 10, 2000, personally guaranteed by the
majority stockholder...................................... 100,000
Note payable to State of Iowa, bearing no interest and due
in monthly installments of $1,083 through September 15,
2001, collateralized by certain property and personally
guaranteed by the majority stockholder.................... 58,288
Note payable to City of Des Moines, due in annual
installments of $14,193 including interest at 3 percent
through April 1, 2001, collateralized by substantially all
assets of the Company and personally guaranteed by the
majority stockholder...................................... 65,000
Note payable to bank, due in monthly installments of $61
including interest at the bank's base rate plus 2.4
percent (10.9 percent at October 31, 1997) through April
1, 2002................................................... 2,605
----------
1,205,156
Less amounts due within one year............................ 575,107
----------
Long-term debt, less current portion........................ $ 630,049
==========
</TABLE>
Aggregate future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998................................................... $ 575,107
1999................................................... 154,614
2000................................................... 196,513
2001................................................... 122,859
2002................................................... 77,852
Thereafter............................................. 78,211
----------
$1,205,156
==========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases office space, vehicles and other equipment under
operating leases expiring at various times through May 2000. Rental expense for
all operating leases was approximately $44,000 in 1997.
At October 31, 1997, the Company's approximate future minimum lease
commitments under operating leases are as follows:
<TABLE>
<S> <C>
1998.................................................... $ 43,000
1999.................................................... 39,000
2000.................................................... 22,000
--------
$104,000
========
</TABLE>
4. EMPLOYEE BENEFIT PLAN
All employees who have attained the age of twenty and have completed two
years of service are eligible for the Company's 401(k) profit sharing plan.
Employee contributions are limited to
F-30
<PAGE> 102
OPIS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EMPLOYEE BENEFIT PLAN (CONTINUED)
20 percent of compensation and subject to other IRS limitations. Discretionary
company contributions to the plan may be made annually. Plan expense for 1997
was not material.
5. INCOME TAXES
At October 31, 1997, the Company had net operating loss (NOL) carryforwards
for income tax purposes of approximately $1,200,000 which begin to expire in
2009, to the extent not previously utilized. In addition the NOL could be
limited based upon changes in control that have already occurred, or may occur
in the future (see Note 7).
The components of the Company's deferred income taxes are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 480,000
Other nondeductible reserves.............................. 20,000
---------
500,000
Less valuation reserve.................................... (456,000)
---------
Net deferred tax assets................................... 44,000
Deferred tax liabilities:
Software development costs................................ (44,000)
---------
Net deferred taxes.......................................... $ --
=========
</TABLE>
The Company's valuation reserve changed by $219,000 principally due to the
fiscal year ended October 31, 1997 losses. The Company has fully reserved for
its net deferred tax assets due to the uncertainty of recovery from future
operations.
The Company has no income tax expense or benefit and therefore tax expense
differs from the federal statutory rate by the amount of such rate. The reason
for such difference is an increase in valuation reserves provided for deferred
tax assets.
6. STOCKHOLDERS' DEFICIT
In December 1996, the Company authorized 1,000,000 shares of a new class of
convertible preferred stock and issued 47,770 shares for cash consideration of
$150,000. Each share of preferred stock is convertible into one share of common
stock. The convertible preferred stock provides for cumulative dividends at the
rate of 5 percent payable annually.
The Company has certain stock compensation arrangements pursuant to which
key employees may be granted common stock or options to acquire common stock in
lieu of compensation or bonus. Stock granted is at the discretion of the Board
of Directors and is restricted for transferability whereby the Company and/or
other stockholders have the first right of refusal to purchase stock before it
is sold to an outside investor.
Stock issued for compensation is recorded at its estimated fair market
value as determined by management and/or the Board of Directors. During 1997, a
total of 13,975 shares were issued resulting in compensation expense of $19,435.
Under Statement 123, certain pro forma information is required as if the
Company had accounted for the stock-based compensation under the alternative
fair value method of Statement 123. Pro forma stock compensation expense and net
loss for the fiscal year ended October 31, 1997 were not materially different
from amounts as reported.
F-31
<PAGE> 103
OPIS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS
On December 30, 1997, the Company was merged into a newly formed subsidiary
of SalesLogix Corporation. The Company engaged a third-party to provide
assistance with locating a buyer and paid approximately $90,000 in December 1997
in connection with the service provided. This amount has been included in
general and administrative expenses for the period from November 1, 1997 through
December 30, 1997.
F-32
<PAGE> 104
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Enact Incorporated
We have audited the accompanying balance sheets of Enact Incorporated as of
December 31, 1997 and 1998 and the related statements of operations, redeemable
convertible common stock and warrants and stockholders' deficit and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Enact Incorporated at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 9 to the financial statements, the Company's recurring
losses, decreasing revenues and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. Management's plans as to these
matters are described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
March 15, 1999, except for Note 10
as to which the date is
April 30, 1999
F-33
<PAGE> 105
ENACT INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 311,595 $ 50,181 $ --
Accounts receivable............................. 19,200 43,520 163,195
Prepaid rent.................................... 4,318 -- --
----------- ----------- -----------
Total current assets.............................. 335,113 93,701 163,195
Property and equipment, net....................... 101,654 118,227 101,492
Other assets...................................... 4,594 -- --
----------- ----------- -----------
$ 441,361 $ 211,928 $ 264,687
=========== =========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE COMMON STOCK AND WARRANTS AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................ $ 20,361 $ 99,991 $ 173,724
Accrued expenses................................ 5,239 24,410 44,463
Deferred revenue................................ 44,750 122,743 437,662
Billings in excess of costs incurred on
contracts.................................... -- -- 83,000
Note payable to stockholders.................... -- 150,000 116,667
----------- ----------- -----------
Total current liabilities......................... 70,350 397,144 855,516
Class B redeemable convertible common stock -- no
par value; 20,000 shares authorized; 15,000
shares issued and outstanding................... 1,460,783 1,472,255 1,475,123
Class C redeemable convertible common stock -- no
par value; 7,500 shares authorized, issued and
outstanding..................................... -- 676,269 685,169
Warrants for Class B redeemable convertible common
stock........................................... 25,000 65,000 65,000
Stockholders' deficit:
Class A common stock -- no par value; 132,500
shares authorized; 50,000 shares issued and
outstanding.................................. 58,555 58,555 58,555
Accumulated deficit............................. (1,173,327) (2,457,295) (2,874,676)
----------- ----------- -----------
Total stockholders' deficit............. (1,114,772) (2,398,740) (2,816,121)
----------- ----------- -----------
$ 441,361 $ 211,928 $ 264,687
=========== =========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE> 106
ENACT INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1997 1998 1998 1999
--------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Licenses............................... $ 133,000 $ 224,175 $ 91,000 $ --
Services............................... 388,033 339,660 95,160 83,451
--------- ----------- ----------- ---------
Total net revenues............. 521,033 563,835 186,160 83,451
Costs of revenues:
Licenses............................... 2,660 4,484 1,820 --
Services............................... 192,789 322,202 45,241 119,884
--------- ----------- ----------- ---------
Total costs of revenues........ 195,449 326,686 47,061 119,884
--------- ----------- ----------- ---------
Gross profit (loss)...................... 325,584 237,149 139,099 (36,433)
Operating expenses:
Sales and marketing.................... 168,200 748,565 82,542 216,711
Product development.................... 344,304 406,985 108,797 78,636
General and administrative............. 337,954 361,843 85,278 73,833
--------- ----------- ----------- ---------
Total operating expenses....... 850,458 1,517,393 276,617 369,180
--------- ----------- ----------- ---------
Loss from operations..................... (524,874) (1,280,244) (137,518) (405,613)
Other income (expense):
Interest income........................ 23,147 2,896 -- --
Interest expense....................... -- (2,347) -- --
--------- ----------- ----------- ---------
Loss before provision for income taxes... (501,727) (1,279,695) (137,518) (405,613)
Provision for income taxes............... -- -- -- --
--------- ----------- ----------- ---------
Net loss................................. $(501,727) $(1,279,695) $ (137,518) $(405,613)
========= =========== =========== =========
</TABLE>
See accompanying notes.
F-35
<PAGE> 107
ENACT INCORPORATED
STATEMENTS OF REDEEMABLE CONVERTIBLE COMMON STOCK AND WARRANTS AND STOCKHOLDERS'
DEFICIT
<TABLE>
<CAPTION>
CLASS B CLASS C WARRANTS FOR CLASS B STOCKHOLDERS' DEFICIT
REDEEMABLE REDEEMABLE REDEEMABLE -------------------
CONVERTIBLE CONVERTIBLE CONVERTIBLE COMMON CLASS A
COMMON STOCK COMMON STOCK STOCK COMMON STOCK
---------------------- -------------------- ---------------------- -------------------
NUMBER NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF WARRANTS AMOUNT OF SHARES AMOUNT
--------- ---------- --------- -------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................. 15,000 $1,449,311 -- $ -- 3,421 $ 25,000 50,000 $58,555
Accretion to
redemption value.... -- 11,472 -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- -- --
------ ---------- ----- -------- ------ -------- ------ -------
Balance at December 31,
1997.................. 15,000 1,460,783 -- -- 3,421 25,000 -- 58,555
Expiration of
warrants............ -- -- -- -- (3,421) (25,000) -- --
Issuance of Class C
redeemable
convertible common
stock............... -- -- 7,500 658,468 -- -- -- --
Issuance of
warrants............ -- -- -- -- 3,816 65,000 -- --
Accretion to
redemption value.... -- 11,472 -- 17,801 -- -- -- --
Net loss.............. -- -- -- -- -- -- -- --
------ ---------- ----- -------- ------ -------- ------ -------
Balance at December 31,
1998.................. 15,000 1,472,255 7,500 676,269 3,816 65,000 50,000 58,555
Accretion to redemption
value (unaudited)..... -- 2,868 -- 8,900 -- -- -- --
Net loss (unaudited).... -- -- -- -- -- -- -- --
------ ---------- ----- -------- ------ -------- ------ -------
Balance at March 31,
1999 (unaudited)...... 15,000 $1,475,123 7,500 $685,169 3,816 $ 65,000 50,000 $58,555
====== ========== ===== ======== ====== ======== ====== =======
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------------------
ACCUMULATED
DEFICIT TOTAL
----------- -----------
<S> <C> <C>
Balance at January 1,
1997.................. $ (660,128) $ (601,573)
Accretion to
redemption value.... (11,472) (11,472)
Net loss.............. (501,727) (501,727)
----------- -----------
Balance at December 31,
1997.................. (1,173,327) (1,114,772)
Expiration of
warrants............ 25,000 25,000
Issuance of Class C
redeemable
convertible common
stock............... -- --
Issuance of
warrants............ -- --
Accretion to
redemption value.... (29,273) (29,273)
Net loss.............. (1,279,695) (1,279,695)
----------- -----------
Balance at December 31,
1998.................. (2,457,295) (2,398,740)
Accretion to redemption
value (unaudited)..... (11,768) (11,768)
Net loss (unaudited).... (405,613) (405,613)
----------- -----------
Balance at March 31,
1999 (unaudited)...... $(2,874,676) $(2,816,121)
=========== ===========
</TABLE>
See accompanying notes.
F-36
<PAGE> 108
ENACT INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ----------------------
1997 1998 1998 1999
--------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(501,727) $(1,279,695) $(137,518) $(405,613)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 63,147 81,346 15,993 16,735
Provision for bad debts................. -- 20,015 -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (19,200) (44,335) (18,313) (119,675)
Prepaid rent......................... (4,153) 4,318 -- --
Accounts payable and accrued
expenses........................... 5,961 98,801 (6,576) 93,786
Deferred revenue..................... 44,750 77,993 (17,250) 314,919
Billings in excess of costs.......... -- -- -- 83,000
--------- ----------- --------- ---------
Net cash used in operating activities..... (411,222) (1,041,557) (163,664) (16,848)
INVESTING ACTIVITIES
Net purchases of property and equipment... (40,258) (93,325) (12,564) --
--------- ----------- --------- ---------
Net cash used in investing activities..... (40,258) (93,325) (12,564) --
FINANCING ACTIVITIES
Proceeds from (repayments of) note payable
to stockholders......................... -- 150,000 -- (33,333)
Issuance of Class C redeemable convertible
common stock............................ -- 723,468 -- --
--------- ----------- --------- ---------
Net cash provided by (used in) financing
activities.............................. -- 873,468 -- (33,333)
--------- ----------- --------- ---------
Net decrease in cash and cash
equivalents............................. (451,480) (261,414) (176,228) (50,181)
Cash and cash equivalents at beginning of
period.................................. 763,075 311,595 311,595 50,181
--------- ----------- --------- ---------
Cash and cash equivalents at end of
period.................................. $ 311,595 $ 50,181 $ 135,367 $ --
========= =========== ========= =========
</TABLE>
See accompanying notes.
F-37
<PAGE> 109
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Enact Incorporated (the Company) is an Ohio company that provides sales
configuration software for managing product catalogs and marketing encyclopedias
and generating proposals, quotes and orders. The Company markets its products to
sales, distribution and resale organizations.
INTERIM FINANCIAL INFORMATION
The financial statements for the three months ended March 31, 1998 and 1999
are unaudited but include all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
financial position and results of operations. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for any future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's accounts receivable at December 31, 1997 and 1998 consisted entirely
of amounts due from one customer. In 1997, one customer represented 87 percent
of total revenues. In 1998, four individual customers represented 40 percent, 22
percent, 20 percent and 14 percent of total revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets, which is three years for computer equipment, office
furniture and purchased software.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed when incurred. Financial accounting
standards provide for the capitalization of certain software development costs
after technological feasibility of the software is established. Under the
Company's current practice of developing new products and enhancements, the
technological feasibility of the underlying software is not established until
substantially all product development is complete, including the development of
a working model.
REVENUE RECOGNITION
As of January 1, 1998, the Company adopted American Institute of Certified
Public Accountants' Statement of Position 97-2, "Software Revenue
Recognition"(SOP 97-2), as amended by SOP 98-4 which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The adoption of SOP 97-2 had no effect on the revenues or earnings for
F-38
<PAGE> 110
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the period. The Company recognizes software license revenue when an executed
license agreement, unconditional purchase order or contract is received,
delivery of the product has occurred, collection of the resulting receivable is
assessed as probable and the fee is fixed or determinable based upon
vendor-specific objective evidence of the arrangement.
Certain of the Company's contracts require significant customization and
implementation to meet the customer's requirements. The Company accounts for the
related license fees and services under the completed contract accounting method
since the Company does not yet have the ability to estimate the total costs to
complete such contracts with reasonable accuracy. Accordingly, all revenues and
costs are deferred until the contract is completed unless it becomes apparent
that there will be a loss in which case the estimated loss is recognized. At
December 31, 1998 there were no such contracts in process. At March 31, 1999 the
Company had deferred $146,000 in revenue and $63,000 of costs with respect to
such contracts.
COST OF REVENUES
Cost of licenses includes documentation and other production costs.
Cost of services consists primarily of salaries, related taxes and benefits
and other allocated overhead costs.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with original maturities of three months or less when acquired and which are
readily convertible to cash.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and notes payable. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximates their
fair value based on the liquidity of these financial instruments or based on
their short-term nature. The carrying value of the notes payable approximates
fair value based on market interest rates and the short-term nature of the
notes.
INCOME TAXES
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes (Statement 109)." Statement 109 is an
asset and liability method whereby deferred tax assets and liabilities are
determined based upon differences between the financial reporting and income tax
basis of the underlying assets and liabilities using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income (Statement 130)." Statement 130 establishes new rules for
reporting and display of comprehensive loss and its components. Comprehensive
loss is the same as net loss for all periods presented.
F-39
<PAGE> 111
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123 "Accounting for
Stock-Based Compensation" (Statement 123). APB 25 provides that the compensation
expense relative to the Company's employee stock options is measured based on
the intrinsic value of the stock option. Statement 123 requires companies that
continue to follow APB 25 to provide a pro forma disclosure of the impact of
applying the fair value method of Statement 123 (see Note 9).
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment........................... $ 161,831 $ 214,279
Purchased software........................... 25,135 35,758
Office furniture and other................... 18,011 48,265
--------- ---------
204,977 298,302
Less accumulated depreciation................ (103,323) (180,075)
--------- ---------
$ 101,654 $ 118,227
========= =========
</TABLE>
3. NOTE PAYABLE TO STOCKHOLDERS
On November 2, 1998, the Company obtained financing in the form of a note
payable to the Class B and C redeemable convertible common (Class B and C)
stockholders. The note makes available $200,000, of which $150,000 was
outstanding at December 31, 1998. The note bears interest at 8 percent and is
due 90 days from the execution of the note. Borrowings under the note are
collateralized by substantially all assets of the Company. Payment of the note
is also personally guaranteed by the majority Class A stockholder of the Company
and secured by his pledge of 30,000 shares of Class A common stock. In exchange
for the financing, the Class B and C stockholders obtained the voting rights of
the majority Class A stockholder during the period the note is outstanding. The
note is convertible to an equity instrument at the option of the Class B and C
stockholders. The terms of the conversion are to be negotiated and executed at
the date the conversion option is exercised.
Subsequent to December 31, 1998, the Class B and C stockholders extended
the due date of the note payable to May 2, 1999. In the event of default, the
Class B and C stockholders have the option to exercise their rights under the
Company asset pledge or the personal guaranty of the majority Class A
stockholder. Also in the event of default, the interest rate increases to the
lesser of 15 percent or the highest interest rate available under the law.
F-40
<PAGE> 112
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain office equipment under
operating lease agreements expiring through November 14, 1999. Expense
recognized under operating leases was $53,000 for the years ended December 31,
1997 and 1998.
Amounts due under operating lease commitments for years subsequent to 1998
amount to $44,000, all of which is due in 1999.
5. EMPLOYEE BENEFIT PLAN
All employees who have attained the age of 21 and have completed 1 year of
service are eligible for the Company's 401(k) retirement plan. Employee
contributions are limited to 15 percent of compensation and subject to other IRS
limitations. The Company does not contribute to the plan.
6. INCOME TAXES
The Company has net operating loss carryforwards at December 31, 1998, of
approximately $2.3 million that begin to expire in 2011. The net operating loss
carryforwards have been fully reserved by a valuation allowance due to the
uncertainties related to their future utilization. The valuation allowance
increased during 1997 and 1998 by $161,000 and $543,000, respectively. The
differences between the Company's effective tax rate and the statutory Federal
income tax rate of 34% is the Federal statutory rate. The reason for such
difference is an increase in the valuation reserves provided for deferred taxes.
The significant components of the Company's deferred tax asset are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Book depreciation in excess of tax.......................... $ 6,000 $ 8,000
Tax revenue in excess of book............................... (34,000) (1,000)
Net operating loss carryforward............................. 349,000 857,000
--------- ---------
Total..................................................... 321,000 864,000
Less valuation allowance.................................. (321,000) (864,000)
--------- ---------
Net deferred tax asset.................................... $ -- $ --
========= =========
</TABLE>
The Company paid no income taxes for the years ended December 31, 1997 and
1998.
7. REDEEMABLE CONVERTIBLE COMMON STOCK AND WARRANTS
On June 7, 1996, the Company issued 15,000 shares of Class B redeemable
convertible common stock (Class B Stock) to two third-party investors for net
cash proceeds of $1,467,619. On July 8, 1998, the Company issued 7,500 shares of
Class C redeemable convertible common stock (Class C Stock) to the same
third-party investors for net cash proceeds of $723,468. Each share of the Class
B and C common stock has no par value and is convertible, at the option of the
holder, into one share of Class A common stock. Upon the liquidation,
dissolution, or winding up of the Company, the Class B and C common stockholders
will be entitled to be paid an amount equal to their original investment, before
any distribution or payment is made to any other class of stockholders of the
corporation.
F-41
<PAGE> 113
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
7. REDEEMABLE CONVERTIBLE COMMON STOCK AND WARRANTS (CONTINUED)
After June 7, 2001, holders of at least 20 percent of Class B and C stock
may require the Company to redeem all of their shares in eight quarterly
installments beginning with the quarter that notification of redemption was
received. The redemption will occur at the fair value of the shares as
determined by the Company and at least two-thirds of the stockholders of the
convertible stock that is being redeemed. The Company is accreting the Class B
and C stock to the redemption value on the straight-line method to June 7, 2001.
There has been no change in the estimated fair value of the Class B and C stock
since its issuance.
The Company has outstanding warrants which give the holder the right to
acquire 3,816 shares of the Company's Class B stock. The warrants may be
exercised in whole or in part (but not less than an amount equal to one percent
of the total common shares outstanding) at any time at $91.72 per share, and
expire if not exercised on June 7, 2000. The warrant agreement is structured
such that the Class B stock obtained on conversion is assured of being equal to
five percent of the total number of common shares (including Class A, B and C)
outstanding. If this results in an increase in the number of shares subject to
warrants, the $91.72 exercise price is decreased proportionately.
Warrants to acquire 3,421 shares of Class B stock were originally issued in
conjunction with the sale of the Class B stock in 1996. Class B stock proceeds
in the amount of $25,000 were allocated to the warrants based on an estimate of
fair value. While the warrants were not exercised by their expiration date, the
Company agreed to issue new warrants in conjunction with the sale of the Class C
stock in 1998. Class C stock proceeds in the amount of $65,000 were allocated to
the warrants based on an estimate of fair value. The $25,000 allocated to the
expired warrants was reclassified to accumulated deficit.
8. STOCK OPTIONS
The Company has elected to follow APB 25, in accounting for its employee
stock options. Under APB 25, as long as the exercise price of the Company's
employee stock options equals or exceeds the fair value of the underlying stock
on the date of the grant, no compensation expense is recognized.
In 1996, the Company implemented an incentive stock option program for
certain employees, directors, advisors and consultants. Under the plan, options
to purchase Class A common stock of the Company will be granted to participants
at an exercise price to be determined by the Board of Directors. Incentive stock
options granted under the plan shall be granted to employees only and may not
have an exercise price less than the per share fair market value of the Class A
common stock on the date of the grant. Incentive stock options have a term of
ten years and vest over four years commencing on the one-year anniversary of the
date of the grant.
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for all its employee stock options grants under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a minimum value pricing model with the
following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life of the award............................... 4 years
Dividend yield........................................... 0 percent
Risk-free interest rate.................................. 5 percent
</TABLE>
F-42
<PAGE> 114
ENACT INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. For the year
ended December 31, 1998, the pro forma Statement 123 expense was $15,764 and the
pro forma Statement 123 net loss was $1,381,459.
Option activity under the incentive stock option program is as follows:
<TABLE>
<CAPTION>
PER SHARE WEIGHTED
EXERCISE AVERAGE
SHARES PRICE EXERCISE PRICE
------ --------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1998........................ -- -- --
Granted............................................. 4,875 $100 $100
Exercised........................................... -- -- --
Expired or canceled................................. -- -- --
----- ---- ----
Outstanding at December 31, 1998...................... 4,875 $100 $100
===== ==== ====
</TABLE>
The weighted average fair value of options granted in 1998 was $22.12, with
a weighted average contractual life of approximately 5 years.
9. GOING CONCERN
The Company has incurred operating losses to date and has negative net
worth and negative working capital at December 31, 1998. To date, the Company
has been funded through debt and equity infusions from certain principal
shareholders. The inability of the Company to attract additional capital and
ultimately, to achieve profitability, could result in discontinuation of the
Company's business.
The Company's ultimate ability to continue as a going concern depends on
the market acceptance of products utilizing its proprietary technology and the
achievement of operating profits and positive cash flow. Management believes
that the Company will be able to attract additional debt or equity financing in
amounts adequate to continue operating through 1999. In addition, the Company
will continue to work with its Class B and C stockholders to extend the due date
of the note payable. Any limitations on the Company's ability to obtain
financing will result in reduction of operating expenses.
10. SUBSEQUENT EVENT
On April 30, 1999, the Company was acquired by a third party.
F-43
<PAGE> 115
SALESLOGIX CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma condensed consolidated financial statements give
effect to the acquisition of Enact Incorporated ("Enact") by SalesLogix.
SalesLogix' acquisition of Enact will be accounted for using the purchase method
of accounting. The assets acquired and liabilities assumed will be recorded
based on their estimated fair values at the date of the acquisition.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1998 and for the three months ended March 31, 1999
give effect to the acquisition of Enact as if it had occurred on January 1, 1998
and include adjustments directly attributable to the acquisition of Enact and
expected to have a continuing impact on the combined company. The unaudited pro
forma condensed consolidated balance sheet as of March 31, 1999 gives effect to
the acquisition of Enact as if it occurred on March 31, 1999 and reflects the
SalesLogix and Enact balance sheets both as of March 31, 1999, the most recent
historical balance sheets for both companies. As the pro forma financial
statements have been prepared based on estimated fair values, amounts actually
recorded may change upon determination of the total purchase price and
additional analysis of individual assets acquired and liabilities assumed. There
can be no assurance that actual pro forma adjustments will not vary
significantly from the estimated adjustments reflected in the unaudited pro
forma condensed consolidated financial statements.
The unaudited pro forma information is derived from historical financial
statements of the SalesLogix and Enact and should be read in conjunction with
the historical consolidated financial statements and related notes thereto of
the SalesLogix and the historical financial statements and related notes thereto
of Enact. The unaudited pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations that would have been reported if the acquisition had been
consummated as presented in the accompanying unaudited pro forma condensed
consolidated financial statements.
F-44
<PAGE> 116
SALESLOGIX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
SALESLOGIX ENACT ADJUSTMENTS
HISTORICAL HISTORICAL NOTE 2 PRO FORMA
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 9,354,021 $ -- $ (4,216,666)(a) $ 5,137,355
Accounts receivable, net.............. 6,107,496 163,195 6,270,691
Other current assets.................. 1,705,986 -- (275,000)(b) 1,430,986
----------- ----------- ------------ -----------
Total current assets.......... 17,167,503 163,195 (4,491,666) 12,839,032
Property and equipment, net............. 2,811,732 101,492 2,913,224
Other assets, net....................... 4,281,691 -- 8,468,727(c) 12,750,418
----------- ----------- ------------ -----------
Total assets.................. $24,260,926 $ 264,687 $ 3,977,061 $28,502,674
=========== =========== ============ ===========
Current liabilities:
Accounts payable and accrued
expenses........................... $ 3,700,238 $ 218,187 $ 625,000(d) $ 4,543,425
Current portion of notes payable...... 691,304 116,667 (116,667)(a) 691,304
Current portion of capital lease
obligations........................ 538,484 -- 538,484
Deferred revenue...................... 2,501,966 437,662 (275,000)(b) 2,664,628
Billings in excess of costs incurred
on contracts....................... -- 83,000 -- 83,000
----------- ----------- ------------ -----------
Total current liabilities..... 7,431,992 855,516 233,333 8,520,841
Notes payable, less current portion..... 684,782 -- 684,782
Capital lease obligations, less current
portion............................... 358,947 -- 358,947
Deferred rental obligation.............. 106,239 -- 106,239
Redeemable convertible common stock..... -- 2,225,292 (2,225,292)(e) --
Total stockholders' equity (deficit).... 15,678,966 (2,816,121) 5,969,020(f) 18,831,865
----------- ----------- ------------ -----------
$24,260,926 $ 264,687 $ 3,977,061 $28,502,674
=========== =========== ============ ===========
</TABLE>
See accompanying notes
F-45
<PAGE> 117
SALESLOGIX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
SALESLOGIX ENACT ADJUSTMENTS
HISTORICAL HISTORICAL NOTE 2 PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Licenses............................ $ 4,224,971 -- $ 4,224,971
Services............................ 2,076,787 83,451 2,160,238
----------- ----------- ----------- -----------
Total revenues................... 6,301,758 83,451 6,385,209
Costs of revenues
Licenses............................ 332,311 -- 332,311
Services............................ 1,350,528 119,884 1,470,412
----------- ----------- ----------- -----------
Total costs of revenues.......... 1,682,839 119,884 1,802,723
----------- ----------- ----------- -----------
Gross profit.......................... 4,618,919 (36,433) 4,582,486
Operating expenses
Sales and marketing................. 3,561,070 216,711 3,777,781
Research and development............ 1,285,747 78,636 1,364,383
General and administrative.......... 587,253 73,833 661,086
Amortization of acquisition related
intangible assets................ 279,046 -- 573,910(g) 852,956
----------- ----------- ----------- -----------
Total operating expenses......... 5,713,116 369,180 573,910 6,656,206
----------- ----------- ----------- -----------
Loss from operations.................. (1,094,197) (405,613) (573,910) (2,073,720)
Interest and other income, net........ 47,623 -- 47,623
----------- ----------- ----------- -----------
Loss before provision for income
taxes............................... (1,046,574) (405,613) (573,910) (2,026,097)
Provision for income taxes............ -- -- -- --
----------- ----------- ----------- -----------
Net loss.............................. $(1,046,574) $ (405,613) $ (573,910) $(2,026,097)
=========== =========== =========== ===========
Historical basic and diluted net loss
per share........................... $ (0.30) $ (0.53)
===========
Pro forma basic and diluted net loss
per share........................... $ (0.08) $ (0.15)
=========== ===========
Shares used in historic basic and
diluted net loss per share.......... 3,442,778 407,531(h) 3,850,309
=========== =========== ===========
Shares used in computation of pro
forma basic and diluted net loss per
share............................... 13,488,214 407,531(h) 13,895,745
=========== =========== ===========
</TABLE>
See accompanying notes
F-46
<PAGE> 118
SALESLOGIX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
SALESLOGIX ENACT ADJUSTMENTS
HISTORICAL HISTORICAL NOTE 2 PRO FORMA
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Licenses........................... $10,105,401 $ 224,175 $ 10,329,576
Services........................... 5,537,210 339,660 5,876,870
----------- ----------- ----------- ------------
Total revenues.................. 15,642,611 563,835 16,206,446
Costs of revenues
Licenses........................... 604,039 4,484 608,523
Services........................... 4,299,004 322,202 4,621,206
----------- ----------- ----------- ------------
Total costs of revenues......... 4,903,043 326,686 5,229,729
----------- ----------- ----------- ------------
Gross profit......................... 10,739,568 237,149 10,976,717
Operating expenses
Sales and marketing................ 10,029,741 748,565 10,778,306
Research and development........... 3,845,179 406,985 4,252,164
General and administrative......... 2,150,928 361,843 2,512,771
Amortization of acquisition related
intangible assets............... 1,436,185 -- 2,295,640(g) 3,731,825
----------- ----------- ----------- ------------
Total operating expenses........ 17,462,033 1,517,393 2,295,640 21,275,066
----------- ----------- ----------- ------------
Loss from operations................. (6,722,465) (1,280,244) (2,295,640) (10,298,349)
Interest and other income, net....... 130,627 549 131,176
----------- ----------- ----------- ------------
Loss before provision for income
taxes.............................. (6,591,838) (1,279,695) (2,295,640) (10,167,173)
Provision for income taxes........... -- -- -- --
----------- ----------- ----------- ------------
Net loss............................. $(6,591,838) $(1,279,695) $(2,295,640) $(10,167,173)
=========== =========== =========== ============
Historic basic and diluted net loss
per share.......................... $ (1.75) $ (2.43)
=========== ============
Pro forma basic and diluted net loss
per share.......................... $ (0.54) $ (0.80)
=========== ============
Shares used in historic basic and
diluted net loss per share......... 3,770,703 407,531(h) 4,178,234
=========== =========== ============
Shares used in computation of pro
forma basic and diluted net loss
per share.......................... 12,310,517 407,531(h) 12,718,048
=========== =========== ============
</TABLE>
See accompanying notes
F-47
<PAGE> 119
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Company acquired Enact Incorporated ("Enact") on April 30, 1999.
The unaudited pro forma condensed consolidated statements of operations
reflect the effects of the acquisition of Enact, assuming the acquisition had
occurred as of January 1, 1998 for the year ended December 31, 1998 and for the
three months ended March 31, 1999. The unaudited pro forma condensed
consolidated balance sheet as of March 31, 1999 reflects the effects of the
acquisition of Enact, assuming the acquisition had occurred on March 31, 1999.
The unaudited pro forma information presented is not necessarily indicative of
future consolidated results of operations of SalesLogix or the condensed
consolidated results of operations that would have resulted had the acquisition
taken place on January 1, 1998.
2. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL ADJUSTMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the following pro forma adjustments.
(a) Represents the cash portion of the purchase price and the
repayment of the Enact notes payable.
(b) To reflect the elimination of a deposit made by Saleslogix to
Enact.
(c) The preliminary allocation of the purchase price resulted in
intangible assets, primarily capitalized technology and goodwill, of
$8,468,727, which are amortized on a straight-line basis over five years.
In connection with the acquisition, SalesLogix estimates that it will
record a charge of approximately $900,000 for in-process research and
development upon closing of the acquisition. In-process research and
development charges have not been reflected in the pro forma condensed
consolidated statement of operations for the year ended December 31, 1998
or for the three months ended March 31, 1999 as they are considered a
nonrecurring charge.
(d) To reflect the estimated costs of the acquisition to be paid as of
March 31, 1999.
(e) To reflect the retirement of the outstanding redeemable
convertible Class B and Class C common shares of Enact.
(f) To reflect the retirement of the outstanding Class A common stock
of Enact and the issuance of 407,531 shares of SalesLogix common stock and
37,282 common stock options. Also gives effect to the write-off of $900,000
of acquired in-process research and development.
(g) To reflect the amortization of acquisition related intangible
assets including the amortization relating to the 201,893 shares subject to
three year monthly vesting based on the continued employment of certain
officers of Enact.
(h) To reflect additional shares to be issued in the acquisition
(excludes restricted shares which are antidilutive common stock
equivalents).
3. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED HISTORIC AND PRO FORMA NET LOSS
PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1998 and the three months ended March 31, 1999
are based upon historical weighted average common shares outstanding for
historical per share amounts, and are further adjusted to reflect the issuance,
as of January 1, 1998, of shares as described in Note 2 to these Notes to
Unaudited Pro Forma Condensed Consolidated Financial Statements, and the
conversion of all preferred shares into common shares for pro forma per share
amounts. The SalesLogix common
F-48
<PAGE> 120
SALESLOGIX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
stock issuable upon the exercise of stock options have been excluded as the
effect would be anti-dilutive.
4. ALLOCATION OF THE PURCHASE PRICE
The following table represents the preliminary allocation of the purchase
price (in thousands):
<TABLE>
<S> <C>
Purchased technology........................................ $2,800,000
Goodwill.................................................... 5,668,727
Write-off of in-process research and development............ 900,000
Net liabilities acquired, including costs of acquisition.... (1,215,829)
Less: common stock issued................................... (4,052,899)
----------
Cash portion of purchase price.............................. $4,099,999
==========
</TABLE>
SalesLogix is in process of obtaining a final valuation of the intangible
assets acquired from an independent third party. Purchased technology and
goodwill will be amortized over five years. SalesLogix also expects that Enact
will continue to incur net losses from March 31, 1999 until the acquisition is
consummated. Such losses will have the effect of increasing the amount of net
liabilities to be acquired with a corresponding increase to goodwill and related
future amortization expense.
F-49
<PAGE> 121
INSIDE BACK COVER
[ARTWORK - SALESLOGIX SCREEN SHOTS]
DESCRIPTION
Conceptual overview of SalesLogix product. Includes visual
representations of product working in networked or web-based environments.
TEXT
SalesLogix... What You Need to Sell
Contact Management
See a company wide view of the relationship between several contacts with any
single account.
Account Management
Access impact of variables on sales pipeline, track and coordinate account
activities and integrate external partners over the web.
Opportunity Management
Analyze opportunities and accurately predict where future revenue will come from
instantaneously.
Order Management
Allow customers and external partners to manage customer interactions across
their e-commerce storefronts.
<PAGE> 122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,325,000 SHARES
[SALES LOGIX LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
HAMBRECHT & QUIST BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
CHARLES SCHWAB & CO., INC.
-----------------------------------------------
, 1999
-----------------------------------------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
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.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH THE RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,694
NASD filing fee............................................. 4,707
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous expenses...................................... 73,599
--------
Total............................................. $750,000
========
</TABLE>
- ------------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's fifth restated certificate of incorporation ("Restated
Certificate") provides that the Company shall indemnify directors, officers and
their legal representatives to the fullest extent permitted by the Delaware
general corporate law ("DGCL"). The DGCL contains an extensive indemnification
provision which provides that a corporation shall have the power to 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, 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 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. In suits by or in the
right of a corporation, only expenses and not judgments, fines and amounts paid
in settlement may be indemnified against. In addition, if a director or
successfully defends against such action, suit or proceeding, such officer or
director must be indemnified against expenses.
The Restated Certificate also provides that directors of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty. However, this provision does not eliminate or
limit the liability of a director for breach of the director's duty of loyalty
to the Company or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for the
payment of dividends or distributions or the redemption or purchase of the
Company's shares of stock in violation of the DGCL, or for any transaction from
which the director derives an improper personal benefit. This provision does not
affect any liability of a director or officer under the federal securities laws.
II-1
<PAGE> 124
The Restated Certificate requires and the DGCL authorizes, the Company to
indemnify directors and officers on terms sufficiently broad to permit
indemnification under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The directors and
officers of the registrant also may be indemnified against liability they may
incur for serving in that capacity pursuant to a liability insurance policy
maintained by the registrant for such purpose.
The underwriting agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the registrant and its executive officers
and directors and by the registrant of the underwriters, for certain
liabilities, including liabilities arising under the Securities Act, in
connection with matters specifically provided in writing by the underwriters for
inclusion in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1996, the registrant has issued and sold unregistered
securities as follows:
1. In January 1996, the registrant issued 4,500,000 shares of Series A
Preferred Stock, which are convertible into 3,000,000 shares of Common
Stock, to four investors, consisting of InnoCal, L.P., Canaan Ventures II
Limited Partnership, Cannan Ventures Offshore Limited Partnership, C.V. and
Newtek Ventures II, L.P., for a consideration of $1.00 per share of Series
A Preferred Stock, or an aggregate of $4,500,000. The foregoing purchases
and sales were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transactions did not involve
a public offering.
2. In May 1996, the registrant issued 33,333 shares of Class A Common
Stock to an employee in exchange for proprietary intellectual property,
valued at $5,000 based on the price of other third party equity
transactions. The foregoing purchase and sale was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis that
the transactions did not involve a public offering.
3. In October 1996, the registrant issued 85,000 shares of Series A
Preferred Stock, which are convertible into 56,669 shares of Common Stock,
to three investors, consisting of Deepak Kamra, Morris Ventures and John M.
Purtell, for a consideration of $1.00 per share of Series A Preferred
Stock, or an aggregate of $85,000. The foregoing purchases and sales were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof on the basis that the transactions did not involve a public
offering.
4. In March 1997, the registrant issued 4,031,057 shares of Series C
Preferred Stock, which are convertible into 2,687,375 shares of Common
Stock, to thirteen investors, Sigma Partners III, L.P., Sigma Associates
III, L.P., Sigma Investors III, L.P., John R. Mandile, InnoCal, L.P.,
Canaan Ventures II Limited Partnership, Canaan Ventures Offshore Limited
Partnership, C.V., Newtek Ventures II, L.P., Comdisco, Inc., Morris
Ventures, Deepak Kamra, Brinson Venture Capital Fund III, L.P. and Brinson
Map Venture Capital Fund III Trust, for a consideration of $1.61 per share
of Series C Preferred Stock, or an aggregate of $6,490,002. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
5. In December 1997, the registrant issued 1,228,654 shares of Series
D Preferred Stock for a consideration of $3.21 per share of Series D
Preferred Stock, or an aggregate of $3,943,979 and options to purchase
96,836 shares of Series D Preferred Stock at an exercise price of $.8515
per share, which are convertible into an aggregate of 883,664 shares of
Common Stock, to stockholders and option holders of Opis Corporation in
connection with the acquisition of Opis by the Company. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
II-2
<PAGE> 125
6. In June 1998, the registrant issued 3,940,887 shares of Series E
Preferred Stock, which are convertible into an aggregate of 2,627,264
shares of Common Stock, to nineteen investors, consisting of all of the
Series C investors, except that Canaan Equity L.P. replaced the two Canaan
entities and Anthony P. Morris replaced Morris Ventures, plus Sierra
Ventures VI, L.P., SV Associates VI, L.P., G&H Partners, Robert Simon, The
Goldman Sachs Group, L.P., Stone Street Fund 1998, L.P. and Bridge Street
Fund 1998, L.P., for a consideration of $4.06 per share of Series E
Preferred Stock, or an aggregate of $16,000,000. The foregoing purchases
and sales were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transactions did not involve
a public offering.
7. In December 1998, the registrant issued 615,764 shares of Series E
Preferred Stock, which are convertible into an aggregate of 410,510 shares
of Common Stock, to six investors, consisting of Sierra Ventures VI, L.P.,
SV Associates VI, L.P., Canaan Equity, L.P., Deepak Kamra, Eric Young and
Gregory Kopchinski, for a consideration of $4.06 per share of Series E
Preferred Stock, or an aggregate of $2,500,000. The foregoing purchases and
sales were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transactions did not involve a
public offering.
8. From January 1996 through March 31, 1999, the registrant granted
stock options to purchase 3,223,843 shares of common stock, with exercise
prices ranging from $.15 to $9.00 per share, to employees and consultants
pursuant to its 1996 Equity Incentive Plan. Of these options, options for
475,838 shares have been canceled without being exercised, options for
1,254,135 shares have been exercised, options for 1,493,870 shares remain
outstanding and 1,751,995 shares remain available for future grant. The
sales and issuances of these securities were exempt from registration under
the Securities Act pursuant to Rule 701 promulgated thereunder on the basis
that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.
9. From January 1998 through March 31, 1999, the registrant granted
stock options to purchase 87,503 shares of common stock, with exercise
prices ranging from $.60 to $9.00 per share, to its Business Partners
pursuant to its 1998 Business Partner Stock Option Plan. Of these options,
4,000 options have been canceled without being exercised, 500 options have
been exercised, options for 83,003 shares remain outstanding and 66,497
shares remain available for future grant. The sales and issuances of these
securities were exempt from registration under the Securities Act pursuant
to Rule 701 promulgated thereunder on the basis that these options were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to written contracts relating to consideration, as provided by
Rule 701.
10. In connection with the registrant's acquisition of Enact
Incorporated on April 30, 1999, the registrant issued 609,424 shares of its
common stock, of which 201,893 shares are restricted subject to three year
annual vesting based upon the continued employment of former Enact
officers. This purchase and sale was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction does not involve a public offering.
11. Concurrent with this public offering, The Goldman Sachs Group,
L.P. and two affiliates, all of whom are existing stockholders, have agreed
to purchase an aggregate of $3.5 million of our common stock in a private
placement at a price per share equal to our initial public offering price,
less 3.5%. This purchase and sale will be exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction does not involve a public offering.
II-3
<PAGE> 126
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 Form of underwriting agreement.
3.1+ Fourth Restated Certificate of Incorporation of the
registrant.
3.2+ Certificate of Amendment to Fourth Restated Certificate of
Incorporation of registrant dated December 23, 1998.
3.3+ Certificate of Amendment to Fourth Restated Certificate of
Incorporation of registrant dated March 23, 1999.
3.4+ Form of Fifth Restated Certificate of Incorporation of the
registrant to be filed in connection with the closing of
this offering.
3.5+ Form of Second Restated Bylaws of the registrant to be
effective upon filing of the Fifth Restated Certificate.
4.1+ Amended and Restated Investors' Rights Agreement, dated as
of June 4, 1998, by and among the registrant and the parties
named therein.
4.2+ Opis Investors' Rights Agreement, dated as of December 30,
1997, among the registrant and the parties named therein.
4.3+ Warrant to Purchase Stock, dated December 2, 1997, issued to
Silicon Valley Bank that includes piggyback registration
rights.
4.4 Stock Purchase Agreement, dated as of April 22, 1999, among
the registrant, The Goldman Sachs Group, L.P., Stone Street
Fund 1998, L.P., and Bridge Street Fund 1998, L.P.
4.5 Amendment to Amended and Restated Investors' Rights
Agreement, dated as of April 22, 1999 among the registrant
and the parties named therein.
4.6 Enact Investors' Rights Agreement dated as of April 30, 1999
among the registrant and the parties named therein.
5.1 Opinion of Osborn Maledon, P.A. as to the legality of the
shares.
10.1+ Office Lease Agreement, dated as of June 17, 1998, between
Gainey Ranch Corporate Center and the registrant.
10.2+ Second Amended and Restated Loan and Security Agreement,
dated as of December 2, 1997, between Silicon Valley Bank
and the registrant and modifications thereto.
10.3+ Master Equipment Lease dated June 7, 1996 between the
registrant and Comdisco, Inc., including subsequent
schedules of equipment.
10.4+ 1996 Equity Incentive Plan, as amended.
10.5+ 1998 Business Partner Stock Option Plan, as amended.
10.6+ 1999 Non-Employee Director Stock Option Plan, to be
effective on consummation of this offering.
10.7+ 1999 Employee Stock Purchase Plan, to be effective on
consummation of this offering.
10.8+ Employment Agreement dated January 17, 1996 with Patrick M.
Sullivan.
10.9+ Employment Agreement dated December 30, 1997 with Doug J.
Nicholas.
10.10+ Form of employee proprietary rights agreement.
10.11+ Software License Agreement dated February 19, 1997 between
the registrant and The McCosker Corporation.
10.12+** Software Distribution License Agreement dated October 30,
1997 between the registrant and IQ Software.
</TABLE>
II-4
<PAGE> 127
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.13+** Intellisync Runtime License Agreement dated December 18,
1998 between the registrant and Puma Technology.
10.14+** No-Nonsense VAR Agreement dated September 10, 1996 between
the registrant and Borland International, as amended.
10.15+ OEM License Agreement dated June 28, 1997 between Seagate
Software Information Management Group and Opis Corporation,
registrant's predecessor in interest, as amended.
10.16+ OEM Agreement dated May 28, 1996 between Verity, Inc. and
Opis Corporation, registrant's predecessor in interest, as
amended.
10.17+ Form of standard multi-user license and warranty agreement.
10.18+ Form of extended software license agreement.
10.19+ Form of software Business Partner agreement.
10.20+ Form of OEM partner agreement.
10.21+ Form of premium care maintenance and technical support
agreement.
10.22+ Form of standard consulting agreement.
10.23 Plan of Reorganization and Agreement of Merger dated as of
April 30, 1999 among the registrant, SLX Merger Company and
Enact Incorporated.
10.24 Escrow Agreement dated as of April 30, 1999 among the
registrant, SLX Merger Company, Harris Trust Company and the
shareholders named therein.
10.25 Employment Agreement dated as of April 30, 1999 with Matt
Chase.
10.26 Employment Agreement dated as of April 30, 1999 with Bruce
Chase.
10.27 Restricted Stock Agreement dated as of April 30, 1999,
between the registrant and Bruce Chase.
10.28 Consulting Agreement dated as of April 30, 1999 with S.
Griffin Burgh.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Independent Auditors
23.4 Consent of Osborn Maledon, P.A. (contained in the opinion
filed as Exhibit 5.1 hereto).
24.1+ Power of Attorney (contained on signature page).
24.2 Power of Attorney for John B. Carrington
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed previously.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) Financial Statement Schedules
Section II--Valuation and Qualifying Accounts
Other financial statement schedules have not been presented, as they are
not applicable.
II-5
<PAGE> 128
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, State of Arizona, on the 5th day of May, 1999.
SALESLOGIX CORPORATION
By: /s/ PATRICK M. SULLIVAN
------------------------------------
Patrick M. Sullivan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 5th day of May, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PATRICK M. SULLIVAN President, Chief Executive Officer and
- ----------------------------------------------------- Chairman of the Board (Principal Executive
Patrick M. Sullivan Officer)
/s/ GARY R. ACORD Vice President, Chief Financial Officer,
- ----------------------------------------------------- Secretary and Treasurer (Principal Financial
Gary R. Acord and Accounting Officer)
*HARRY LAMBERT Director
- -----------------------------------------------------
Harry Lambert
*DEEPAK KAMRA Director
- -----------------------------------------------------
Deepak Kamra
*ANTHONY P. MORRIS Director
- -----------------------------------------------------
Anthony P. Morris
*DAVID C. SCHWAB Director
- -----------------------------------------------------
David D. Schwab
*CRAIG A. CONWAY Director
- -----------------------------------------------------
Craig A. Conway
*JOHN B. CARRINGTON Director
- -----------------------------------------------------
John B. Carrington
*By: /s/ GARY R. ACORD
------------------------------------------------
Gary R. Acord
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 130
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SALESLOGIX CORPORATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------- ---------- ----------------------- ------------ ----------
ADDITIONS
-----------------------
CHARGED TO
BALANCE OF CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTION -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) PERIOD
- ----------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful
accounts.................. -- -- -- -- --
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful
accounts.................. -- 181 -- -- 181
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful
accounts.................. 181 666 -- 392 455
</TABLE>
- ------------------------------
(1) Uncollectible accounts written off, net of recoveries.
II-8
<PAGE> 131
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of underwriting agreement.
3.1+ Fourth Restated Certificate of Incorporation of the
registrant.
3.2+ Certificate of Amendment to Fourth Restated Certificate of
Incorporation of registrant dated December 23, 1998.
3.3+ Certificate of Amendment to Fourth Restated Certificate of
Incorporation of registrant dated March 23, 1999.
3.4+ Form of Fifth Restated Certificate of Incorporation of the
registrant to be filed in connection with the closing of
this offering.
3.5+ Form of Second Restated Bylaws of the registrant to be
effective upon filing of the Fifth Restated Certificate.
4.1+ Amended and Restated Investors' Rights Agreement, dated as
of June 4, 1998, by and among the registrant and the parties
named therein.
4.2+ Opis Investors' Rights Agreement, dated as of December 30,
1997, among the registrant and the parties named therein.
4.3+ Warrant to Purchase Stock, dated December 2, 1997, issued to
Silicon Valley Bank that includes piggyback registration
rights.
4.4 Stock Purchase Agreement, dated as of April 22, 1999, among
the registrant, The Goldman Sachs Group, L.P., Stone Street
Fund 1998, L.P., and Bridge Street Fund 1998, L.P.
4.5 Amendment to Amended and Restated Investors' Rights
Agreement, dated as of April 22, 1999 among the registrant
and the parties named therein.
4.6 Enact Investors' Rights Agreement dated as of April 30, 1999
among the registrant and the parties named therein.
5.1 Opinion of Osborn Maledon, P.A. as to the legality of the
shares.
10.1+ Office Lease Agreement, dated as of June 17, 1998, between
Gainey Ranch Corporate Center and the registrant.
10.2+ Second Amended and Restated Loan and Security Agreement,
dated as of December 2, 1997, between Silicon Valley Bank
and the registrant and modifications thereto.
10.3+ Master Equipment Lease dated June 7, 1996 between the
registrant and Comdisco, Inc., including subsequent
schedules of equipment.
10.4+ 1996 Equity Incentive Plan, as amended.
10.5+ 1998 Business Partner Stock Option Plan, as amended.
10.6+ 1999 Non-Employee Director Stock Option Plan, to be
effective on consummation of this offering.
10.7+ 1999 Employee Stock Purchase Plan, to be effective on
consummation of this offering.
10.8+ Employment Agreement dated January 17, 1996 with Patrick M.
Sullivan.
10.9+ Employment Agreement dated December 30, 1997 with Doug J.
Nicholas.
10.10+ Form of employee proprietary rights agreement.
10.11+ Software License Agreement dated February 19, 1997 between
the registrant and The McCosker Corporation.
10.12+** Software Distribution License Agreement dated October 30,
1997 between the registrant and IQ Software.
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.13+** Intellisync Runtime License Agreement dated December 18,
1998 between the registrant and Puma Technology.
10.14+** No-Nonsense VAR Agreement dated September 10, 1996 between
the registrant and Borland International, as amended.
10.15+ OEM License Agreement dated June 28, 1997 between Seagate
Software Information Management Group and Opis Corporation,
registrant's predecessor in interest, as amended.
10.16+ OEM Agreement dated May 28, 1996 between Verity, Inc. and
Opis Corporation, registrant's predecessor in interest, as
amended.
10.17+ Form of standard multi-user license and warranty agreement.
10.18+ Form of extended software license agreement.
10.19+ Form of software Business Partner agreement.
10.20+ Form of OEM partner agreement.
10.21+ Form of premium care maintenance and technical support
agreement.
10.22+ Form of standard consulting agreement.
10.23 Plan of Reorganization and Agreement of Merger dated as of
April 30, 1999 among the registrant, SLX Merger Company and
Enact Incorporated.
10.24 Escrow Agreement dated as of April 30, 1999 among the
registrant, SLX Merger Company, Harris Trust Company and the
shareholders named therein.
10.25 Employment Agreement dated as of April 30, 1999 with Matt
Chase.
10.26 Employment Agreement dated as of April 30, 1999 with Bruce
Chase.
10.27 Restricted Stock Agreement dated as of April 30, 1999,
between the registrant and Bruce Chase.
10.28 Consulting Agreement dated as of April 30, 1999 with S.
Griffin Burgh.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Ernst & Young LLP, Independent Auditors.
23.4 Consent of Osborn Maledon, P.A. (contained in the opinion
filed as Exhibit 5.1 hereto).
24.1+ Power of Attorney (contained on signature page).
24.2 Power of Attorney for John B. Carrington
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed previously.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE> 1
Exhibit 1.1
SALESLOGIX CORPORATION
SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
_____ __, 1999
HAMBRECHT & QUIST LLC
BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
CHARLES SCHWAB & CO., INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
SalesLogix Corporation, a Delaware corporation (herein called the
Company), proposes to issue and sell _______ shares of its authorized but
unissued Common Stock, $.001 par value (herein called the Common Stock),
proposes to sell an aggregate of _______ shares of Common Stock of the Company
(said ______ shares of Common Stock being herein called the Underwritten Stock).
The Company proposes to grant to the Underwriters (as hereinafter defined) an
option to purchase up to _________ additional shares of Common Stock (herein
called the Option Stock and with the Underwritten Stock herein collectively
called the Stock). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 33-75353), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
- --------
(1) Plus an option to purchase from the Company up to ___________additional
shares to cover over-allotments.
<PAGE> 2
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement and the Prospectus
and as being conducted, and is duly qualified as a foreign corporation and
in good standing in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified
would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole).
(b) The execution and delivery of the Agreement and Plan of Merger
dated as of April 30, 1999 (the "Merger Agreement") between Enact
Incorporated, an Ohio corporation ("Enact"), and the Company effecting the
merger of Enact with and into a wholly-owned subsidiary of the Company,
was authorized by all necessary corporate action on the part of each of
Enact and the Company. Each of Enact and the Company had all corporate
power and authority to execute and deliver the Merger Agreement, to file
the Merger Agreement with the Secretary of State of Ohio and the Secretary
of State of Delaware and to consummate the transactions contemplated by
the Merger Agreement. The Merger Agreement at the time of execution and
filing constituted a binding obligation of each of Enact and the Company,
enforceable in accordance with its terms, and the transactions
contemplated by the Merger Agreement have been consummated in accordance
with its terms.
(c) Except as disclosed in the Prospectus, all of the issued shares
of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable, are
owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims and were issued in compliance with all federal and
state securities laws.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement and
the Prospectus.
(e) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the Securities
Exchange Act of 1934, as amended (herein called the Exchange Act) and the
rules and regulations of the Commission thereunder; on the Effective Date,
the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (e) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to
the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus.
(f) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus relating to the proposed offering of
the Stock nor instituted or, to the knowledge of the Company, threatened
instituting proceedings for that purpose.
2
<PAGE> 3
(g) The shares of Common Stock are duly and validly authorized, is
(or, in the case of shares of the Stock to be sold by the Company, will
be, when issued and sold to the Underwriters as provided herein) duly and
validly issued, fully paid and nonassessable , have been issued in
compliance with all federal and state securities laws, were not issued in
violation of any preemptive right, resale right, right of first refusal or
similar right, and conform to the description thereof in the Prospectus.
No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the
Stock as contemplated herein.
(h) The Stock to be issued and sold by the Company has been approved
for listing on the Nasdaq National Market, subject only to official notice
of issuance.
(i) The consolidated financial statements of the Company, together
with related notes and schedules as set forth in the Registration
Statement ("Company Financial Statements"), present fairly the financial
position and the results of operations of the Company and its
subsidiaries, taken as a whole, at the indicated dates and for the
indicated periods. The financial statements of Opis Corporation, a wholly
owned subsidiary of the Company ("Opis"), now known as SupportLogix
Express, Inc., together with related notes and schedules as set forth in
the Registration Statement ("Opis Financial Statements"), present fairly
the financial position and the results of operations of Opis, at the
indicated dates and for the indicated periods. The financial statements of
Enact Incorporated, a wholly owned subsidiary of the Company ("Enact"),
together with related notes and schedules as set forth on the Registration
Statement ("Enact Financial Statements"), present fairly the financial
position and results of operations of Enact, at the indicated dates and
for the indicated periods. The pro forma condensed consolidated financial
statements of the Company, together with related notes and schedules as
set forth in the Registration Statement, present fairly the pro forma
financial information required by Article 11 of Regulation S-X of the
Securities and Exchange Commission at the indicated dates and for the
indicated periods. The financial statements, schedules and related notes
of the Company, Opis and Enact have been prepared in accordance with
generally accepted accounting principles, consistently applied through the
period involved, except as may be otherwise stated therein, and all
adjustments necessary for a fair presentation of results for such periods
have been made.
(j) Neither the Company nor any of its subsidiaries is in violation
or default under any provision of their respective charter documents or
bylaws, as currently in effect, or any indenture, license, mortgage,
lease, franchise, permit, deed of trust or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective properties is bound
or may be affected, except where such violation or default would not have
a material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole.
(k) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by applicable laws and except as
the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, or by general equitable principles.
(l) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of, or violation of, any of the terms
or provisions of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any indenture, license,
mortgage, lease, franchise, permit, deed of trust or other agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective
properties is bound or may be affected, except where such breach,
violation or default would not have a materially adverse effect on the
business, financial condition or results of operations of the Company and
its subsidiaries taken as a whole, or
3
<PAGE> 4
violate any of the provisions of the certificate or articles of
incorporation or bylaws, as applicable, each as amended, of the Company or
any of its subsidiaries or violate any order, judgment, statute, rule or
regulation applicable to the Company or any of its subsidiaries of any
court or of any regulatory, administrative or governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective properties.
(m) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described or
filed as required. The contracts so described in the Prospectus are in
full force and effect on the date hereof except as disclosed therein; and
neither the Company nor any of its subsidiaries nor, to the Company's
knowledge any other party, is in violation or breach of or default under
any of such contracts where such breach, violation or default would have
a material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries taken as a whole.
(n) The Company and its subsidiaries possess all consents,
approvals, orders, certificates, authorizations and permits issued by, and
has made all declarations and filings with, all appropriate federal, state
or foreign governmental and self-regulatory authorities and all courts and
other tribunals and all required state agencies in connection with
applicable franchise laws, regulations and requirements necessary to
conduct their respective businesses and to own, lease, license and use
their properties in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole, and
neither the Company nor its subsidiaries has received any notice of
proceedings related to the revocation or modification of any such consent,
approval, order, certificate, authorization or permit that, singly or in
the aggregate, could reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
(o) The Company and each of its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws with respect to its business as conducted and as
proposed to be conducted in the Registration Statement and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material adverse
effect on the Company or its subsidiaries, taken as a whole. There are no
costs or liabilities associated with Environmental Laws (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would,
singly or in the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(p) Neither the Company nor any of its subsidiaries owns any real
properties. The Company and each of its subsidiaries has good and
marketable title to all personal property that they respectively own free
and clear of all liens, encumbrances and defects except such as are
described in the Registration Statement or the Prospectus or such as do
not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or
its subsidiaries; and any real property and buildings held under lease by
the Company or its subsidiaries are held under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company or its subsidiaries.
(q) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock
to facilitate the sale or resale of the Stock.
(r) The Company and each of its subsidiaries owns or possesses
adequate rights to use, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
currently employed by them in connection with the business now operated by
them, and, except as described in the Prospectus, neither the Company nor
its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with
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respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in any
material adverse change in the condition, financial or otherwise, or in
the earnings, business or operations of the Company or its subsidiaries,
taken as a whole. Except as disclosed in the Prospectus, the discoveries,
inventions, products or processes of the Company and its subsidiaries
referred to in the Prospectus do not, to the knowledge of the Company or
any of its subsidiaries, infringe or conflict with any right or patent of
any third party, or any discovery, invention, product or process which is
the subject of a patent application filed by a third party, known to the
Company or any of its subsidiaries, which such infringement or conflict
could result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company or
its subsidiaries, taken as a whole. The expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names, copyrights
or other intellectual property rights would not have a material adverse
effect on the condition, or in the earnings, business or operations of the
Company or its subsidiaries, taken as a whole.
(s) The Company is in compliance, in all material respects, with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for with the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV or
ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company
would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, that would cause the loss of such qualification.
(t) The Company is not and, after giving effect to the offering
and sale of the Stock and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
(u) There is no owner of any securities of the Company who has any
right, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of
the Registration Statement or the sale of any shares thereunder. There are
no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Stock registered pursuant to the Registration
Statement, except in each case as described in the Prospectus.
(v) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principals of the United States and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) No material labor dispute with employees of the Company or any
of its subsidiaries or franchisees exists or to the knowledge of the
Company is imminent, and, without conducting any independent
investigation, the Company is not aware of any written communication of
any existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors that could
result in any material adverse change in the condition, financial or
otherwise, the earnings, the business or operations of the Company and its
subsidiaries, taken as a whole. The employment of each officer and
employee of the Company and its subsidiaries is terminable at the will of
the Company. To its knowledge, the Company and its subsidiaries have each
complied in all material respects with all applicable state and federal
equal employment opportunity laws and with other laws related to
employment. To the Company's knowledge, no employee of the Company or any
of its subsidiaries, nor any consultant or independent contractor with
whom the Company or any of its subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of
the nature of the business to be conducted by the
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<PAGE> 6
Company or any of its subsidiaries; and to the Company's knowledge the
continued employment by the Company and its subsidiaries of its present
employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The
Company and its subsidiaries have not received any notice alleging the
occurrence of that any such violation which would have a material adverse
effect on the business, financial condition or results of operations of
the Company and subsidiaries, taken as a whole. Except as disclosed in the
Prospectus, no employee of the Company or any of its subsidiaries has been
granted the right to continued employment by the Company or to any other
material compensation following termination of employment with the
Company. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment
with the Company or any of its subsidiaries, nor does the Company have a
present intention to terminate the employment of any of the foregoing.
(x) The Company has not offered, or caused the Underwriters to
offer, Stock to any person by way of directed shares with the specific
intent to unlawfully influence (i) a customer or supplier of the Company
to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish
favorable information about the Company or its products.
(y) The Company has reviewed its operations and the operations of
its subsidiaries to evaluate the extent to which the business or
operations of the Company or any of its subsidiaries will be affected by
the Year 2000 Problem. As a result of such review, the Company has no
reason to believe, and does not believe, that the Year 2000 Problem will
have a material adverse effect on the Company and its subsidiaries taken
as a whole. The "Year 2000 Problem" as used herein means any significant
risk that the computer hardware or software used in the receipt,
transmission, storage, retrieval, retransmission or other utilization of
data or in the operation of mechanical or electrical systems of any kind
will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000. The foregoing does not
constitute a warranty or representation that the Company's software will
be capable of recording, storing, processing, calculating and displaying
correct calendar dates based on software supplied by any party other than
the Company, or that other Company's software will properly interact with
such third party software.
(z) The Company and each of its subsidiaries, taken as a whole, are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
business in which it is engaged, and neither the Company nor any of such
subsidiaries has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, in each
case except as described in or contemplated by the Prospectus, which cost
is material to the Company and its subsidiaries, taken as a whole.
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<PAGE> 7
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
__________ shares of the Underwritten Stock to the several Underwriters, and
each of the Underwriters agrees to purchase from the Company the respective
aggregate number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be sold
by the Company and purchased by the several Underwriters shall be $___ per
share. The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the Underwritten
Stock to be sold by each of the Company pursuant to this Agreement as the number
of shares of the Underwritten Stock set forth opposite the name of such
Underwriter in Schedule I hereto represents of the total number of shares of the
Underwritten Stock to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to ________ shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
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<PAGE> 8
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Wilson Sonsini Goodrich & Rosati, at 7:00 a.m., San Francisco time, on
the fourth business day after the date of this Agreement, or at such time on
such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Wilson Sonsini Goodrich &
Rosati, at 7:00 a.m., San Francisco time, on the third business day after the
exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or checks
in same day funds. Such payment shall be made upon delivery of certificates for
the Stock to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Stock to be delivered to
you shall be registered in such name or names and shall be in such denominations
as you may request at least one business day before the Closing Date, in the
case of Underwritten Stock, and at least one business day prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York 10004 on
the business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on
Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act
or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in
any jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company
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<PAGE> 9
will make every reasonable effort to prevent the issuance of such a stop
order and, if such an order shall at any time be issued, to obtain the
withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each
of the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities
Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for the
Underwriters, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at
the time it is delivered to a purchaser of the Stock, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances existing at
the time such Prospectus is delivered to such purchaser, not misleading.
If, after the initial public offering of the Stock by the Underwriters and
during such period, the Underwriters shall propose to vary the terms of
offering thereof by reason of changes in general market conditions or
otherwise, you will advise the Company in writing of the proposed
variation, and, if in the opinion either of counsel for the Company or of
counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare
and file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance
with the applicable provisions of the Securities Act and the applicable
rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the
Prospectus or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably designate and, during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing
under said securities or blue sky laws; provided, however, that the
Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation in any jurisdiction in
which it is not so qualified. The Company will, from time to time, prepare
and file such statements, reports, and other documents as are or may be
required to continue such qualifications in effect for so long a period as
you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished
to stockholders of the Company and of all information, documents and
reports filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of their obligations under this Agreement, including all costs
and expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc.
("NASD") of the
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Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters of copies of any Preliminary
Prospectus and of the several documents required by paragraph (c) of this
Section 6 to be so furnished, (iii) the printing of this Agreement and
related documents delivered to the Underwriters, (iv) the preparation,
printing and filing by the Company of all supplements and amendments to
the Prospectus referred to in paragraph (d) of this Section 6, (v) the
furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The
Selling Securityholders will pay any transfer taxes incident to the
transfer to the Underwriters of the shares the Stock being sold by the
Selling Securityholders.
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements
(including reasonable counsel fees and disbursements and cost of printing
memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state
securities or blue sky laws and in the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to
pay and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company hereby agrees that, without the prior written
consent of Hambrecht & Quist LLC acting alone or each of Hambrecht & Quist
LLC, BancBoston Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray
Inc. acting together on behalf of the Underwriters, the Company will not,
for a period of 180 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable
or exercisable for or any rights to purchase or acquire Common Stock or
(ii) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Stock to
be sold to the Underwriters pursuant to this Agreement, (B) shares of
Common Stock issued by the Company upon the exercise of options granted
under the stock option plans of the Company (the "Option Plans") or upon
the exercise of warrants outstanding as of the date hereof, all as
described under "Capitalization" in the Preliminary Prospectus, (C)
options to purchase Common Stock granted under the Option Plans and (D)
shares issued to The Goldman Sachs Group, L.P. and two of its affiliates
in a private placement as described in the Registration Statement.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of,
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor,
publication or event.
(n) The Company is not and after giving effect of the offering and
sale of the Stock, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the Exchange Act), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) the breach of any representation or
warranty of
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the Company contained in Section 2 hereof, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), 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 (iii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreement of the
Company contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto and (2)
the indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreement of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) 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 the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (herein called the Notice) of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
12
<PAGE> 12
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the reasonable
legal and other expenses incurred in connection with the conduct of the defense
as referred to in clause (i) of the proviso to the preceding sentence and (B)
the indemnifying party or parties shall bear such other expenses as it or they
have authorized to be incurred by the indemnified party or parties. If, within a
reasonable time after receipt of the Notice, no Notice of Defense has been
given, the indemnifying party or parties shall be responsible for any reasonable
legal or other expenses incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities or
expenses referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same respective proportions as the total net proceeds from the offering
of the Stock received by the Company and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock. 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 each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. Each indemnifying party agrees that its indemnification commitments
herein set forth shall apply whether or not the indemnified party is a formal
party to any such actions or other proceedings, that such commitments shall be
in addition to any liability such indemnifying party may have to the indemnified
party at common law or otherwise, and that such commitments shall survive any
termination of this Underwriting Agreement.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. 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 Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
13
<PAGE> 13
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or drastic change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all of its obligations to be performed hereunder
at or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except
as to the
14
<PAGE> 14
financial statements contained therein), shall have been approved at or
prior to the Closing Date by Wilson Sonsini Goodrich & Rosati , counsel
for the Underwriters.
(c) You shall have received from Osborn Maledon, P.A., counsel for
the Company, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto and if
Option Stock is purchased at any date after the Closing Date, an
additional opinion from such counsel, addressed to the Underwriters and
dated such later date, confirming that the statements expressed as of the
Closing Date in such opinions remain valid as of such later date.
(d) You shall have received from Baker & McKenzie, counsel for the
Company, an opinion, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex B hereto and if Option Stock
is purchased at any date after the Closing Date, an additional opinion
from such counsel, addressed to the Underwriters and dated such later
date, confirming that the statements expressed as of the Closing Date in
such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii)
since the respective dates as of which information is given in the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein, (iv) neither the Company nor any of its subsidiaries
has any material contingent obligations which are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any pending
or known threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company
herein are true and correct in all material respects as of the Closing
Date or any later date on which Option Stock is to be purchased, as the
case may be, and (viii) there has not been any material change in the
market for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it impracticable
in your reasonable judgment to make a public offering of the Stock, or a
material adverse change in market levels for securities in general (or
those of companies in particular) or financial or economic conditions
which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein and any supplements or amendments
thereto, and that the statements included in clauses (i) through (vii) of
paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from Ernst & Young LLP a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be,
and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to
reflect any changes in the facts described in the Original Letter since
the date of the Original Letter or to reflect the availability of more
recent financial statements, data or information. The letters shall not
disclose any change, or any development involving a prospective change, in
or affecting the business or properties of the Company or any of its
subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the
purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
15
<PAGE> 15
(h) Prior to the Closing Date, the Stock to be issued and sold by
the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received from
all stockholders agreements, in form reasonably satisfactory to Hambrecht
& Quist LLC, stating that without the prior written consent of Hambrecht &
Quist LLC on behalf of the Underwriters, such person or entity will not,
for a period of 180 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable
or exercisable for or any rights to purchase or acquire Common Stock or
(ii) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash
or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its obligations
under Section 7 of this Agreement, the Company hereby agrees to reimburse on a
quarterly basis the Underwriters for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
16
<PAGE> 16
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 8800 N. Gainey Center Drive, Suite
200, Scottsdale, Arizona, 85258, Attention: President; and if to the Selling
Securityholders, shall be mailed, telegraphed or delivered to the Selling
Securityholders in care of ______________ at ______________. All notices given
by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(l),(m) and (n) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders
in care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
SALESLOGIX CORPORATION
By __________________________
[Name]
[Title]
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
CHARLES SCHWAB & CO., INC.
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
17
<PAGE> 17
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
<S> <C> <C>
Hambrecht & Quist LLC .........................
BancBoston Roberston Stephens .................
US. Bancorp Piper Jeffray .....................
Charles Schwab & Co., Inc. ....................
----
Total ................................... 0
=======
</TABLE>
18
<PAGE> 18
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF OSBORN MALEDON, P.A.
COUNSEL FOR THE COMPANY
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, is duly qualified
as a foreign corporation and in good standing in each state of the United
States of America in which its ownership or leasing of property requires
such qualification (except where the failure to be so qualified would not
have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole), and has full corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement; all the issued and outstanding capital stock of
each of the subsidiaries of the Company has been duly authorized and
validly issued and is fully paid and nonassessable, and is owned by the
Company free and clear of all liens, encumbrances and security interests,
and to the best of such counsel's knowledge, no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or
ownership interests in such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
_________ shares of ________ Stock, of which there are outstanding
_________ shares, and _________ shares of Common Stock, $.001 par value,
of which there are outstanding _________ shares (including the
Underwritten Stock plus the number of shares of Option Stock issued on the
date hereof); proper corporate proceedings have been taken validly to
authorize such authorized capital stock; all of the outstanding shares of
such capital stock (including the Underwritten Stock and the shares of
Option Stock issued, if any) have been duly and validly issued, are fully
paid and nonassessable and have been issued in compliance with the
registration and qualification provisions of all applicable federal and
state securities laws; any Option Stock purchased after the Closing Date,
when issued and delivered to and paid for by the Underwriters as provided
in the Underwriting Agreement, will have been duly and validly issued and
be fully paid and nonassessable; and no preemptive rights of, or rights of
refusal in favor of, stockholders exist with respect to the Stock, or the
issue and sale thereof, pursuant to the Certificate of Incorporation or
Bylaws of the Company and, to the knowledge of such counsel, there are no
contractual preemptive rights that have not been waived, rights of first
refusal or rights of co-sale which exist with respect to the Stock being
sold by the Selling Securityholders or the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending
or preventing the use of the Prospectus is in effect and no proceedings
for that purpose have been instituted or are pending or contemplated by
the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and with the rules and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial or statistical data derived therefrom, as to which such counsel
need not express any opinion or belief) at the Effective Date contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (except as to the financial
statements and schedules and other financial or statistical data derived
therefrom, as to which such counsel need not express any opinion or
belief) as of its date or at the Closing Date (or any later date on which
Option Stock is purchased), contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel)
and 11(c) of Form S-1 is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items, and, the description of
the Company's stock option plans and the options granted and which may be
granted thereunder and the options granted otherwise than under such plans
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to said plan[s] and options to the
extent required by the Securities Act and the rules and regulations of the
Commission thereunder;
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<PAGE> 19
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the
opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Securityholders and the Custody Agreement
between the Selling Securityholders and _________, as Custodian, and the
Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the several Selling Securityholders; and each
Selling Securityholder has full legal right and authority to enter into
the Underwriting Agreement and to sell, transfer and deliver in the manner
provided in the Underwriting Agreement the shares of Stock sold by such
Selling Securityholder hereunder;
(x) the issue and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, the Certificate of Incorporation
or Bylaws of the Company or any of its subsidiaries or any agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or any applicable law or regulation, or so far as
is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of
the filing of the Registration Statement by the Company have waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement;
(xii) good and marketable title to the shares of Stock sold by the
Selling Securityholders under the Underwriting Agreement, free and clear
of all liens, encumbrances, equities, security interests and claims, has
been transferred to the Underwriters who have severally purchased such
shares of Stock under the Underwriting Agreement, assuming for the purpose
of this opinion that the Underwriters purchased the same in good faith
without notice of any adverse claims; and
(xiii) based insofar as factual matters with respect to the stock to
be sold by the Selling Securityholders are concerned solely upon
certificates of the Selling Securityholders, the accuracy of which such
counsel have no reason to question, no consent, approval, authorization or
order of any court or governmental agency or body is required for the
consummation of the transactions contemplated in the Underwriting
Agreement, except such as have been obtained under the Securities Act and
such as may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Stock by the
Underwriters; and
(xiv) the Stock sold by the Selling Securityholders is listed and
duly admitted to trading on the NASDAQ National Market, and the Stock
issued and sold by the Company will been duly authorized for listing by
the NASDAQ National Market upon official notice of issuance.
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EXHIBIT 4.4 STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 22nd
day of April, 1999, by and among SALESLOGIX CORPORATION, a Delaware corporation
(the "Company"), and The Goldman Sachs Group, L.P., Stone Street Fund 1998, L.P.
and Bridge Street Fund 1998, L.P. (collectively, the "Buyer").
WHEREAS, the Company desires to effect an initial public offering of
its Common Stock (an "IPO"), and for that purpose filed on March 31, 1999 a
registration statement, Registration No. 333-75353, with the Securities and
Exchange Commission ("SEC") (the "Proposed IPO");
WHEREAS, Buyer desires to purchase, and the Company is willing to sell
to Buyer, either shares of Common Stock concurrently with the closing of the
Proposed IPO, or shares of Series F Preferred Stock of the Company under certain
other circumstances, (collectively, the "Securities") on the terms and
conditions set forth in this Agreement,
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Securities. The Buyer's acquisition of the
Securities shall occur at the Closing, as defined in Section 1.3 below:
1.1 Sale and Issuance of Securities.
(a) If the Closing occurs concurrently with the closing of an
IPO and, in connection therewith, each share of outstanding Series A, B, C, D
and E Preferred Stock of the Company is converted into shares of the Company's
Common Stock (a "Qualified IPO"), the Company will issue and sell to Buyer and
Buyer will purchase from the Company a number of shares of Common Stock (the
"Common Shares") equal to the quotient of (A) $3,500,000 divided by (B) the IPO
Price, as defined in the next sentence (the "Common Share Number"). In
consideration for the issuance of the Common Shares, Buyer will pay a purchase
price (the "IPO Price") in cash per Common Share equal to the price to the
public per share of Common Stock in the IPO less a discount of 3.5%.
(b) Subject to Section 1.1(c) below, if the Closing occurs
prior to the closing of a Qualified IPO, the Company will issue and sell to
Buyer and Buyer will purchase from the Company a number of shares of Series F
Preferred Stock (the "Preferred F Shares") as follows:
(i) if the Closing occurs concurrently with the closing of a
non-Qualified IPO, that number of Preferred F Shares
that is convertible into a number of shares of Common
Stock equal to the Common Share Number; or
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(ii) if the Closing occurs prior to an IPO, 666,667 Preferred
F Shares (subject to adjustment for any change in
capitalization other than in respect of the Company's
acquisition of Enact Incorporated or in respect of the
issuance or exercise of stock options under the
Company's Business Partner Stock Option Plan or 1996
Equity Incentive Plan (collectively, "Exempt
Issuances")).
The Series F Preferred Stock shall have the rights, privileges, designations and
preferences set forth in the form of the Fifth Restated Certificate of
Incorporation attached hereto as Exhibit A (the "Fifth Restated Certificate").
The purchase price for each share of Series F Preferred Stock (the "Purchase
Price") will be as follows:
(A) the IPO Price if the Closing occurs simultaneously with
a non-Qualified IPO; or
(B) Nine Dollars ($9.00) per share of Series F Preferred if
the Closing occurs prior to an IPO (an aggregate
Purchase Price of $6,000,000), subject to adjustment for
any change in the capital stock of the Company (other
than in respect of Exempt Issuances).
(c) If Buyer purchases Series F Preferred Stock prior to an
IPO and thereafter the Company issues any shares of Common Stock or Common Stock
equivalents (a "Subsequent Issue") at a price per share of Common Stock (the
"Subsequent Issue Price") that is less than $9.00 (adjusted for any subsequent
stock splits, stock dividends, combinations or other recapitalizations), the
Company will, concurrently with the closing of such issuance, issue to Buyer for
no additional consideration shares of (1) Common Stock if the transaction is a
qualified public offering (as defined in the Fifth Restated Certificate) or (2)
Series F Preferred Stock in all other cases. The number of shares issued
pursuant to this Section 1.1(c) to Buyer shall equal, or if Series F Preferred
Stock is issued shall be convertible into a number of shares of Common Stock
that equals, the difference between (i) 6,000,000 divided by the greater of (A)
7.00 (adjusted for any subsequent stock splits, stock dividends, combinations or
other recapitalizations) and (B) the Subsequent Issue Price, and (ii) the number
of shares of Common Stock into which the Series F Preferred Stock initially
purchased by Buyer convert (or are convertible) upon consummation of the
Subsequent Issue. The adjustment provided for in this Section 1.1(c) shall (x)
terminate upon the closing of a Qualified IPO (after giving effect to such
adjustment if the adjustment is required pursuant to the first sentence of this
Section 1.1(c)), and (y) not apply to any Exempt Issuances.
1.2 Put Notice. The Company may put the Preferred F Shares to
Buyer, in whole and not in part, at any time prior to the earlier of the closing
of an IPO and July 31, 1999, upon three business days' prior written notice to
Buyer (the "Put Notice"). In the event the Company delivers to Buyer a Put
Notice, then the Closing shall occur pursuant to Section 1.1(b) above.
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<PAGE> 3
1.3 Closing. The purchase and sale of the Securities shall take
place at the offices of Osborn Maledon, P.A., 2929 N. Central, Suite 2100,
Phoenix, Arizona on the later to occur of: (a) satisfaction or waiver of the
conditions set forth in Sections 4 and 5 and (b) the earliest to occur of (i)
the closing of an IPO, (ii) the third business day following the Company's
delivery of a Put Notice to Buyer, and (iii) July 31, 1999, or at such other
time and place as the Company and Buyer mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). The pro rata amounts of
the Securities to be purchased by each Buyer are set forth on Schedule A
attached hereto. At the Closing the Company shall deliver to each Buyer a
certificate representing the Securities that such Buyer is purchasing against
payment of the purchase price therefor by check or wire transfer.
1.4 Termination. Notwithstanding any other provision of this
Agreement, this Agreement (except for Sections 6.3, 6.8 and 6.12, which shall
survive any termination) shall terminate if (a) it is mutually agreed in writing
by the parties that the consummation of the transactions contemplated hereby
will not occur, (b) at the Company's election if for any reason its acquisition
of Enact Incorporated ("Enact")is not consummated prior to July 31, 1999, (c) at
Buyer's election if the conditions set forth in Section 4 have not been
satisfied or waived on or before July 31, 1999, (d) at the Company's election if
the conditions set forth in Section 5 have not been satisfied or waived on or
before July 31, 1999, or (e) at Buyer's election if the conditions set forth in
Sections 5.4, 5.5 and 5.6 are not satisfied or waived on or before May 3, 1999.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Buyer that (with respect to Sections 2.4, 2.8
through 2.11 and 2.13 through 2.22, the term "Company" shall mean the Company,
together with its subsidiaries):
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted in the Registration Statement (including all financial statements and
exhibits) filed by the Company with the SEC in connection with the Proposed IPO,
as such Registration Statement is amended by the Company prior to the Closing
(collectively, the "Registration Statement"). Each of the Company and its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on its business or properties. Complete and correct copies of the
Company's current Certificate of Incorporation and Restated Bylaws have been
delivered to Buyer. A complete and correct copy of the Registration Statement
has been delivered, and additional amendments prior to the Closing will be
delivered, to Buyer, and the Registration Statement (including any information
added by way of additional amendments thereto prior to the Closing) is
incorporated herein for the purposes of the Company's disclosures under this
Section 2; provided, however, that the Company shall not be deemed to warrant in
this Agreement that any uncompleted transactions described in or envisioned by
the Registration Statement shall be completed as described or envisioned
therein.
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<PAGE> 4
2.2 Capitalization and Voting Rights.
(a) The authorized capital of the Company consists of: (A)
shares of Preferred Stock (the "Preferred Stock"), including shares designated
Series A Preferred Stock (the "Series A Preferred Stock"), shares designated
Series B Preferred Stock (the "Series B Preferred Stock"), shares designated
Series C Preferred Stock (the "Series C Preferred Stock"), shares designated
Series D Preferred Stock (the "Series D Preferred Stock"), and shares designated
Series E Preferred Stock (the "Series E Preferred Stock"), the aggregate
authorized and outstanding shares of which are described in the Registration
Statement as of the dates specified; and (B) shares of common stock (the "Common
Stock"), including shares designated Class A Common Stock (the "Class A Common
Stock"), and shares designated Class B Common Stock (the "Class B Common
Stock"), the authorized and outstanding shares of which are described in the
Registration Statement as of the dates specified. Material holdings by specific
shareholders of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock are specified in the Registration Statement as
of the dates specified. The rights, privileges and preferences of the Series F
Preferred Stock will be as stated in the Company's Fifth Restated Certificate.
(b) The outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Common Stock are all duly and validly authorized
and issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the "Act"), and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(c) Except for (A) the conversion privileges of the Preferred
Stock as set forth in the Fourth Restated Certificate of Incorporation, as
amended; (B) the rights provided in Section 2.4 of the Amended and Restated
Investors' Rights Agreement dated as of June 4, 1998 (the "Restated Investors'
Rights Agreement") to the parties thereto and Comdisco, Inc.; (C) that certain
Term Sheet dated March 18, 1999 between the Company and Enact Incorporated
("Enact") in respect of the acquisition by the Company of Enact as described
therein (the "Enact Acquisition"); and (D) the stock options and warrants
described in the Registration Statement, or granted by the Company subsequent to
the filing thereof to employees or directors in the ordinary course of the
Company's business, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock or "phantom
stock," stock appreciation rights or similar rights in respect of any shares of
the Company's capital stock. The Registration Statement describes arrangements
by which the Company has reserved shares of Class A Common Stock for purchase
upon exercise of options granted under various existing and proposed incentive
plans. Except for that certain Voting Trust Agreement dated as of January 17,
1996, by and among the Company, and certain other parties, as amended (the
"Voting Trust Agreement"); that certain Voting Agreement dated as of January 19,
1996, by and among the Company and certain other parties, as amended (the
"Voting Agreement"); that certain Stockholders' Agreement dated as of January
19, 1996, by and among the Company and certain other parties, as amended (the
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<PAGE> 5
"Stockholders' Agreement"); that certain Series A, C & E Voting Agreement dated
as of June 4, 1998, by and among the Company, the holders of Series A Preferred
Stock (collectively, the "Series A Investors"), the holders of Series C
Preferred Stock (collectively, the "Series C Investors"), the holders of Series
E Preferred Stock (collectively, the "Series E Investors"), and certain other
parties (the "Series A, C & E Voting Agreement"); and that certain Series A, C &
E Sharing Agreement dated as of June 4, 1998, by and among the Company, the
Series A Investors, the Series C Investors, the Series E Investors and certain
other parties (the "Series A, C & E Sharing Agreement"), the Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
and/or entities that affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. Except as disclosed in the Registration
Statement, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the agreements
described in Section 4.6, 4.7 and 4.8 hereof, as applicable (the "Governance
Agreements"), the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance), sale
and delivery of the Common Shares being sold hereunder pursuant to Section
1.1(a) or the Preferred F Shares being sold hereunder pursuant to Section 1.1(b)
and the Common Stock issuable upon conversion of the Preferred F Shares has been
taken or will be taken prior to the Closing, and this Agreement, and the
Governance Agreements to which the Company is a party constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
Governance Agreements, may be limited by applicable federal or state securities
laws.
2.5 Valid Issuance of Preferred and Class A Common Stock. The
Common Shares that are being purchased by the Buyer pursuant to Section 1.1(a)
hereunder, or the Preferred F Shares that are being purchased by the Buyer
pursuant to Section 1.1(b) hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Governance Agreements, and under applicable state and
federal securities laws. The Class A Common Stock issuable upon conversion of
any Preferred F Shares purchased under this Agreement has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Fifth Restated Certificate, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on
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<PAGE> 6
transfer under this Agreement, the Governance Agreements, and under applicable
state and federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (A) with respect to a Closing pursuant to
Section 1.1(a), all the required consents, approvals, orders, authorizations, or
registrations, qualifications, designations, declarations or filings
(collectively, "Consents"), necessary or appropriate for consummation of the
Qualified IPO, which Consents shall be obtained or waived by the date thereof;
and (B) with respect to a Closing pursuant to Section 1.1(b), (i) the filing of
the Fifth Restated Certificate with the Secretary of State of the State of
Delaware, and (ii) the notice filing with the Securities and Exchange Commission
("SEC") pursuant to Rule 506 of Regulation D under the Act, and the notice
filings required by state securities laws in accordance with Section 18(b)(4)(D)
of the Act, which notice filings will be effected within 15 days of the sale of
the Preferred F Shares hereunder.
2.7 Offering. Subject in part to the truth and accuracy of each
Buyer's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are exempt
from the registration requirements of the Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of this Agreement, the Governance Agreements or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that would result, either individually or in
the aggregate, in any material adverse changes in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there is
a basis for the foregoing. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened, involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality.
2.9 Proprietary Information Agreements. Each employee, officer
and consultant of the Company has executed a Proprietary Information and
Inventions Agreement in substantially the form provided to special counsel to
the Buyer. The Company, after reasonable investigation, is not aware that any of
their employees, officers or consultants are in violation thereof, and the
Company will use its best efforts to prevent any such violation.
2.10 Patents and Trademarks. The Company has sufficient title and
ownership of, or adequate rights to use, all material patents, trademarks,
service marks, trade names,
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<PAGE> 7
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted as
described in the Registration Statement without any conflict with or
infringement of the rights of others. The Company's material options, licenses
or agreements relating to its patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, manufacturing rights, marketing rights,
proprietary rights and processes of any other person or entity are or will be
filed as Exhibits to or described in the Registration Statement. The Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with the Company's business. Neither the
execution nor delivery of this Agreement or the Governance Agreements, nor the
carrying on of the Company's business by the employees of the Company, will to
the best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.11 Compliance with Other Instruments.
(a) The Company is not (and upon filing of the Fifth Restated
Certificate, will not be) in violation or default of any provision of its
certificate of incorporation or Bylaws, as amended, or in any material respect
of any instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to the
Company; except that the Company has not held an annual shareholders' meeting
within the prescribed time period but will do so prior to the Closing. The
execution, delivery and performance of this Agreement, the Governance Agreements
to which it is a party, and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any material right granted under any license, distribution or other agreement
which would materially and adversely affect the business, properties, prospects,
or financial condition of the Company.
2.12 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and
by the Governance Agreements, there are no material agreements, understandings
or proposed
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<PAGE> 8
transactions between the Company and any of its officers, directors, affiliates,
or any, affiliate thereof that have not been previously disclosed to Buyer.
(b) There are no contracts or documents of a character
required to be described in the Registration Statement or the related
prospectus, or required to be filed as exhibits thereto, that are not, or will
not be, described and filed as required.
2.13 Permits. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.14 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.15 Disclosure. The Company has fully provided each Buyer with
the Registration Statement, including all amendments thereto filed prior to the
Closing. Neither the representations and warranties set forth in Section 2 of
this Agreement, nor the Registration Statement, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading. When the Registration Statement and
any further amendments thereto shall become effective, (i) the Registration
Statement and any such amendments will comply in all material respects with the
requirements of the Act and the regulations promulgated thereunder; (ii) neither
the Registration Statement nor any such amendment will contain 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 not misleading.
Neither the prospectus nor any amendment or supplement thereto will, as of their
respective issue dates, at the Closing, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
2.16 Title to Property and Assets. The Company does not own any
real property. It owns its personal property and assets free and clear of all
mortgages, liens, loans and encumbrances, except statutory landlord liens or
such other encumbrances and liens that are disclosed in the Registration
Statement or arise in the ordinary course of business and do not materially
impair the Company's ownership or use of such property or assets. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of any liens, claims or encumbrances other than statutory landlord liens and
liens, claims or encumbrances disclosed in the Registration Statement.
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2.17 Financial Statements. The consolidated financial statements
of the Company, together with related notes and schedules as set forth in the
Registration Statement ("Company Financial Statements"), present fairly the
financial position and the results of operations of the Company and its
subsidiaries, taken as a whole, at the indicated dates and for the indicated
periods. The financial statements of Opis Corporation (a wholly owned subsidiary
of the Company) ("Opis"), together with related notes and schedules as set forth
in the Registration Statement ("Opis Financial Statements"), present fairly the
financial position and the results of operations of Opis, at the indicated dates
and for the indicated periods. To the Company's knowledge, the financial
statements of Enact, together with related notes and schedules as set forth on
the Registration Statement ("Enact Financial Statements"), present fairly the
financial position and results of operations of Enact, at the indicated dates
and for the indicated periods. The pro forma condensed consolidated financial
statements of the Company, together with related notes and schedules as set
forth in the Registration Statement (herein collectively called the "Financial
Statements") present fairly the consolidated financial position and the results
of operations of the Company and its subsidiaries, taken as a whole and assuming
consummation of the Enact Acquisition, at the indicated dates and for the
indicated periods. The Financial Statements, schedules and related notes have
been prepared in accordance with generally accepted accounting principles,
consistently applied through the period involved, except as may be otherwise
stated therein, and all adjustments necessary for a fair presentation of results
for such periods have been made. Except as set forth in the Financial
Statements, the Company has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1998, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed on the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company will maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.18 Changes. Since the respective dates as of which information
is given in the Registration Statement, there has not been any materially
adverse change in the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, other than as set
forth in the Registration Statement, and since such dates, except in the
ordinary course of business, neither the Company nor any of its subsidiaries has
entered into any material transaction not referred to in the Registration
Statement.
2.19 Employee Benefit Plans. The Company is in compliance, in all
material respects, with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for with the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV or ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of
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the Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, that would cause the loss of such
qualification.
2.20 Tax Returns, Payments and Elections. The Company has timely
filed all tax returns and reports as required by law. These returns and reports
are true and correct in all material respects. The Company has paid all taxes
and other assessments due, except those contested by it in good faith. The
provision for taxes of the Company as shown in the Financial Statements is
adequate for taxes due or accrued as of the date thereof. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor have they made
any other elections pursuant to the Code (other than elections that relate
solely to methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business or any of
its properties or material assets. The Company has never had any tax deficiency
proposed or assessed against it and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax or governmental
charge. None of the Company's federal income tax returns and none of its state
income or franchise tax or sales or use tax returns has ever been audited by
governmental authorities. Since the date of the Financial Statements, the
Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and have paid the same to the proper tax receiving officers or
authorized depositaries.
2.21 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the life of Patrick M. Sullivan
("Sullivan") in the amount of $2,500,000. To the best of the Company's
knowledge, there is no known reason for Sullivan to be denied coverage of such
life insurance. The Company has in full force and effect products liability and
errors and omissions insurance in amounts customary for companies similarly
situated.
2.22 Minute Books. The Company has provided to special counsel to
the Buyers accurate copies of all portions of the minute books of the Company
requested.
2.23 Labor Agreements and Actions. 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, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the
10
<PAGE> 11
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, nor is the Company aware of any labor organization
activity involving its employees. The Company is not aware that any officer or
key employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each officer
and employee of the Company is terminable at the will of the Company. To the
best of its knowledge, the Company has complied in all material respects with
all applicable state and federal equal employment opportunity and other laws
related to employment.
3. Representations and Warranties of the Buyers. Each Buyer hereby
represents and warrants that:
3.1 Authorization. Such Buyer has full power and authority to
enter into this Agreement and the Governance Agreements, and each such agreement
constitutes its valid and legally binding obligation, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Governance Agreements, may be limited by applicable federal or
state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
such Buyer in reliance upon such Buyer's representation to the Company, which by
such Buyer's execution of this Agreement such Buyer hereby confirms, that the
Securities will be acquired for investment for such Buyer's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that such Buyer has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Buyer further represents that such Buyer does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure of Information. Such Buyer has received the
Registration Statement, including exhibits thereto. Such Buyer further
represents that such Buyer has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities and the business, properties, prospects and financial condition
of the Company. Such Buyer further represents that it is relying solely upon the
Registration Statement and the representations and warranties of the Company in
Section 2 of this Agreement.
3.4 Investment Experience. Such Buyer is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the
11
<PAGE> 12
Securities. If other than an individual, such Buyer also represents it has not
been organized for the purpose of acquiring the Securities.
3.5 Accredited Investor. Such Buyer is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D promulgated under the Act, as
presently in effect.
3.6 Restricted Securities. Such Buyer understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such Buyer
represents that it is familiar with Rule 144 promulgated under the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, such Buyer further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and the Restated Investors' Rights Agreement, provided and to the
extent this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Buyer shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Buyer shall have furnished the Company with an
opinion of counsel reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, to the extent permissible under law, no such registration statement or
opinion of counsel shall be necessary for a transfer by Buyer which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Buyer hereunder.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear the following legend in substantially the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN
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<PAGE> 13
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT OR QUALIFICATION UNDER SUCH LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION AND QUALIFICATION IS NOT REQUIRED."
4. Conditions of Buyers' Obligations at Closing. The obligations of
each Buyer under Section 1.1 of this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions, the waiver of which
shall not be effective against any Buyer who does not consent in writing
thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to each Buyer at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled and stating that there
shall have been (i) no change in the capital stock (other than in respect of
Exempt Issuances, or a two-for-three reverse stock split effected on March 23,
1999) or long-term debt (other than paydowns of existing long-term debt pursuant
to mandatory payment provisions) and (ii) no material adverse change in the
business, financial condition, assets, stockholders' equity, management or
prospects of the Company since the date of the Company's unaudited financial
statements for the year ending December 31, 1998 furnished by the Company to
Buyer prior hereto.
4.4 Qualifications. All material authorizations, approval, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.5 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Buyers' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request. If the Closing occurs pursuant to Section 1.1(b), the
Company shall have filed with the Secretary of State of the State of Delaware,
the Fifth Restated Certificate of Incorporation in the form attached hereto as
Exhibit A, which shall have been effectively filed with the Secretary of State
of Delaware.
4.6 Amendment to Restated Investors' Rights Agreement. The
Company, and a majority in interest of the Series A Preferred Stock, Series C
Preferred Stock and Series E Preferred Stock, each as a separate class, shall
have entered into the Amendment to Restated Investors' Rights Agreement in the
form attached hereto as Exhibit B.
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<PAGE> 14
4.7 Amended and Restated Series A, C, E & F Voting Agreement. If
the Closing occurs pursuant to Section 1.1(b), the Company, and a majority in
interest of the Series A Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock, each as a separate class, shall have entered into the Amended
and Restated Series A, C, E & F Voting Agreement in the form attached hereto as
Exhibit C.
4.8 Amended and Restated Series A, C, E & F Sharing Agreement. If
the Closing occurs pursuant to Section 1.1(b), the Company, Patrick M. Sullivan,
and a majority in interest of the Series A Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock, each as a separate class, shall have entered
into the Amended and Restated Series A, C, E & F Sharing Agreement in the form
attached hereto as Exhibit D.
4.9 Opinion of Company Counsel. Each Buyer shall have received
from Osborn Maledon, PA, counsel for the Company, an opinion reasonably
acceptable to each such Buyer.
4.10 Closing of the Proposed IPO. If the Closing occurs pursuant
to Section 1.1(a), the closing of the Proposed IPO shall have occurred.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Buyer under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by that
Buyer:
5.1 Representations and Warranties. The representations and
warranties of the Buyers contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Buyer shall have delivered the
purchase price specified in Section 1.2.
5.3 Qualifications. All material authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.4 Shareholder Approval. If the Closing occurs pursuant to
Section 1.1(b), the Company shall have received the necessary approval from the
Stockholders of the Company of the Fifth Restated Certificate of Incorporation.
5.5 Amendment to Restated Investors' Rights Agreement. Each Buyer,
and a majority in interest of the Series A Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock, each as a separate class, shall have entered
into the Amendment to Restated Investors' Rights Agreement in the form attached
hereto as Exhibit B.
5.6 Amended and Restated Series A, C, E & F Voting Agreement. If
the Closing occurs pursuant to Section 1.1(b), each Buyer, and a majority in
interest of the Series A
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<PAGE> 15
Preferred Stock, Series C Preferred Stock and Series E Preferred Stock, each as
a separate class, shall have entered into the Amended and Restated Series A, C,
E & F Voting Agreement in the form attached hereto as Exhibit C.
5.7 Closing of Enact Acquisition. The Company's acquisition of
Enact Incorporated shall have been consummated.
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Buyers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Buyers or the Company.
6.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
6.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
receipt if sent by telecopy, nationally recognized overnight courier or by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
6.7 Finder's Fee. Except for the fee payable by the Company to
Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc. and U.S. Bancorp Piper
Jaffray pursuant to that certain letter agreement dated April 19, 1999, in
connection with a Closing pursuant to Section 1.1(a), each party represents that
it neither is nor will be obligated for any finders' fee or commission in
connection with this transaction. Each Buyer agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a
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<PAGE> 16
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Buyer or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Buyer from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
6.8 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. The Company
agrees to reimburse Buyer at the Closing (and periodically thereafter or if the
Closing does not occur for any reason) for its reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of Buyer's attorneys
plus any sales, use, transfer or similar taxes arising in connection with any
matters referred to in this Agreement, provided such reimbursement shall not
exceed $15,000. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the Amendment to Restated Investors'
Rights Agreement, the Amended and Restated Series A, C, E & F Voting Agreement,
or the Fifth Restated Certificate, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
6.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority in interest of the Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
6.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.11 Aggregation of Stock. All shares of the Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
6.12 Indemnity. The Company agrees to the terms and conditions set
forth in Annex A hereto, which is incorporated by reference in this Agreement
and which shall be subject to the provisions of Sections 1.10(c) and 1.10(d) of
the Restated Investors' Rights Agreement to which the Company and Buyer, among
others, are parties.
6.13 Continued Operations. Prior to the Closing, the Company will
continue to manage and operate all aspects of the business of the Company (the
"Business") in the ordinary course in a manner consistent with prior practice.
Prior to the Closing, the Company will keep Buyer informed of significant
developments concerning the Business or other major
16
<PAGE> 17
developments which may materially interfere with the consummation of the
transactions contemplated by this Agreement.
6.14 Approvals; Governmental Filings. The Company shall use its
best efforts to obtain any consents and approvals from governmental, regulatory
and administrative entities and any third parties necessary to consummate the
transactions contemplated by this Agreement. The parties shall cooperate in the
preparation and filing of any amendments to the Registration Statement and any
required governmental or regulatory notices and filings and any necessary third
party consents.
6.15 Access. Until the Closing or termination of this Agreement,
the Company will give Buyer and its appropriate officers, employees, attorneys
and other advisors full access at reasonable times for purposes of this
Agreement to employees, officers, facilities, contracts, books, records and
other information of the Company.
6.16 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and supersede all
prior agreements and understandings between the parties on the subject matter
hereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations, or covenants except as specifically set
forth herein or there.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
17
<PAGE> 18
THE COMPANY:
SALESLOGIX CORPORATION, a Delaware
corporation
By: /s/ Gary Acord
-------------------------------------------
Gary Acord, Vice President
Address: 8800 N. Gainey Center Dr., Suite 200
Scottsdale, AZ 85258
BUYER:
THE GOLDMAN SACHS GROUP, L.P.
By: The Goldman Sachs Corporation, its
General Partner
By: /s/ Richard A. Friedman
--------------------------------------
Name: Richard A. Friedman
Its: Executive Vice President
Address: 85 Broad Street
New York, NY 10004
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Its: General Partner
By: /s/ Eve Gerriets
--------------------------------------
Name: Eve Gerriets
Its: Vice President
Address: 85 Broad Street
New York, NY 10004
18
<PAGE> 19
BRIDGE STREET FUND 1998, L.P.
By: Bridge Street Advantage Corp.
Its: Managing General Partner
By: /s/ Eve Gerriets
--------------------------------------
Name: Eve Gerriets
Its: Vice President
Address: 85 Broad Street
New York, NY 10004
19
<PAGE> 20
LIST OF EXHIBITS, SCHEDULES AND ANNEXES
SCHEDULES
Schedule A Schedule of Buyers
ANNEXES
Annex A Indemnity
EXHIBITS
Exhibit A Form of Fifth Restated Certificate of Incorporation
Exhibit B Form of Amendment to Restated Investors' Rights Agreement
Exhibit C Form of Amended and Restated Series A, C, E & F Voting Agreement
Exhibit D Form of Amended and Restated Series A, C, E & F Sharing Agreement
20
<PAGE> 21
SCHEDULE A
SCHEDULE OF BUYERS
For a Closing pursuant to Section 1.1(a):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pro Rata Share of Purchase Price for
Common Stock to be Shares of Common
Name of Buyer Purchased Stock
- --------------------------------------------------------------------------------
<S> <C> <C>
The Goldman Sachs Group, L.P. 83.333423556% $2,916,669.82
- --------------------------------------------------------------------------------
Stone Street Fund 1998, L.P. 12.802808438% $ 448,098.30
- --------------------------------------------------------------------------------
Bridge Street Fund 1998, L.P. 3.863768006% $ 135,231.88
- --------------------------------------------------------------------------------
TOTALS: 100.0% $3,500,000.00
- --------------------------------------------------------------------------------
</TABLE>
For a Closing pursuant to Section 1.1(b):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pro Rata Share of Purchase Price for
Series F Preferred Stock Shares of Series F
Name of Buyer to be Purchased Preferred Stock
- --------------------------------------------------------------------------------
<S> <C> <C>
The Goldman Sachs Group, L.P. 83.333423556% $5,000,005.41
- --------------------------------------------------------------------------------
Stone Street Fund 1998, L.P. 12.802808438% $768,168.51
- --------------------------------------------------------------------------------
Bridge Street Fund 1998, L.P. 3.863768006% $231,826.08
- --------------------------------------------------------------------------------
TOTALS: 100.0% $6,000,000.00
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
ANNEX A
(a) The Company agrees to indemnify, to the fullest extent permitted by law,
Buyer(s), its (their) officer(s), director(s), managing directors, employees,
shareholders, general partner(s) and any partners of such general partner(s)
(collectively "Indemnitees") against any costs, claims and liabilities that any
Indemnitee incurs as a result of any claim (a) made by any other shareholder of
the Company against an Indemnitee and arising out of or related to any round of
financing of the Company (including but not limited to claims regarding
non-participation, or non-pro rata participation, in such round by any such
shareholder); provided, however, that the Company shall have no indemnification
obligation with respect to (i) actions by Indemnitees other than good faith
actions in their capacity as shareholders of the Company or (ii) any claims
arising out of or related to the transaction contemplated by the Letter of
Intent to which this Annex A is attached or any other agreement or alleged
agreement between or among two or more Series F Investors other than agreements
to which the Company is a party; or (b) made by a third party against an
Indemnitee based on any misstatement or omission of a material fact by the
Company in violation of any duty of disclosure imposed on the Company by federal
or state securities laws to the third party claimant; provided, however, that
the Company shall not be liable in any such case for any such claim to the
extent that it arises out of or is based upon a misstatement or omission which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such disclosure by any such Indemnitee; and
provided further that the Company shall not, without the written consent of the
Indemnitees (which consent shall not be unreasonably withheld), 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 may be sought hereunder (whether or not any of the Indemnitees
is an actual or potential party to such claim), other than to the extent such
settlement, compromise or judgment (A) includes an unconditional release of the
Indemnitees 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 such Indemnitees.
(b) Promptly after receipt by an Indemnitee of notice of the commencement of
any action (including any governmental action) such Indemnitee will, if a claim
in respect thereof is to be made against the Company under this Annex A, deliver
to the Company a written notice of the commencement thereof, and the Company
shall have the right to participate in, and, to the extent the Company so
desires, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that the Indemnitees shall have the right to retain
one (1) separate counsel with the fees and expenses to be paid by the Company if
representation of the Indemnitees by the counsel retained by the Company would
be inappropriate due to actual or potential differing interests between such
Indemittee and any other party represented by Company-retained counsel in such
proceeding.
(c) The provisions of this Annex A shall survive any termination or
completion of the Stock Purchase Agreement to which this Annex A is attached,
and this Annex A shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws.
22
<PAGE> 1
EXHIBIT 4.5 - AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
AMENDMENT TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(this "Agreement") is made as of the __ day of ____, 1999, by and among
SALESLOGIX CORPORATION, a Delaware corporation formerly known as Quest Sales
Software, Inc. (the "Company"), and the "Investors", as defined in that certain
Amended and Restated Investors' Rights Agreement dated as of June 4, 1998 (the
"Restated Investors' Rights Agreement") pursuant to Section 3.7 thereof.
RECITALS
A. As of January 17, 1996, the Company entered into that certain
Investors' Rights Agreement (the "Investors' Rights Agreement") with Innocal,
L.P., Canaan Ventures II Limited Partnership, Canaan Ventures II Offshore
Limited Partnership C.V., and Newtek Ventures II, L.P. (the "Initial Series A
Investors") in connection with the transactions contemplated by that certain
QUEST SALES SOFTWARE, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT dated as
of January 17, 1996.
B. As of October 14, 1996, the Company entered into that certain
Amendment to Investors' Rights Agreement with the Initial Series A Investors and
Deepak Kamra, Morris Ventures and John Purtell (the "Subsequent Series A
Investors") in connection with the transactions contemplated by that certain
SALESLOGIX CORPORATION SECOND SERIES A PREFERRED STOCK PURCHASE AGREEMENT dated
as of October 14, 1996. The Initial Series A Investors and the Subsequent Series
A Investors are referred to herein as the "Series A Investors".
C. As of March 24, 1997, the Company entered into that certain Second
Amendment to Investors' Rights Agreement with the Initial Series A Investors,
the Subsequent Series A Investors, and Brinson Venture Capital Fund III, L.P.,
Brinson Trust Company as Trustee for the Brinson Map Venture Capital Fund III
Trust, Sigma Partners III, L.P., Sigma Associates III, L.P., Sigma Investors
III, L.P., John R. Mandile, InnoCal, L.P., Canaan Ventures II Limited
Partnership, Canaan Ventures II Offshore Limited Partnership C. V., Newtek
Ventures II, L.P., Comdisco, Inc., Morris Ventures and Deepak Kamra (the "Series
C Investors") in connection with the transactions contemplated by that certain
SALESLOGIX CORPORATION SERIES C STOCK PURCHASE AGREEMENT dated as of March 24,
1997.
D. As June 4, 1998, the Company entered into the Restated Investors'
Rights Agreement with the Series A Investors, the Series C Investors, and the
investors (the "Series E Investors") set forth on Schedule A to that certain
SALESLOGIX CORPORATION SERIES E PREFERRED STOCK PURCHASE AGREEMENT dated as of
June 4, 1998 and on Schedule A to that certain FOLLOW-ON STOCK PURCHASE
AGREEMENT dated as of December 23, 1998.
<PAGE> 2
E. Concurrent with the execution of this Agreement and pursuant to that
certain STOCK PURCHASE AGREEMENT dated as of April 22, 1999 (the "Goldman Stock
Purchase Agreement"), between the Company and The Goldman Sachs Group, L.P., and
certain of its affiliates (collectively, the "Goldman Investors"), the Company,
the Goldman Investors, and a majority in interest of the Series A Investors, the
Series C Investors and the Series E Investors, each as a separate class, wish to
amend the Restated Investors' Rights Agreement, to grant each of the Goldman
Investors all of the rights (and make each of the Goldman Investors subject to
all of the obligations) of Investors under the Restated Investors' Rights
Agreement.
ACCORDINGLY, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement agree that the Restated
Investors' Rights Agreement shall be amended as follows:
1. Goldman Investors. Each Goldman Investor is hereby made a party to
the Restated Investors' Rights Agreement and shall be deemed to be an "Investor"
as defined in the Restated Investors' Rights Agreement for all purposes, and
each Goldman Investor agrees to be bound by all of the obligations of an
Investor thereunder.
2. Registrable Securities. Section 1.1(f) of the Restated Investors'
Rights Agreement is hereby amended and restated to read in its entirety as
follows:
"(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Company's Series A
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock
and, if any Series F Preferred Stock is issued pursuant to the Goldman
Stock Purchase Agreement, Series F Preferred Stock, (ii) any Common
Stock issued by the Company pursuant to the Goldman Stock Purchase
Agreement, and (iii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of the shares
referenced in (i) or (ii) above, excluding in all cases, however,
shares of Common Stock of the Company which have previously been
registered or which have been sold to the public, or any Registrable
Securities sold by a person in a transaction in which his rights under
this Section 1 are not assigned."
3. Series F Preferred Stock Related Amendments. If the Company issues
Series F Preferred Stock to the Goldman Investors pursuant to the Goldman Stock
Purchase Agreement, then the following provisions shall be amended and restated
to read in their entirety as follows:
"2.5(d) The right of first offer in this paragraph 2.5 shall
not be applicable (i) to the issuance or sale of shares of common stock
issuable or issued to employees or consultants and advisors of the
Company (including without limitation independent marketers and
resellers of the Company's products) directly or pursuant to a stock
option plan or agreement or restricted stock plan or agreement approved
by the Board of Directors of the Company at any time when the total
number of shares of common stock so issuable or issued (and not
repurchased at cost by the Company in connection with the
2
<PAGE> 3
termination of employment or service) does not exceed 4,500,000
(subject to appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations after the effective date of the
Company's Fifth Restated Certificate of Incorporation), (ii)
consummation of a bona fide, firmly underwritten public offering of
shares of common stock, registered under the Act pursuant to a
registration statement on Form S-1, at an offering price of at least
$9.00 per share (after giving effect to a reverse stock split effected
on March 23, 1999, appropriately adjusted for any subsequent stock
split, dividend, combination or other recapitalization) and $20,000,000
in the aggregate, (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities, (iv)
the issuance of securities to strategic partners of the Company
primarily for strategic purposes other than raising capital, as so
reasonably determined by the Board of Directors of the Company, or (v)
shares of common stock issued in connection with a bona fide lease
financing transaction approved by the Board of Directors of the
Company."
"2.7 IRC Section 305. So long as any shares of the Company's
Series A Preferred Stock, Series C Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock remain outstanding, the Company will
not, without approval of holders of a majority of the Series A
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock then outstanding, voting together on an as
converted basis, do any act or thing which would result in taxation of
the holders of shares of the Series A Preferred Stock, Series C
Preferred, Series E Preferred Stock or Series F Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended (the
"IRC") (or any comparable provision of the IRC as hereafter may from
time to time be amended)."
"2.9 Board Committees. So long as any shares of the Company's
Series A Preferred Stock, Series C Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock remain outstanding, the Company will
use its best efforts to have the Board of Directors appoint and
maintain a Compensation Committee and an Audit Committee. Each such
Committee shall contain no more than three members and shall include no
more than one member of management of the Company. The holders of a
majority of the Series A Preferred Stock, Series C Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock then outstanding,
voting together on an as converted basis, shall have the right, but not
the obligation, to designate two of the members of the Compensation
Committee."
"2.11 Termination of Certain Covenants. The covenants set
forth in Sections 2.5, 2.7, 2.8 and 2.9 shall terminate and be of no
further force or effect upon the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act
in connection with the firm commitment underwritten offering of its
securities to the general public, provided that such initial public
offering shall be for not less than $9.00 per share and $20,000,000 in
the aggregate."
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<PAGE> 4
"3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of each of (a) the
Company, (b) the holders of a majority of the Series A Preferred Stock
of the Company, voting together as a class, (c) the holders of a
majority of the Series C Preferred Stock of the Company, voting
together as a class, (d) the holders of a majority of the Series E
Preferred Stock, voting together as a class, and (e) the holders of a
majority of the Series F Preferred Stock, voting together as a class.
Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and
the Company."
4. Entire Agreement. The Restated Investors' Rights Agreement, as
amended by this Amendment, constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 5
THE COMPANY:
SALESLOGIX CORPORATION, a Delaware
corporation
By: /s/ Gary Acord
------------------------------------
Gary Acord, CFO and Secretary
Address: 8800 N. Gainey Center Dr., Suite 200
Scottsdale, AZ 85258
INVESTORS:
INNOCAL, L.P., a Delaware Limited Partnership
By: InnoCal Associates, L.P., a Delaware
Limited Partnership
By:/s/ Harry Lambert
---------------------------------
Harry Lambert, General Partner
Address: 600 Anton Blvd., Suite 1270
Costa Mesa, CA 92626
CANAAN VENTURES II LIMITED
PARTNERSHIP
By: Canaan Venture Partners II L.P.
By:/s/ Deepak Kamra
---------------------------------
Deepak Kamra, General Partner
Address: 2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
5
<PAGE> 6
CANAAN VENTURES II OFFSHORE
LIMITED PARTNERSHIP C.V.
By: Canaan Venture Partners II L.P.
By:/s/ Deepak Kamra
---------------------------------
Deepak Kamra, General Partner
Address: 2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025
NEWTEK VENTURES II, L.P.
By: /s/ John Hall
------------------------------------
John Hall, General Partner
Address: 500 Washington Street, Suite 720
San Francisco, CA 94111
/s/ Deepak Kamra
----------------------------------------------
DEEPAK KAMRA
Address: 2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025
MORRIS VENTURES, a Partnership
By: /s/ Anthony P. Morris
------------------------------------
Anthony P. Morris, General Partner
Address: 211 Congress Street, 2nd Floor
Boston, MA 02110
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
6
<PAGE> 7
----------------------------------------------
JOHN PURTELL
Address: 2750 Northhaven
Dallas, TX 75225
COMDISCO, INC., a Delaware corporation
By:
------------------------------------
Name:
Its:
Address: 6111 River Road
Rosemont, IL 60018
BRINSON VENTURE CAPITAL FUND III, L.P.
By: Brinson Partners, Inc., its General
Partner
By:/s/ David S. Timson
---------------------------------
David S. Timson, Partner
Address: 209 S. LaSalle Street
Chicago, IL 60604
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
7
<PAGE> 8
BRINSON TRUST COMPANY AS TRUSTEE
FOR THE BRINSON MAP VENTURE
CAPITAL FUND III TRUST
By: /s/ David S. Timson
------------------------------------
David S. Timson, Trust Officer
Address: 209 S. LaSalle Street
Chicago, IL 60604
SIGMA PARTNERS III, L.P.,
By: /s/ Cliff Haas
------------------------------------
Cliff Haas, General Partner
Address: 2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
SIGMA ASSOCIATES III, L.P.
By: /s/ Cliff Haas
------------------------------------
Cliff Haas, General Partner
Address: 2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
8
<PAGE> 9
SIGMA INVESTORS III, L.P.
By: /s/ Cliff Haas
------------------------------------
Cliff Haas, General Partner
Address: 2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
----------------------------------------------
JOHN R. MANDILE
Address: Oak Knoll
Winchester, MA 01890
SIERRA VENTURES VI L.P.
By: /s/ David C. Schwab
-----------------------------------------
David C. Schwab, General Partner
THE GOLDMAN SACHS GROUP, L.P.
By: The Goldman Sachs Corporation, its
General Partner
By:/s/ illegible
--------------------------------------
Name:
---------------------------------
Its:
----------------------------------
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
9
<PAGE> 10
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Its: General Partner
By:/s/ Eve Gerriets
--------------------------------------
Eve Gerriets, Vice President
Address: 85 Broad Street
New York, NY 10004
BRIDGE STREET FUND 1998, L.P.
By: Bridge Street Advantage Corp.
Its: Managing General Partner
By:/s/ Eve Gerriets
--------------------------------------
Eve Gerriets, Vice President
Address: 85 Broad Street
New York, NY 10004
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
10
<PAGE> 11
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C.
By:/s/ Deepak Kamra
--------------------------------------
Deepak Kamra, Member/Manager
----------------------------------------------
Anthony P. Morris
[SIGNATURE PAGE TO AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
11
<PAGE> 1
Exhibit 4.6 - Enact Investor Rights Agreement
ENACT INVESTOR RIGHTS AGREEMENT
THIS ENACT INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into
as of the 30th day of April, 1999, by and among SALESLOGIX CORPORATION, a
Delaware corporation (the "Parent"), and the persons whose names, signatures and
addresses appear on the signature page of this Agreement (collectively, the
"Enact Investors").
RECITALS
A. Parent, ENACT INCORPORATED, an Ohio corporation ("Enact"), and SLX
MERGER COMPANY, an Arizona corporation ("Newco") have simultaneously herewith
consummated the transactions contemplated by that certain Plan of Reorganization
and Agreement of Merger dated as of April 30, 1999 (the "Merger Agreement"),
pursuant to which Enact will merge with and into Newco in a tax-free
reorganization pursuant to Section 368(a)(2)(A) of the Internal Revenue Code of
1986, as amended. Capitalized terms used herein that are not otherwise defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
B. Immediately prior to the effective date of the Merger Agreement, the
Enact Investors own, in the aggregate, one hundred percent (100%) of the issued
and outstanding Class A Common Shares, Class B Convertible Common Shares, Class
C Convertible Common Shares and Warrants of Enact.
C. Pursuant to the Merger Agreement, the Enact Investors will receive
in the aggregate: (i) 407,531 shares of fully paid and nonassessable Class A
Common Stock issued by Parent (the "Parent Common Stock"); and (ii) additional
shares of Parent Common Stock, if any, to which Bruce Chase shall be entitled,
under the terms and conditions set forth in the Bruce Chase Employment Agreement
and the Restricted Stock Agreement. The Parent Common Stock referred to in (i)
and (ii) shall be referred to collectively as the "Shares."
D. Pursuant to the Merger Agreement, certain of the Shares shall be
deposited into escrow (the "Escrowed Shares") pursuant to a certain Escrow
Agreement ("Escrow Agreement") entered into as of the date hereof among the
parties hereto and an escrow agent. All Shares deposited into Escrow pursuant to
the Escrow Agreement shall be subject to the restrictions on transferability
described herein.
E. Parent has previously granted certain registration rights to the
holders of the Series A, C and E Preferred Stock of Parent as described in that
Amended and Restated Investors' Rights Agreement dated June 4, 1998 (the
"Restated Existing Investors' Rights Agreement").
F. Parent and the Enact Investors desire that Enact Investors receive
the registration rights set forth in this Agreement and that the Shares be
subject to certain restrictions as set forth in this Agreement.
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<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
Restrictions on Transferability
Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Act" shall mean the Securities Act of 1933, as amended, or
any similar or successor federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
"Holder" shall mean any person holding Registrable Securities,
including without limitation, the Enact Investors.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by
Parent in complying with Section 1.5 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Parent, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of Parent
which shall be paid in any event by Parent).
"Registrable Securities" means (a) the Shares; (b) any Parent
Common Stock issued or issuable in respect of other securities issued or
issuable with respect to the Shares upon any stock split, stock dividend,
recapitalization, or similar event, or any Parent Common Stock otherwise issued
or issuable with respect to the Shares; and (c) any Parent Common Stock with
respect to which Parent has granted registration rights to others; provided,
however, that shares of Parent Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (x) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (y) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Act under Section 4(l)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale. "Registrable Securities"
may include the Escrowed Shares, provided that the proceeds from the sale of
such Escrowed Shares shall remain subject to the Escrow until qualified for
release thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
2
<PAGE> 3
1.2 Restrictions. The Shares shall not be sold, assigned, pledged,
hypothecated or otherwise transferred except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Act. Each Enact Investor will cause any proposed purchaser,
assignee, transferee or pledgee of the Shares to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
1.3 Restrictive Legend. Each certificate representing (a) the Shares
and (b) any other securities issued in respect of the Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 1.3 below) be
stamped or otherwise imprinted with a legend in substantially the following form
(in addition to any other legends required under applicable state securities
laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT."
A FULL STATEMENT OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON THE RESPECTIVE CLASSES AND SERIES OF SHARES
OF THE COMPANY AND UPON THE HOLDERS THEREOF ARE SET FORTH IN THE
CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED. THE
CERTIFICATE OF INCORPORATION MAY BE OBTAINED FROM THE SECRETARY OF THE
COMPANY UPON REQUEST AND WITHOUT CHARGE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
ORIGINAL SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
Each Enact Investor and Holder consent to Parent making a notation on its
records and giving instructions to any transfer agent in order to implement the
restrictions on transfer established in this Section 1.
1.4 Notice of Proposed Transfers. The Holder of each certificate
representing Shares, by acceptance thereof, agrees to comply in all respects
with the provisions of this Section 1. Prior to any proposed sale, assignment,
transfer or pledge of any Shares, unless there is in effect a registration
statement under the Act covering the proposed transfer and in addition to
Holder's
3
<PAGE> 4
notice obligations under Section 1.2 above, the Holder thereof shall give
written notice to Parent of such Holder's intention to effect such transfer,
sale, assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied at such Holder's expense by either (a) an
unqualified written opinion of legal counsel who shall, and whose legal opinion
shall be, reasonably satisfactory to Parent, addressed to Parent, to the effect
that the proposed transfer of the Shares may be effected without registration or
qualification under the Act and applicable state "blue sky" statutes, rules and
regulations ("Blue Sky Laws"), or (b) a "no action" letter from the Commission
and applicable state "blue sky" regulators (the "Regulators") to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission or the Regulators that action be
taken with respect thereto, or (c) any other evidence reasonably satisfactory to
counsel to Parent, whereupon the Holder of such Shares shall be entitled to
transfer such Shares in accordance with the terms of the notice delivered by the
Holder to Parent. Each certificate evidencing the Shares transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legends set forth in this Section 1, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such Holder and Parent, such legend is not required in order to establish
compliance with any provisions of the Act.
1.5 Company Registration. If (but without any obligation to do so)
Parent proposes to register any of its stock or other securities under the Act
in connection with the public offering of such securities solely for cash (other
than (i) the initial public offering of the Company's securities; (ii) a
registration relating solely to the sale of securities to participants in a
Parent stock plan; (iii) a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities; or (iv)
a registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered);
including any registration made pursuant to Section 1.2(a) of the Restated
Existing Investors' Rights Agreement, Parent shall at such time, promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after mailing of such notice by Parent
in accordance with Section 2.5, Parent shall, subject to the provisions of
Sections 1.7 and 1.9, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.6 Obligations of Parent. Whenever required under Section 1.5 to
effect the registration of any Registrable Securities, Parent shall as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that such 120 day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of Parent; and
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<PAGE> 5
provided further that Parent reserves the right, in its discretion to terminate
or delay the registration efforts described in Section 1.5 at any time.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that Parent shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless Parent is already
subject to service in such jurisdiction and except as may be required by the
Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by Parent are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to Section 1.5, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing Parent
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering,
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<PAGE> 6
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of Parent, in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable Securities.
1.7 Furnish Information. It shall be a condition precedent to the
obligations of Parent to take any action pursuant to Section 1.5 with respect to
the Registrable Securities of any selling Holder that such Holder shall furnish
to Parent such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
1.8 Expenses of Company Registration. Parent shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.5 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.9 Underwriting Requirements. In connection with any offering
involving an underwriting of Shares of Parent's capital stock, Parent shall not
be required under Section 1.5 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between Parent and the underwriters selected by it (or by other persons entitled
to select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not, jeopardize the success of the
offering by Parent. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities sold other than by Parent that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then Parent shall be required to include in the offering only that
number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among the
selling stockholders according to the total amount of securities requested to be
included therein owned by each selling stockholder or in such other proportions
as shall mutually be agreed to by such selling stockholders, but in no event
shall the amount of securities of the selling Holders included in the offering
be reduced below thirty percent (30%) of the total amount of securities included
in such offering, unless such offering is the initial public offering of
Parent's securities in which case the selling stockholders may be excluded if
the underwriters make the determination described above and no other
stockholder's securities are included (subject to the final sentence of Section
1.5). For purposes of the preceding parenthetical concerning apportionment, for
any selling stockholder which is a holder of Registrable Securities and which is
a partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based
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<PAGE> 7
upon the aggregate amount of Shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
1.10 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.11 Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 1.5:
(a) To the extent permitted by law, Parent will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) 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 (iii) any violation or alleged
violation by Parent of the Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and Parent will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.11(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Parent (which consent shall not be
unreasonably withheld), nor shall Parent be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless Parent, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who controls
Parent within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.11(b), in
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<PAGE> 8
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.11(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.11 of notice of the commencement of any action (including any
governmental action), such indemnified party will if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.11, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.11, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.11.
(d) If the indemnification provided for in this Section 1.11 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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(f) The obligations of Parent and Holders under this Section 1.11
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.12 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of Parent to the public without registration, Parent
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by Parent for
the offering of its securities to the general public,
(b) file with the SEC in a timely manner all reports and other
documents required of Parent under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by Parent
that it has complied with the reporting requirements of SEC Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by Parent), the Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), (ii) a copy of the most recent
annual or quarterly report of Parent and such other reports and documents so
filed by Parent, and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.13 Assignment of Registration Rights. The rights to cause Parent to
register Registrable Securities pursuant to Section 1.5 may not be assigned by a
Holder, without the prior written consent of Parent, which may be granted or
withheld in its discretion; except that such rights may be assigned by Holder
without Parent's prior written consent (but only with all related obligations)
in connection with a transfer made pursuant to Section 1.4 provided that the
transferee or assignee of such securities will, after such assignment or
transfer, hold at least 100,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations) (or, if the transferee holds less than 100,000 Registrable
Shares, such transferee is a general partner or limited partner or member (in
the case of a limited liability company) of an Investor hereunder); and further
provided that: (a) the Company is, within a reasonable time after such transfer
and assignment, furnished with written notice of the name and address of such
transferee and assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee and assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.14 below;
and (c) such assignment shall be effective only if immediately following such
transfer and assignment the further disposition of such securities by the
transferee or assignee is restricted under the Act. Any such transferee and
assignee shall be deemed an "Enact Investor" for the purposes of this Agreement.
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<PAGE> 10
1.14 "Market Stand-Off" Agreement. Each Enact Investor hereby agrees
that, during the period of duration specified by Parent and an underwriter of
Common Stock or other securities of Parent, following the effective date of a
registration statement of Parent filed under the Act, it shall not, to the
extent requested by Parent and such underwriter, directly or indirectly sell,
offer to sell contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of Parent held by it at
any time during such period except common stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of Parent which covers common stock (or other securities)
to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of Parent and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(c) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the Shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction.
1.15 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided for
in this Section 1 after six (6) years following the consummation of the sale of
securities pursuant to a registration statement filed by Parent under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public.
(b) In addition, the right of any Holder to request inclusion in
any registration pursuant to Section 1.5 shall terminate on the second
anniversary of the closing of the first Parent-initiated registered public
offering of Common Stock of Parent if all Shares of Registrable Securities held
or entitled to be held upon conversion by such Holder may immediately be sold
under Rule 144 during any 90 day period, or on such date after the second
anniversary of the closing of the first Parent-initiated registered public
offering of Common Stock of Parent as all Shares of Registrable Securities held
or entitled to be held upon conversion by such Holder may immediately be sold
under Rule 144 during any 90 day period; provided, however, that the provisions
of this Section 1.15(b) shall not apply to any Holder who owns more than two
percent (2%) of Parent's outstanding stock until such time as such Holder owns
less than two percent (2%) of the outstanding stock of Parent.
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<PAGE> 11
1.16 Acknowledgment of Previous Grants of Registration Rights. Enact
Investors acknowledge that Parent has previously granted registration rights
relating to Common Stock of Parent, pursuant to the Restated Existing Investors'
Rights Agreement, and pursuant to the OPIS Investor Rights Agreement dated
December 30, 1997, and that Enact Investors' rights are subject to the rights of
the rights holders under such agreements.
SECTION 2
Miscellaneous
2.1 Assignment. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and permitted assigns of the parties hereto.
2.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person or entity, other than the parties hereto, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein. "Holders" who are not parties to this Agreement, or successors or
assigns of such parties, are not third party beneficiaries of this Agreement and
may not enforce this Agreement without the prior written consent of Parent in
its discretion.
2.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Arizona as applied to agreements entered into and
performed in the State of Arizona solely by residents thereof.
2.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.5 Notices. Any notice required or permitted by this Agreement shall
be in writing shall be sent by prepaid registered or certified mail, return
receipt requested, addressed to the other party at the address set forth below
such parties signature to this Agreement or at such other address for which such
party gives notice hereunder. Any party giving notice of a change in address
shall also concurrently deliver notice of such change to the Escrow Agent (as
that term is defined in the Merger Agreement). Such notice shall be effective
when received, but shall be deemed to have been received four (4) days after
deposit in the mail, postage prepaid.
2.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
2.7 Amendment and Waiver. Any provision of this Agreement may be
amended and any right waived with the written consent of Parent and the Holders
of at least two-thirds (2/3rds) of the Shares. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each Holder of the
Shares and Parent. In addition, Parent may waive performance of any obligation
owing to it, as to some or all of the Holders of the Shares, or agree to accept
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<PAGE> 12
alternatives to such performance, without obtaining the consent of any Holder of
Shares. In the event that an underwriting agreement is entered into between
Parent and any Holder, and such underwriting agreement contains terms differing
from this Agreement, as to any such Holder the terms of such underwriting
agreement shall govern.
2.9 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party 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 party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing 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.
2.10 Dispute Resolutions. The provisions of Section 13.5 of the Merger
Agreement are hereby incorporated into this Agreement.
[SIGNATURES APPEAR ON THE FOLLOWING SIGNATURE PAGES]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have this Agreement as of the date
first above written.
SALESLOGIX CORPORATION
By: /s/ Gary Acord
Title: CFO
8800 North Gainey Center Dr., Suite 200
Scottsdale, Arizona 85258
/s/ Bruce Chase /s/ L. Chase (as spouse)
BRUCE CHASE [INCLUDE SPOUSE]
413 Inglewood Drive
Westerville, Ohio 43081
/s/ S. Griff Burgh
S. GRIFFIN BURGH
4967 Heath Gate Drive
New Albany, Ohio 43054
/s/ A.B. Siemer
A.B. SIEMER
150 East Campus View Boulevard
Suite 250
Columbus, Ohio 43235
WINGSET INVESTMENTS LTD.
By: /s/ James A. Rutherford
Title: Managing Director
15 South High Street
New Albany, Ohio 43054
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<PAGE> 1
Exhibit 5.1
[OSBORN MALEDON LETTERHEAD]
May 5, 1999
SalesLogix Corporation
8800 N. Gainey Center Drive, Suite 200
Scottsdale, AZ 85258
Ladies and Gentlemen:
We have acted as counsel to you in connection with the proceedings for
the authorization and issuance by SalesLogix Corporation (the "Company") of up
to 3,325,000 shares (the "Firm Shares") of the Company's common stock, $.001 par
value per share (the "Common Stock"), together with an additional 498,750 shares
of Common Stock if and to the extent the underwriters exercise an over-allotment
option granted by the Company (the "Over-Allotment Shares"), and the preparation
and filing of a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
which you are filing with the Securities and Exchange Commission with respect to
the Firm Shares and the Over-Allotment Shares (collectively, the "Shares").
We have examined the Registration Statement and such documents and
records of the Company and other documents as we have deemed necessary for the
purpose of this opinion. Based upon the foregoing, we are of the opinion that
upon the happening of the following events:
(a) the filing and effectiveness of the Registration Statement and
any amendments thereto,
(b) due execution by the Company and registration by its registrar
of the Shares,
(c) the offering and sale of the Shares as contemplated by the
Registration Statement, and
(d) receipt by the Company of the consideration required for the
Firm Shares and the Over-Allotment Shares to be sold by the
Company as contemplated by the Registration Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
<PAGE> 2
SalesLogix Corporation
May 5, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters". In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
OSBORN MALEDON, P.A.
<PAGE> 1
Exhibit 10.23 - Plan of Reorganization and Agreement of Merger
PLAN OF REORGANIZATION AND
AGREEMENT OF MERGER
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER (the "Agreement"), dated
as of April 30th, 1999, by and among SalesLogix Corporation, a Delaware
corporation ("Parent"), SLX Merger Company, an Arizona corporation ("Newco") and
Enact Incorporated, an Ohio corporation ("Enact"). Newco and Enact shall
sometimes be referred to as the "Constituent Corporations".
WHEREFORE, the Boards of Directors of Newco, Enact and Parent desire to
adopt a plan of reorganization for a transaction intended to qualify as a
reorganization within the meaning of Section 368(a)(2)(A) of the Internal
Revenue Code, as amended; deem the merger of Enact into Newco on the terms
herein set forth to be desirable and in the best interests of their respective
stockholders; and have approved the transactions contemplated by this Agreement;
NOW, THEREFORE, in accordance with the applicable provisions of the
General Corporation Law of the State of Arizona ("AGCL") and of the General
Corporation Law of the State of Ohio ("OGCL"), Newco, Enact and Parent agree
that Enact shall be merged into Newco, Newco to be the surviving corporation,
and that the plan, terms and conditions of such merger shall be as follows:
ARTICLE I. THE MERGER AND RELATED MATTERS
1.01 The Merger. At the Effective Time (as set forth in Section 1.02):
Enact shall be merged into Newco (the "Merger"), the separate existence of Enact
shall cease, and Newco shall be the surviving corporation and shall continue its
corporate existence under the laws of the State of Arizona under the name of
Enact Incorporated; Newco shall possess all the rights, privileges, immunities
and franchises, of a public as well as of a private nature, of each of the
Constituent Corporations; all property, real, personal and mixed, and all debts
due on whatever account, including subscriptions to shares, and all other causes
in action, and all and every other interest of or belonging to or due to each of
the Constituent Corporations shall be taken and deemed to be transferred to and
vested in Newco without further act or deed; the title to any real estate, or
any interest therein, vested in any of the Constituent Corporations shall not
revert or be in any way impaired by reason of such merger or consolidation;
Newco shall thenceforth be responsible and liable for all the liabilities and
obligations of each of the Constituent Corporations; any claim existing or
action or proceeding pending by or against a Constituent Corporation may be
prosecuted as if such merger or consolidation had not taken place, or Newco may
be substituted in its place; and neither the rights of creditors nor any liens
upon the property of any Constituent Corporation shall be impaired by the
Merger.
1.02 Effective Time. After adoption and approval of this Agreement by
the shareholders of Enact and Newco, respectively, in accordance with the
requirements of applicable law, and upon satisfaction of each of the conditions
set forth in Articles IX and X (unless waived in accordance with this Agreement)
and in the absence of any facts that would
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<PAGE> 2
give any party hereto a right to terminate this Agreement (which right has not
been waived), and on or before the Closing Date, appropriate articles or
certificates of merger in compliance with the AGCL shall be submitted for filing
with the Arizona Corporation Commission ("ACC") and in compliance with the OGCL
shall be submitted for filing with the Ohio Secretary of State ("OSS"). The
merger shall become effective on the filing with the ACC and OSS of articles
and/or certificates of merger in the form and manner required by the AGCL and
the OGCL, as the case may be (the "Articles of Merger"). The date of the last of
such filings shall be called the "Effective Time". The information required by
Section 10-1105 of Arizona Revised Statutes shall be published, and any required
affidavit of publication shall be filed, in the manner and within the time
period provided by the AGCL.
1.03 Articles of Incorporation of Newco and Parent. The Articles of
Incorporation of Newco will be amended, effective at the Effective Time, by
amending Article I thereof to read in its entirety as follows: "The name of the
corporation is Enact Incorporated." At the Effective Time, the Articles of
Incorporation of Newco, as hereby amended, but otherwise as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the surviving corporation.
1.04 Bylaws. The Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
1.05 Certain Additional Agreements.
(A) The location of the principal office of Newco in Arizona is as
follows: 8800 North Gainey Center Drive, Suite 200, Scottsdale, Arizona 85258.
(B) Newco consents to be sued and served with process in Ohio and
irrevocably appoints the Ohio Secretary of State as its agent to accept service
of process in any proceeding in Ohio to enforce against Newco any obligation of
Enact or to enforce the rights of a dissenting shareholder of Enact.
(C) Newco desires to transact business in Ohio as a foreign
corporation and, in connection with the Merger, shall take the necessary actions
to obtain a license to do so.
1.06 The Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at the offices of Osborn Maledon,
2929 N. Central Avenue, Suite 2100, Phoenix, Arizona 85012, at 10:00 a.m., local
time, on the later of (i) the Effective Time, which shall be on Friday, April
30th, 1999 or (ii) at such other time and place and on such other date as Enact,
Parent and Newco shall agree (the "Closing Date").
ARTICLE II. CONVERSION AND EXCHANGE OF MERGER CONSIDERATION
2.01 Conversion Ratio. The manner of converting or exchanging the
shares of each of the Constituent Corporations shall be as follows:
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<PAGE> 3
(A) The Merger shall effect no change in any of the shares of Newco
stock and none of its shares shall be converted as a result of the Merger.
(B) All of the Class A Common Shares of Enact ("Enact Class A
Common Stock") issued and outstanding at the Effective Time, consisting of
50,000 shares, shall by virtue of the Merger and at the Effective Time be
converted into and become, in the aggregate and without action on the part of
the holders thereof, 382,374 shares of fully paid and nonassessable Class A
Common Stock issued by Parent (the "Parent Common Stock"), which number shall be
adjusted by the parties in the event Parent issues stock options between March
18, 1999 and the Closing ("Newly Issued Options") with respect to in excess of
611,799 shares of Parent Common Stock (in which case the number of shares of
Parent Common Stock issuable to the prior holders of Enact Class A Common Stock
under this Section 2.01(B) shall be increased by that number equal to 0.025
multiplied by the difference between the number of shares of Parent Common Stock
subject to the Newly Issued Options and 611,799).
(C) All of the Class B Convertible Common Shares of Enact ("Enact
Class B Common Stock") issued and outstanding at the Effective Time, consisting
of 15,000 shares, all of the Class C Convertible Common Shares of Enact ("Enact
Class C Common Stock") issued and outstanding at the Effective Time, consisting
of 7,500 shares, and the total outstanding warrants (consisting of Warrants WB-1
and WB-2 (the "Warrants")), which are held by the same parties who also hold
both the Enact Class B and Enact Class C Common Stock, shall by virtue of the
Merger and at the Effective Time be converted collectively into and become, in
the aggregate and upon surrender of the underlying stock certificates and
warrant instruments by the holders thereof at Closing, the right to receive: (i)
25,157 shares of fully paid and nonassessable Parent Common Stock; and (ii)
immediate payment in cash in the amount of $3,999,999.00 (the "Cash
Consideration").
(D) The total incentive stock options to purchase 4,875 shares of
Enact Class A Common Stock ("Enact Options") issued and outstanding at the
Effective Time shall be converted into, in the aggregate, incentive stock
options to purchase 37,282 shares of Parent Common Stock (the "Option Shares")
under Parent's 1996 Equity Incentive Plan, on the same vesting schedule as
applicable to the Enact Options prior to the merger, with a corresponding
adjustment in the per share exercise price to maintain the then existing
aggregate option price.
(E) The Parent Common Stock to be distributed under subsections (B)
and (C), the cash to be distributed under subsection (C), and the Option Shares
to be distributed under subsection (D) shall be referred to collectively as the
"Merger Consideration." Schedule 2.01(E) contains a list of the number of shares
of Enact Class A, B and C Common Stock, and Warrants, owned of record by each
shareholder of Enact (the "Shareholders"); the options to purchase Enact Class A
Common Stock owned by each holder thereof (the "Option Holders"); the Merger
Consideration such securities shall be converted into at the Effective Time; the
number of shares of Parent Common Stock to be delivered to each Shareholder at
the Closing; the number of shares of Parent Common Stock to be delivered into
Escrow (as that term is defined in Section 2.05 below) on behalf of each
Shareholder; the number of Option Shares that, when exercised pursuant to the
terms of the applicable Enact Option and this Agreement, will be delivered to
each Option Holder; and the number of Chase Shares (as defined in Section
2.05(C))
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reserved for issuance to Bruce Chase under the Bruce Chase Employment Agreement
and the Restricted Stock Agreement (as defined, respectively, in Sections 9.06
and 9.07 and attached as Exhibits 9.06 and 9.07).
2.02 Shares Owned by Enact. Each share of Enact Class A, B and C Common
Stock issued and held in the treasury of Enact at the Effective Time, if any,
shall be automatically canceled and retired, and no shares of stock or other
securities of Parent or Newco shall be issuable with respect thereto.
2.03 Fractional Shares. No fractional shares of Parent Common Stock
shall be issued to any Shareholder or Option Holder hereunder, and any
fractional share to which any Shareholder or Option Holder would otherwise be
entitled shall be rounded off to the nearest whole share, as set forth in
Schedule 2.01(E).
2.04 Exchange of Consideration.
(A) Parent Common Stock. At and after the Effective Time, each
Shareholder, upon presentation and surrender of a certificate or certificates
therefor to Newco, shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of Parent Common
Stock to which such Shareholder is entitled as provided in Section 2.01(B),
subject to Sections 2.05, 2.07 and Article XII. Until so presented and
surrendered in exchange for a certificate representing the Parent Common Stock,
each certificate which represented issued and outstanding shares of Enact Stock
at the Effective Time shall be deemed for all purposes to evidence ownership of
the number of shares of Parent Common Stock into which such shares of Enact
Stock have been converted pursuant to the Merger. Until surrender of such
certificates in exchange for certificates representing the Parent Common Stock,
the holder thereof shall not be entitled to vote at any meeting of Parent
stockholders or to receive any dividend or other distribution payable to holders
of shares of Parent Common Stock; provided, however, that upon surrender of such
certificates representing Enact Stock in exchange for certificates representing
Parent Common Stock, there shall be paid to the record holder of the certificate
representing Parent Common Stock issued upon such surrender the amount of
dividends or other distributions (without interest) which theretofore became
payable with respect to the number of shares of Parent Common Stock represented
by the certificate issued upon such surrender.
(B) Option Shares. At and after the Effective Time, each Option
Holder, after execution of an award agreement in the form attached as Exhibit
2.04(B) and upon presentation and exercise thereof in accordance with the terms
of such award agreement, shall be entitled to receive and purchase such number
of shares of Parent Common Stock to which such Option Holder is entitled as
provided in Section 2.01(D).
2.05 Merger Consideration; Escrow.
(A) Parent Common Stock. The Parent Common Stock shall be issued
and delivered at the Closing, subject to the following conditions:
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(1) Ninety percent (90%) of the Parent Common Stock plus ninety percent
(90%) of the Cash Consideration shall be issued and delivered to the
Shareholders, pro rata in accordance with Schedule 2.01(E), free of any
Encumbrances (as defined in Section 3.08(B)) created by Parent or Newco other
than as set forth herein and in that certain Enact Investor Rights Agreement
(the "Enact Investor Rights Agreement"), the form of which is attached hereto as
Exhibit 2.05(A) and a counterpart of which shall be executed by each Shareholder
and Parent for delivery at or prior to Closing.
(2) The remaining ten percent (10%) of the Parent Common Stock (the
"Escrowed Parent Shares") plus ten percent (10%) of the Cash Consideration
("Escrowed Cash Consideration," and collectively with the Escrowed Parent
Shares, the "Escrowed Merger Consideration") shall be issued to and delivered on
behalf of the Shareholders, pro rata in accordance with Schedule 2.01(E), to the
Escrow Agent identified as such in the form of Escrow Agreement attached hereto
as Exhibit 2.05(B) (the "Escrow Agreement"), to be held in escrow (the "Escrow")
for a period of 270 days, pursuant to the Escrow Agreement, and shall be subject
to the following additional terms:
i) During the term of the Escrow, each Shareholder shall have
the right to vote his or her Escrowed Parent Shares and to receive any
dividends or distributions made in respect thereof free of any
Encumbrances created by Parent or Newco, provided that any stock
dividends or shares in respect of stock splits shall continue to be
held in Escrow subject to the conditions applicable to the Escrowed
Parent Shares related thereto.
ii) All of the Escrowed Merger Consideration shall be eligible
for delivery to the Shareholders, respectively, on the 270th day after
the Closing Date, and subject to Article XII and to the terms and
conditions of the Escrow Agreement, shall be delivered promptly
thereafter by the Escrow Agent free of Encumbrances created by Parent
or Newco.
iii) The Escrowed Merger Consideration shall be immediately
released from Escrow and delivered to the Shareholders free of
Encumbrances created by Parent or Newco upon the occurrence of any of
the following events after delivery of written notice of such event(s)
to the Escrow Agent and all parties to the Escrow Agreement:
a) The making by Parent of any general assignment or
general arrangement for the benefit of creditors.
b) The filing by or against Parent of a petition to
have Parent adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against
Parent, the same is dismissed within ninety days).
c) The appointment of a trustee or receiver to take
possession of substantially all of Parent's assets if
possession is not
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restored to Parent within thirty days, or the attachment,
execution, or other judicial seizure of substantially all of
Parent's assets if the seizure is not discharged within thirty
days.
iv) The right to receive Escrowed Parent Shares or any
interest therein shall not be transferable or assignable by the
Shareholders otherwise than by will, by trust (the beneficiaries of
which are one or more of a Shareholder's spouse or lineal descendants)
or the laws of descent and distribution; however, a Shareholder shall
have the right to name a spouse as a beneficiary of the right to
Escrowed Parent Shares under this Agreement.
v) The Escrowed Parent Shares shall be subject to the Enact
Investor Rights Agreement.
(B) Option Shares. At and after the Effective Time, each Option
Holder, upon presentation and exercise of an option in accordance with the terms
of an award agreement described in Section 2.04(B), shall be entitled to receive
and purchase such Option Holder's portion of the Option Shares free of any
Encumbrances created by Parent or Newco other than as set forth herein.
(C) Chase Shares. After the Effective Time, Bruce Chase shall be
entitled to receive up to 201,893 additional shares of Parent Common Stock (the
"Chase Shares") in vesting installments from month to month over a 36 month
period pursuant to the Bruce Chase Employment Agreement (as defined in Section
9.06 and attached as Exhibit 9.06) and the Restricted Stock Agreement (as
defined in Section 9.07 and attached as Exhibit 9.07), as follows: If and to the
extent that, during the period of 270 days commencing on the Closing Date, Chase
Shares become issuable to Bruce Chase under the Bruce Chase Employment
Agreement, the first 20,189 of shares issued thereunder (the "Escrowed Chase
Shares," constituting ten percent (10%) of the total Chase Shares potentially
issuable under the Bruce Chase Employment Agreement), shall be issued and
delivered on behalf of Bruce Chase to the Escrow Agent to be held in Escrow for
a period of 270 days commencing on the Closing Date, pursuant to the terms of
Article XII and the Escrow Agreement. The Escrowed Chase Shares shall also be
subject to the same terms and conditions to which the Escrowed Parent Shares are
subject as set forth above in Section 2.05(A)(2). All Chase Shares other than
the Escrowed Chase Shares shall be issued to Bruce Chase as provided in the
Bruce Chase Employment Agreement and Restricted Stock Agreement free of any
Encumbrances created by Parent or Newco other than as set forth herein, in such
agreements and the Enact Investor Rights Agreement.
(D) Burgh Fees. After the Effective Time, S. Griffin Burgh shall be
entitled to receive up to $100,000 in cash (the "Burgh Fees") pursuant to the
Consulting Agreement (as defined in Section 9.09 and attached as Exhibit 9.09),
as follows: At the Closing, $10,000 of the Burgh Fees (the "Escrowed Burgh Fees)
shall be issued and delivered on behalf of S. Griffin Burgh to the Escrow Agent
to be held in Escrow for a period of 270 days, pursuant to the terms of Article
XII and the Escrow Agreement. The Escrowed Burgh Fees shall also be subject to
the same terms and conditions to which the Escrowed Parent Shares are subject as
set forth above in Section 2.05(A)(2). All Burgh Fees other than the Escrowed
Burgh Fees shall be paid to S.
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Griffin Burgh as provided in the Consulting Agreement free of any Encumbrances
created by Parent or Newco.
2.06 Piggyback Registration Rights. The two holders of Enact Class A
Common Stock, and the two holders of the Enact Class B and Class C Common Stock
and the Warrants, and certain of their successors in interest, shall be granted
certain registration rights as set forth in the Enact Investor Rights Agreement,
attached as Exhibit 2.05(A).
2.07 Adjustment.
(A) Change in Capital. The number of shares of Parent Common Stock
and Option Shares to be issued and delivered hereunder shall be appropriately
adjusted to take into account: (i) any stock split, stock dividend, reverse
stock split, recapitalization, or like change that may occur between the date of
this Agreement and the date on which any or all of such Parent Common Stock and
Option Shares, as the case may be, are delivered to the Shareholders and the
Option Holders pursuant to this Agreement; and (ii) any exercise by the Option
Holders of the Enact Options between the date of this Agreement and the
Effective Time.
(B) Adjustment to Merger Consideration. The Merger Consideration is
to be further adjusted in accordance with the provisions of Article XII hereof.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ENACT
Enact represents and warrants to Parent and Newco as follows:
3.01 Corporate Organization and Good Standing. Enact is a corporation
duly organized, existing and in good standing under the laws of the State of
Ohio, with the corporate power to own its properties and to carry on its
business as now being conducted. Enact is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification and the failure to so qualify would materially and
adversely affect Enact's business. Complete and correct copies of Enact's
Certificate of Incorporation and Bylaws, as amended to the date hereof, have
been delivered to Parent.
3.02 Corporate Authority; Enforceability. Execution, delivery and
performance of this Agreement has been approved by the Board of Directors of
Enact. Neither the execution and delivery of this Agreement, nor performance
hereunder, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of Enact or any agreement or instrument to which Enact is a party or by
which it is bound, including without limitation, any of the Material Contracts
(defined below in Section 3.10) except as set forth in Schedule 3.02. Upon
approval by the Shareholders of Enact, this Agreement will constitute the legal,
valid and binding obligation of Enact enforceable in accordance with its terms.
3.03 Capitalization. Enact's authorized capital stock consists solely
of 132,500 shares of Enact Class A Common Stock, no par value, of which 50,000
shares are issued and outstanding, fully paid and nonassessable, 20,000 shares
of Enact Class B Common Stock, no
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par value, of which 15,000 shares are issued and outstanding, fully paid and
nonassessable, and 7,500 shares of Enact Class C Common Stock, no par value, of
which 7,500 shares are issued and outstanding, fully paid and nonassessable.
Options to purchase 4,875 shares of Enact Class A Common Stock, and Warrants to
purchase such number of shares of Enact Class B Common Stock that, if
immediately converted in Enact Class A Common Stock, would equal collectively
five percent (5%) of the total outstanding shares of Enact Class A Common Stock
on an as-if-converted basis, are outstanding as of the date of this Agreement
and held as described on Schedule 2.01(E) hereto. As of the Closing and except
for the Enact Options and Warrants described on Schedule 2.01(E) hereto, no
options to purchase any Enact Class A, Class B or Class C Common Stock remain
outstanding. As of the date of this Agreement and immediately prior to the
Effective Time and except for the Enact Options and Warrants as described on
Schedule 2.01(E) hereto, there are no options, warrants or any other rights
outstanding to purchase shares of Enact Class A, Class B or Class C Common Stock
from Enact or from any Shareholder. The Shareholders are the sole owners of
record of issued and outstanding Enact Class A, Class B and Class C Stock, and
all such issued and outstanding shares are duly and validly issued and are held
by the Shareholders free and clear of any and all liens, claims or encumbrances,
except as set forth in Schedule 3.03.
3.04 Subsidiaries. Enact has no subsidiaries and does not have any
ownership interests in any other Person. "Person" means an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, any other legal entity, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof). Enact has not been a subsidiary or
division of another Person.
3.05 Financial Statements of Enact.
(A) Accuracy and Fairness. True and complete copies of the
following financial statements of Enact have been delivered by Enact to Parent
(collectively, the "Enact Financial Statements"): (i) the unaudited balance
sheet as of March 31, 1999 and the related statements of operations and cash
flows for the period then ended; (ii) the audited balance sheet as of December
31, 1998 and the related audited statements of operations, redeemable
convertible stock and stockholders' deficit, and cash flows for the year then
ended; and (iii) the audited balance sheet as of December 31, 1997 and the
related statements of operations, redeemable convertible stock and stockholders'
deficit, and cash flows for the year then ended. Schedule 3.05(A) contains an
accurate copy of each of the Enact Financial Statements. Except as set forth in
Schedule 3.05(B), the Enact Financial Statements (including in all cases the
notes thereto, if any) (a) are in accordance with the books and records of
Enact; (b) are prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP"), subject to changes resulting from
year-end adjustments; (c) present fairly in all material respects the financial
position of Enact at the dates, and the results of its operations for the
periods, indicated in those statements; (d) include only bona fide accounts
receivable; (e) include only bona fide inventory items; and (f) include reserves
and allowances which are reasonable under the circumstances. Except as set forth
on Schedule 3.05(B), there have been no accounting management letters or audit
response letters directed to Enact since December 31, 1998, and, there have been
no irregularities involving management or employees that would adversely affect
the internal control structure of Enact or Enact's financial statements.
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(B) No Undisclosed Liabilities. Enact does not have any liabilities
or obligations of any nature, secured or unsecured (absolute, accrued or
unaccrued, liquidated or unliquidated, executory, contingent or otherwise and
whether due or to become due, including without limitation, liability for any
unpaid sales, use, income, property or other tax to any taxing authority), of a
nature required to be reflected in a balance sheet prepared consistently with
past practices, or disclosed in the notes thereto, which are not adequately and
completely disclosed or reserved for in the Enact Financial Statements, except
those incurred in the ordinary course of business since March 31, 1999 or
disclosed on Schedule 3.05(B).
(C) Discharge of Liabilities. Since March 31, 1999, Enact has not
paid, discharged or satisfied any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) other than payment, discharge, or satisfaction
in the ordinary course of business and consistent with past practice.
3.06 No Material Adverse Change. There has been no material adverse
change in the business, properties, net worth or financial condition of Enact
since March 31, 1999.
3.07 Litigation, etc. Except as disclosed on Schedule 3.07, there is no
litigation, proceeding or investigation pending or, to Enact's knowledge,
threatened against Enact or any Shareholder which if successful would result in
a material adverse change in the business, properties or financial condition of
Enact or which questions the validity or legality of this Agreement or of any
action taken or to be taken by Enact or any Shareholder in connection with this
Agreement.
3.08 Intellectual Property; Software. Except as disclosed on any of the
Schedules under this Section 3.08 or Schedule 3.09:
(A) Schedule 3.08(A)(1) contains a complete and accurate list and
description of all computer programs (the "Software") owned by Enact (including
without limitation source code, object code and documentation), including
computer programs in development. Schedule 3.08(A)(1) also separately identifies
all derivative works of the Software (including all versions and releases of the
Software). Schedule 3.08(A)(2) contains a complete and accurate list of all
computer programs other than the Software that Enact incorporates, sells,
licenses or otherwise distributes, all of which are produced solely by third
parties and sold or licensed to Enact (the "Third Party Software"). Schedule
3.08(A)(3) contains a complete and accurate list of all computer programs
available in the public domain that Enact incorporates or has incorporated in
the Software. Schedule 3.08(A)(4) contains a complete and accurate list of all
material computer programs, other than the Software, Third Party Software, and
public domain software, that Enact uses in the conduct of its business (the "In
House Software"). Except as set forth in Schedule 3.08(A)(2), Enact is the
exclusive owner of all rights to the Software (including, the exclusive right to
make, copy, sell, exploit, modify, reproduce, distribute, perform, display,
produce derivative works from, license and provide to others the use of the
Software and all derivative works thereof) free and clear of any Encumbrances
(defined below), subject to the licenses to use the Software granted to
distributors and end users. Except as set forth in Schedule 3.08(A)(4), Enact is
in actual and sole possession of the complete source code of the Software
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and all related documentation, and has not disclosed such source code or related
documentation to any third party, except for disclosure to employees and agents
of Enact pursuant to agreements sufficient to protect Enact's Intellectual
Property (defined below) rights therein. Excluding actions by Bruce Chase taken
prior to the formation of Enact as a corporation, each Person who authored or
participated in the development of the Software or any portion thereof (the
"Software Authors") made his or her contribution to the Software within: (i) the
scope of employment with Enact, as a "work made for hire" for which such
Software Author was directed by Enact to work on the Software, or (ii) as an
independent contractor pursuant to a written agreement in which all work product
and the Intellectual Property rights therein, including copyrights first
conceived, were exclusively conveyed to Enact (and its successors and assigns).
In addition, Enact owns all of Bruce Chase's contribution to the Software
performed prior to the formation of Enact as a corporation.
(B) "Intellectual Property" means (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, utility models, design patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, including the Patents (as defined in Section 3.09), (ii) all
trademarks, service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including goodwill associated therewith, and applications,
registrations, and renewals in connection therewith, including the Trademarks
(as defined in Section 3.09), (iii) all copyrightable works, copyrights, and
applications, registrations, and renewals in connection therewith, including the
Copyrights (as defined in Section 3.09), (iv) all mask works and applications,
registrations, and renewals in connection therewith, (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
technics, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), including the Know-How (as defined in Section 3.09) and the
Trade Secrets (as defined in Section 3.08(H)), (vi) all computer software
(including data and related documentation), (vii) all other proprietary rights,
and (viii) all copies and tangible embodiments thereof (in whatever form or
medium). "Encumbrances" means any title defects, objections, liens, mortgages,
security interests, pledges, charges and encumbrances, adverse claims, equities,
or any other rights of others or other adverse interests of any kind including
without limitation, licenses, escrow arrangements, leases, chattel mortgages,
conditional sales contracts, collateral security arrangements and other title or
interest retention arrangements, except liens for taxes not yet due and payable
.
(C) Except as set forth in Schedule 3.08(C):
(1) To Enact's knowledge based on its current best
information, and subject to the caveat that the Software is of a
complex type which should be expected to contain at least some errors
or defects, especially when new versions are released, there are no
material defects in the Software, and there are no material errors in
any related documentation, which defects or errors would in any
material respect affect Parent or any licensee's use of the Software or
the functioning of the Software in accordance with any specifications
for the Software published by Enact (excluding any "bugs" arising or
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discovered in the normal course of business which as a whole are not
material to the overall function of the Software); the Software has all
the features described in the related user manual or advertisements and
materials made available to Enact's customers and the Software does not
contain any "back door," "time bomb," "Trojan horse," "worm," "drop
dead device," "virus" (as these terms are commonly used in the computer
software industry), or other software routines designed to permit
unauthorized access, to disable or erase software, hardware, or data or
to perform any other similar type of functions;
(2) Except to the extent year 2000 problems may have been
created through customization of the Software by particular users, the
Software's functions are year 2000 compatible and the Software is
capable of performing all functions (as represented and warranted to
Enact's customers) both prior to and following January 1, 2000. The
programming design and performance capabilities of the Software to
ensure such year 2000 compatibility include, but are not limited to,
date data century recognition, calculations which accommodate same
century and multi-century formulas and date values, and date data
interface values which reflect the correct century.
(3) Except with respect to Third Party Software and licenses
granted to end-users ("End-User Licenses") and the rights of
distributors listed in Schedule 3.08(F) pursuant to the agreements
listed therein, no Person other than Enact has any legally-enforceable
interest of any kind or nature in or with respect to the Software,
including without limitation the right to use, make, copy, sell,
exploit, modify, reproduce, distribute, perform, display, produce
derivative works from, license and provide to others the use of, the
Software and all derivative works thereof, and no funds or facilities
of any Person, university or college were used in the development of
the Software, and the Software was not developed pursuant to a contract
with any Person (except for actions by Bruce Chase taken prior to the
formation of Enact as a corporation and Software Authors hired by Enact
in accordance with Section 3.08(A) above), and there is no agreement to
which Enact or any Shareholder is a party that would preclude Newco or
Parent from making any change to the Software or combining it with
other software in any lawful manner;
(4) Enact has no knowledge that any third party is violating
or has violated any of Enact's proprietary rights in the Software; no
third party has any right to compensation from Enact (or its successors
and assigns) by reason of, the use, exploitation, or sale of the
Software; except with respect to Third Party Software and licenses
granted to end-users there are no contractual restrictions on the
ability of Enact (or its successors or assigns) to use, sell or
otherwise exploit the Software, and such use, sale or exploitation does
not obligate Enact (or any successor or assign of Enact) to pay any
royalty, fee, or other compensation to any Person; and Enact has not
received any notice and does not have any knowledge of any complaint,
assertion, threat, or allegation inconsistent with the preceding
statements in this paragraph.
(D) Software Problems. Enact has provided access to Newco and Parent of
all written records of Enact with respect to Software fixes (including fixes
currently in progress), problem lists, maintenance of the Software, and customer
complaints. All material warranty
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claims within the last three (3) years (including any pending claims) relating
to the Software are described in Schedule 3.08(D).
(E) Schedule 3.08(E) contains a complete list of agreements of
Enact relating to the Third Party Software. Enact is not in material violation
of any license, sublicense or agreement with respect to any Third Party
Software.
(F) Schedule 3.08(F) contains a complete list of all existing
distribution or sales representative agreements ("Distribution Agreements") in
which Enact authorizes any other Person to use, sell, distribute, or license any
of the Software or other Intellectual Property of Enact, including without
limitation any agreements that permit software sale, distribution or license to
end-users ("End Users") in the ordinary course of business.
(G) Except as otherwise disclosed under Sections 3.08 and 3.09, and
the relevant Schedules relating thereto, any Intellectual Property rights
embodied in or used in the Software are free and clear of any Encumbrances,
subject to licenses granted pursuant to Distribution Agreements and End-User
Licenses, and Enact is not aware of any claims that such rights are being
challenged in any way.
(H) Enact has taken commercially reasonably security measures to
protect the secrecy, confidentiality, and value of the portions of Intellectual
Property owned by Enact which constitute trade secrets (the "Trade Secrets"),
provided that Enact shall not be deemed to warrant or represent that any
portions of the Software (other than source code and some authoring portions of
the Software in object code format) constitute Trade Secrets. The Trade Secrets
are not part of the public domain, and, to Enact's knowledge, have not been
used, divulged, or appropriated for the benefit of any Persons other than Enact
(except with Enact's consent as described in Schedule 3.08(H)).
3.09 Intellectual Property: Trademarks, Patents, Copyrights, and
Know-How. Schedule 3.09 attached hereto contains a complete and accurate list of
all trademarks, trade names and service marks, and registrations and
applications therefor (the "Trademarks"); all patents and registrations and
applications therefor owned by Enact (the "Patents"); all copyrights, and
registrations and applications therefor (the "Copyrights"); all drawings,
manufacturing processes, outlines of production, quality control, testing,
operational, logistical, maintenance, safety and other technical data and
information and technology (the "Know-How"); and all Trade Secrets (as defined
in Section 3.08(H)) used by Enact in connection with the conduct of the business
of Enact. To the knowledge of Enact, Enact has not infringed or misappropriated,
and is not infringing or misappropriating any Intellectual Property (as defined
in Section 3.08(B) above) of another Person. There is no claim pending, or to
the knowledge of Enact, threatened, against Enact with respect to any alleged
infringement or misappropriation of any Intellectual Property owned by another
Person. Enact has no knowledge that any Person is infringing or misappropriating
any Intellectual Property of Enact. Except as disclosed in Schedule 3.08 and
Schedule 3.09: (i) Enact does not materially use in its business any patent,
trademark, copyright, application therefor, trade secret or other intellectual
property rights, the ownership of which belongs to third parties; and (ii) there
are no outstanding options, licenses, or agreements of any kind relating to
Enact's Intellectual Property. To the knowledge of Enact, Enact's use of the
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Intellectual Property and the operation of the business of Enact does not
conflict with, infringe upon or violate any patent, trademark, trade name,
copyright or any pending application relating thereto, or any trade secret,
know-how, programs or processes or other intellectual property right of any
third person or entity.
3.10 Contracts. Attached hereto as Schedule 3.10 is a list of each
Material Contract (identified by title, date and parties). For purposes of this
Section, "Material Contracts" shall mean any contract, agreement, or commitment
(whether written or oral) to which Enact is a party that: (a) involves a receipt
or an expenditure by Enact in excess of $10,000 per year; (b) is between Enact
and any customer of Enact, including without limitation all management
agreements, data processing agreements, consulting services agreements, software
license agreements or other licenses, software development agreements, purchase
commitments or installation agreements and maintenance or service agreements;
(c) concerns the capital stock of Enact or options to purchase the capital stock
of Enact (including without limitation any repurchase of such stock), or (d) any
other contract that if terminated would materially adversely affect the business
of Enact. All Material Contracts are valid and binding upon Enact, and to the
knowledge of Enact, the other parties thereto, and are in full force and effect
and enforceable in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, moratorium, public policy or similar laws
affecting creditors rights generally and general principals of equity. Except as
set forth on Schedule 3.08(A)(4) and Schedule 3.10: (a) neither Enact nor, to
the knowledge of Enact, any other party to any Material Contract, has materially
breached any provision of, or is in default due to an uncured breach under, the
terms thereof, and to the knowledge and belief of Enact there are no existing
facts or circumstances that would prevent the work in process of Enact or its
contracts and agreements from maturing upon performance by Enact into
collectible accounts receivable in the aggregate in amounts consistent with
historical experience; and (b) since December 31, 1998, Enact has not
terminated, amended or suffered the termination or amendment of, or to its
knowledge failed to perform all of its material obligations under, any of the
Material Contracts to which it is a party or by which it is bound where the
failure to perform would permit the other party to terminate the Material
Contract, or exercise any material right or remedy thereunder.
3.11 Title. Enact owns no real property. Except for leased equipment
described in Schedule 3.11, Enact has good and marketable title to all property
included in the balance sheet of Enact as of March 31, 1999, other than property
disposed of in the ordinary course of business after said date. Except as set
forth on Schedule 3.11 attached hereto, the properties of Enact are not subject
to any Encumbrance, except minor encumbrances which do not materially interfere
with the use of the property in the conduct of the business of Enact.
3.12 Environmental Matters. The term "Hazardous Substances" shall mean
without limitation any hazardous substance as that term is defined in 42 U.S.C.
Section 9601 or hazardous waste as that term is defined in 42 U.S.C. Section
6903 or any regulated substance as that term is defined in 42 U.S.C. Section
6991, as any of such term is defined under Arizona or Ohio law, or environmental
poisons, hazardous wastes, toxic substances and/or any similar such pollutants
or contaminants. The business operations of Enact and its assets have been, and
are being, used and operated by Enact in substantial compliance with all
applicable local, state and federal laws, ordinances, rules, regulations,
permits, licenses, authorizations, agreements, injunctions, decrees
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and orders relating to air, ground and water pollution or regulation, soil
monitoring, occupational health or safety, or the storage, treatment, disposal,
release, discharge or emission of any Hazardous Substances. To the knowledge of
Enact, no Hazardous Substances have been disposed of on any property that is or
has been owned or occupied by Enact at any time, and no Hazardous Substances
have been transported by or on behalf of Enact or in connection with its
business operations, for disposal in violation of applicable laws. Enact and/or
its business activities or assets are not, directly or indirectly, in violation
or breach of any obligations or subject to any liabilities (contingent or
otherwise), claims, judgments, orders, settlements, resolutions of disputes,
writs, injunctions or decrees, relating to the treatment, storage, disposal,
release, discharge or emission of any Hazardous Substances, including the
occupational exposure of Enact's employees or agents thereto. There are no
threatened or pending litigation, proceedings, investigations, citations, or
notices of violation resulting from the business activities of Enact, or arising
from its use or occupancy of property, relating to the treatment, storage,
disposal, release, discharge or emission of any Hazardous Substances. To Enact's
knowledge, there are not now, nor has there ever been facts or circumstances
which may give rise to any litigation, claims, proceedings, investigations,
citations, or notices of violations resulting from the business activities of
Enact, or from or relating to properties owned or occupied by Enact, directly or
indirectly, relating to the treatment, storage, disposal, release, discharge or
emission of any Hazardous Substances.
3.13 Tax Returns and Audits. As used in this Agreement, "Taxes" and all
derivations thereof means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, stamp, occupation, franchise,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, ad valorem, transfer, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or addition
thereto. The term "Tax Returns" shall include all federal, state, local and
foreign returns, declarations, statements, reports, schedules, and information
returns required to be filed with any taxing authority in connection with any
Tax or Taxes. Enact has timely filed all Tax Returns and reports required to
have been filed by it, and has paid all Taxes due to any taxing authority
required to have been paid by it on or prior to the date hereof. Enact has not
received notice that the Internal Revenue Service or any other taxing authority
has asserted or proposed to assert against Enact any deficiency or claim for
Taxes. There are no pending or, to Enact's knowledge, threatened, actions,
audits, proceedings or investigations with respect to Enact involving the
assessment or collection of Taxes. Except as indicated on Schedule 3.13, none of
the federal or state income tax returns or state franchise tax returns of Enact
has ever been audited by governmental authorities. No examination of any Tax
Return of Enact is currently in progress.
3.14 Compensation. Set forth in Schedule 3.14 is a list of all
agreements between Enact and its employees or other Persons providing periodic
services for compensation for Enact, whether individually or collectively. The
consummation of the merger contemplated by this Agreement will not result in any
liability for severance pay to any such employee or other such Person. Enact has
not informed any such employee or such other Person that such Person will
receive any increase in compensation or benefits or any ownership interest in
Enact, Parent or Newco other than as provided in this Agreement. All current
employees of Enact are "at will" employees within the meaning of the term under
applicable law, and may be terminated by Enact at any time without any liability
(other than the payment of compensation due and subject to any
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restrictions imposed by statutory or common law), in connection with the
specific terms of the agreements listed on Schedule 3.14.
3.15 Employee Benefit Plans.
(A) Other than as set forth in Schedule 3.15, Enact does not
maintain or sponsor, nor is required to make contributions to, any pension,
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plan which
affects the employees of Enact. Schedule 3.15 fully discloses all of the plans,
funds, policies, programs, arrangements or understandings sponsored or
maintained by Enact pursuant to which any employee of Enact (or any dependent or
beneficiary of any such employee) might be or become entitled to: (1) retirement
benefits; (2) severance or separation from service benefits; (3) incentive,
performance, stock, share appreciation or bonus awards or commissions; (4)
health care benefits; (5) disability income or wage continuation benefits; (6)
supplemental unemployment benefits; (7) life insurance, death or survivor's
benefits; (8) accrued sick pay or vacation pay; (9) any type of benefit offered
under any arrangement subject to characterization as an "employee welfare
benefit plan" within the meaning of section 3(3) of ERISA; or (10) benefits of
any other type offered through any arrangement that could be characterized as
providing for additional compensation or fringe benefits. As to any such plan,
fund, policy, program, arrangement or understanding, all of the following are
true in all material respects: (i) all amounts due as contributions, insurance
premiums and benefits to the date hereof have been fully paid by Enact; (ii) all
applicable material requirements of law have been observed with respect to the
operation thereof, and all applicable reporting and disclosure requirements have
been timely satisfied; and (iii) no claim or demand has been made by any
employee (or beneficiary or dependent of any employee) for benefits (other than
routine claims for benefits), or by any taxing authority for taxes or penalties
which has not been satisfied in full or which may be or become subject to
litigation or arbitration.
(B) Enact does not have any obligation to provide health or other
welfare benefits to any of their former, retired or terminated employees, except
as specifically required under Section 4980B of the Code (COBRA) or otherwise as
may be required by applicable law. Enact has substantially complied with any
applicable notice and continuation requirements of Section 4980B of the Code and
the regulations thereunder.
3.16 Labor Relations. There have been no material violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions, or the terms and conditions of
employment, wages (including overtime compensation) and hours of, Enact. Enact
is not engaged in any unfair labor practice or other unlawful employment
practice and, except as set forth on Schedule 3.16, there are no charges of
unfair labor practices or other employee-related complaints pending or
threatened against Enact.
3.17 Increases in Compensation or Benefits. Except as set forth in
Schedule 3.17, subsequent to December 31, 1998, there have been no increases in
the compensation payable or to become payable to any of the employees of Enact,
nor has Enact paid or granted any awards, bonuses, stock options, loans,
profit-sharing, pension, retirement or welfare plans or similar or
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other payments or arrangements for or on behalf of such employees in each case
other than (a) pursuant to currently existing plans or arrangements set forth in
Schedule 3.17, or (b) as was required from time to time by governmental
legislation affecting wages. The vacation policies of Enact are set forth in
Schedule 3.17. No employee of Enact is entitled to vacation time in excess of
three weeks during the current calendar year and no such employee has any
accrued vacation time with respect to any period prior to the current calendar
year except as set forth in Schedule 3.17.
3.18 Insurance. Enact maintains insurance policies as listed in
Schedule 3.18. Such policies maintained by Enact are in full force and effect
and all installments of premiums due thereon have been paid in full. Enact has
not breached any term of such policies which would give the carrier the right to
terminate the policy or to raise the premiums under such policies. Enact has
received no notices of any pending or threatened termination or premium
increases with respect to any of such policies. There has been no casualty loss
or occurrence to Enact, and Enact is not aware of any casualty occurrence which
may give rise to any claim of any kind not covered by insurance. No third party
has filed any claim against Enact for personal injury or property damage of a
kind for which liability insurance is generally available which is not fully
insured, subject only to the applicable deductible.
3.19 Operations Since March 31, 1999. Except as set forth on Schedule
3.19, from March 31, 1999 through the date of this Agreement and through the
Effective Time, Enact: (A) has not entered into any contracts or commitments
outside of the ordinary course of business as historically conducted; (B) has
not borrowed any money or incurred indebtedness; (C) has not granted any new
stock options, restricted stock or other equity grants; (D) has not accelerated
any vesting requirements under any option or stock-based compensation agreement
or plan; (E) has not increased employment compensation of any employees or given
or committed to give any bonuses to its employees; (F) has paid accounts payable
and collected accounts receivable in the ordinary course of business as
historically conducted; (G) has not declared or made any distributions,
dividends, bonuses, extraordinary compensation or other payments to the
Shareholders; (H) has not entered into any agreement that provides for prepaid
royalties or other forms of deferred revenue (other than standard 12 month end
user support and maintenance agreements); and (I) has acted in all instances in
good faith to preserve the contracts, relationships, customers, employees and
goodwill of Enact.
3.20 Compliance. Enact and its business are not in material violation
of any applicable laws, rules and regulations of any governmental body, and
Enact possesses and materially complies with all necessary permits and
authorizations for operation of the business of Enact.
3.21 Brokers. No broker or finder has acted for Enact or any
Shareholder in connection with this Agreement or the transactions contemplated
hereby, and neither Enact nor any Shareholder has become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement.
3.22 Information Provided by Enact. The information provided and to be
provided by Enact to Parent in this Agreement, including without limitation the
Schedules and Exhibits, does
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not and will not contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements made, taken as
a whole in the light of the circumstances under which they were made, not false
or misleading.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Enact as follows:
4.01 Corporate Organization, Good Standing. Parent is a corporation
duly organized, existing and in good standing under the laws of the State of
Delaware, with the corporate power to own its properties and to carry on its
business as now being conducted. Parent is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification and the failure to so qualify would materially and
adversely affect Parent's business. Complete and correct copies of Parent's
current Certificate of Incorporation and Restated Bylaws have been delivered to
Enact. A complete and correct copy of Parent's Registration Statement on Form
S-1, dated March 31, 1999, as amended and with related exhibits ("Form S-1") has
been delivered, and additional amendments prior to the Effective Time will be
delivered, to Enact, the Shareholders and the Option Holders, and the Form S-1
(including any information added by way of additional amendments thereto prior
to the Effective Time) is incorporated herein for the purposes of Parent's
disclosures under this Article IV; provided, however, that Parent shall not be
deemed to warrant in this Agreement that any uncompleted transactions described
in or envisioned by the Form S-1 shall be completed as described or envisioned
therein.
4.02 Capitalization and Voting Rights.
(A) The authorized capital of Parent consists of: (A) shares of
Preferred Stock (the "Preferred Stock"), including shares designated Series A
Preferred Stock (the "Series A Preferred Stock"), shares designated Series B
Preferred Stock (the "Series B Preferred Stock"), shares designated Series C
Preferred Stock (the "Series C Preferred Stock"), shares designated Series D
Preferred Stock (the "Series D Preferred Stock"), and shares designated Series E
Preferred Stock (the "Series E Preferred Stock"), the aggregate authorized and
outstanding shares of which are described in the Form S-1 as of the dates
specified; and (B) shares of common stock (the "Common Stock"), including shares
designated Class A Common Stock (the "Class A Common Stock"), and shares
designated Class B Common Stock (the "Class B Common Stock"), the authorized and
outstanding shares of which are described in the Form S-1 as of the dates
specified. Material holdings by specific shareholders of the outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Common Stock are specified in the Form S-1 as of
the dates specified.
(B) The outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock are all duly and validly authorized and issued,
fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the "Act") and any relevant state securities laws or pursuant to valid
exemptions therefrom.
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(C) Except as disclosed in the Form S-1, and that certain Stock
Purchase Agreement dated April 22, 1999 between Parent and The Goldman Sachs
Group, L.P., and certain affiliates (the "Goldman Sachs SPA"), a copy of which
has been provided to Enact and its counsel, there are no material outstanding
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from Parent of any shares of its
capital stock. The Form S-1 describes arrangements by which Parent has reserved
shares of Class A Common Stock for purchase upon exercise of options granted
under various existing and proposed incentive plans, and also describes various
material Voting Trust Agreements and Voting Agreements. Parent is not a party or
subject to any other material agreement or understanding, and, to the best of
Parent's knowledge, there is no other material agreement or understanding
between any persons and/or entities that affects or relates to the voting or
giving of written consents with respect to any security.
4.03 Corporate Authority; Enforceability. Execution, delivery and
performance of this Agreement has been approved by the Board of Directors of
Parent. Except as described in Sections 9.14 and 10.11, no approval of security
holders of Parent is required for the execution, delivery and performance
hereunder. Neither the execution and delivery of this Agreement, nor performance
hereunder, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of Parent or any agreement or instrument to which Parent is a party or
by which it is bound. This Agreement constitutes the legal, valid and binding
obligation of Parent, enforceable in accordance with its terms.
4.04 Subsidiaries. Other than the subsidiaries described in the Form
S-1, Parent does not have any control ownership interest in any other Person,
other than its ownership of Newco. Parent has not been a subsidiary or division
of another Person.
4.05 Financial Statements of Parent.
(A) Accuracy and Fairness. True and complete copies of the
financial statements of Parent described in the Form S-1 have been delivered by
Parent to Enact. Except as disclosed in the Form S-1, those financial statements
(including in all cases the notes thereto, if any): (a) are in accordance with
the books and records of Parent; (b) are prepared in accordance with GAAP,
subject to changes resulting from year-end adjustments; (c) present fairly in
all material respects the financial position of Parent at the dates, and the
results of its operations for the periods, indicated in those statements; (d)
include only bona fide accounts receivable; (e) include only bona fide inventory
items; and (f) include reserves and allowances which are reasonable under the
circumstances. Except as disclosed in the Form S-1, there have been no
accounting management letters or audit response letters, other than those issued
in the ordinary course, directed to or concerning Parent, and, there have been
no irregularities involving management or employees, that would adversely affect
the internal control structure of Parent or Parent's financial statements.
(B) No Undisclosed Liabilities. Parent does not have any
liabilities or obligations of any nature, secured or unsecured (absolute,
accrued or unaccrued, liquidated or
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unliquidated, executory, contingent or otherwise and whether due or to become
due), of a nature required to be reflected in a balance sheet prepared
consistently with past practices, or disclosed in the notes thereto, which are
not adequately and completely disclosed or reserved for in the financial
statements listed in the Form S-1, disclosed in the notes thereto in accordance
with generally accepted accounting principles, incurred in the ordinary course
of business since December 31, 1998, or otherwise disclosed in the Form S-1.
(C) Discharge of Liabilities. Since December 31, 1998 Parent has
not (i) paid, discharged or satisfied any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) other than payment, discharge, or
satisfaction in the ordinary course of business and consistent with past
practice, or (ii) terminated, amended or suffered the termination or amendment
of, or failed to perform all of its obligations under, any of the material
contracts to which it is a party or by which it is bound which failure to
perform would permit the other party to terminate such agreement or exercise any
material right or remedy thereunder.
4.06 Shares to be Issued. The Parent Common Stock and Option Shares,
when issued and sold in accordance with the terms of this Agreement and the
terms of any applicable Enact Option award agreement, will be validly issued,
fully paid and nonassessable and will be free and clear of any lien, claim or
encumbrance created or suffered by Parent or Newco, excepting only restrictions
on transfer described in this Agreement, Parent's current Certificate of
Incorporation, in any applicable Enact Option award agreement, in the Enact
Investor Rights Agreement, in the Restricted Stock Agreement and Bruce Chase
Employment Agreement (with respect to the Chase Shares), and in the Escrow
Agreement. Parent shall, at the time of Closing, have paid any issuance,
transfer or stamp tax connected with the sale of the Parent Common Stock and the
Option Shares.
4.07 No Material Adverse Change. Except as disclosed in the Form S-1,
there has been no material adverse change in the business, properties, net worth
or financial condition of Parent since December 31, 1998.
4.08 Litigation, etc. Except as disclosed in the Form S-1, there is no
litigation, proceeding or investigation pending or, to the knowledge of Parent,
threatened against Parent which if successful would result in a material adverse
change in the business, properties or financial condition of Parent or which
questions the validity or legality of this Agreement or of any action taken or
to be taken by Parent in connection with this Agreement.
4.09 Patents, Trademarks, and Licenses. Except as disclosed in the Form
S-1, Parent has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted without any
conflict with or infringement of the rights of others. The Form S-1 contains a
complete list of any patents and pending patent applications of Parent the
disclosure of which is material to Parent's business. Except as set forth in the
Form S-1, there are no outstanding material options, licenses, or agreements of
any kind relating to the foregoing, nor is Parent bound by or a party to any
material 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 person or entity.
Parent is not aware that
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any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
Parent or that would conflict with Parent's business.
4.10 Contracts. Except as disclosed in the Form S-1, Parent is not
(and, to the knowledge of Parent, no other party is) in material breach or
default under (with notice and/or a lapse of time) and there is no valid basis
for a claim of material breach or default under, any material agreement,
instrument, commitment, contract or other obligation of any type of the Parent.
Parent possesses all of the necessary contracts, agreements and rights to
operate its business in the manner in which it is currently being conducted. All
material contracts are valid and binding upon Parent, and to the knowledge of
Parent, the other parties thereto, and such contracts are in full force and
effect and enforceable in accordance with their terms, except as enforceability
may be affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors rights generally and general principals of equity.
4.11 Title to Assets. Except as disclosed in the Form S-1, Parent has
good and marketable title to its assets, including, without limitation, those
reflected in the most recent balance sheet included with the Form S-1 (other
than those since disposed of in the ordinary course of business), free and clear
of all security interests, charges and other encumbrances, except (i) liens for
taxes not yet due and payable, and (ii) inchoate landlord's and materialmen's
and like liens that are not delinquent and are incidental to the conduct of
business or the ownership of property and which were not incurred in connection
with the borrowing of money or the obtaining of credit and which do not, in the
aggregate, materially detract from the value of the assets affected thereby and
do not materially impair the use thereof by Parent.
4.12 Environmental Matters. The business operations of Parent and its
assets have been, and are being, used and operated by Parent in substantial
compliance with all applicable local, state and federal laws, ordinances, rules,
regulations, permits, licenses, authorizations, agreements, injunctions, decrees
and orders relating to air, ground and water pollution or regulation, soil
monitoring, occupational health or safety, or the storage, treatment, disposal,
release, discharge or emission of any Hazardous Substances. To the knowledge of
the management of Parent, no Hazardous Substances have been disposed of on any
property that is or has been owned or occupied by Parent at any time, and no
Hazardous Substances have been transported by or on behalf of Parent or in
connection with its business operations, for disposal in violation of applicable
laws. Parent and/or its business activities or assets are not, directly or
indirectly, in violation or breach of any obligations, or subject to any
liabilities (contingent or otherwise), claims, judgments, orders, settlements,
resolutions of disputes, writs, injunctions or decrees, relating to the
treatment, storage, disposal, release, discharge or emission of any Hazardous
Substances, including the occupational exposure of Parent's employees or agents
thereto. There are no threatened or pending litigation, proceedings,
investigations, citations, or notices of violation resulting from the business
activities of Parent, or arising from its use or occupancy of property, relating
to the treatment, storage, disposal, release, discharge or emission of any
Hazardous Substances. To the knowledge of the management of Parent, there are
not now, nor has there ever been facts or circumstances which may give rise to
any litigation, claims, proceedings, investigations, citations, or notices of
violations resulting from the business
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activities of Parent, or from or relating to properties owned or occupied by
Parent, directly or indirectly, relating to the treatment, storage, disposal,
release, discharge or emission of any Hazardous Substances.
4.13 Tax Returns and Audits. All Required Tax Returns and extensions of
Parent have been prepared with reasonable accuracy and duly and timely filed,
and all Taxes required to be paid with respect to the periods or transactions
covered by such returns have been duly and timely paid in all material respects.
Parent is not delinquent in the payment of any Tax, assessment or governmental
charge, has not had any tax deficiency proposed or assessed against it, and has
not executed any waiver still in effect of any statute of limitations on the
assessment or collection of any Tax. None of the federal or state income tax
returns or state franchise tax returns of Parent has ever been audited by
governmental authorities. No examination of any tax return of Parent is
currently in progress.
4.14 No Defaults; Insurance. In all material respects, Parent has
performed all obligations required to be performed by it, and is not in material
default under, any contract, commitment or instrument, and no event or condition
has occurred which, with the giving of notice or passage of time, or both, would
constitute such a default. Parent has insurance coverage in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and is adequate for the business being conducted, and the properties
owned or leased, by Parent. There has been no casualty loss or occurrence to
Parent and Parent is not aware of any casualty occurrence which may give rise to
any claim of any kind not covered by insurance. No third party has filed any
claim against Parent for personal injury or property damage of a kind for which
liability insurance is generally available which is not fully insured, subject
only to the standard deductible.
4.15 Compliance. Parent and its business are not in material violation
of any applicable laws, rules and regulations of any governmental body, and
Parent possesses and materially complies with all necessary permits and
authorizations for operation of the business of Parent.
4.16 Brokers. No broker or finder has acted for Parent in connection
with this Agreement or the transactions contemplated hereby. Parent has not
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions contemplated by
this Agreement.
4.17 Information Provided by Parent. The information provided and to be
provided by Parent to Enact and its shareholders in connection with the Merger,
does not and will not contain any untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not misleading.
4.18 Certain Additional Representations.
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(A) Each of Parent and Newco has such knowledge and experience in
financial and business matters that Parent and Newco are capable of evaluating
the merit and economic risks of an investment in shares of Enact.
(B) Each of Parent and Newco is able to bear the economic risk of
this particular investment should the business not succeed, including a complete
loss of the investment.
(C) Each of Parent and Newco has relied upon independent
investigations made by it or its representative, and it or its representative
has been given the opportunity to discuss the business, management and financial
affairs with the officers of Enact and has had the opportunity to ask questions
of, and to receive answers from, Enact or any person(s) acting on its behalf,
and to obtain any additional information necessary to verify the accuracy of the
information, and to evaluate Enact and an investment in the shares of Enact and
it desires no further information for such evaluation.
(D) No representations have been made to either of Parent or Newco
concerning the shares of Enact, the business and prospects of Enact, or other
matters, except as expressly set forth in this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to Enact as follows:
5.01 Corporate Organization, Good Standing and Capitalization. Newco is
a corporation duly organized, existing and in good standing under the laws of
the State of Arizona, and has authorized capital stock of 1,000 shares of common
stock, $.001 par value, all of which are issued and outstanding, and owned on
the date hereof by Parent.
5.02 Corporate Authority. Execution, delivery and performance of this
Agreement has been approved by the Board of Directors of Newco and no other
approvals, consents or filings are required except for the approval of the
Shareholders of Newco. Neither the execution and delivery of this Agreement, nor
performance hereunder, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, the Articles of
Incorporation or Bylaws of Newco or any agreement or instrument to which Newco
is a party or by which it is bound.
5.03 Liabilities. Newco has no liabilities.
ARTICLE VI. CONDUCT OF ENACT PENDING THE EFFECTIVE TIME
Enact agrees that between the date of this Agreement and the Effective
Time:
6.01 Articles of Incorporation and Code of Regulations. No change will
be made in Enact's Articles of Incorporation or Code of Regulations.
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6.02 Capitalization, etc. Enact will not make any change in its
authorized or issued capital stock, or issue, encumber, purchase or otherwise
acquire any of its capital stock.
6.03 Shareholders' Meeting. Enact will promptly submit this Agreement
to its Shareholders for approval at a meeting called and held in accordance with
applicable law, with a favorable recommendation by its Board of Directors or
upon unanimous written consent of the Shareholders.
6.04 Conduct of Business. Until the Effective Time, Enact shall: (a)
not enter into any contracts or commitments outside of the ordinary course of
business as historically conducted; (b) not borrow any money or incur
indebtedness except pursuant to a bridge loan facility provided by Parent to
Enact; (c) not grant any new stock options, restricted stock or other equity
grants; (d) not accelerate any vesting requirements under any option or
stock-based compensation agreement or plan; (e) not increase employment
compensation of any employees or given or committed to give any bonuses to its
employees; (f) pay accounts payable and collect accounts receivable in the
ordinary course of business as historically conducted; (g) not declare or make
any distributions, dividends, bonuses, extraordinary compensation or other
payments to the Shareholders; (h) not enter into any agreement that provides for
prepaid royalties or other forms of deferred revenue (other than standard 12
month end user support and maintenance agreements); and (i) act in all instances
to preserve the contracts, relationships, customers, employees and goodwill of
Enact.
ARTICLE VII. COVENANTS OF PARENT AND NEWCO PENDING THE EFFECTIVE TIME
Parent and Newco agree that between the date hereof and the Effective
Time:
7.01 Meeting of Newco Shareholder. Parent will vote all the outstanding
shares of common stock of Newco in favor of the Merger of Enact into Newco at a
special meeting of Newco to be duly and timely called and held on such date as
may be agreed upon by Newco and Parent.
7.02 Conduct of Business. Until the Effective Time, and except for
those transactions disclosed and described in the Form S-1 and the Goldman Sachs
SPA, Parent shall: (a) not borrow any money or incur indebtedness except to
provide further operating capital for Parent; (b) not grant any new stock
options, restricted stock or other equity grants at a price less than fair
market value, as determined in good faith by the Board of Directors of Parent;
(c) use its good faith efforts to preserve the contracts, relationships,
customers, employees and goodwill of Parent and Newco; (d) make no change in
Parent or Newco's Certificate or Articles of Incorporation or Bylaws; (e) not
make, nor permit Newco to make, any change in its authorized or issued capital
stock, or issue, encumber, purchase or otherwise acquire any of its capital
stock; (f) submit this Agreement to the persons required to give the consents
and waivers described in Section 9.14, with a favorable recommendation by
Parent.
7.03 Agreement to Fund Cash Needs and Pay Expenses at Closing. Parent
shall loan to Enact amounts, up to a maximum amount of $150,000, as required to
satisfy the cash needs of
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Enact for ordinary course operations, to be documented at Parent's request by a
secured line of credit promissory note and a security agreement in form and
substance mutually acceptable to Parent and Enact (acknowledging that Wingset
Investments Ltd. and A.B. Siemer currently have a security interest in Enact's
assets). The loans shall bear interest at a variable rate equal to the "Prime
Rate," as published from time to time in the Money Rates section of The Wall
Street Journal, plus 100 basis points. Principal and interest on the loans shall
be payable in full on the date of the earlier of: (a) the day after the Closing
or (b) September 18, 1999. At the Closing, existing indebtedness of Enact to
Wingset Investments Ltd. and A.B. Siemer up to an aggregate amount of $150,000
shall be paid or caused to be paid by Parent, and then existing indebtedness of
Enact to Vorys, Sater, Seymour and Pease LLP up to an aggregate of $75,000 shall
be paid or caused to be paid by Parent, provided that Enact shall cause its
counsel to provide, at the Closing, a statement for all outstanding or unbilled
fees and costs for work performed (including work in progress) through and
including the Closing.
ARTICLE VIII. COVENANTS OF PARENT AND ENACT PENDING THE EFFECTIVE TIME
8.01 Announcement. The parties shall coordinate all publicity relating
to the public announcement of this Agreement and the Merger, and no party shall
issue any press release or other public notice relating to this Agreement or the
matters contemplated herein without the prior written consent of the other
parties, provided that Parent shall have the right to make such factually
accurate disclosures as it deems necessary or advisable to comply with
applicable securities laws, including Enact-related disclosures in the Form S-1
and future amendments thereto. None of the contents of this Agreement, or the
fact of the negotiations between the parties with respect to the Merger, shall
be disclosed prior to Closing to any third party (other than professional
advisors), except by Parent in connection with due diligence procedures and
applications for financing related to this Agreement, or as required by
applicable securities or corporate laws, without the prior written consent of
all parties hereto and except by Enact, to its Shareholders and the parties to
the Material Contracts, each of whom shall be under the same obligations of
confidentiality as apply to Enact under this Agreement. Parent shall provide
Enact with a copy of any publicity or filing simultaneously with or prior to its
release. The parties acknowledge that a copy of this Agreement will be filed
with the Securities and Exchange Commission as an exhibit to the Form S-1.
8.02 Access to Information. During the period commencing on the date
hereof and ending on the Closing Date, each party shall, upon reasonable notice,
afford to the other party and its respective counsel, accountants and other
authorized representatives, full access during normal business hours to the
properties, books and records of the other party in order that they may have the
opportunity to make such reasonable investigations as they shall desire of the
affairs of such other party, and such other party shall cause its officers and
employees to furnish such additional financial and operating data and other
information as the requesting party shall from time to time reasonably request.
8.03 Confidentiality. No information disclosed heretofore or hereafter
by either party to the other shall be used by such other party otherwise than as
contemplated herein, and all such information shall be kept confidential by the
other and disclosed only on a "need to know" basis
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to the other's officers, directors, shareholders, employees, counsel and
accountants, and shall not be disclosed except to the extent that: it was known
when received and is not subject to a confidentiality undertaking; it is or
hereafter becomes lawfully obtainable from other sources and is not subject to a
confidentiality undertaking; it is necessary to disclose the information to
regulatory authorities or as may otherwise be required by law; or such duty as
to confidentiality is waived in writing by the party entitled to claim the
benefits of this Section 8.03. If this Agreement is terminated prior to Closing,
each party shall return to the others such information.
8.04 No Further Solicitation. Unless and until this Agreement is
terminated, neither Enact nor any of its officers, directors, affiliates,
employees, agents or representatives shall make, solicit or entertain any
proposal for, or enter into any agreement or commitment relating to, the
purchase or acquisition of Enact or any investment in Enact. Unless and until
this Agreement is terminated, neither Parent nor any of its officers, directors,
affiliates, employees, agents or representatives shall make, solicit or
entertain any proposal for, or enter into any agreement or commitment relating
to, the purchase or acquisition of another sales configuration technology
software company.
ARTICLE IX. CONDITIONS TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco to effect the Merger hereunder are
subject to the following conditions:
9.01 Representations and Warranties True. Each of the Schedules to this
Agreement prepared by Enact shall have been updated to be true and correct as of
the Effective Time, and amendments thereto prior to the Effective Time shall be
deemed to be incorporated herein and therein for purposes of Enact's disclosures
under Article III. The representations and warranties of Enact contained herein
shall be true in all material respects at and as of the Effective Time with the
same effect as though made at and as of such date (except for representations
and warranties expressly and specifically relating to a time or times other than
the Effective Time, which shall be true and correct in all material respects at
and as of the time or times specified); Enact shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Effective Time. The
representations and warranties of the Shareholders in those certain
Representation Agreements (as that term is defined in Section 9.04 below) dated
as of the Closing Date shall be true in all material respects at and as of the
Effective Time.
9.02 Absence of Litigation. There shall be no actual or threatened
litigation to restrain or invalidate the Merger or any other transaction
contemplated in this Agreement, the defense of which would, in the judgment of
the Board of Directors of Parent, made in good faith and based upon the advice
of counsel, involve expense or lapse of time that would be materially adverse to
the interests of Parent.
9.03 Officer's Certificates. Parent shall have received a certificate,
dated the Closing Date, executed on behalf of Enact by the President or Vice
President of Enact stating that the representations and warranties set forth in
Article III hereof continue to be true and correct in all material respects.
Parent shall also have received a certificate by such officer, dated the Closing
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Date, certifying true and complete copies of the following: (a) the complete
Articles of Incorporation of Enact, as amended, in effect as of immediately
prior to the Effective Time; (b) the Code of Regulations of Enact, as amended,
in effect as of immediately prior to the Effective Time; (c) all minutes in the
possession of Enact of the actions of the board of directors and shareholders of
Enact; and (d) a copy of the stock ledger of Enact, including copies of all
issued stock certificates, including canceled certificates; (e) copies of all
stock subscription agreement and investment letters between Enact and all
stockholders; and (f) copies of all stock option agreements to which Enact is a
party, including all exercises thereof.
9.04 Requisite Approvals; Representation Agreements. All requisite
consents, authorizations, and regulatory approvals of governmental bodies, and
of private persons or entities, necessary or advisable to consummate the
transactions contemplated hereby, including, without limitation, the consent of
any other party to the transfer to Newco of all the rights of Enact in, to and
under any contract, agreement, lease or other instrument and any property or
asset, tangible or intangible, have been received, including those agreements
identified on Schedule 3.02. The Shareholders will have unanimously approved or
consented to this Agreement and the consummation of the transactions
contemplated by this Agreement. Each of the Shareholders and Option Holders
shall have executed a Representation Agreement in the form attached hereto as
Exhibit 9.04 (the "Representation Agreements").
9.05 Opinion of Enact's Counsel. Parent shall have received a favorable
opinion, dated the Closing Date, of counsel for Enact under the laws of Ohio and
under applicable federal law, in form and substance reasonably satisfactory to
Parent and its counsel and assuming the accuracy of certain factual matters, to
the effect that:
(A) Enact is a corporation duly incorporated, validly existing
under the laws of Ohio, and has full corporate power to own its properties and
conduct its business as now being conducted;
(B) the par value and the number of shares of authorized stock of
Enact which are issued and outstanding are as set forth in Section 3.03 of this
Agreement, and all of said outstanding shares and all outstanding Enact Options
are duly authorized, fully paid and nonassessable ;
(C) insofar as Ohio law governs the issue, all Enact Options will,
at the Effective Time, be converted into the right to receive the Option Shares
set forth in Schedule 2.01(E) to the Agreement, such that immediately following
the Effective Time, no options to purchase Enact Stock will be issued and
outstanding, and, to counsel's knowledge, there will be no other rights of any
kind or nature whatsoever in favor of any person or entity to purchase or
acquire capital stock of Enact;
(D) all corporate acts required to be taken by or on the part of
Enact to approve and adopt this Agreement and to authorize the Merger have been
duly and validly taken;
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(E) all Shareholder acts required to be taken by the Shareholders
to approve and adopt this Agreement and to authorize the Merger have been duly
and validly taken, and all Shareholders have voted affirmatively to authorize
the Merger or consented thereto in writing;
(F) this Agreement has been duly executed and delivered by Enact,
and to the extent Ohio law governs the issue, is the legal, valid and binding
obligation of Enact, enforceable against Enact in accordance with its terms,
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, public policy or other similar laws affecting the
rights of creditors generally and except that equitable remedies may not be
available in connection with the enforcement thereof;
(G) except as set forth in Schedule 3.07, said counsel has not been
engaged to represent Enact in connection with, and has no knowledge of, any
suit, proceeding or investigation pending or threatened against Enact which
might result in any material adverse change in the financial condition or
business of Enact, or which questions the validity of this Agreement or any
action taken or to be taken pursuant to or in connection with this Agreement;
(H) the execution and performance of this Agreement will not result
in a breach of or constitute a default under any provision of the Articles of
Incorporation or the Code of Regulations of Enact or, to the knowledge of said
counsel, without any independent verification or investigation, any decree,
order or rule of any court of other governmental authority which is binding on
Enact or any Shareholder.
9.06 Bruce Chase Employment Agreement. Bruce Chase shall have executed
and delivered to Parent an employment agreement in the form attached hereto as
Exhibit 9.06 (the "Bruce Chase Employment Agreement").
9.07 Restricted Stock Agreement. Bruce Chase shall have executed and
delivered to Parent a restricted stock agreement in the form attached hereto as
Exhibit 9.07 (the "Restricted Stock Agreement").
9.08 Matt Chase Employment Agreement. Matt Chase shall have executed
and delivered to Parent an employment agreement in the form attached hereto as
Exhibit 9.08 (the "Matt Chase Employment Agreement").
9.09 Burgh Consulting Agreement. S. Griffin Burgh shall have executed
and delivered to Parent a consulting agreement in the form attached hereto as
Exhibit 9.09 (the "Consulting Agreement").
9.10 Enact Employees. Management of Enact shall not have actively
encouraged any Enact employees to terminate their employment with Enact or Newco
upon or in connection with the Merger transaction contemplated by this
Agreement.
9.11 Enact Investor Rights Agreement. Each Shareholder shall have
executed and delivered to Parent the Enact Investor Rights Agreement in the form
attached hereto as Exhibit 2.05(A).
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9.12 Escrow Agreement. Each Shareholder shall have executed and
delivered the Escrow Agreement in the form attached hereto as Exhibit 2.05(B).
9.13 Exercise of Options. At the Closing, the ownership of all issued
and outstanding Enact Class A, Class B, and Class C Common Stock shall be as set
forth on Schedule 2.01(E) and there shall be no other rights of any kind or
nature whatsoever in favor of any person or entity to purchase or acquire
capital stock of Enact except as set forth on Schedule 2.01(E).
9.14 Consents and Waivers From Holders of Other Parent Securities.
Parent shall have received (a) a written consent satisfactory to Parent from a
majority of the holders of the Series A Preferred Stock, a majority of the
holders of the Series C Preferred Stock, and a majority of the holders of the
Series E Preferred Stock to the issuance of the Parent Common Stock (including
the Chase Shares) and the Option Shares, and (b) a written waiver satisfactory
to Parent of a majority of the holders of each of such Series of the right of
first offer in Section 2.4 of the existing investors' rights agreements and the
rights of the Series A, Series C and Series E Preferred Stock pursuant to
Section 1.14 of the existing investors' rights agreements (and a waiver by such
holders of all similar rights under Parent's Fourth Amended Certificate of
Incorporation, as amended), in connection with the granting of piggyback
registration rights to the Shareholders pursuant to the Enact Investor Rights
Agreement.
9.15 Termination of 401(k) Plan. Enact shall have adopted appropriate
resolutions and taken any and all further actions necessary to terminate the
Enact Incorporated 401(k) Plan and the trustees of such plan shall have
resigned. Prior to such termination, Enact shall have paid all amounts owed by
Enact to the 401(k) plan. Upon such termination, participants in the 401(k) Plan
shall make no further deferrals with respect to compensation for services
performed after such termination date and Enact shall make no further employer
contributions to the 401(k) Plan after such date, other than employee
compensation deferrals, if any, with respect to services through the termination
date.
9.16 Option Award Agreements. Each of the Option Holders, and their
spouses where appropriate, shall have executed an Incentive Stock Option Award
Agreement with Parent in the form attached as Exhibit 2.04(B).
9.17 Stock Powers. Each of the shareholders shall have delivered a
blank stock power to parent for the Escrowed Parent Shares.
9.18 Cancellation of Security and Pledge Instruments. Upon payment,
Wingset Investments Ltd. and A.B. Siemer shall have cancelled and released Enact
and Bruce Chase from the various pledge, security and guaranty agreements
securing the line of credit financing granted to Enact pursuant to a November 2,
1998 promissory note and related instruments, as amended, and shall have
delivered appropriate executed release instruments to Parent and Newco.
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ARTICLE X. CONDITIONS TO OBLIGATIONS OF ENACT
The obligations of Enact to effect the Merger hereunder are subject to
the conditions that:
10.01 Representations and Warranties True. Each of the Schedules to
this Agreement prepared by Parent shall have been updated to be true and correct
as of the Effective Time. The representations and warranties of Parent and Newco
contained herein shall be true in all material respects at and as of the
Effective Time with the same effect as though made at and as of such date
(except for representations and warranties expressly and specifically relating
to a time or times other than the Closing, which shall be true and correct in
all material respects at and as of the time or times specified). Parent and
Newco shall have performed all obligations and complied with all covenants
required by this Agreement to be performed or complied with by them prior to the
Effective Time.
10.02 Absence of Litigation. There shall be no actual or threatened
litigation to restrain or invalidate the Merger or any other transaction
contemplated in this Agreement, the defense of which would, in the judgment of
the Board of Directors of Enact, made in good faith and based upon the advice of
counsel, involve expense or lapse of time that would be materially adverse to
the interests of Enact or its Shareholders.
10.03 Officer's Certificate. Enact shall have received a certificate,
dated the Closing Date, executed on behalf of Parent and Newco by an appropriate
officer stating that the representations and warranties set forth in Articles IV
and V hereof continue to be true and correct in all material respects.
10.04 Opinion of the Parent's Counsel. Enact shall have received a
favorable opinion, dated the Effective Time, of Osborn Maledon, P.A., counsel to
Parent, under the laws of Arizona, the General Corporate Law of Delaware, and
under applicable federal law, in form and substance satisfactory to Enact and
its counsel, to the effect that:
(A) Parent is a corporation duly organized and legally existing in
good standing under the laws of the State of Delaware;
(B) Newco is a corporation duly organized and legally existing in
good standing under the laws of the State of Arizona;
(C) all corporate acts required to be taken by or on the part of
Parent and Newco to approve and adopt this Agreement and to authorize the Merger
have been duly and validly taken, including the approval of the Merger by the
sole shareholder of Newco;
(D) this Agreement, the Enact Investor Rights Agreement, the Escrow
Agreement, the Incentive Stock Option Award Agreements, the Bruce Chase
Employment Agreement, the Restricted Stock Agreement, the Matt Chase Employment
Agreement and the Consulting Agreement have been duly executed and delivered by
Parent and/or Newco and are the legal, valid and binding agreements of Parent,
enforceable against Parent and/or Newco in accordance with their respective
terms, except as the same may be limited by applicable
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bankruptcy, insolvency, reorganization, moratorium, public policy or other
similar laws affecting the rights of creditors generally and except that
equitable remedies may not be available in connection with the enforcement
thereof;
(E) the par value and number of shares of authorized stock of
Parent which are issued and outstanding are as set forth in Section 4.02 of this
Agreement which shares of stock are duly authorized, fully paid and
nonassessable;
(F) based in part upon the representations of Enact and Parent in
this Agreement and the representations of the Shareholders and Option Holders in
the Representation Letters, the offer and sale of the Parent Common Stock and
Option Shares pursuant to this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, and from
the registration and qualification requirements of the applicable securities
laws of the State of Arizona;
(G) said counsel does not know, and has no reason to believe, that,
except as set forth on a schedule attached to such opinion, any suit, proceeding
or investigation is pending or threatened against Parent or Newco which might
result in any material adverse change in the financial condition or business of
Parent or Newco, or which questions the validity of this Agreement or any action
taken or to be taken pursuant to or in connection with this Agreement; and
(H) neither the execution and delivery of this Agreement, nor any
performance hereunder, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, Parent's certificate
of incorporation or bylaws, Newco's articles of incorporation or bylaws, or any
agreement, instrument, judgment, decree, regulation or other restriction, of
which such counsel has knowledge and to which Parent or Newco is a party or by
which either or their properties are bound.
10.05 Bruce Chase Employment Agreement. Parent shall have executed and
delivered to Bruce Chase the Bruce Chase Employment Agreement.
10.06 Matt Chase Employment Agreement. Parent shall have executed and
delivered to Matt Chase the Matt Chase Employment Agreement.
10.07 Burgh Consulting Agreement. Parent shall have executed and
delivered to S. Griffin Burgh the Consulting Agreement.
10.08 Option Award Agreements. Parent shall have executed Incentive
Stock Option Award Agreements with the Option Holders in the form attached as
Exhibit 2.04(B).
10.09 Escrow Agreement. Parent and Newco shall have executed and
delivered the Escrow Agreement in the form attached hereto as Exhibit 2.05(B).
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10.10 Payment of Secured Indebtedness. Parent and Newco shall have paid
or caused to be paid the existing indebtedness of Enact to Wingset Investments
Ltd. and A.B. Siemer under Enact's November 2, 1998 promissory note, as amended.
10.11 Delivery of Consents and Waivers. The consents and waivers
described in Section 9.14 shall have been delivered.
ARTICLE XI. TERMINATION
11.01 Circumstances of Termination. This Agreement may be terminated
(notwithstanding approval by the shareholders of any party hereto): (A) by the
mutual consent in writing of the Boards of Directors of Enact and Parent; (B) by
the Board of Directors of Enact if any condition provided in Article X hereof
has not been satisfied or waived on or before April 30, 1999; (C) by the Board
of Directors of Parent if any condition provided in Article IX hereof has not
been satisfied or waived on or before April 30, 1999; or (D) by the Board of
Directors of either Enact or Parent if the Effective Time has not occurred by
May 18, 1999.
11.02 Effect of Termination. In the event of a termination of this
Agreement pursuant to Section 11.01 hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement, and each party shall
retain any and all rights attendant to a breach of any covenant, representation
or warranty made hereunder.
ARTICLE XII. MERGER PRICE ADJUSTMENT
12.01 Scope of Adjustment. The parties agree that the Merger
Consideration payable to the Shareholders in respect of the Merger, the Chase
Shares issuable to Bruce Chase, and the Burgh Fees payable to S. Griffin Burgh,
have been determined based upon the assumption that the representations and
warranties set forth in Article III of this Agreement are true and complete. To
the extent that such representations and warranties are not true and complete,
the parties intend that the Merger Consideration payable to the Shareholders,
and the Chase Shares and Burgh Fees, be reduced as provided herein. Accordingly,
subject to the conditions set out in Section 12.02 of this Agreement and the
limitations set forth in Section 12.06, the parties agree that the Merger
Consideration payable to the Shareholders, Chase Shares and Burgh Fees shall be
subject to an adjustment, to the extent of all reasonable out-of-pocket and
direct losses of Parent or Newco actually incurred ("Losses") arising out of the
material breach of any representation or warranty set forth in Article III of
this Agreement ("Claims"). The adjustment shall be made as provided in this
Article XII.
12.02 Conditions to Adjustment. The amount of Escrow Property (as
defined in the Escrow Agreement) deliverable to Shareholders at the termination
of the Escrow shall be reduced in respect of all Losses (subject to Section
12.06) only if Newco or Parent shall have given notice of the Claim in writing
("Claim Notice") to the Escrow Agent and the Shareholders promptly after
learning of the Claim on which the Loss is based. Each Claim Notice shall
include a brief description of the nature of the Claim, the identity of the
party by whom it is being asserted, and an estimate of the amount of loss (the
"Estimated Loss") which may be sustained by Newco or Parent by reason of such
breach. Newco and Parent shall from time to
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time prior to the final determination of any Claim and the amount of the Loss
amend each such Claim Notice to reflect any change in its estimate of the
Estimated Loss as thereto referred to in that Claim Notice. Newco or Parent
shall deliver to the Shareholders copies of all pleadings and amended pleadings
filed in connection with any such Claim and will provide the Shareholders and
their counsel with such further information concerning the proceedings relating
to such Claim and related Loss as the Shareholders or such counsel may
reasonably request. Newco and Parent will use all reasonable efforts to minimize
the amount of any Loss. If different from Newco's regular counsel, counsel
retained by Newco in the defense of any Claim shall be subject to the reasonable
approval of the "Shareholders' Representative" (as hereafter defined). All Claim
Notices must be given to the Shareholders on or prior to the 270th day after the
Closing Date. No adjustment shall be made with respect to any Claim Notice given
thereafter. "Shareholders' Representative" shall mean a majority in number of
the Shareholders, acting by an action or consent in writing.
12.03 Third Party Actions. In the event that Newco or Parent timely
gives notice of a Claim regarding any third party action or claim, Newco and
Parent shall have a right to compromise or defend any such matter involving such
asserted liability, through counsel of its own choosing who shall be subject to
the approval of the Shareholders' Representative, which approval will not be
unreasonably withheld. The Shareholders shall have access to all relevant
information and at the expense of the Shareholders be entitled to participate in
the defense thereof. In the event of any proposed settlement, Newco or Parent
shall give the Shareholders at least fifteen (15) days prior written notice
thereof. The Shareholders' Representative shall have the right to assume the
defense of the Claim at any time upon reasonable notice, and all amounts payable
upon the final resolution of the Claim, and all expenses in connection with such
defense, shall be the sole expense of the Shareholders. Should the Shareholders'
Representative elect not to approve any proposed settlement, the Shareholders
shall defend any such Claim and pay all amounts payable upon the final
resolution of the Claims, and all Losses in connection with such defense. Any
settlement so approved shall be binding on the Shareholders.
12.04 Final Claim and Loss. The Shareholders' Representative shall,
within thirty (30) days after receipt of each Claim ("Claim Date") give notice
to Parent and the Escrow Agent either that the Shareholders accept the Claim
and/or the amount of the stated Loss (if the Loss is stated in the Claim to be
the final Loss and not subject to adjustment) or object to the Claim or the
amount of the Loss ("Written Response"). If a Written Response is not received
by Parent from the Shareholders' Representative within thirty (30) days after
written notice to the Shareholders of such Claim, it shall be conclusively
presumed that the Claim and/or Loss, as the case may be, has been accepted. If
the Shareholders' Representative timely objects to the Claim and/or Loss, as the
case may be, the matter shall be resolved as set forth in Section 13.05.
12.05 Adjustment.
(A) The amount of a Loss shall be not be charged against the Escrow
Property until after the final resolution of all Claims and the final
determination of all Losses and the completion of the 270 day Escrow period;
provided, however, that Parent, at its option, may accelerate the completion of
the 270 day Escrow period and forego its right to make additional
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Claims if, at any time, Parent believes the amount of determined Losses exceeds
the then current value of the Escrow Property.
(B) Upon completion of the 270 day Escrow period (or upon Parent's
exercise of its right to earlier terminate the Escrow as set forth in Section
12.05(A)), and any additional time necessary to allow Parent and Shareholder's
Representative to agree upon and resolve all Claims and the amounts of all
Losses as herein provided so that the amount of total Losses is known, the
Losses shall be charged to the Escrow Property pursuant to the procedures
described in the Escrow Agreement.
(C) All Escrowed Parent Shares and Escrowed Chase Shares against
which Losses are charged pursuant to Section 12.05(B) shall be returned to
Parent for cancellation. All Escrowed Cash Consideration and Escrowed Burgh Fees
against which Losses are charged pursuant to Section 12.05(B) shall be remitted
by Escrow Agent to Parent.
(D) Notwithstanding Section 12.05(A), the determination of charges
against the Escrow property shall be accelerated upon the occurrence of an event
as set forth in Section 2.05(A)(2)(iii).
12.06 Additional Limitations on Adjustments. Notwithstanding anything
to the contrary set forth in this Agreement or otherwise:
(A) Time Limitations. There will be no adjustment in the Merger
Consideration with respect to any representation, warranty, covenant or
obligation of Enact, unless on or before the date which is the 270th day after
the Closing Date Parent shall have provided a Claim Notice to the Shareholders.
(B) Limitations on Amount. There will be no adjustment in the
Merger Consideration: (i) for Losses in excess of the Escrow Property; or (ii)
for Losses to the extent that the total of all Losses with respect to all such
matters does not exceed the amount of $25,000.
(C) Limitations on Remedies. Parent's and Newco's sole source of
recovery for adjustment to the purchase price shall be the property held under
the Escrow Agreement. Parent and Newco agree that the remedies set forth in this
Agreement shall be their sole and exclusive remedies relating to claims arising
under this Agreement and the transactions contemplated hereunder. In furtherance
of the foregoing, each of Parent and Newco hereby waive, from and after the
Closing Date, any and all rights, claims and causes of action it may have that
could be made under this Agreement and the transactions contemplated hereunder
against Enact or the Shareholders arising under or based upon any United States
or foreign Federal, State or local statute, law, ordinance, rule or regulation
or otherwise (including common law), except pursuant to the remedies and
procedures set forth in this Agreement. This Section 12.06 shall not be
construed as limiting claims arising out of actual fraud, as determined by a
court or arbitrator.
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ARTICLE XIII. GENERAL PROVISIONS
13.01 Further Assurances. From time to time as and when requested
by Parent or Newco or its successors or assigns, the officers and directors of
Enact last in office shall execute and deliver such deeds and other instruments
and shall take or cause to be taken such other actions as shall be necessary to
vest or perfect in or to confirm of record or otherwise Newco's title to, and
possession of, all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Enact, and otherwise to carry
out the purposes of this Agreement.
13.02 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement (and in any
certificate or other instrument delivered by or on behalf of any party pursuant
hereto), are true in all material respects on and as of the date so made, shall
have force and effect even if their falsity should have been discovered by any
investigation made by or on behalf of any party, and will survive the Effective
Time subject to the limitations set forth in Section 12.06.
13.03 Notices. Any notice to any party under this Agreement shall
be in writing and shall be effective on the earlier of (i) the date when
received by such party (including fax receipt), or (ii) the date which is three
(3) days after mailing (postage prepaid) by certified or registered mail, return
receipt requested, to the address of such party set forth herein, or to such
other address as shall have previously been specified in writing by such party
to all parties hereto:
To Parent and Newco: SalesLogix Corporation
8800 North Gainey Center Dr., Suite 200
Scottsdale, AZ 85258
Fax: (602) 368-3700
Attn: Chief Financial Officer
With a copy to: Osborn Maledon, P.A.
2929 North Central Avenue, Suite 2100
Phoenix, Arizona 85012
Fax: (602) 640-6067
Attn: Thomas H. Curzon
To Enact (prior to the Enact Incorporated
Effective Time): 4111 Executive Parkway, Suite 305
Westerville, Ohio 43081
Fax: (614) 882-8860
Attn: Bruce Chase
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With a copy to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus OH 43215
Fax: (614) 464-6350
Attention: Russell R. Rosler
To the Shareholders and At the addresses set forth in the Enact Investor
Option Holders Rights Agreement
With two copies to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus OH 43215
Fax: (614) 464-6350
Copy one -- Attention: Russell R. Rosler
and
Copy two -- Attention: Michael R. Cline
13.04 Severability. If any provision of this Agreement is declared void
or unenforceable, such provision shall be deemed severed from this Agreement,
which shall otherwise remain in full force and effect.
13.05 Dispute Resolution. For purposes of this Section 13.05 only, the
Shareholders shall be deemed the "parties" hereto. The parties hereto deem it to
be in their respective best interests to settle any dispute as expeditiously and
economically as possible. Therefore, the parties expressly agree to submit any
dispute between them arising out of or relating to this Agreement, the Enact
Investor Rights Agreement and the Escrow Agreement ("Dispute") to mediation and,
if necessary, arbitration, as set forth below. In the event that the parties
elect to pursue binding arbitration as to a Dispute, the parties hereto
expressly waive any rights they may have to trial by jury with respect to such
Dispute. The dispute resolution proceedings shall be conducted in Phoenix,
Arizona, in the English language. The parties agree to use the following
procedure in good faith to resolve any Dispute:
(A) A meeting shall be held among the parties within ten (10) days
after any party gives written notice of the Dispute to each other party (the
"Dispute Notice") attended by a representative of each party having
decision-making authority regarding the Dispute, to attempt in good faith to
negotiate a resolution of the Dispute.
(B) If, within thirty (30) days after the Dispute Notice, the
parties have not succeeded in negotiating a written resolution of the Dispute,
upon written request by any party to each other party all parties will promptly
negotiate in good faith to jointly appoint a mutually acceptable neutral person
not affiliated with any of the parties (the "Neutral"). If all parties so agree
in writing, a panel of two or more individuals (such panel also being referred
to as the "Neutral") may be selected by the parties. The parties shall seek
assistance in such regard from the American Arbitration Association (the "AAA")
or the Center for Public Resources if they have been unable to agree upon such
appointment within forty (40) days after the Dispute
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Notice. The fees and costs of the Neutral and of any such assistance shall be
shared equally between the parties.
(C) In consultation with the Neutral, the parties will negotiate in
good faith to select or devise a nonbinding alternative dispute resolution
procedure ("Mediation") by which they will attempt to resolve the Dispute, and a
time and place for the Mediation to be held, with the Neutral (at the written
request of any party to each other party) making the decision as to the
procedure if the parties have been unable to agree on any of such matters in
writing within ten (10) days after selection of the Neutral.
(D) The parties agree to participate in good faith in the Mediation
to its conclusion; provided, however, that no party shall be obligated to
continue to participate in the Mediation if the parties have not resolved the
Dispute in writing within one hundred twenty (120) days after the Dispute Notice
and any party shall have terminated the Mediation by delivery of written notice
of termination to each other party following expiration of said 120-day period.
Following any such termination notice after selection of the Neutral, and if any
party so requests in writing to the Neutral (with a copy to each other party),
then the Neutral shall make a recommended resolution of the Dispute in writing
to each party, which recommendation shall not be binding upon the parties;
provided, however, that the parties shall give good faith consideration to the
settlement of the Dispute on the basis of such recommendation, and if the
parties are unable to resolve the Dispute on the basis of such recommendation,
then with the mutual consent of the parties the Dispute shall be submitted to
binding arbitration as provided below. Otherwise, the parties shall be free to
pursue other means of dispute resolution. In the event of binding arbitration,
the party seeking further resolution shall pay the reasonable attorneys' fees,
costs and other expenses (including expert witness fees) of the other party
incurred in connection with the pursuit of (and defense against) such
arbitration, if the result thereof is less favorable to the party pursuing the
arbitration than the recommendation of the Neutral.
(E) Notwithstanding anything herein to the contrary, nothing in
this Section shall preclude any party from seeking interim or provisional
relief, in the form of a temporary restraining order, preliminary injunction or
other interim equitable relief concerning the Dispute, either prior to or during
the Mediation if necessary to protect the interests of such party, or to obtain
specific performance of obligations under this Agreement, the Escrow Agreement
or the Enact Investor Rights Agreement. Further, this Section shall be
specifically enforceable.
(F) Subject to the foregoing, a party with the mutual consent of
the other parties may seek arbitration of an unresolved Dispute in Phoenix,
Arizona, in accordance with the Rules of the AAA governing commercial
transactions. The arbitration tribunal shall consist of three (3) arbitrators if
the Dispute is for more than $250,000 and one (1) neutral arbitrator if it is
for $250,000 or less. If three arbitrators are to be appointed, the party
initiating arbitration shall nominate one arbitrator (who shall be knowledgeable
in the industry but not be affiliated with such party) in the request for
arbitration and the other party shall nominate a second arbitrator (who shall be
knowledgeable in the industry but not be affiliated with such party) in the
answer thereto. The two arbitrators so named will then jointly appoint the third
arbitrator (who shall be knowledgeable in the industry but shall not be
affiliated with either party) as
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chairman of the arbitration tribunal. If either party fails to nominate its
arbitrator, or if the arbitrators named by the parties fail to agree on the
person to be named as chairman (or to mutually select a single arbitrator is the
amount is for $250,000 or less) within sixty (60) days, the office of the AAA in
Phoenix, Arizona shall make the necessary appointments of an arbitrator or the
chairman of the arbitration tribunal. The award of the arbitration tribunal
shall be final and judgment upon such an award may be entered in any competent
court or application may be made to any competent court for judicial acceptance
of such an award and an order of enforcement.
(G) At the reasonable request of either party, the mediator or
arbitration tribunal shall adopt rules and procedures designed to expedite the
dispute resolution process.
13.06 Reliance on Advisors. Each party hereto has independently
reviewed the terms and conditions of this Agreement with its own advisors, and
acknowledges that it is not relying upon any other party hereto with respect to
the interpretation of this Agreement and the legal and regulatory (including tax
and securities laws) treatment of the transactions contemplated by this
Agreement.
13.07 Counterparts. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each of said counterparts shall be deemed an original
hereof.
13.08 Waiver. Failure of any party to exercise any right or option
arising out of a breach of this Agreement shall not be deemed a waiver of any
right or option with respect to any subsequent or different breach, or the
continuance of any existing breach.
13.09 Integration Clause; No Oral Modification. This Agreement and the
agreements to be executed and delivered herewith represent the entire agreement
of the parties with respect to the subject matter hereof, and all agreements
entered into prior hereto are revoked and superseded by this Agreement, and no
representations, warranties, inducements or oral agreements have been made by
any of the parties except as expressly set forth herein, or in other
contemporaneous written agreements executed by the parties. This Agreement may
not be changed, modified or rescinded except in writing, signed by all parties
hereto, and any attempt at oral modification of this Agreement shall be void and
of no effect.
13.10 Captions. Captions and paragraph headings used herein are for
convenience only and are not a part of this Agreement and shall not be deemed to
limit or alter any provisions hereof and shall not be deemed relevant in
construing this Agreement.
13.11 Governing Law. This Agreement shall be deemed to be made under,
and shall be construed in accordance with and shall be governed by, the laws of
the State of Arizona.
13.12 Interpretations. To the extent permitted by the context in which
used, (i) words in the singular number shall include the plural, words in the
masculine gender shall include the feminine and neuter, and vice versa, and (ii)
references to "persons" or "parties" in this
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Agreement shall be deemed to refer to natural persons, corporations, general
partnerships, limited partnerships, trusts and all other entities.
13.13 Specific Performance. In addition to such other remedies as may
be available under applicable law, the parties acknowledge that the remedies of
specific performance and/or injunctive relief shall be available and proper in
the event any party fails or refuses to perform its duties hereunder.
13.14 Schedules; Exhibits. Any Schedules or Exhibits attached hereto
shall be deemed to have been incorporated herein by this reference, with the
same force and effect as if fully set forth in the body hereof.
13.15 Transaction Expenses. Enact shall bear its legal, accounting and other
expenses in connection with the transactions contemplated hereby, and Parent
shall bear its and Newco's legal, accounting and other expenses in connection
with the transactions contemplated hereby.
13.16 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors in interest
and assigns, but in no event shall any party be relieved of its obligations
hereunder without the express written consent of each other party.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first set forth above.
SALESLOGIX CORPORATION
By: /s/ Gary Acord
Name: Gary Acord
Its: CFO
SLX MERGER COMPANY
By: /s/ Gary Acord
Name: Gary Acord
Its: CFO
ENACT INCORPORATED
By: /s/ Bruce Chase
Name: Bruce Chase
Its: V.P. Development
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Index of SCHEDULES
Schedule 2.01(E) - Enact Share and Option Ownership
Schedule 3.02 - Material Contract Conflicts
Schedule 3.03 - Liens Relating to Enact Stock
Schedule 3.05(A) - Enact Financial Statements
Schedule 3.05(B) - Exceptions to Enact Financial Statements
Schedule 3.07 - Litigation
Schedule 3.08(A)(1) - Software Owned by Enact
Schedule 3.08(A)(2) - Third Party Software
Schedule 3.08(A)(3) - Public Domain Software
Schedule 3.08(A)(4) - In House Software
Schedule 3.08(C) - Software Defects, Errors, Infringement
Schedule 3.08(D) - Software Warranty Claims
Schedule 3.08(E) - Restrictions re Use of Third Party Software
Schedule 3.08(F) - Distribution Agreements
Schedule 3.08(H) - Trade Secrets and Consents to Use Thereof
Schedule 3.09 - Intellectual Property: Trademarks, Patents,
Copyrights, and Know-How
Schedule 3.10 - Material Contracts
Schedule 3.11 - Leased Equipment; Other Encumbrances on Property
Schedule 3.13 - Tax Audits or Problems
Schedule 3.14 - Compensation Agreements
Schedule 3.15 - Employee Benefit Plans; Other Employee Benefits
Schedule 3.16 - Labor Relations; Employee Related Complaints
Schedule 3.17 - Vacation Program; Increases in Compensation or
Benefits
Schedule 3.18 - Insurance
Schedule 3.19 - Operations Since March 18, 1999.
Index of EXHIBITS
Exhibit 2.04(B) - Award Agreement under Parent's 1996 Equity
Incentive Plan
Exhibit 2.05(A) - Form of Enact Investor Rights Agreement
Exhibit 2.05(B) - Form of Escrow Agreement
Exhibit 9.04 - Form of Representation Agreements
Exhibit 9.06 - Form of Employment Agreement of Bruce Chase
Exhibit 9.07 - Restricted Stock Agreement
Exhibit 9.08 - Form of Employment Agreement of Matt Chase
Exhibit 9.09 - Form of Consulting Agreement
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Exhibit 10.24 - Escrow Agreement
ESCROW AGREEMENT
ESCROW AGREEMENT made this 30th day of April 1999, by and among
SalesLogix Corporation, a Delaware corporation ("Parent"); SLX Merger Company,
an Arizona corporation ("Newco"); Harris Trust Company of California (the
"Escrow Agent"); and the four shareholders of Enact Incorporated ("Enact") whose
names are set forth as Shareholders (and not spouses) on the signature page of
this Agreement (collectively, the "Shareholders").
Parent, Newco and Enact have entered into a Plan of Reorganization and
Agreement of Merger (the "Merger Agreement"), dated as of April 30, 1999,
relating to the merger of Enact into Newco (the "Merger") and providing for,
among other things, the delivery into escrow of a portion of the shares of
Parent's Class A Common Stock (the "Parent Common Stock") to be issued to the
Shareholders upon and after the Merger, and a portion of the cash consideration
to be paid to certain Shareholders upon and after the Merger, all as set forth
in Schedule 2.01(E) of the Merger Agreement (pertinent sections of the Merger
Agreement, including Schedule 2.01(E) thereto, are attached hereto as Exhibit
A). The Shareholders and Parent desire to provide for the administration of the
escrow provisions of the Merger Agreement in the manner set forth herein. Escrow
Agent is willing to serve as such under this Agreement. Capitalized terms used
herein and not otherwise defined herein shall have the meanings expressly
assigned thereto in the portions of the Merger Agreement attached hereto as
Exhibit A unless the context or usage requires otherwise.
NOW, THEREFORE, the parties agree as follows:
1. THE ESCROW
1.1 Deposit of Parent Common Stock. Pursuant to Section 2.05 of the
Merger Agreement, Parent hereby deposits into escrow on behalf of and in the
name of the Shareholders: (i) 40,753 shares of Parent Common Stock, representing
the Escrowed Parent Shares described in Section 2.05(A)(2) and Schedule 2.01(E)
of the Merger Agreement; (ii) an additional 20,189 shares of Parent Common
Stock, representing the Escrowed Chase Shares described in Section 2.05(C) and
Schedule 2.01(E) of the Merger Agreement; (iii) the cash sum of $399,999.90,
representing the Escrowed Cash Consideration described in Section 2.05(A)(2) and
Schedule 2.01(E) of the Merger Agreement; and (iv) and the cash sum of $10,000,
representing the Escrowed Burgh Fees described in Section 2.05(D) and Schedule
2.01(E) of the Merger Agreement. Schedule 2.01(E) of the Merger Agreement sets
forth on which Shareholder's behalf the Escrowed Parent Shares, Escrowed Chase
Shares, Escrowed Cash Consideration, and Escrowed Burgh Fees are being
deposited. The Escrowed Parent Shares and Escrowed Chase Shares shall
collectively be referred to as the "Escrowed Shares," while the Escrowed Cash
Consideration and Escrowed Burgh Fees shall collectively be referred to as the
"Escrowed Cash."
1.2 Escrow Property. The Escrowed Shares and all stock dividends or
shares in respect of stock splits related to the Escrowed Shares, and the
Escrowed Cash and all interest earned thereon (collectively "Escrow Property")
shall be held by the Escrow Agent for the benefit of the
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Shareholders, Parent and Newco on the terms set forth herein. The Shareholders
shall be entitled to receive all dividends and distributions (other than stock
dividends or from stock splits) on the Escrowed Shares, and Parent shall be
responsible for ensuring that such dividends and distributions are delivered
directly to the Shareholders rather than to the Escrow Agent.
1.3 Money-Market Account. Escrow Agent shall deposit the Escrowed Cash
into a money-market account, and all interest received on the Escrowed Cash in
such account shall be retained in the account, credited to the Shareholders in
proportion to their interests (as shown on Schedule 2.01(E)) in the Escrowed
Cash, and added to the Escrow Property for the purposes of this Agreement.
1.4 Voting Rights of Shares in Escrow. All voting rights with respect
to any Escrowed Shares comprising a part of the Escrow Property may be exercised
by the Shareholders in accordance with their proportionate interests therein (as
shown on Schedule 2.01(E)), and the Escrow Agent shall, upon receipt of Parent's
instructions from time to time, execute and deliver to the Shareholders such
proxies, consents, or other documents as provided by Parent as may be necessary
to enable the Shareholders to exercise such rights.
1.5 Distributions on Escrowed Shares. All dividends and other
distributions (whether in cash, securities, or other property) paid or made on
the Escrowed Shares shall be deemed to have been paid or made to the
Shareholders in proportion to their ownership of the Escrowed Shares (as shown
on Schedule 2.01(E)). As stated in Section 1.2 above, Parent shall be
responsible for ensuring that any dividends and distributions, other than stock
dividends or from stock splits, are delivered directly to the Shareholders
rather than the Escrow Agent. Any dividends and distributions in the form of
stock dividends or from stock splits shall be delivered to the Escrow Agent and
shall be held by the Escrow Agent as Escrow Property.
1.6 Taxes and Charges on Escrow Property. Each Shareholder shall
maintain such Shareholder's Escrow Property free and clear of all liens and
encumbrances and shall, promptly upon request by the Escrow Agent, pay and
discharge all taxes, assessments, and governmental charges imposed on or with
respect to the Escrow Property.
1.7 Administration of the Escrow Pursuant to the Merger Agreement. The
Escrow Agent shall administer the Escrow Property pursuant to this Agreement.
Parent, Newco and the Shareholders have agreed that the Escrow Property shall be
qualified for release in full to the Shareholders pursuant to Section 2.05 of
the Merger Agreement unless a Claim Notice is filed with the Shareholders and
the Escrow Agent by Parent on or before the 270th day after the date of this
Agreement. In the event a Claim Notice is not timely filed by Parent, Escrow
Agent may release the Escrow Property as described in Section 3.2 below. In the
event a Claim Notice is timely filed by Parent, the Escrow Agent shall continue
to hold the Escrow Property until: (a) it receives one or more "Joint Direction
Letters" (as defined below), which have provided for the complete disposition of
the Escrow Property; (b) Parent delivers a "Distribution Certification" (as
defined below) to which no Shareholder delivers a timely "Written Objection" (as
defined below); or (c) it receives a court order (or an arbitration award that
has been converted into a judgment), instructing the Escrow Holder concerning
the manner in which the Escrow Property should be distributed among the
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<PAGE> 3
Shareholders and/or Parent. As used herein a "Joint Direction Letter" shall mean
a joint letter of direction addressed to the Escrow Agent and executed by Parent
and at least three of the four Shareholders.
2. PURCHASE PRICE ADJUSTMENT
Sections 2.1 and 2.2 below explain the manner in which any charges
against the Escrow Property arising out of Losses shall be determined. Nothing
in this Agreement shall be construed as requiring the Escrow Agent to perform or
verify any of the calculations, or the factual bases therefore, set forth in
these sections.
2.1 Adjustment Procedure. Parent and the Shareholders have agreed that
in the event Newco or Parent shall sustain one or more Losses (as defined in
Section 12.01 of the Merger Agreement), the amount of Escrow Property available
for distribution to the Shareholders upon termination of the Escrow shall be
reduced by an amount of Escrow Property equal to the value of the Total Losses,
as determined below. The amount of Total Losses shall not be charged against the
Escrow Property until after the final resolution of all Claims and the final
determination of all Losses and the completion of the 270 day Escrow period;
provided, however, that Parent, at its option, may accelerate the completion of
the 270 day Escrow period and forego its right to make additional Claims if, at
any time, Parent believes the amount of Losses determined to date exceeds the
then current value of the Escrow Property.
2.2 Allocation of Losses Across Escrow Property. Upon completion of the
270 day Escrow period (or upon Parent's exercise of its right to earlier
terminate the Escrow as set forth in Section 2.1), and any additional time
necessary to allow Parent and Shareholder's Representative to agree upon and
resolve all Claims and the amount of all Losses so that the amount of Total
Losses is known, Parent shall promptly certify in writing to the Escrow Agent
and to all Shareholders the amount of the Total Losses determined by the parties
under Article XII of the Merger Agreement, and the Parent's calculation of any
resulting appropriate charges to the four Shareholders' respective contributions
to the Escrow Property (the "Distribution Certification"). In preparing the
Distribution Certification, Parent shall charge the Total Losses to the Escrow
Property as follows: First, Parent shall determine the then current agreed value
of the Escrow Property as a whole (the "Total Escrow Value"). For Parent Common
Stock, this value shall be determined by assigning each share of Parent Common
Stock the value of either (i) the initial offering price per share at which
Parent closes on a bona fide initial public offering of the Parent Common Stock
(an "IPO") or (2), if Parent does not close on an IPO prior to the completion of
the 270 day Escrow Period, $13.00, in each case appropriately adjusted to take
into account any stock split, stock dividend, reverse stock split,
recapitalization, or like change that may occur between the date of this
Agreement and the date on which any or all of the Parent Common Stock is
released from the Escrow (the "Deemed Per Share Value"). For cash, this value
will be determined by Parent from an up to date statement provided by Escrow
Agent. Second, for each Shareholder, Parent shall determine the current agreed
value as of the Determination Date of such holder's specific contribution of
cash or Parent Common Stock to the Escrow Property (the "Holder's Escrow Value")
(for Parent Common Stock this value shall be determined again using the Deemed
Per Share Value described above). Third, Parent shall assign a specific
percentage
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(the "Allocation Percentage") to each Shareholder which shall be equal to the
percentage that the relevant Holder's Escrow Value bears to the Total Escrow
Value. Fourth, for each Shareholder, Parent shall charge against such holder's
specific contribution of cash or Parent Common Stock to the Escrow Property an
amount equal to the Total Losses multiplied by the Allocation Percentage
calculated for such holder. If Parent determines in step one that the total
Losses will exceed the Total Escrow Value, it need not perform steps two and
three, but may simply report that each holder's Allocation Percentage is one
hundred percent (100%). Notwithstanding this four-step procedure, Parent acting
together with no less than three of the Shareholders may elect to forego the
foregoing procedure by delivering a Joint Direction Letter to the Escrow Agent,
at any time, whereupon the Escrow Agent shall promptly distribute to the Parent
and/or the appropriate Shareholders the Escrowed Parent Shares, Escrowed Chase
Shares, Escrowed Cash Consideration and Escrowed Burgh Fees as specified and
directed in the Joint Direction Letter.
2.3 Escrow Agent's Distributions. Upon Parent's delivery of the
Distribution Certification, which shall describe in detail the calculation
performed under steps one through four in Section 2.2, the Shareholders, and any
of them, shall have thirty (30) calendar days from the date of the Distribution
Certification to deliver to Parent and to the Escrow Agent a written objection
("Written Objection") to the distribution proposed in the Distribution
Certification. If no timely Written Objection is received by the Escrow Agent
within said 30 day period, it shall be conclusively presumed that the
Distribution Certification has been accepted and the Escrow Agent shall
immediately thereafter distribute to the Parent and/or the appropriate
Shareholders the Escrowed Parent Shares, Escrowed Chase Shares, Escrowed Cash
Consideration and Escrowed Burgh Fees as specified and directed in the
Distribution Certification. If a timely Written Objection is received within
said 30 day period, the Escrow Agent shall continue to hold the Escrow Property
and Parent and the Shareholders shall seek to resolve the Written Objection as
set forth in Section 13.5 of the Merger Agreement. During the pendency of any
such attempts to resolve the Written Objection, Parent and the Shareholders
shall negotiate in good faith for a Joint Direction Letter that will allow the
Escrow Agent to distribute to the Shareholders any portions of the Escrow
Property which are not in dispute and which will not be affected by the ultimate
resolution of the Written Objection.
3. TERMINATION
3.1 Termination Date. The escrow created by this Agreement shall
terminate on the date that all Escrow Property has been distributed pursuant to
this Agreement ("Termination Date").
3.2 Distribution of Escrow Property. If Parent shall have failed to
file a Claim Notice with the Escrow Agent by the 270th day after the date of
this Agreement, Escrow Agent shall distribute the Escrow Property to the
Shareholders in accordance with their proportionate interests therein as shown
on Schedule 2.01(E) to the Merger Agreement.
4. RIGHTS AND OBLIGATIONS OF THE ESCROW AGENT
4.1 Liability Limitations Applicable to and Indemnification of Escrow
Agent. The
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Escrow Agent: (1) shall not be liable for any error of judgment, act done or
omitted by it in good faith, or mistake of fact or law unless caused by its own
gross negligence or willful misconduct; (2) shall be entitled to treat as
genuine any letter or other document furnished to it by Newco, Parent or
Shareholders, and believed by it to be genuine and to have been signed and
presented by the proper party or parties; (3) shall be entitled to rely upon
written instructions received from both the Parent and at least three of the
four Shareholders; and (4) shall be paid by Parent fees for its services at its
customary rates as in effect from time to time and its out-of-pocket expenses
(including but not limited to reasonable fees of counsel). The Escrow Agent
shall be indemnified, jointly and severally, and saved harmless by Parent,
Newco, and the Shareholders (collectively, the "Indemnifying Parties"), from and
against any and all liability, including all expenses reasonably incurred in its
defense, to which the Escrow Agent shall be subject by reason of any action
taken or omitted or any investment or disbursement of any part of the Escrow
Property made by the Escrow Agent pursuant to the Escrow Agreement, except as a
result of the Escrow Agent's own gross negligence or willful misconduct. The
costs and expenses of enforcing this right of indemnification shall also be paid
by the Indemnifying Parties. This right of indemnification shall survive the
termination of this Escrow Agreement, and the removal or resignation of the
Escrow Agent. The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Escrow Agreement, and the Escrow Agent shall have
no duties or obligations under any other agreement or document whether or not
referred to herein or attached hereto as an exhibit, and no implied covenants or
obligations shall be read into this Escrow Agreement against the Escrow Agent.
The Escrow Agent may consult with counsel (of its choice) regarding any of its
duties or obligations hereunder, and shall be fully protected in any action
taken in good faith in accordance with such advice.
4.2 Resignation. The Escrow Agent may resign at any time by giving
written notice thereof to the other parties hereto, but such resignation shall
not become effective until a successor Escrow Agent shall have been appointed
and shall have accepted such appointment in writing. If an instrument of
acceptance by a successor Escrow Agent shall not have been delivered to the
Escrow Agent within thirty (30) days after the giving of such notice of
resignation, the resigning Escrow Agent may, at the expense of the undersigned,
petition any court of competent jurisdiction for the appointment of a successor
Escrow Agent.
4.3 Compliance with Orders and Decrees. If any property subject hereto
is at any time attached, garnished or levied upon, under any court order, or in
case the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such
property, or any part thereof, then in any of such events, the Escrow Agent is
authorized, in its sole discretion, to rely upon and comply with any such order,
writ judgment or decree, which it is advised by legal counsel (of its own
choosing) is binding upon it, and if it complies with any such order, writ,
judgment or decree, it shall not be liable to any of the parties hereto or to
any other person, firm or corporation by reason of such compliance, even though
such order, writ, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
5. MISCELLANEOUS
5.1 Notices. Any notice to any party under this Agreement shall be in
writing and
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shall be effective on the earlier of (i) the date when received by such party
(including fax receipt), or (ii) the date which is five (5) days after mailing
(postage prepaid) by certified or registered mail, return receipt requested, to
the address of such party set forth herein, or to such other address as shall
have previously been specified in writing by such party to all parties hereto:
To Parent and Newco: SalesLogix Corporation
8800 North Gainey Center Dr., Suite 200
Scottsdale, AZ 85258
Fax: (602) 368-3700
Attn: Chief Financial Officer
With a copy to: Osborn Maledon, P.A.
2929 North Central Avenue, Suite 2100
Phoenix, Arizona 85012
Fax: (602) 640-6067
Attn: Thomas H. Curzon
To Shareholders: Bruce Chase
413 Inglewood Drive
Westerville, Ohio 43081
Fax: (614) 882-8860
S. Griffin Burgh
4967 Heath Gate Drive
New Albany, Ohio 43054
Fax: (614) 855-5028
Wingset Investments Ltd.
15 South High Street
New Albany, Ohio 43054
Fax: (614) 855-1201
A. B. Siemer
150 East Campus View Boulevard
Suite 250
Columbus, Ohio 43235
Fax: (614) 888-3779
With two copies to: Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43215
Fax: (614) 464-6350
Copy one -- Attention: Russell R. Rosler
and
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Copy two -- Attention: Michael R. Cline
To Escrow Agent: Harris Trust Company of California
601 S. Figueroa, Suite 4900
Los Angeles, CA 90017
Attn: Escrow Administration
5.2 Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.3 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona.
5.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the
date first set forth above.
SALESLOGIX CORPORATION
By /s/ Gary Acord
Name: Gary Acord
Its: CFO
SLX MERGER COMPANY
By /s/ Gary Acord
Name: Gary Acord
Its: CFO
HARRIS TRUST COMPANY OF CALIFORNIA
By /s/ Esther Cervantes
Name: Esther Cervantes
Its: Vice President
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SHAREHOLDERS
/s/ Bruce Chase /s/ L. Chase (as spouse)
Bruce Chase [include spouse]
/s/ S. Griffin Burgh
S. Griffin Burgh
/s/ A.B. Siemer /s/ Barbara J. Siemer (as spouse)
A.B. Siemer [include spouse]
Wingset Investments, Ltd.
By /s/ James A. Rutherford
Name: James A. Rutherford
Its: Managing Director
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Exhibit 10.25 - Employment Agreement of Matt Chase
MATT CHASE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the "Effective Date" defined below, by and between SALESLOGIX CORPORATION, a
Delaware corporation (the "Company"), and MATTHEW W. CHASE, an individual
("Employee").
RECITALS
A. The Company has entered into an agreement (the "Merger") by which
Enact Incorporated, an Ohio corporation ("Enact"), will be merged with and into
SLX Merger Company, an Arizona corporation which upon consummation of the Merger
shall be called Enact Incorporated ("Newco").
B. Employee currently is employed by Enact. The Company, Newco and the
Employee recognize the necessity of the continued involvement of Employee to the
preservation of both the developed and in process technology developed by Enact
and now owned by Newco.
C. Employee currently is employed by Enact. Employee and the Company
desire to enter into this Agreement, which describes the terms and conditions
under which the Company, or Newco, will employ Employee as of the Effective Date
going forward.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Company and Employee, intending
to be legally bound, hereby agree as follows:
AGREEMENT
1. Employment. Effective upon and subject to the closing of the Merger
in a manner acceptable to the Company (the "Effective Date"), the Company agrees
to employ Employee, and Employee accepts such employment and agrees to perform
services for the Company, for the period and upon the other terms and conditions
set forth in this Agreement.
2. Term of Employment. The term of Employee's employment hereunder
shall commence on the Effective Date and shall continue for a term of three (3)
years or until this Agreement is earlier terminated as provided herein, this
being an "at will" employment agreement (the "Term"); provided, that Sections 5
and 6 of this Agreement shall govern the amount of any compensation to be paid
to Employee upon termination of this Agreement.
3. Position and Duties.
3.1 Service with the Company. Commencing on the Effective Date
and thereafter during the Term of this Agreement, Employee agrees to serve as a
Senior Software Engineer of the Company and/or Newco, and to perform such
executive employment duties consistent with Employee's education, training and
experience as shall be assigned to Employee from time to
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time by the Company's Chief Executive Officer initially, and any executive to
whom the Chief Executive Officer shall later assign Employee to report.
3.2 No Conflicting Duties. During the Term hereof, Employee
shall not serve as an officer, director, employee, consultant, or advisor to any
other business without the prior written consent of the Company. Employee hereby
confirms that Employee is under no contractual commitments inconsistent with
Employee's obligations set forth in this Agreement, and that during the Term of
this Agreement, Employee will not render or perform services, or enter into any
contract to do so for compensation, for any other corporation, firm, entity or
person. Excluding any period of vacation or other approved leaves, Employee
shall devote Employee's entire working time, knowledge, attention, energy, and
skill to the duties and responsibilities set forth in this Section 3 and
otherwise assigned by the Company and/or Newco in conformity with normal
exclusive full-time employment standards, and shall exert Employee's best
efforts on behalf of the Company and Newco.
4. Compensation.
4.1 Base Salary. As compensation for all services to be
rendered by Employee under this Agreement, the Company shall pay to Employee a
monthly salary of $10,000 (the "Base Salary"), which shall be paid on a regular
basis in accordance with the Company's normal payroll procedures and policies.
The amount of the Base Salary shall be subject to periodic review and adjustment
(at least annually) in the Company's sole discretion. The Company shall not
decrease the Base Salary below the initial amount set forth above during the
term of this Agreement.
4.2 Bonuses. Employee is eligible from time to time for
bonuses under written bonus plans adopted by the Company from time to time in
its sole discretion. Employee's eligibility for any such bonuses shall be
subject to the terms and conditions of the adopted written bonus plans. Nothing
in this Agreement or otherwise, however, shall be construed as guaranteeing
Employee the right to receive any bonus. For calendar year 1999, Employee will
be eligible to participate in any executive compensation plan that other senior
software engineers of the Company are eligible to participate in, which plan
will be determined by the Compensation Committee of the Board of Directors of
Company, it its sole discretion.
4.3 Participation in Benefit Plans. Employee shall be included
to the extent eligible thereunder in any and all plans or programs of the
Company providing general benefits for the Company's employees, including but
not limited to insurance, 401(k) plan, sick days, and holidays. Employee shall
be entitled to the number of vacation days per year allotted to senior software
engineers, but in no event less than three weeks per year. Employee's
participation in any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto, as amended from time to time. The
provisions of this Section 4.3 shall not affect in any way the rights of the
Company to amend or terminate any such benefits in accordance with the terms of
such plans or programs and the provisions of applicable law.
4.4 Business Expenses. In accordance with the Company's
policies established from time to time, the Company will pay or reimburse
Employee for all reasonable and
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necessary out-of-pocket expenses incurred by Employee in the performance of
Employee's duties under this Agreement, subject to the presentment of
appropriate documentation in accordance with Company policies. To the extent
that the Company generally offers perquisites to other similarly situated
executives at the Company, the Company shall provide substantially similar
perquisites to Employee. In addition, if Employee is requested or required to
relocate the Company will pay, or reimburse Employee, for his reasonable moving
expenses.
4.5 Written Agreements. Employee shall be entitled to receive
bonuses, stock options, restricted stock, other compensation based on the
Company's stock or other compensation not expressly set forth in this Agreement
only if such compensation is expressly provided for in written plans or
agreements entered into by the Company after the date hereof.
5. Termination.
5.1 Disability. The Company shall have the right to terminate
Employee's employment and this Agreement upon Employee's becoming "Disabled."
For purposes of this Agreement, the term "Disabled" and "Disability" mean that,
for physical or mental reasons, the Employee is unable to perform the essential
functions of the Employee's duties under the employment agreement for 120
consecutive days, or 180 days during any twelve-month period. The Disability of
the Employee will be determined by a medical doctor selected by written
agreement of the Company and the Employee upon the request of either party by
notice to the other.
5.2 Death of Employee. Employee's employment and this
Agreement shall terminate immediately upon the death of Employee.
5.3 Termination for Cause. The Company may terminate
Employee's employment and this Agreement at any time for "Cause" (as hereinafter
defined) immediately upon written notice to Employee. As used herein, the term
"Cause" shall mean that Employee shall have: (i) been convicted of a felony,
(ii) knowingly participated in any improper revenue recognition by Enact, Newco
or the Company, (iii) knowingly submitted a fraudulent loan application, (iv)
committed any act of fraud or embezzlement, or any material act of dishonesty or
breach of trust in connection with his employment by the Company and/or Newco,
(v) committed any act of gross misconduct that materially and adversely affects
the Company and/or Newco, (vi) used or possessed any illegal drug or any other
illegal substance while at work for the Company and/or Newco or to the extent
that it materially and adversely affects the Employee's job performance for the
Company and/or Newco, (vii) failed to exert a reasonable work effort as a senior
software engineer for the Company and/or Newco if the Employee has been given
notice and a reasonable opportunity to address claimed deficiencies in such
effort, or (viii) failed to adhere to any written company-wide Company policy if
the Employee has been given notice and a reasonable opportunity to comply with
such policy or cure his failure to comply.
5.4 Resignation for Good Reason. Employee may terminate his
employment on the earlier of the date that is thirty (30) days following the
written submission of Employee's resignation to the Company or the earlier date
such resignation is accepted by the Company.
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Resignation shall be deemed "For Good Reason" if Employee provides notice of his
resignation no later than 60 days after the occurrence of any of the following:
(i) the required relocation of the Employee to a location outside the Columbus,
Ohio metropolitan area without the Employee's written consent; (ii) a reduction
by the Company and Newco in the compensation and/or benefits provided to the
Executive as in effect on the date of the employment agreement that is not
implemented within the executive or officer class of employees generally; or
(iii) a significant adverse change, without the Employee's written consent, in
the Employee's working conditions or status, including but not limited to a
significant change in the nature or scope of the Employee's authority, powers,
functions, duties or responsibilities, or a reduction in the level of support
services, staff, secretarial and other assistance, office space and
accoutrements available to a level below that which was provided to the Employee
upon commencement of this Agreement.
5.5 Termination Without Cause. The Company may terminate
Employee's employment and this Agreement without cause or reason upon written
notice to Employee. Termination "without cause" shall mean termination of
employment on any basis other than termination of Employee's employment
hereunder pursuant to Sections 5.1, 5.2 or, 5.3. Employee and the Company
expressly agree and acknowledge that Employee is an at-will employee under both
Arizona and Ohio law, which means that the Company may terminate Employee's
employment at any time, with or without cause or reason, subject to contract
rights.
6. Compensation Upon the Termination of Employee's Employment.
6.1 In the event Employee's employment is terminated pursuant
to Section 5.1 (Disability), 5.3 (Cause), or 5.4 (Resignation), then Employee
shall be entitled to receive Employee's then current monthly Base Salary through
the date Employee's employment is terminated, but no other compensation of any
kind or amount, except for any vested rights under the plans or agreements
referred to in Section 4.3.
6.2 In the event Employee's employment is terminated pursuant
to Section 5.2 (Death), Employee's beneficiary designated by Employee in writing
to the Company, or in the absence of such beneficiary, Employee's estate, shall
be entitled to receive Employee's then current monthly Base Salary through the
end of the month in which Employee's death occurs, but no other compensation of
any kind or amount, except for any vested rights under the plans or agreements
referred to in Section 4.3.
6.3 In the event Employee's employment is terminated pursuant
to Section 5.5 (Without Cause), the Company shall: (i) pay to Employee, as a
severance allowance, Employee's then current monthly Base Salary for the three
(3) month period following the date of termination; (ii) maintain in full force
and effect, by paying Employee's COBRA payments, health insurance for the
Employee until the first to occur of Employee's attainment of alternative
employment or three (3) months following the termination date of Employee's
employment hereunder; and (iii) pay no other compensation of any kind or amount,
except for any vested rights under the plans or agreements referred to in
Section 4.3 (collectively, the "Termination Payments"). As a condition precedent
to the Company's obligation to provide Employee with the Termination Payments,
Employee must first execute and deliver to the Company a legal release
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in substantially the form attached as Exhibit A.
6.4 All payments required to be made by the Company to
Employee pursuant to this Section 6 shall be paid in the manner and at the times
specified in Section 4.1 hereof.
6.5 The failure or delay by either party hereto to exercise
its rights to terminate this Agreement with respect to any one or more of the
matters referred to in Section 5 shall not be taken or held to be a waiver by
such party of its right of termination of this Agreement in respect to such
matter or any subsequent matter.
6.6 Except as expressly provided in this Section 6, upon the
termination of this Agreement, the Company shall not have any liability or
obligation of any kind or character to the Employee under the terms of this
Agreement or in connection with the termination of the Employee's employment
hereunder.
7. Confidentiality and Proprietary Information. Simultaneous with the
execution of this Agreement, Employee shall execute and return to the Company
the Employee Proprietary Rights Agreement attached hereto as Exhibit B.
8. Ventures. If, during the Term, Employee is engaged in or associated
with the planning or implementing of any project, program or venture involving
the Company and a third party or parties, or Employee receives from any third
party or parties any opportunity to participate in any project, program or
venture relating directly to the business of the Company, all rights in the
project, program or venture shall belong to the Company and shall constitute a
corporate opportunity belonging exclusively to the Company. Except as approved
by the Company's Board, Employee shall not be entitled to any interest in such
project, program or venture or to any commission, finder's fee or other
compensation in connection therewith other than the Base Salary to be paid to
Employee as provided in this Agreement.
9. Non-Competition; Solicitation of Customers and Solicitation of
Employees.
9.1 Non-Competition.
(a) Employee agrees that, during the Term and for a
period of three (3) months thereafter, Employee shall not, directly or
indirectly, engage in competition with the Company within any state in the
United States, or any country outside the United States, in which the Company is
then conducting its business (the "Territory"), in any manner or capacity (e.g.,
as a consultant, principal, partner, owner, officer, director, stockholder,
agent, or employee) in any phase of the Company's business as then being
conducted.
(b) Ownership by Employee, as a passive investment, of
less than 1% of the outstanding shares of capital stock of any corporation
listed on a national securities exchange or publicly traded in the
over-the-counter market shall not constitute a breach of this Section 9.1.
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(c) Employee further agrees that, during the Term and for a
period of three (3) months thereafter, Employee will not, directly or
indirectly, assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the above provisions of
this Section 9 if such activity were carried out by Employee, either directly or
indirectly, and in particular Employee agrees that Employee will not, directly
or indirectly, induce any employee or consultant of the Company to carry out,
directly or indirectly, any such activity.
9.2 Agreement Not to Solicit Customers. Employee agrees that, during
the Term and for a period of twelve (12) months thereafter, Employee will not,
either directly or indirectly, on Employee's own behalf or in the service or on
behalf of others, solicit, divert or appropriate, or attempt to solicit, divert
or appropriate, to any competing business (i) any person or entity whose account
the Company sold or serviced (including maintenance) during the twelve (12)
months preceding the termination of such employment, or (ii) any person or
entity whose account the Company has directly solicited at least twice within
the twelve (12) month period prior to the date of termination of employment.
9.3 Agreement Not to Solicit Employees and Contractors. Employee agrees
that during the Term and for the three (3) year period thereafter, Employee will
not, either directly or indirectly, on Employee's own behalf or in the service
or on behalf of others solicit, divert, encourage to leave or cease doing
business with the Company, or hire away, or attempt to solicit, divert,
encourage to leave or cease doing business with the Company, or hire away, any
person then employed by the Company or then serving as a sales representative or
distributor of the Company.
9.4 Reformation. In the event that any provision in this Section 9 is
held to be overbroad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
to the fullest extent allowable. Employee and the Company hereby agree that such
amendment shall be accomplished as follows:
(a) In the case of duration, the length of the covenant or
provision shall be reduced in increments of one (1) month each until it is of
the greatest duration as may be enforceable under applicable law.
(b) In the case of geographic scope, the geographic scope of
the covenant or provision shall be reduced until it is of the greatest
geographic scope as may be enforceable under applicable law, which reduction
shall be effected by eliminating in the following order, one by one, countries
outside the United States, beginning with the country in which the Company
received the least volume of gross revenue over the prior six (6) months, and
continuing in the inverse order ranked by the Company's gross billings over the
prior six (6) months within each country until such scope is enforceable, and
then, if necessary, by eliminating in the following order, one by one,
individual States within the United States, beginning with the State in which
the Company received the least volume of gross revenue over the prior six (6)
months, and continuing in the inverse order ranked by the Company's gross
billings over the prior six (6) months within each State until such scope is
enforceable,
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and then, if necessary and applicable, by eliminating in the following order the
counties in the State of Arizona, beginning with the county in which the Company
received the least volume of gross revenue over the prior six (6) months, and
continuing in the inverse order ranked by the Company's gross billings over the
prior six (6) months within each county in Arizona until such scope is
enforceable.
9.5 Reasonableness. Employee and the Company agree that the
covenants set forth in this Section 9 are appropriate and reasonable when
considered in light of the nature and extent of the Company's business. Employee
acknowledges that (i) the Company has a legitimate interest in protecting the
Company's business activities, (ii) the covenants set forth herein are not
oppressive to Employee and contain reasonable limitations as to time, scope,
geographical area and activity, (iii) the covenants do not harm in any manner
whatsoever the public interest, (iv) Employee can earn a livelihood without
violating any of the covenants set forth herein, and (v) Employee has received
and will receive substantial consideration for agreeing to such covenants,
including without limitation the consideration to be received by Employee under
this Agreement, including the Termination Payments.
9.6 Notice to Future Employers. For the period of twelve (12)
months following the termination of Employee's employment, Employee shall
provide a copy of this Agreement to any future or prospective employer of
Employee and agrees that the Company also may do so.
10. Surrender of Records and Property. Upon termination of Employee's
employment with the Company, Employee shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company and which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in Employee's
possession or under Employee's control.
11. Release of Enact. As of the Effective Date, Employee waives and
releases all of Employee's existing rights to any relief of any kind from Enact
and its affiliates, subsidiaries, divisions, directors, officers, shareholders,
employees, agents, attorneys, successors, and assigns (collectively, the
"Released Parties"), including, without limitation, all claims, demands,
liabilities, obligations, causes, and causes of action of whatever kind or
nature, whether known or unknown, past or present, suspected or unsuspected,
including, without limitation, those that arise out of or that relate to:
Employee's employment with Enact; the termination of Employee's employment with
Enact; all statements or actions of the Released Parties; all claims that arise
under the Civil Rights Act of 1964 and the Americans with Disabilities Act; all
claims for wrongful discharge; all claims for relief or other benefits under any
federal, state, or local statute, ordinance, regulation, or rule of decision;
all claims that the Released Parties engaged in conduct prohibited on any basis
under any federal, state, or local statute, ordinance, regulation, or rule of
decision; and all claims for wages, stock, stock options, or other rights with
respect to equity securities of Enact, severance pay, compensation, attorneys'
fees, liquidated damages, punitive
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damages, costs, expense reimbursements, and disbursements.
12. Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Employee, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
(iii) which controls, is controlled by or is under common control with, the
Company, where control means the ownership of 50% or more of the equity
investment and of the voting power of an entity. Upon such assignment by the
Company, the Company shall obtain the assignees' written agreement enforceable
by Employee to assume and perform, from and after the date of such assignment,
the terms, conditions, and provisions imposed by this Agreement upon the
Company. After any such assignment by the Company and such written agreement by
the assignee, the Company shall be discharged from all further liability
hereunder and such assignee shall thereafter be deemed to be the Company for the
purposes of all provisions of this Agreement including this Section 12.
13. Injunctive Relief. Employee agrees that it would be difficult to
compensate the Company fully for damages for any violation of the provisions of
this Agreement, including without limitation the provisions of Sections 7, 9 and
10. Accordingly, Employee specifically agrees that the Company shall be entitled
to temporary and permanent injunctive relief to enforce the provisions of this
Agreement. This provision with respect to injunctive relief shall not, however,
diminish the right of the Company to claim and recover damages in addition to
injunctive relief.
14. Dispute Resolution. If there shall be any dispute between the
Company and Employee whatsoever, the dispute shall be resolved in accordance
with the dispute resolution procedures set forth in Section 13.05 of the Merger
Agreement, the provisions of which are incorporated as a part hereof.
15. Miscellaneous.
15.1 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Arizona.
15.2 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understanding with respect to such subject matter,
except for other written agreements between the parties that are specifically
referenced in this Agreement, and the parties hereto have made no agreements,
inducements, representations or warranties relating to the subject matter of
this Agreement which are not set forth herein.
15.3 Withholding Taxes. The Company may withhold from any
payments and benefits payable under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
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15.4 Notices. All notices and other communications hereunder
shall be in writing and shall be given by delivery in person, by registered or
certified mail (return receipt requested and with postage prepaid thereon) or by
cable, telex or facsimile transmission to the Company at the Company's primary
business address and to Employee at the address on file with the Company, which
may be changed upon written notice by Employee. All notices and other
communications hereunder that are addressed as provided in or pursuant to this
Section 15.4 shall be deemed duly and validly given (a) if delivered in person,
upon delivery, (b) if delivered by registered or certified mail (return receipt
requested and with postage paid thereon), 72 hours after being placed in a
depository of the United States mails and (c) if delivered by cable, telex or
facsimile transmission, upon transmission thereof and receipt of the appropriate
answer back, if any.
15.5 Amendments. No amendment, modification or rescission of
this Agreement shall be deemed effective unless made in writing signed by the
parties hereto.
15.6 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
15.7 Severability. If, after application of any provision of
this Agreement specifying how reformation shall be accomplished, including
Section 9.4, to the extent any provision of this Agreement shall still be
invalid or unenforceable, it shall be considered deleted from this Agreement and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
15.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.9 Survival. Sections 7, 8, 9, 10, 11, 12, 13, 14 and 15
shall survive termination of this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first set forth above.
SALESLOGIX CORPORATION
By /s/ Gary Acord
Its CFO
"THE COMPANY"
/s/ Matthew W. Chase
MATTHEW W. CHASE
"EMPLOYEE"
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Exhibit 10.26 - Employment Agreement of Bruce Chase
BRUCE CHASE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the "Effective Date" defined below, by and between SALESLOGIX CORPORATION, a
Delaware corporation (the "Company"), and BRUCE R. CHASE, an individual
("Employee").
RECITALS
A. The Company has entered into an agreement (the "Merger") by which
Enact Incorporated, an Ohio corporation ("Enact"), will be merged with and into
SLX Merger Company, an Arizona corporation which upon consummation of the Merger
shall be called Enact Incorporated ("Newco").
B. Employee currently is employed by Enact. The Company, Newco and the
Employee recognize the necessity of the continued involvement of Employee to the
preservation of both the developed and in process technology developed by Enact
and now owned by Newco.
C. Employee and the Company desire to enter into this Agreement, which
describes the terms and conditions under which either the Company or Newco will
employ Employee as of the Effective Date going forward.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Company and Employee, intending
to be legally bound, hereby agree as follows:
AGREEMENT
1. Employment. Effective upon and subject to the closing of the Merger
in a manner acceptable to the Company (the "Effective Date"), the Company agrees
to employ Employee, and Employee accepts such employment and agrees to perform
services for the Company, for the period and upon the other terms and conditions
set forth in this Agreement.
2. Term of Employment. The term of Employee's employment hereunder
shall commence on the Effective Date and shall continue for a term of three (3)
years or until this Agreement is earlier terminated as provided herein, this
being an "at will" employment agreement (the "Term"); provided, that Sections 5
and 6 of this Agreement shall govern the amount of any compensation to be paid
to Employee upon termination of this Agreement.
3. Position and Duties.
3.1 Service with the Company. Commencing on the Effective Date
and thereafter during the Term of this Agreement, Employee agrees to serve as a
Senior Software Engineer of the Company and/or Newco, and to perform such
executive employment duties consistent with Employee's education, training and
experience as shall be assigned to Employee
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from time to time by the Company's Chief Executive Officer initially, and any
executive to whom the Chief Executive Officer shall later assign Employee to
report.
3.2 No Conflicting Duties. During the Term hereof, Employee
shall not serve as an officer, director, employee, consultant, or advisor to any
other business without the prior written consent of the Company. Employee hereby
confirms that Employee is under no contractual commitments inconsistent with
Employee's obligations set forth in this Agreement, and that during the Term of
this Agreement, Employee will not render or perform services, or enter into any
contract to do so for compensation, for any other corporation, firm, entity or
person. Excluding any period of vacation or other approved leaves, Employee
shall devote Employee's entire working time, knowledge, attention, energy, and
skill to the duties and responsibilities set forth in this Section 3 and
otherwise assigned by the Company and/or Newco in conformity with normal
exclusive full-time employment standards, and shall exert Employee's best
efforts on behalf of the Company and Newco.
4. Compensation.
4.1 Base Salary. As compensation for all services to be
rendered by Employee under this Agreement, the Company shall pay to Employee a
monthly salary of $10,000 (the "Base Salary"), which shall be paid on a regular
basis in accordance with the Company's normal payroll procedures and policies.
The amount of the Base Salary shall be subject to periodic review and adjustment
(at least annually) in the Company's sole discretion. The Company shall not
decrease the Base Salary below the initial amount set forth above during the
term of this Agreement.
4.2 Bonuses. Employee is eligible from time to time for
bonuses under written bonus plans adopted by the Company from time to time in
its sole discretion. Employee's eligibility for any such bonuses shall be
subject to the terms and conditions of the adopted written bonus plans. Nothing
in this Agreement or otherwise, however, shall be construed as guaranteeing
Employee the right to receive any bonus. For calendar year 1999, Employee will
be eligible to participate in any executive compensation plan that other senior
software engineers of the Company are eligible to participate in, which plan
will be determined by the Compensation Committee of the Board of Directors of
Company, it its sole discretion.
4.3 Restricted Stock Grant. Pursuant to the Merger, and the
Restricted Stock Agreement of even date between Employee and the Company (the
"Restricted Stock Agreement"), the Company has agreed to grant Employee 201,893
restricted shares of the Company's Series A Common Stock (the "Chase Shares"), a
portion of which (the "Escrowed Chase Shares") are subject to that Escrow
Agreement between the Company, Employee and other shareholders of Enact of even
date, and all of which are subject to the repurchase rights set forth in the
Restricted Stock Agreement.
4.4 Participation in Benefit Plans. Employee shall be included
to the extent eligible thereunder in any and all plans or programs of the
Company providing general benefits for the Company's employees, including but
not limited to insurance, 401(k) plan, sick days, and holidays. Employee shall
be entitled to the number of vacation days per year allotted to senior
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software engineers, but in no event less than three weeks per year. Employee's
participation in any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto, as amended from time to time. The
provisions of this Section 4.4 shall not affect in any way the rights of the
Company to amend or terminate any such benefits in accordance with the terms of
such plans or programs and the provisions of applicable law.
4.5 Business Expenses. In accordance with the Company's
policies established from time to time, the Company will pay or reimburse
Employee for all reasonable and necessary out-of-pocket expenses incurred by
Employee in the performance of Employee's duties under this Agreement, subject
to the presentment of appropriate documentation in accordance with Company
policies. To the extent that the Company generally offers perquisites to other
similarly situated executives at the Company, the Company shall provide
substantially similar perquisites to Employee. In addition, if Employee is
requested or required to relocate the Company will pay, or reimburse Employee,
for his reasonable moving expenses.
4.6 Written Agreements. Employee shall be entitled to receive
bonuses, stock options, restricted stock (other than the restricted stock
described in Section 4.3 above), other compensation based on the Company's stock
or other compensation not expressly set forth in this Agreement only if such
compensation is expressly provided for in written plans or agreements entered
into by the Company after the date hereof.
5. Termination.
5.1 Disability. The Company shall have the right to terminate
Employee's employment and this Agreement upon Employee's becoming "Disabled."
For purposes of this Agreement, the term "Disabled" and "Disability" mean that,
for physical or mental reasons, the Employee is unable to perform the essential
functions of the Employee's duties under the employment agreement for 120
consecutive days, or 180 days during any twelve-month period. The Disability of
the Employee will be determined by a medical doctor selected by written
agreement of the Company and the Employee upon the request of either party by
notice to the other.
5.2 Death of Employee. Employee's employment and this
Agreement shall terminate immediately upon the death of Employee.
5.3 Termination for Cause. The Company may terminate
Employee's employment and this Agreement at any time for "Cause" (as hereinafter
defined) immediately upon written notice to Employee. As used herein, the term
"Cause" shall mean that Employee shall have: (i) been convicted of a felony,
(ii) knowingly participated in any improper revenue recognition by Enact, Newco
or the Company, (iii) knowingly submitted a fraudulent loan application, (iv)
committed any act of fraud or embezzlement, or any material act of dishonesty or
breach of trust in connection with his employment by the Company and/or Newco,
(v) committed any act of gross misconduct that materially and adversely affects
the Company and/or Newco, (vi) used or possessed any illegal drug or any other
illegal substance while at work for the Company and/or Newco or to the extent
that it materially and adversely affects the Employee's job performance for the
Company and/or Newco, (vii) failed to exert a
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reasonable work effort as a senior software engineer for the Company and/or
Newco if the Employee has been given notice and a reasonable opportunity to
address claimed deficiencies in such effort, or (viii) failed to adhere to any
written company-wide Company policy if the Employee has been given notice and a
reasonable opportunity to comply with such policy or cure his failure to comply.
5.4 Resignation for Good Reason. Employee may terminate his
employment on the earlier of the date that is thirty (30) days following the
written submission of Employee's resignation to the Company or the earlier date
such resignation is accepted by the Company. Resignation shall be deemed "For
Good Reason" if Employee provides notice of his resignation no later than 60
days after the occurrence of any of the following: (i) the required relocation
of the Employee to a location outside the Columbus, Ohio metropolitan area
without the Employee's written consent; (ii) a reduction by the Company and
Newco in the compensation and/or benefits provided to the Executive as in effect
on the date of the employment agreement that is not implemented within the
executive or officer class of employees generally; or (iii) a significant
adverse change, without the Employee's written consent, in the Employee's
working conditions or status, including but not limited to a significant change
in the nature or scope of the Employee's authority, powers, functions, duties or
responsibilities, or a reduction in the level of support services, staff,
secretarial and other assistance, office space and accoutrements available to a
level below that which was provided to the Employee upon commencement of this
Agreement.
5.5 Termination Without Cause. The Company may terminate
Employee's employment and this Agreement without cause or reason upon written
notice to Employee. Termination "without cause" shall mean termination of
employment on any basis other than termination of Employee's employment
hereunder pursuant to Sections 5.1, 5.2 or 5.3. Employee and the Company
expressly agree and acknowledge that Employee is an at-will employee under both
Arizona and Ohio law, which means that the Company may terminate Employee's
employment at any time, with or without cause or reason, subject to contract
rights.
5.6 Bruce Chase Triggering and Non-Triggering Terminations. If
Employee's employment with the Company and/or Newco is terminated prior to June
1, 2002, the manner in which Employee's employment is terminated will determine
whether the Company's repurchase rights under the Restricted Stock Agreement are
triggered or released. For the purposes of such rights and the Restricted Stock
Agreement, the term "Bruce Chase Triggering Termination" shall mean: (i) any
resignation or voluntary abandonment of employment by Employee other than a
resignation "For Good Reason" as defined in Section 5.5; or (ii) any termination
of Employee for "Cause" as defined in Section 5.4. Conversely, the term "Bruce
Chase Non-Triggering Termination" shall mean: (i) termination due to Employee's
death, as described under Section 5.2; (ii) termination due to Employee's
"Disability," as defined in Section 5.1; (iii) resignation by Employee "For Good
Reason" as defined in Section 5.4; or (iv) termination of employment by the
Company and/or Newco (meaning Employee shall no longer be employed by at least
one of them) other than for "Cause" as defined in Section 5.3.
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<PAGE> 5
6. Compensation Upon the Termination of Employee's Employment.
6.1 In the event Employee's employment is terminated pursuant
to Section 5.1 (Disability), 5.3 (Cause), or 5.4 (Resignation), then Employee
shall be entitled to receive Employee's then current monthly Base Salary through
the date Employee's employment is terminated, but no other compensation of any
kind or amount, except for any vested rights under the plans or agreements
referred to in Section 4.4 and except to the extent that a Bruce Chase
Non-Triggering Termination may trigger release rights under the Restricted Stock
Agreement.
6.2 In the event Employee's employment is terminated pursuant
to Section 5.2 (Death), Employee's beneficiary designated by Employee in writing
to the Company, or in the absence of such beneficiary, Employee's estate, shall
be entitled to receive Employee's then current monthly Base Salary through the
end of the month in which Employee's death occurs, but no other compensation of
any kind or amount, except for any vested rights under the plans or agreements
referred to in Section 4.4 and except to the extent that death, as a Bruce Chase
Non-Triggering Termination, may trigger release rights under the Restricted
Stock Agreement.
6.3 In the event Employee's employment is terminated pursuant
to Section 5.5 (Without Cause), the Company shall: (i) pay to Employee, as a
severance allowance, Employee's then current monthly Base Salary for the three
(3) month period following the date of termination; (ii) maintain in full force
and effect, by paying Employee's COBRA payments, health insurance for the
Employee until the first to occur of Employee's attainment of alternative
employment or three (3) months following the termination date of Employee's
employment hereunder; and (iii) pay no other compensation of any kind or amount,
except for any vested rights under the plans or agreements referred to in
Section 4.4 and except to the extent that without cause termination, as a Bruce
Chase Non-Triggering Termination, may trigger release rights under the
Restricted Stock Agreement (collectively, the "Termination Payments"). As a
condition precedent to the Company's obligation to provide Employee with the
Termination Payments, Employee must first execute and deliver to the Company a
legal release in substantially the form attached as Exhibit A.
6.4 All payments required to be made by the Company to
Employee pursuant to this Section 6 shall be paid in the manner and at the times
specified in Section 4.1 hereof.
6.5 The failure or delay by either party hereto to exercise
its rights to terminate this Agreement with respect to any one or more of the
matters referred to in Section 5 shall not be taken or held to be a waiver by
such party of its right of termination of this Agreement in respect to such
matter or any subsequent matter.
6.6 Except as expressly provided in this Section 6, upon the
termination of this Agreement, the Company shall not have any liability or
obligation of any kind or character to the Employee under the terms of this
Agreement or in connection with the termination of the Employee's employment
hereunder.
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<PAGE> 6
7. Confidentiality and Proprietary Information. Simultaneous with the
execution of this Agreement, Employee shall execute and return to the Company
the Employee Proprietary Rights Agreement attached hereto as Exhibit B.
8. Ventures. If, during the Term, Employee is engaged in or associated
with the planning or implementing of any project, program or venture involving
the Company and a third party or parties, or Employee receives from any third
party or parties any opportunity to participate in any project, program or
venture relating directly to the business of the Company, all rights in the
project, program or venture shall belong to the Company and shall constitute a
corporate opportunity belonging exclusively to the Company. Except as approved
by the Company's Board, Employee shall not be entitled to any interest in such
project, program or venture or to any commission, finder's fee or other
compensation in connection therewith other than the Base Salary to be paid to
Employee as provided in this Agreement.
9. Non-Competition; Solicitation of Customers and Solicitation of
Employees.
9.1 Non-Competition.
(a) Employee agrees that, during the Term and for a period of
twelve (12) months thereafter, Employee shall not, directly or indirectly,
engage in competition with the Company within any state in the United States, or
any country outside the United States, in which the Company is then conducting
its business (the "Territory"), in any manner or capacity (e.g., as a
consultant, principal, partner, owner, officer, director, stockholder, agent, or
employee) in any phase of the Company's business as then being conducted.
(b) Ownership by Employee, as a passive investment, of less
than 1% of the outstanding shares of capital stock of any corporation listed on
a national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of this Section 9.1.
(c) Employee further agrees that, during the Term and for a
period of twelve (12) months thereafter, Employee will not, directly or
indirectly, assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the above provisions of
this Section 9 if such activity were carried out by Employee, either directly or
indirectly, and in particular Employee agrees that Employee will not, directly
or indirectly, induce any employee or consultant of the Company to carry out,
directly or indirectly, any such activity.
9.2 Agreement Not to Solicit Customers. Employee agrees that,
during the Term and for a period of twelve (12) months thereafter, Employee will
not, either directly or indirectly, on Employee's own behalf or in the service
or on behalf of others, solicit, divert or appropriate, or attempt to solicit,
divert or appropriate, to any competing business (i) any person or entity whose
account the Company sold or serviced (including maintenance) during the twelve
(12) months preceding the termination of such employment, or (ii) any person or
entity whose account the Company has directly solicited at least twice within
the twelve (12) month period prior to the date of termination of employment.
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<PAGE> 7
9.3 Agreement Not to Solicit Employees and Contractors.
Employee agrees that during the Term and for the three (3) year period
thereafter, Employee will not, either directly or indirectly, on Employee's own
behalf or in the service or on behalf of others solicit, divert, encourage to
leave or cease doing business with the Company, or hire away, or attempt to
solicit, divert, encourage to leave or cease doing business with the Company, or
hire away, any person then employed by the Company or then serving as a sales
representative or distributor of the Company.
9.4 Reformation. In the event that any provision in this
Section 9 is held to be overbroad as written, such provision shall be deemed
amended to narrow its application to the extent necessary to make the provision
enforceable to the fullest extent allowable. Employee and the Company hereby
agree that such amendment shall be accomplished as follows:
(a) In the case of duration, the length of the covenant or
provision shall be reduced in increments of one (1) month each until it is of
the greatest duration as may be enforceable under applicable law.
(b) In the case of geographic scope, the geographic scope of
the covenant or provision shall be reduced until it is of the greatest
geographic scope as may be enforceable under applicable law, which reduction
shall be effected by eliminating in the following order, one by one, countries
outside the United States, beginning with the country in which the Company
received the least volume of gross revenue over the prior six (6) months, and
continuing in the inverse order ranked by the Company's gross billings over the
prior six (6) months within each country until such scope is enforceable, and
then, if necessary, by eliminating in the following order, one by one,
individual States within the United States, beginning with the State in which
the Company received the least volume of gross revenue over the prior six (6)
months, and continuing in the inverse order ranked by the Company's gross
billings over the prior six (6) months within each State until such scope is
enforceable, and then, if necessary and applicable, by eliminating in the
following order the counties in the State of Arizona, beginning with the county
in which the Company received the least volume of gross revenue over the prior
six (6) months, and continuing in the inverse order ranked by the Company's
gross billings over the prior six (6) months within each county in Arizona until
such scope is enforceable.
9.5 Reasonableness. Employee and the Company agree that the
covenants set forth in this Section 9 are appropriate and reasonable when
considered in light of the nature and extent of the Company's business. Employee
acknowledges that (i) the Company has a legitimate interest in protecting the
Company's business activities, (ii) the covenants set forth herein are not
oppressive to Employee and contain reasonable limitations as to time, scope,
geographical area and activity, (iii) the covenants do not harm in any manner
whatsoever the public interest, (iv) Employee can earn a livelihood without
violating any of the covenants set forth herein, and (v) Employee has received
and will receive substantial consideration for agreeing to such covenants,
including without limitation the consideration to be received by Employee under
this Agreement, including the Termination Payments.
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<PAGE> 8
9.6 Notice to Future Employers. For the period of twelve (12)
months following the termination of Employee's employment, Employee shall
provide a copy of this Agreement to any future or prospective employer of
Employee and agrees that the Company also may do so.
10. Surrender of Records and Property. Upon termination of Employee's
employment with the Company, Employee shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company and which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in Employee's
possession or under Employee's control.
11. Release of Enact. As of the Effective Date, Employee waives and
releases all of Employee's existing rights to any relief of any kind from Enact
and its affiliates, subsidiaries, divisions, directors, officers, shareholders,
employees, agents, attorneys, successors, and assigns (collectively, the
"Released Parties"), including, without limitation, all claims, demands,
liabilities, obligations, causes, and causes of action of whatever kind or
nature, whether known or unknown, past or present, suspected or unsuspected,
including, without limitation, those that arise out of or that relate to:
Employee's employment with Enact; the termination of Employee's employment with
Enact; all statements or actions of the Released Parties; all claims that arise
under the Civil Rights Act of 1964 and the Americans with Disabilities Act; all
claims for wrongful discharge; all claims for relief or other benefits under any
federal, state, or local statute, ordinance, regulation, or rule of decision;
all claims that the Released Parties engaged in conduct prohibited on any basis
under any federal, state, or local statute, ordinance, regulation, or rule of
decision; and all claims for wages, stock, stock options, or other rights with
respect to equity securities of Enact, severance pay, compensation, attorneys'
fees, liquidated damages, punitive damages, costs, expense reimbursements, and
disbursements.
12. Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Employee, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
(iii) which controls, is controlled by or is under common control with, the
Company, where control means the ownership of 50% or more of the equity
investment and of the voting power of an entity. Upon such assignment by the
Company, the Company shall obtain the assignees' written agreement enforceable
by Employee to assume and perform, from and after the date of such assignment,
the terms, conditions, and provisions imposed by this Agreement upon the
Company. After any such assignment by the Company and such written agreement by
the assignee, the Company shall be discharged from all further liability
hereunder and such assignee shall thereafter be deemed to be the Company for the
purposes of all provisions of this Agreement including this Section 12.
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<PAGE> 9
13. Injunctive Relief. Employee agrees that it would be difficult to
compensate the Company fully for damages for any violation of the provisions of
this Agreement, including without limitation the provisions of Sections 7, 9 and
10. Accordingly, Employee specifically agrees that the Company shall be entitled
to temporary and permanent injunctive relief to enforce the provisions of this
Agreement. This provision with respect to injunctive relief shall not, however,
diminish the right of the Company to claim and recover damages in addition to
injunctive relief.
14. Dispute Resolution. If there shall be any dispute between the
Company and Employee whatsoever, the dispute shall be resolved in accordance
with the dispute resolution procedures set forth Section 13.05 of the Merger
Agreement, the provisions of which are incorporated as a part hereof.
15. Miscellaneous.
15.1 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Arizona.
15.2 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understanding with respect to such subject matter,
except for other written agreements between the parties that are specifically
referenced in this Agreement, and the parties hereto have made no agreements,
inducements, representations or warranties relating to the subject matter of
this Agreement which are not set forth herein.
15.3 Withholding Taxes. The Company may withhold from any
payments and benefits payable under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
15.4 Notices. All notices and other communications hereunder
shall be in writing and shall be given by delivery in person, by registered or
certified mail (return receipt requested and with postage prepaid thereon) or by
cable, telex or facsimile transmission to the Company at the Company's primary
business address and to Employee at the address on file with the Company, which
may be changed upon written notice by Employee. All notices and other
communications hereunder that are addressed as provided in or pursuant to this
Section 15.4 shall be deemed duly and validly given (a) if delivered in person,
upon delivery, (b) if delivered by registered or certified mail (return receipt
requested and with postage paid thereon), 72 hours after being placed in a
depository of the United States mails and (c) if delivered by cable, telex or
facsimile transmission, upon transmission thereof and receipt of the appropriate
answer back, if any.
15.5 Amendments. No amendment, modification or rescission of
this Agreement shall be deemed effective unless made in writing signed by the
parties hereto.
15.6 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provisions of this Agreement,
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<PAGE> 10
except by a statement in writing signed by the party against whom enforcement of
the waiver or estoppel is sought. Any written waiver shall not be deemed a
continuing waiver unless specifically stated, shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
15.7 Severability. If, after application of any provision of
this Agreement specifying how reformation shall be accomplished, including
Section 9.4, to the extent any provision of this Agreement shall still be
invalid or unenforceable, it shall be considered deleted from this Agreement and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
15.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.9 Survival. Sections 7, 8, 9, 10, 11, 12, 13, 14 and 15
shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first set forth above.
SALESLOGIX CORPORATION
By /s/ Gary Acord
Its CFO
"THE COMPANY"
/s/ Bruce R. Chase
BRUCE R. CHASE
"EMPLOYEE"
10
<PAGE> 1
Exhibit 10.27 - Restricted Stock Agreement
This Restricted Stock Purchase Agreement (the "Agreement") is made this
30th day of April, 1999 (the "Effective Date"), at Phoenix, Arizona, between
SalesLogix Corporation, a Delaware corporation ("Parent") and Bruce R. Chase
(the "Executive"), in connection with a Plan of Reorganization and Agreement of
Merger (the "Merger Agreement") of even date by and among Parent, SLX Merger
Company ("Newco") and Enact Incorporated ("Enact"). Capitalized terms not
otherwise defined herein shall have the meaning set forth in the Merger
Agreement.
WHEREAS the Executive was a founder of Enact and is now an employee of
Newco, a wholly owned subsidiary of Parent;
WHEREAS, the parties to the Merger Agreement recognize the necessity of
the continued involvement of Executive to the preservation of both the developed
and in process technology developed by Enact and now owned by Newco; and
WHEREAS in order to give the Executive an opportunity to acquire
additional equity interests in Parent as an incentive for the Executive to
participate in the affairs of Newco and the Parent, Parent is willing to
transfer as payment in part to the Executive and the Executive desires to
receive as payment in part for his services Class A Common Stock of the Parent
according to the terms and conditions hereof.
THEREFORE, the parties agree as follows:
1. Sale of Stock.
In consideration of Executive's ongoing employment with Newco or the
Parent, as described in the Bruce Chase Employment Agreement, Parent hereby
agrees to transfer to the Executive and the Executive hereby agrees to receive
as partial payment for his ongoing services an aggregate of 201,893 shares of
Class A Common Stock issued by Parent (the "Shares"), subject to the vesting
schedule and repurchase rights set forth herein, and also subject to those
further vesting conditions and other provisions described in the Escrow
Agreement to which a portion of the shares transferable hereunder shall be
subject.
2. Repurchase Rights and Escrows.
An aggregate 20,189 of the Shares distributed under this Agreement
shall be deposited in the Escrow described in the Merger Agreement (hereafter
the "Merger Escrow"), and shall be subject in full to the Escrow Agreement. Upon
release of Shares from the Merger Escrow, such Shares shall still be subject to
the repurchase rights described in Section 5 and the escrow provisions described
in Section 8 of this Agreement. With respect to the remaining 181,704 Shares
distributed under this Agreement, Executive shall deliver to the Secretary of
Parent (hereinafter referred to as the "Escrow Holder") all certificates
representing the Shares and an executed blank stock assignment for use in
transferring all or a portion of said Shares to Parent if, as and when required
under any provision of this Agreement, including Section 5.
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<PAGE> 2
3. Issuance of Shares.
Upon full execution by all parties of the Merger Agreement, the Bruce
Chase Employment Agreement and this Agreement, Parent shall issue duly executed
certificates evidencing the Shares in the name of the Executive, a portion of
which Shares shall be subject to the Merger Escrow, and all of which Shares
shall be subject to the escrow described in this Agreement until expiration of
Parent's repurchase rights as described in Sections 5 and 6.
4. Tax Treatment.
In the event Executive makes an election under Section 83(b) of the
Internal Revenue Code, Executive shall deliver to Parent a copy of such election
form. In connection with such an election for tax treatment under Section 83(b),
Executive acknowledges that Parent may have to withhold taxes on any amounts
deemed to be compensation. Parent shall have the right, in its sole discretion,
to withhold from any cash amounts due or to become due from Parent or Newco to
the Executive an amount equal to the taxes required by any government to be
withheld or otherwise deducted and paid with respect to the issuance of the
Shares.
5. Repurchase Rights.
a. Repurchase Right A. In the event that a "Bruce Chase Triggering
Termination," as defined in the Bruce Chase Employment Agreement, occurs before
all of the Shares are released from Parent's repurchase rights under Section 6,
then upon the date of such Bruce Chase Triggering Termination Parent shall be
deemed to have automatically repurchased, at a purchase price of $0.00, the
following number of Shares:
(i) if the Bruce Chase Triggering Termination occurs either on
or after May 1, 2000, or before May 1, 2000 but simultaneous with or
after a Matt Chase Triggering Termination, all of the Shares which have
not been released from Parent's repurchase rights under Section 6.
(ii) if the Bruce Chase Triggering Termination occurs before
May 1, 2000 and before any Matt Chase Triggering Termination, all of
the Shares which have not been released from Parent's repurchase rights
under Section 6, less that number of Shares equal to 5,608 * X, where X
equals the lesser of six (6) or that number of completed months,
commencing with May 1999 inclusive, that Bruce Chase was employed prior
to the Bruce Chase Triggering Termination.
b. Repurchase Right B. In the event that a "Matt Chase Triggering
Termination," as defined below, occurs before May 1, 2000, then upon the date of
such Matt Chase Triggering Termination , Parent shall be deemed to have
automatically repurchased, at a purchase price of $0.00: (i) 33,649 of the
Shares less 8,412 Shares for each full month past the eighth month of employment
completed by Matt Chase prior to the Matt Chase Triggering Termination, if no
Bruce Chase Triggering Termination has occurred as of such date; or (ii) if a
Bruce Chase
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<PAGE> 3
Triggering Termination has already occurred as of such date, that number of
Shares calculated using the "5,608 * X" formula described in Section 5(a)(ii)
above.
c. The repurchase rights described in this Section 5 shall be
automatic. Upon the occurrence of an event triggering an automatic repurchase
Parent shall become the legal and beneficial owner of the Shares deemed
repurchased and all rights and interests therein or relating thereto, and Parent
shall have the right to retain and transfer to its own name the number of Shares
so repurchased by Parent.
d. As used herein, "Matt Chase Triggering Termination" shall mean that
Matt Chase's employment with the Company and/or Newco is terminated prior to
June 1, 2000 due to: (i) any resignation or voluntary abandonment of employment
by Matt Chase other than a resignation "For Good Reason" as defined in Section
5.4 of the Matt Chase Employment Agreement; or (ii) any termination of Matt
Chase for "Cause" as defined in Section 5.3 of the Matt Chase Employment
Agreement. Conversely, the term "Matt Chase Triggering Termination" shall not
mean: (i) termination due to Matt Chase's death, as described under Section 5.2
of the Matt Chase Employment Agreement; (ii) termination due to Matt Chase's
"Disability," as defined in Section 5.1 of the Matt Chase Employment Agreement;
(iii) resignation by Matt Chase "For Good Reason" as defined in Section 5.4 of
the Matt Chase Employment Agreement; or (iv) termination of employment by the
Company and/or Newco (meaning Employee shall no longer be employed by at least
one of them) other than for "Cause" as defined in Section 5.3 of the Matt Chase
Employment Agreement.
6. Release of Shares From Repurchase Option.
a. Provided in each case that the Shares have not been completely
repurchased under Section 5, the Shares shall be released from both of Parent's
repurchase rights described in Section 5 above in accordance with the following
schedule:
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<PAGE> 4
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
RELEASE DATE NUMBER OF SHARES RELEASED
(in addition to those Previously released)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Months employment B+M+ B+M- B-M+ B-M-
completed:
- -----------------------------------------------------------------------------------------------------------
June 1, 99 One 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
July 1, 99 Two 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
August 1, 99 Three 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
September 1, 99 Four 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
October 1, 99 Five 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
November 1, 99 Six 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
December 1, 99 Seven 5,608 5,608 0 0
- -----------------------------------------------------------------------------------------------------------
January 1, 00 Eight 5,608 5,608 0 0
- -----------------------------------------------------------------------------------------------------------
February 1, 00 Nine 5,608+8,412 5,608 (5,608*X/4) 0
- -----------------------------------------------------------------------------------------------------------
March 1, 00 Ten 5,608+8,412 5,608 (5,608*X/4)0 0
- -----------------------------------------------------------------------------------------------------------
April 1, 00 Eleven 5,608+8,412 5,608 (5,608*X/4)0 0
- -----------------------------------------------------------------------------------------------------------
May 1, 00 Twelve 5,608+8,413 5,608 (5,608 * X/4) 0
- -----------------------------------------------------------------------------------------------------------
1st of each month thereafter
(assuming no Bruce Chase
Triggering Termination occurs) 5,608 5,608 N/A N/A
- -----------------------------------------------------------------------------------------------------------
</TABLE>
As used in the foregoing chart:
- - "B+M+" means that as of the date immediately preceding the Release Date
neither a Bruce Chase Triggering Termination nor a Matt Chase
Triggering Termination has occurred.
- - "B+M-" means that as of the date immediately preceding the Release Date
a Bruce Chase Triggering Termination has not occurred, but a Matt Chase
Triggering Termination has occurred.
- - "B-M+" means that as of the date immediately preceding the Release Date
a Bruce Chase Triggering Termination has occurred, but a Matt Chase
Triggering Termination has not occurred.
- - "B-M-" means that as of the date immediately preceding the Release Date
both a Bruce Chase Triggering Termination and a Matt Chase Triggering
Termination have occurred.
- - "X" means the lesser of six (6) or that number of completed months,
commencing with May 1999 inclusive, that Bruce Chase was employed prior
to the Bruce Chase Triggering Termination.
b. The Shares which have been released from Parent's repurchase rights
described in Section 5 shall be delivered to the Executive at the Executive's
request (see Section 8) except to the extent they remain subject to the Merger
Escrow.
c. Notwithstanding Section 5 or the release schedule set forth in
Section 6(a) above, all Shares not previously repurchased under Section 5 shall
immediately be released from both Parent's repurchase rights and the escrow
described in this Agreement upon either: (i) the effective date of a "Bruce
Chase Non-Triggering Termination," as defined in the Bruce Chase Employment
Agreement; or (ii) a "Change in Control Transaction." As used in this Section, a
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<PAGE> 5
Change in Control Transaction shall mean a transaction in which: (i) Parent is
merged or consolidated with another business entity not previously controlled by
Parent; (ii) the Parent sells or transfers all or substantially all of its
assets; or (iii) at least 50% or more of the equity investment and of the voting
power of the Parent is acquired by a single entity or reporting group.
7. Restriction on Transfer.
Except for the escrow described in Sections 2 and 8, or a transfer of
the Shares to Parent as contemplated by this Agreement, none of the Shares or
any beneficial interest therein shall be transferred, encumbered or otherwise
disposed of in any way until the release of such Shares from Parent's repurchase
rights in accordance with the provisions of this Agreement.
8. Escrow of Shares.
a. The Shares issued under this Agreement shall be held by the Escrow
Holder, along with a stock assignment executed by the Executive in blank, until
Parent's rights to repurchase such Shares, as set forth above, have expired.
b. The Escrow Holder is hereby directed to permit transfer of the
Shares only in accordance with this Agreement or instructions signed by both
parties. The Escrow Holder shall have no liability for any act or omission
hereunder while acting in good faith in the exercise of his own judgment.
c. If Parent's automatic repurchase rights are triggered, the Escrow
Holder, upon receipt of written notice from Parent, shall take all steps
necessary to accomplish such transfer.
d. When the Parent's repurchase option specified in Section 5 has been
exercised or expires unexercised or a portion of the Shares have been released
from such repurchase option, upon Executive's request the Escrow Holder shall
promptly cause a new certificate to be issued for such released Shares and shall
deliver such certificate to the Executive, except to the extent such Shares
remain subject to the Merger Escrow.
e. Subject to the terms hereof, the Executive shall have all the rights
of a shareholder with respect to such Shares while they are held in escrow,
including without limitation, the right to vote the Shares and receive any cash
dividends declared thereon. If, from time to time during the term of Parent's
repurchase option, there is (i) any stock dividend, stock split or other change
in the Shares, or (ii) any merger or sale of all or substantially all of the
assets or other acquisition of Parent, any and all new, substituted or
additional securities to which the Executive is entitled by reason of his
ownership of the Shares shall be immediately subject to this escrow, deposited
with the Escrow Holder and included thereafter as "Shares" for purposes of this
Agreement and Parent's repurchase option set forth above.
5
<PAGE> 6
9. Investment Representations.
In connection with the purchase of the Shares, the Executive represents
and warrants to Parent the following:
a. He is aware of Parent's business affairs and financial condition and
has acquired sufficient information about Parent to reach an informed and
knowledgeable decision to acquire the Shares.
b. He is acquiring the Shares for investment for his own account only
and not with a view to, or for resale in connection with, any "distribution"
thereof within the meaning of the Securities Act of 1933 and applicable state
securities laws (collectively, the "Securities Act"). He further acknowledges
and understands that the Shares have not been registered under the Securities
Act by reason of a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of his investment intent as expressed
herein.
c. He acknowledges and understands that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. He understands that the
certificate(s) evidencing the Shares will be imprinted with a legend which
prohibits the transfer of the Shares unless they are registered or such
registration is not required in the opinion of counsel for Parent.
d. He is aware of the adoption of Rule 144 by the Securities and
Exchange Commission, promulgated under the Securities Act, which permits limited
public resale of securities acquired in a non-public offering subject to the
satisfaction of certain conditions and that such conditions are not currently
satisfied with respect to Parent and the Shares and there can be no assurance
(and Parent undertakes no obligation to ensure) that such conditions will ever
be met.
e. He further acknowledges that in the event all of the requirements of
Rule 144 are not met, compliance with another registration exemption will be
required; and that although Rule 144 is not exclusive, the staff of the
Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and other than pursuant
to Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that such
persons and the brokers who participate in the transactions do so at their own
risk.
10. Legends.
The share certificate(s) evidencing the Shares issued hereunder shall
be endorsed with the same legend described in Section 1.3 of the Enact
Investor Rights Agreement.
11. Right of First Refusal.
[intentionally omitted]
6
<PAGE> 7
12. Adjustment for Stock Split.
All references to the number and purchase price of the Shares in this
Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend or other change in the Shares which may be made by Parent after the
date of this Agreement. This provision does not grant Executive any preemptive
or other rights to acquire additional shares of Parent.
13. General Provisions.
a. This Agreement shall be governed by the laws of the State of
Arizona. This Agreement represents the entire agreement between the parties with
respect to the purchase of Common Stock by the Executive (other than the Merger
Agreement and other documents ancillary thereto) and may only be modified or
amended in writing signed by both parties.
b. Any notice, demand or request required or permitted to be given by
either Parent or the Executive pursuant to the terms of this Agreement shall be
in writing and shall be deemed given when delivered personally or deposited in
the U.S. mail, first class with postage prepaid, and addressed to the parties at
the addresses set forth at the end of this Agreement or such other address as a
party may request by notifying the other in writing. Any notice to the Escrow
Holder shall be sent to Parent's address with a copy to the party not sending
the notice.
c. The rights and benefits of Parent under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by
Parent's successors and assigns. The rights and obligations of the Executive
under this Agreement may only be assigned with the prior written consent of
Parent.
d. Either party's failure to enforce any provision or provisions of
this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted both parties
herein are cumulative and shall not constitute a waiver of either party's right
to assert all other legal remedies available to it under the circumstances.
e. The Executive agrees to execute, upon request of Parent, any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
14. Not an Employment Agreement.
Executive is an employee at will of Parent or Newco and may be
terminated at any time with or without cause, subject to the Bruce Chase
Employment Agreement and any other employment agreements between Parent and the
Executive. Nothing in this Agreement or any other agreement with Parent shall
imply or be construed as a promise or guarantee of continued employment for any
period, including without limitation, any period of time required for full
vesting or exercise of rights under this Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date set forth above.
SALESLOGIX CORPORATION
By: /s/ Gary Acord
Name: Gary Acord
Its: CFO
/s/ Bruce Chase
Bruce Chase
413 Inglewood Drive
Westerville, Ohio 43081
8
<PAGE> 1
Exhibit 10.28 - Consulting Agreement with S. Griffin Burgh
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered into as
of the 30th day of April, 1999, by and between SALESLOGIX CORPORATION, a
Delaware corporation (the "Company"), and S. Griffin Burgh (the "Consultant").
WITNESSETH:
WHEREAS, Company desires to engage Consultant as an independent
contractor, and Consultant desires to be so engaged, for the purpose of
performing certain consulting services described below, on the terms and
conditions hereinafter set forth.
THEREFORE, for and in consideration of the mutual covenants and
undertakings set forth below, the parties agree as follows:
1. Engagement; Scope. Company hereby engages Consultant as an
independent contractor. Consultant agrees to perform market research and
analysis and other services requested by the Company in a professional, timely
and competent manner to the reasonable satisfaction of the Chief Executive
Officer of the Company. The term of the Company's engagement of Consultant shall
be until April 30, 2002, or as mutually extended in writing by the parties or
terminated as provided herein. The parties agree that in connection with
projects assigned by the Company, Consultant shall work an average of 10-15
hours per month on behalf of the Company during the term of the engagement.
2. Compensation. In consideration for Consultant's services as
described in Section 1, Company shall pay Consultant and upfront payment of
$100,000, which payment shall cover the entire term of this Agreement.
Consultant will be paid this amount on the Closing of that certain Agreement and
Plan of Reorganization and Agreement of Merger of even date (the "Merger
Agreement") between and among the Company, SLX Merger Company, an Arizona
corporation, and Enact Incorporated, an Ohio corporation. Consultant
acknowledges that 10% of this amount shall be deposited into an escrow and shall
be subject to the Escrow Agreement of even date as executed by Company,
Consultant and other parties to the Merger Agreement.
3. No Fringe Benefits. Because Consultant is engaged as an independent
contractor, Consultant is not eligible for, nor entitled to, and shall not
participate in, any of the Company's benefit plans, any fringe benefits, health
insurance, workers' compensation insurance allowances, programs, reimbursements,
or the like, which the Company makes available to its employees.
4. Reporting. Consultant will report directly to the Chief Executive
Officer or such officer(s) as the Chief Executive Officer shall designate from
time to time (the "Contact Person(s)") with respect to services performed under
this Agreement. During the course of performing his services, Consultant shall
maintain contact with the Contact Person(s) and will
1
<PAGE> 2
update the Contact Person(s) on the status of Consultant's efforts on behalf of
the Company as requested by the Contact Person(s) from time to time.
5. Outside Activities. Company acknowledges that Consultant may devote
substantial time in connection with endeavors outside of the scope of this
Agreement. Notwithstanding the foregoing, (a) such outside endeavors shall not
prevent Consultant from timely completing the services for Company pursuant to
this Agreement, and (b) without the prior written consent of Company, Consultant
shall not, during the course of performing services under this Agreement,
directly engage in the performance of any consulting services for any company
that does, or has expressed an intention to engage in the business of providing
sales management software or services or interactive selling networks, without
the prior written consent of Company.
6. Confidentiality; Proprietary Information.
(1) Consultant shall not, while performing services under this
Agreement or at any time thereafter, either directly or indirectly,
divulge, furnish or make accessible to anyone or use in any way (other
than use in the ordinary course of providing services under this
Agreement for the benefit of Company) any confidential or secret
knowledge or information of Company which Consultant has acquired or
become acquainted with or will acquire or become acquainted with, prior
to the termination of his services under this Agreement, whether
developed by himself or by others, concerning (i) any trade secrets,
confidential of secret designs, processes, formulae, know-how, plans,
devices, technologies or materials (whether or not patented or
patentable) directly or indirectly useful in any aspect of the business
of Company, (ii) any confidential customer or supplier list of Company,
(iii) any confidential or secret development or research work of
Company, (iv) any financial or accounting information of the Company,
or (v) any other confidential or secret aspect of the business of
Company. Consultant acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of Company acquired
at great time and expense by Company, which is secret and confidential
and which will be communicated to Consultant in confidence in the
course of his services under this Agreement, and agrees that any
disclosure or other use of such knowledge or information other than for
the sole benefit of Company would be wrongful and would cause
irreparable harm to Company. Both during and after the performance of
Consultant's services under this Agreement, Consultant will refrain
from any acts or omissions that would reduce the value of such
knowledge or information to Company. The foregoing obligations of
confidentiality, however, shall not apply to any knowledge or
information which is now, or hereafter becomes, published and generally
publicly known through no fault of Consultant.
(2) Consultant will hold in trust for the sole right and
benefit of Company, and will and does hereby assign to Company, all of
Consultant's right, title and interest in and to, any ideas,
information, concepts, research and reports and any documents
reflecting any of the foregoing, conceived of or developed by
Consultant in the performance of his services under this Agreement.
Upon completion of his services under this Agreement, Consultant shall
deliver
<PAGE> 3
to Company (and not keep in his possession, recreate or deliver to
anyone else) any and all records, data, notes, reports, proposals,
lists, correspondence, and other documents, together with all copies
thereof (in whatever medium recorded) belonging to Company, its
successors or assigns, including any of such materials generated by
Consultant in the performance of his services under this Agreement.
7. No Authority to Bind. Consultant has no authority to enter into
contracts or agreements on behalf of the Company.
8. Status. In performing services as contemplated under this Agreement,
the parties acknowledge and agree that Consultant is an independent contractor,
not an agent or employee of the Company. Consultant shall perform the services
required by this Agreement according to Consultant's own means and methods,
which shall be in the exclusive charge and control of Consultant and which shall
not be subject to the control or supervision of the Company, except as to the
results of the work. The Company shall neither have nor exercise any control or
direction over the methods by which the Consultant performs the Consultant's
services and functions; the sole interest and responsibility of the Company
being to assure that the services covered by this Agreement shall be performed
and rendered by Consultant in a competent, efficient, and professional manner.
Consultant shall indemnify and hold the Company, and its directors, officers,
shareholders, employees, and agents, harmless from and against any loss or
liability, including attorneys' fees, arising from the performance of
Consultant's services pursuant to this Agreement. This Agreement shall not be
construed to create a partnership, joint venture, or agency relationship between
the Company and Consultant.
9. Tax Reporting and Withholding. Consultant is not an employee of the
Company and the Company will not withhold any income tax, FICA, Medicare,
worker's compensation, or other employment taxes from payments made to
Consultant pursuant to this Agreement. Consultant is responsible for income tax
withholding, FICA, Medicare, and other withholding or employment taxes, if any,
as required with respect to payments made to Consultant under this Agreement.
The Company will comply with all tax reporting requirements relating to payments
made to an independent contractor. In the event any person or governmental
entity attempts to hold the Company liable or responsible for income tax, FICA,
Medicare, worker's compensation, or other withholding or employment taxes
related to payments the Company makes to Consultant under this Agreement,
Consultant shall indemnify and hold the Company, and its directors, officers,
shareholders, employees, and agents, harmless from and against any loss or
liability, including attorneys' fees, penalties, and interest.
10. Termination. Notwithstanding, the foregoing either party may
terminate this Agreement upon ten days written notice if the other party fails
to comply with its or his obligations hereunder.
11. General.
(1) The parties acknowledge that the rights and obligations
hereunder are personal and not assignable by either party to another
person or entity without the prior written consent of the other party,
which consent may be withheld in the sole and
3
<PAGE> 4
absolute discretion of the requested party. The attempted assignment
without such prior written consent shall be null and void.
(2) All rights, powers and remedies herein may be exercised
only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary
so that they will not render this Agreement invalid or unenforceable,
in whole or in part, under Applicable law. If any provision of this
Agreement is held invalid, illegal or unenforceable, in whole or in
part, the remainder of the Agreement shall not be affected thereby and
the invalid, illegal or unenforceable provision shall be reformed to
the full extent permitted by law in order to give maximum effect to the
parties' intent hereunder.
(3) This Agreement shall be governed and construed in
accordance with the internal laws (and not the conflicts of laws
principles) of the State of Arizona. Either party may bring suit to
enforce any provision of this Agreement or to obtain any remedy with
respect hereto only in Maricopa County Superior Court or the United
States District Court for the District of Arizona. For this purpose
both parties hereby expressly and irrevocably consent to the exclusive
jurisdiction and venue of said courts.
(4) The prevailing party in any action arising out of this
Agreement shall be entitled to recover its reasonable attorneys' fees
incurred herein together with all costs and additional litigation
expenses reasonably incurred by such party in connection with the
action, whether or not normally included as taxable costs.
(5) Company and Consultant will each, at the request of the
other, execute and deliver to each other all such further instruments
and perform all such further actions as may be reasonably requested in
order to effectuate the purposes of this Agreement.
(6) This Agreement constitutes the complete and entire
agreement between the parties with respect to the subject matter
hereof. This Agreement may not be amended, modified or altered without
the express written consent of the parties.
(7) Headings of the sections in this Agreement are for
reference purposes only and shall not be deemed to have any substantive
effect.
4
<PAGE> 5
EXECUTED as of the date above first written.
SALESLOGIX CORPORATION
By: /s/ Gary Acord
Its: CFO
/s/ S. Griffin Burgh
S. GRIFFIN BURGH
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SALESLOGIX CORPORATION
Opis SupportExpress, Inc., an Arizona subsidiary
SalesLogix International, Inc., an Arizona subsidiary
SalesLogix Europe Ltd., United Kingdom subsidiary
Enact Incorporated, formerly known as SLX Meger Company, an Arizona subsidiary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
January 29, 1999, except for Notes 2 and 8, as to which the date is April 30,
1999, with respect to the financial statements of SalesLogix Corporation
included in the Registration Statement (Form S-1) and in the related Prospectus
of SalesLogix Corporation for the registration of shares of its common stock.
Our audit also included the financial statement schedule of SalesLogix
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 4, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 22, 1999, with respect to the financial
statements of Opis Corporation included in the Registration Statement (Form S-1)
and in the related Prospectus of SalesLogix Corporation for the registration of
shares of its common stock.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 4, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 15, 1999, except for Note 10, as to which the
date is April 30, 1999, with respect to the financial statements of Enact
Incorporated included in the Registration Statement (Form S-1) and in the
related Prospectus of SalesLogix Corporation for the registration of shares of
its common stock.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
May 4, 1999
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned hereby authorizes and appoints Patrick M. Sullivan and Gary
R. Acord, and each of them, with full power of substitution and resubstitution
and full power to act without the other, as his true and lawful attorney-in-fact
and agent to act in his name, place and stead and to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to
file, any and all amendments to the Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission on March 31, 1999 (File No.
333-75353), including any and all post-effective amendments and amendments
thereto and any registration statement relating to the same offering as such
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes may lawfully
do or cause to be done by virtue thereof.
/s/ JOHN B. CARRINGTON
- ------------------------------------------------------
John B. Carrington
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of SalesLogix Corporation and subsidiary as of December 31,
1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 11,377,236 9,354,021
<SECURITIES> 0 0
<RECEIVABLES> 5,025,115 6,747,362
<ALLOWANCES> (455,396) (639,866)
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,869,335 17,167,503
<PP&E> 3,611,238 4,221,451
<DEPRECIATION> (1,067,152) (1,409,719)
<TOTAL-ASSETS> 23,974,158 24,260,926
<CURRENT-LIABILITIES> 6,026,608 7,431,992
<BONDS> 0 0
0 0
33,482,215 33,482,215
<COMMON> 3,301 3,549
<OTHER-SE> (16,885,428) (17,806,798)
<TOTAL-LIABILITY-AND-EQUITY> 23,974,158 24,260,926
<SALES> 10,105,401 4,224,971
<TOTAL-REVENUES> 15,642,611 6,301,758
<CGS> 4,903,043 1,682,839
<TOTAL-COSTS> 17,462,033 5,713,116
<OTHER-EXPENSES> (23,017) (34)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (107,610) (47,589)
<INCOME-PRETAX> (6,591,838) (1,046,574)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,591,838) (1,046,574)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,591,838) (1,046,574)
<EPS-PRIMARY> (1.75) (0.08)
<EPS-DILUTED> (1.75) (0.08)
</TABLE>
