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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO __________________
COMMISSION FILE NUMBER 0-26161
SALESLOGIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0808340
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
8800 N. GAINEY CENTER DRIVE, SUITE 200, SCOTTSDALE, ARIZONA 85258
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(480) 368-3700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates of
the registrant on March 6, 2000 was approximately $390,000,000, based on the
average of the high and low prices of the registrant's common stock reported on
the NASDAQ National Market on such date. Shares of common stock held by each
current executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding common stock have been excluded
from this computation in that such persons may be deemed to be affiliates of the
registrant. Share ownership information of certain persons known by the
registrant to own greater than 5% of the outstanding common stock for purposes
of the preceding calculation is based solely on information on Schedule 13G
filed with the Commission and is as of December 31, 1999. This determination of
affiliate status is not a conclusive determination for other purposes.
As of March 6, 2000, there were 19,091,715 outstanding shares of Common Stock,
par value $.001 per share, of SalesLogix Corporation.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I........................................................................................................... 2
ITEM 1. Business.............................................................................. 2
ITEM 2. Properties............................................................................ 27
ITEM 3. Legal Proceedings..................................................................... 27
ITEM 4. Submission of Matters to a Vote of Security Holders................................... 27
PART II.......................................................................................................... 28
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters.................. 28
ITEM 6. Selected Consolidated Financial Data.................................................. 29
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 31
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 41
ITEM 8. Financial Statements and Supplementary Data........................................... 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................ 42
PART III......................................................................................................... 43
ITEM 10. Directors and Executive Officers of the Registrant.................................... 43
ITEM 11. Executive Compensation................................................................ 43
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........................ 43
ITEM 13. Certain Relationships and Related Transactions........................................ 43
PART IV.......................................................................................................... 44
ITEM 14. Exhibits, Financial Statements and Schedules and Reports on Form 8-K.................. 44
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set
forth herein, is incorporated herein by reference from the Registrant's
definitive proxy statement relating to the annual meeting of Stockholders to be
held in 2000 or an amendment to this annual report, which definitive proxy
statement or amendment shall be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this Report
relates.
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PART I
ITEM 1. BUSINESS
Our disclosure and analysis in this report contains forward-looking statements.
When used in this discussion, the words "believes," "anticipates" and "intends"
and similar expressions are intended to identify forward-looking statements, but
the absence of these words does not necessarily mean that a statement is not
forward looking. Forward-looking statements include, but are not limited to,
statements about our expansion plans, objectives, expectations, intentions,
target markets, and our new e-business strategy and are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated in these forward-looking statements, which speak only as of the date
of this report. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
factors described under "Important Factors That May Affect Our Business, Our
Financial Condition, Our Results of Operations and Our Stock Price" and
elsewhere in this report. We undertake no obligation to publicly release any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
anticipated events. Readers are urged, however, to review the factors and risks
we describe in reports we file from time to time with the Securities and
Exchange Commission.
OVERVIEW
SalesLogix Corporation is a leading provider of applications and
services that streamline selling processes for individuals and enable
collaborative selling networks for companies, customers and partners. These
solutions manage interactions between sellers and customers, such as inquiries
coming in over the web, online orders, outbound calls, support, e-mails,
letters, and customer meetings. By integrating personal computer (PC) and
wireless device-based applications with Internet services, without forcing
redundant data entry in Internet portals or eliminating the ability to work
offline, interactive selling communities that are familiar and easy to use are
created. These interactive selling networks dynamically share information
between community members; connect their e-business sales and customer
management applications with valuable Internet content and services; and
automatically manage selling transactions.
Our interactive selling applications and services enhance the speed,
quality and effectiveness of selling and customer management for individuals and
businesses by providing:
- Personalized and easy to use sales automation, marketing,
support and storefront management software and services
- Relevant content, commerce and community services through
online, offline and wireless web connections
- Integrated software and services that are fast to deploy and
deliver an extremely quick return on investment
We sell our solutions primarily through our network of more than 350
resellers, whom we refer to as our business partners. Our value added reseller
(VAR) business partners provide local support and implementation services
required to install, configure and customize our
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products and services. We have designed our solutions to be easy to use and
rapid to implement, and to deliver a low total cost of ownership even when
scaled to large organizations. Our e-business applications have been built with
the standard features 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 solutions are licensed to approximately 2,100
customers in a variety of industries, including high technology, financial
services, manufacturing, and other industries.
INDUSTRY BACKGROUND
In today's highly competitive global marketplace, it is increasingly
critical for companies to prioritize their businesses around the attraction,
conversion and retention of customers. As a result, many companies are
redirecting their technology investments toward systems that will maximize their
long-term revenue streams by increasing sales efficiency and customer loyalty.
Within industries that are characterized by complex products, services, or
channel relationships, competitive advantage often results from a company's
ability to provide products, services and content that are specific to the
preferences of individual customers, particularly when they are making a buying
decision. Companies are also realizing that existing and potential customers
often access their organization through multiple business channels, including
e-commerce channels, traditional direct sales forces, and indirect channel
partners. We believe it is therefore important that companies not only equip
these channels with systems that provide competitive differentiation when a
customer's buying decision is being made, but that they provide the customer
with consistent, valuable service across all channels.
In response to this shift toward sales and customer-oriented systems,
many companies originally invested heavily in traditional customer relationship
management, or CRM, software, which was designed to automate administrative
support for large enterprise sales forces and to more effectively manage
customer contact databases. These solutions, which traditionally have included
centralized data management functionality for direct sales force automation,
call center service and support, and marketing automation, have helped to
eliminate cost inefficiencies within a company's sales and marketing
organization by streamlining and consolidating customer information and other
internal administrative tasks. However, because these applications are typically
client/server-based and limit their focus to the management reporting aspects of
a company's sales and marketing efforts, they generally have not directly
enhanced the selling effort or customer buying experience. Traditional CRM
solutions are further prevented from providing value directly to customers
because they were typically designed before the widespread commercial use of the
Internet, and were not intended for large scale, e-commerce transactions. Many
companies that implemented traditional CRM systems therefore have found
themselves with systems that do not interactively engage with either the
customer or their many selling channels in ways that enhance individual buying
decisions or add value to those relationships.
The market for these software applications 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%.
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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 software
applications have achieved some degree of market acceptance, we believe
significant limitations remain. These software applications are typically very
expensive and difficult to deploy and support. They generally entail substantial
investments, often millions of dollars, to cover new 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 software applications poorly
suited to address rapidly changing business environments.
As a result, many businesses have failed to implement first or second
generation versions of front office software 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 software applications, particularly those in
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 software applications.
The rapid evolution and acceptance of the Internet as a means for
communicating, sharing information, and transacting directly with customers
worldwide has dramatically changed the focus of sales and customer relationship
management. The Internet offers new opportunities for increased interactivity
and self-service, enabling companies to create new approaches for initiating,
developing and managing both sales processes and customer relationships over
time. The Internet enables the creation of powerful new revenue channels, while
simultaneously improving the effectiveness with which existing distribution
channels market, sell and support product and service offerings. Forrester
Research, Inc. estimates that the total value of U.S. business trade on the
Internet will grow to approximately $1.3 trillion in 2003. International Data
Corporation, or IDC, estimates that the market for our applications will grow
280% to $1.7 billion in 1999 and projects the market to top $13 billion by 2003.
A variety of niche e-business software applications have been
introduced which target a specific aspect of the sales or customer management
process. However, these point solutions have not provided the advanced,
comprehensive selling functionality necessary to offer targeted products,
services and content based upon a customer's unique profile or requirements,
which we believe is a critical success factor for individuals or companies using
e-commerce to sell their products and services. In addition, these Internet
applications typically do not interact with a company's traditional sales and
distribution channels or the CRM infrastructures that many companies have
deployed. Because these applications were designed to support only
Internet-based interactions, they typically are unable to collect information
about customers when they access a company's traditional sales channels, leaving
a company with an incomplete view of an individual customer's behavior,
requirements and preferences. We believe this inability to enable a common view
of individual customers across multiple selling channels limits a company's
ability to develop strategies for improving its product offerings, services, and
selling processes in ways that would encourage repeat business from those
customers.
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We believe companies that sell through multiple channels require a new
generation of e-business sales and marketing applications to offer targeted
products, services, and content to individual customers. To encourage conversion
of potential customers into customers and generate repeat business from existing
customers, we believe these companies must provide personalized solutions in a
highly scalable and reliable fashion. We believe these capabilities must support
the rapid deployment of an effective e-commerce channel for selling products and
services, and must also automate complex selling activities within traditional
direct and indirect selling channels. We believe this next-generation software
must also capitalize on the highly interactive nature of the Internet to collect
real-time customer information from individual selling interactions across all
sales channels. This common view of customer activity must be shared across a
company's enterprise as a basis for developing improved product offerings,
services, and selling processes that encourage long-term customer loyalty.
We believe that individuals and organizations of all sizes require
interactive selling networks and software that automate prospect and customer
interactions through field sales, internal telesales, marketing and support
organizations as well as third party resellers, supply chain participants and
other partners. We believe these solutions must be:
- designed to leverage the Internet and wireless technologies;
- able to support new models of collaborative selling and
e-commerce;
- easy for the entire sales community to use;
- seamlessly integrated with relevant business to business sales
and customer services;
- easily extended and customized to meet specific community
needs; and
- deployed rapidly and at a low cost.
We believe that existing solutions for interactive selling have failed
to address these requirements.
THE SALESLOGIX SOLUTION
Our solutions streamline selling processes for individuals and enable
collaborative selling networks for companies, customers and partners. Our
products provide small businesses, individuals and large franchise businesses
with sales tools for contact and relationship management; as well as integrate
the key elements of sales, marketing, support, e-commerce and customer
management functions for larger businesses. We support multiple selling channels
and methods, including direct sales, telesales, third party sales, e-commerce
and collaborative team selling. Finally, our patented guided selling technology
allows customers to define and automate complex selling processes and to deploy
customized interactive sales solutions.
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[GRAPHIC-SalesLogix's Sales Community Flow Chart]
Source: Aberdeen Group, March 2000
The SalesLogix solutions are built on the ACT! and SalesLogix
applications and the unique integration of services that Interact.com will
provide when launched. The combination will offer relevant e-business services
natively integrated with applications used for contact, support, account, and
opportunity management. These combinations will enable interactive selling
network solutions for individuals, organizations, and vertical communities.
<TABLE>
<CAPTION>
Interact Commerce Solution
APPLICATION SERVICE APPLICATION/SERVICE DESCRIPTION
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<S> <C>
ACT! Contact and calendar management for individuals small
businesses, and community members.
SalesLogix eCRM solution that
provides sales,
marketing, support and
configuration management
for organizations.
Interact Interactive application
service will provide
content, commerce and
community services for
individual sales
professionals,
organizations and
business-to-business
communities.
</TABLE>
These solutions can be implemented independently, or combined to form a global
interactive selling network. We believe our solutions deliver the following
unique benefits:
- EASY FOR THE ENTIRE SALES COMMUNITY TO USE. We designed our
solutions to be intuitive, using simple navigational commands
to present key selling and customer information in a single
view. In addition, the flexibility of our software and
services enable organizations and salespeople to customize
features to support their individual
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methods of selling. We believe this not only adds value to the
selling process, but also increases the rate of adoption among
salespeople.
- DEPLOY RAPIDLY AT A LOW COST. Our applications and services
are designed to ensure that the software is implemented and
deployed quickly to deliver a rapid return on investment. We
combine significant out-of-the-box functionality and industry
standard technologies and platforms to deliver a low total
cost of ownership.
- LEVERAGE THE INTERNET AND WIRELESS TECHNOLOGIES. SalesLogix
solutions are intended to be available anytime, anywhere. Our
interactive selling network is built on Internet technologies
to provide customer self-service, online lead capture,
electronic storefronts and catalogs, online ordering and
collaborative extranets for partner relationship management.
- SUPPORT NEW E-BUSINESS SELLING MODELS. Our flexible
architectures and customization tools will enable customers to
easily adapt our Interact.com network as well as our ACT! and
SalesLogix applications to reflect their unique selling
processes and business rules.
BUSINESS STRATEGY
Our objective is to be the leading provider of applications and
services that streamline selling processes for individuals and enable
collaborative selling and support networks for businesses. The following are
elements of our strategy:
- GROW THE INDUSTRY-LEADING ACT! USER BASE. We intend to
increase the new buyers of ACT! in retail through increased
marketing investment, product enhancements and added value via
the integration of Interact.com. We will introduce the new and
existing ACT! users to Interact.com's network of services to
provide the only individual and small office/home office
("SOHO") contact manager that is customized in both function
and price point to the needs of online community members. We
also intend to expand beyond retail by targeting large
corporate franchise sales through a direct sales force.
- ENHANCE SALESLOGIX' POSITION AS AN ECRM LEADER FOR THE FASTEST
GROWING MARKET SEGMENT. We will continue to target businesses,
including divisions of larger companies, with annual revenues
between $10 million and $1 billion. We believe that there are
approximately 225,000 organizations in North America that
comprise this market and that our products and business model
are uniquely suited to address this market. We intend to
continue focusing 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.
- CREATE THE LARGEST ONLINE SALES COMMUNITY. We will target the
42 million salesperson opportunity and seek to provide the
first application-integrated delivery of services that
supports users while connected or offline. Our initial focus
will be to add value to the estimated 3 million ACT! user base
to create a large and compelling community for salespeople to
join.
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- CULTIVATE THE LARGEST ECRM AND SELLING PARTNERSHIP NETWORK. To
broaden the distribution of our products and services, we plan
to grow our already industry-leading business partner channel
to include many more VARs, e-business-focused implementation
leaders, as well as ERP and accounting software OEMs. We
intend to leverage our relationships with e-business
infrastructure leaders like Vignette, DoubleClick, Exodus;
leading service providers such as DigitalWorks, Covia, and
WebEx; and wireless web technology leaders such as Palm and
others to provide the most compelling network of services
available.
- ACCELERATE INTERNATIONAL EXPANSION. We intend to develop
business partners in over 50 countries and increase
distribution outside English-speaking nations through
localization of ACT! and SalesLogix into more languages.
PRODUCTS
Our solution for enabling interactive selling networks will consist of
three major products--Interact, SalesLogix and ACT! These products integrate the
key elements of sales, marketing, support, e-commerce and customer management
functions, support multiple selling channels, and enable collaborative team
selling. They can be used independently or as an integrated suite. We presently
offer SalesLogix and ACT! through both direct and indirect distribution
channels. We plan to launch Interact.com by the third quarter of 2000.
The following tables describe the major capabilities, uses and
technologies in each of our current products.
<TABLE>
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ACT! - CONTACT MANAGEMENT
USES USES TECHNOLOGY
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<S> <C> <C> <C>
FOR INDIVIDUALS - Contact Management Provides an integrated and Web
- Calendar Management comprehensive system to automate PC-based
- Activity Management the selling process. - Disconnected
- List Management Enables remote sales - Personal Digital
- Letters representatives and sales agents Assistants
- Fulfillment to manage calls, schedules, and
account activities in a
coordinated fashion with the
entire organization.
SMALL BUSINESS - Contact Management Provides an integrated and Web
- Calendar Management comprehensive system to automate PC-based
- Activity Management the selling process. - Disconnected
- List Management Enables remote sales - Personal Digital
- Letters representatives and sales agents Assistants
- Fulfillment to manage calls, schedules, and
account activities in a
coordinated fashion with the
entire organization.
</TABLE>
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SALESLOGIX - ECRM APPLICATION
<TABLE>
<CAPTION>
CAPABILITIES USES TECHNOLOGY
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<S> <C> <C> <C>
SALES - Contact Management Provides an integrated and Web
- Account Management comprehensive system to automate Client/Server
- Opportunity Management the selling process. - Network
- Sales Processes (Methodologies) Enables remote sales - Disconnected
- Forecasting representatives and sales agents - Personal
- Integrated Telephony to manage calls, schedules, and Digital
- Remote Synchronization account activities in a Assistants
coordinated fashion with the
entire organization.
MARKETING - Lead Capture Captures, qualifies and Web
- Lead Management distributes prospect information Client/Server
- Marketing Automation via the Web.
- Campaign Management Automatically populates the
- Literature Fulfillment database, distributes sales
leads to the appropriate users
and automatically responds to
the prospect according to
business rules.
Forwards leads to the
appropriate salesperson, and
analyzes lead flow.
Centralized fulfillment
according to lead management
policy. Automated process.
SUPPORT - Call Tracking Support Center Management - Web
- Problem Tracking Provides categorization, Client/Server
- Customer Management statistics, and reporting for
- Contract Management training, resource planning,
- Defect Tracking cost analysis and overall
- Quality Assurance support department management.
- Telephony Integration Customer Self-Services - Insures
that customers receive the
support to which they are
entitled and tracks work
performed against contract
provisions for billing.
CONFIGURATION - Order Management Provides sales with automated Web
- Configuration Management tools to address dynamic Client/Server
- Guided Selling customer requirements.
- Marketing Encyclopedia Enables customers to make a more
- Proposals informed buying decision.
- Pricing Enhances the sales process
through needs assessment by
supporting product configuration
and managing pricing rules.
Improves pricing accuracy.
</TABLE>
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The following table describes the major capabilities, uses, and
technologies planned for Interact.com. We anticipate some of these capabilities
will be available when Interact.com is launched, while others will not be
available until future revisions.
INTERACT - INTERACTIVE APPLICATION SERVICES
<TABLE>
<CAPTION>
CAPABILITIES USES TECHNOLOGY
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<S> <C> <C> <C>
FOR INDIVIDUALS: - Sales Content and Training Integrates content and Web
- - INTERACT.COM - Business Center e-business services in-context
- - MYINTERACT.COM - Public and Private Websites with applications.
- E-marketing
- Lead Management An online community for sales
- Travel professionals to enhance
- Customer Fulfillment personal and customer
- Community Services interaction productivity.
Automatically populates the
database, distributes sales
leads to the appropriate users
and automatically responds to the
prospect according to business
rules.
Forward leads to the appropriate
salesperson, and analyze lead flow.
Centralized fulfillment according
to lead management policy.
Automated process.
FOR ORGANIZATIONS AND - Customized Content Provides employees with dynamic Web
COMMUNITY HUBS: - Customer Self-service web services to address sales
- - ECOMPANYSITE - E-commerce Transactions and customer management
- - ECUSTOMERSITE - Collaborative Partner Extranets requirements.
- - ECOMMUNITYSITE - Integrated CRM network
Enables customers to make a more
informed buying decision online.
Enhances the collaborative sales
process through partners networks.
Deploys custom and private
community solutions.
</TABLE>
COMPETITION
The market for interactive selling solutions is intensely competitive,
fragmented and subject to rapid technological change. Because we offer both
e-business applications and services, we consider a number of companies in
different market categories to be our competitors. Companies focused on
providing interactive selling solutions can be broadly segmented into four
groups:
- - Traditional CRM and Sales Automation Vendors - such as Onyx, Pivotal
and Siebel Systems for large enterprise organizations; Great Plains for
mid-sized organizations; and Goldmine for smaller organizations. These
companies generally seek to provide automated solutions for traditional
sales channels through client/server solutions.
- - E-commerce application vendors - such as Broadvision, Calico Commerce,
Firepond, Kana, and Selectica. These companies target large enterprise
organizations and seek to provide advanced selling applications for
e-commerce that focus on specific aspects of customer relationships or
buying process.
- - Internet-based Sales or Small Business Community Portals - such as
Agillion and Sales.com. These companies seek to provide web-based
applications and services for individuals and small businesses through
online subscription services.
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- - Hosted Web-based Sales Automation Applications - such as Salesforce.com
and Upshot.com. These companies provide hosted Web-based applications
for sales forces of small to mid-sized companies.
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 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, as new products and technologies are
introduced and as new competitors enter the market. Increased competition may
result in price reductions, lower gross margins and loss of our market share,
any of which could materially adversely affect our business, financial condition
and operating results. Although we believe we have advantages over our
competitors in terms of the comprehensiveness of our solution, there can be no
assurance that we can maintain our competitive position against current and
potential competitors.
SALES
We market and sell our software products through different channels
based upon the brand.
SALESLOGIX
We market and sell SalesLogix primarily through our indirect business
partner channel and through our direct sales force depending upon the size of
the customer and the market.
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 December 31, 1999, we had more than 310
certified business partners, 78 of which are located internationally. Our
business partners are generally local or regional businesses with little
national name recognition,
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who deliver industry-specific expertise. 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 features of our products.
DIRECT SALES
We have 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. In many instances, the accounts are large multi-national
organizations that are seeking to deploy the software into multiple locations.
As part of this effort, members of this team are targeted at specific current
customers that are seen as major accounts to insure a high level of customer
satisfaction and generate additional revenues. As of December 31, 1999, we
employed nine direct salespeople.
Our direct sales cycles average 4 to 6 months from initial contact to
close. The average size of an order through the direct selling channel tends to
be significantly higher than through our business partner channel.
A license agreement is signed directly with the customer. Pricing is
based upon our list price, in many cases, less a discount based upon seat
volumes. Delivery of the software tends to be either through our professional
services organization or large system integrators that also develop
customizations, train end users and integrate to legacy systems.
ACT!
ACT! software is primarily sold through a two tier distribution model.
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The immediate channel is made up of large distributors such as Ingram
Micro, Merisel, and Tech Data. These organization purchase directly from
SalesLogix and re-sell inventory to the next tier of this channel. We are
currently negotiating contracts with these companies to continue distributing
ACT!
The next tier consists of large resellers such as CDW or ASAP; large
retailers such as CompUSA; Office Depot and Staples; and ACT! Certified
Consultants (ACC's). Sales methods for these organizations include retail
outlets, mail order, and direct to customer. New release upgrades are delivered
through CompUSA. Also, the ACC's will bundle services, such as report writing,
with the software to meet some corporate customer's requirements.
We typically enter into software distribution agreements with the
distributors, under which they purchase our products and sell to the next tier
of the channel. Price is determined to distributors based upon a margin off of
our manufacturer's suggested retail price. No ownership rights are granted to
the distributors on any intellectual property relating to our products. Original
shrink-wrap licenses are packaged, along with manuals and the software in a box,
which is delivered through the channel. Our revenue from the sale of our product
to distribution is based on sell through distribution. In addition, we generally
provide the ongoing technical support for ACT!
We also have an inside sales group consisting of four people at
December 31, 1999 who focus on selling large license quantities to corporate
users, which are fulfilled through the distribution channels described above.
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 December 31, 1999,
we employed 33 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 our 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.
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- 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.
RESEARCH AND DEVELOPMENT
As of December 31, 1999, SalesLogix employed 89 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.
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The information technology 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 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 December 31, 1999, we had a total of 327 employees, excluding
independent contractors and other temporary employees, including 89 people in
research and development, 97 people in sales and marketing, 100 people in
professional services, customer support and training and 41 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.
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IMPORTANT FACTORS THAT MAY AFFECT OUR BUSINESS, OUR FINANCIAL CONDITION, OUR
RESULTS OF OPERATIONS AND OUR STOCK PRICE
WE HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
STRATEGY AND FORECAST OPERATING RESULTS.
We commenced operations in January 1996 and released our first
commercial version of SalesLogix in April 1997. We announced our new e-business
strategy on December 6, 1999, but we have not yet released our Interact.com
product to date. We acquired the ACT! product line on December 31, 1999.
Accordingly, we have a limited operating history, which makes it difficult to
evaluate our business strategy and 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 be able to accurately forecast our future
operating results.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES.
We incurred net losses in each quarter from inception through December
31, 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $24.9 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 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 uncertainty of customer acceptance of our new e-business
products and strategy;
- the challenges of integrating the ACT! business;
- the lengthiness and unpredictability of sales cycles for our
products;
- the mix of revenues generated by product licenses and customer
service and support;
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- 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 implement our new
e-business strategy, to integrate the ACT! business, and 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.
WE FACE RISKS RELATED TO THE ACT! ACQUISITION.
The process of integrating the ACT! 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, business
partners, consultants and development staff to adapt to the new product line;
our lack of previous experience in operating a "shrink wrap",
retail-distribution business; 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 ACT!
WE RELY ON A FEW KEY DISTRIBUTORS FOR THE ACT! PRODUCT.
The majority of sales of the ACT! product historically have been to a
small number of distributors, including Ingram Micro, Inc., Tech Data Corp., and
Merisel Inc. We are currently negotiating agreements with each of these
distributors. The loss of any of the key ACT! distribution relationships could
have a material adverse impact on ACT! sales.
WE FACE RISKS RELATED TO FINANCING THE ACT! ACQUISITION AND OUR E-BUSINESS
STRATEGY.
We expect that implementation of our e-business strategy will require
substantial amounts of capital, and we expect to experience operating losses at
least through calendar year 2000. As of December 31, 1999, we had cash and cash
equivalents of $60.8 million and our working capital was $49.9 million. We
anticipate that these available funds, combined with our operating results, will
be sufficient to finance our operating activities and capital expenditures after
adoption of our new e-business strategy and acquisition of ACT!, including
payments to Symantec, direct transactional costs, and transition costs through
December 31, 2000. Our e-business strategy depends in part upon maintaining the
existing ACT! business and transitioning the ACT! user base to our new
subscription products. If we are not successful in maintaining revenues from the
ACT! products and customer base, or in transitioning the ACT! user base to our
Web-based services, our financing needs may accelerate. Accordingly, we may
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require additional financing through a private placement of debt and/or equity
securities and/or a secondary public offering of our common stock as early as in
the second quarter of 2000, market and other conditions permitting. Although we
believe that such financing alternatives will be available, there is no
assurance that available financing will be available on reasonable business
terms or terms acceptable to us, or that market conditions will permit any
secondary public offering on terms acceptable to us. In addition, issuing
additional equity securities will dilute current stockholders' percentage
ownership, and incurring substantial debt may impose restrictions that could
disrupt our ongoing business and increase our expenses. If we are unable to
obtain sufficient financing on terms acceptable to us, our business, financial
condition and operating results would be materially adversely affected.
WE FACE RISKS RELATED TO IMPLEMENTATION OF OUR NEW E-BUSINESS STRATEGY.
Our new e-business strategy is generally based on a business model that
relies on third parties to provide certain services to be included in our
product offering and on subscription, e-commerce and advertising for revenues.
We currently plan to launch our interactive application product, Interact.com,
by the third quarter of 2000. We have limited experience with Web-based
products, and there can be no assurance that Interact.com will be launched on
time or at all. This e-business model is unproven and there can be no assurance
that customer relationship management users will accept Interact.com on the
terms offered by the Company, or utilize its features. In addition, current and
potential competitors, including Siebel Systems (Sales.com), Salesforce.com and
Agillion, some of which have substantially more resources than we do, have
established or may establish customer relationship management e-business
strategies to increase the ability of their products or services to address the
needs of our existing and prospective customers. If we are not able to
successfully address these risks, we will not be able to grow our business,
compete effectively or achieve profitability. These factors could cause our
stock price to fall significantly.
IF WE FAIL TO GENERATE SUFFICIENT SUBSCRIPTION, E-COMMERCE AND ADVERTISING
REVENUES, WE MAY NOT BE ABLE TO SUPPORT OUR E-BUSINESS OPERATIONS.
We intend to generate revenues from a variety of different arrangements
including offering use of our Internet-based services on a monthly subscription
basis, e-commerce transactions for goods and services in addition to services
offered under subscription arrangements, and sales of targeted and untargeted
banner advertising, sponsorships, performance-based arrangements and referrals
to third party Web-sites. We have limited experience marketing and pricing these
types of arrangements, and have limited actual experience with respect to the
performance of such arrangements. As such, we do not know if we are
appropriately pricing, marketing or structuring these arrangements, whether
users of our e-business services will accept a subscription model or make
e-commerce purchases, or whether we will perform under these arrangements to the
satisfaction of the other parties. Our failure to appropriately price, market or
structure these arrangements could impact our ability to generate revenue, to
enter into and perform under these arrangements, or to renew these arrangements
on similar or acceptable terms. In light of these factors, we cannot assure you
that we will be able to generate sufficient subscription, e-commerce or
advertising revenues to support our e-business operations.
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OUR BRAND AND BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO PROTECT
OUR DOMAIN NAMES OR ACQUIRE OTHER RELEVANT DOMAIN NAMES.
We currently have acquired the rights to the Web domain name relating
to our brand, Interact.com, as well as other related Web domain names. The
acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. The regulation of domain names in the
United States and in foreign countries is subject to change in the near future.
As a result, we may be unable to acquire or maintain relevant domain names in
the countries in which we conduct, or plan to conduct, business. Furthermore,
the relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon, dilute or otherwise decrease the value of our trademarks and
other proprietary rights.
CUSTOMER BUYING PATTERNS AND SALES FORCE COMPENSATION MAY MAKE IT DIFFICULT TO
PREDICT FUTURE OPERATING RESULTS.
Our revenues have tended to be stronger in the fourth quarter than in
each of the first three quarters of a year, making it more difficult to predict
future operating results. 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 business partners, 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. License revenues from
our SalesLogix product accounted for approximately 94% of our total license
revenues in both 1998 and 1999. We expect product license revenues from
SalesLogix to continue to account for a significant portion 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.
OUR OPERATING RESULTS PRIMARILY DEPEND UPON THE SALE AND IMPLEMENTATION OF OUR
PRODUCTS BY OUR BUSINESS PARTNERS.
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 business partners and, to a lesser
extent, expanding our direct sales organization. Sales to or initiated by our
business partners accounted for 86% and 76% of license revenues in 1998 and
1999, respectively. The relatively small size of our business partners may
restrict their ability to timely install and implement our products during
periods when they are especially busy, which may create a
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service backlog that adversely affects our revenues during these periods. 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 business partners or add new business partners to
market, sell, implement and support our products effectively. Our failure to do
so could materially adversely affect our business.
OUR RELIANCE ON INDIRECT SALES CHANNELS 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 business
partners;
- provide adequate incentives to our business partners;
- provide adequate service and support to our end users through
our business partners;
- retain company and brand loyalty with our business partners
and end user customers;
- manage conflict among our business partners, whose contracts
with us are generally non-exclusive;
- manage collection of receivables from business partners on a
timely basis; or
- manage inventory levels in ACT!'s retail distribution channel.
OUR BUSINESS PARTNERS MAY HANDLE COMPETING PRODUCTS, DIVERTING ATTENTION AWAY
FROM OUR PRODUCTS.
Many of our business partners also sell products that compete with our
products and we cannot assure you that our business partners will continue to
devote the resources necessary to provide us with effective sales, marketing and
technical support. If our business partners 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
business partners. 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.
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WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR BUSINESS.
The market for interactive selling solutions for business to business
communities is intensely competitive, fragmented and subject to rapid
technological change. Because we offer both e-business applications and
services, we consider a number of companies in different market categories to be
our competitors. Companies focused on providing interactive selling solutions
can be broadly segmented into three groups:
- - Traditional CRM and Sales Automation Vendors - such as Onyx, Pivotal
and Siebel Systems for large enterprise organizations; Great Plains for
mid-sized organizations; and Goldmine for smaller organizations. These
companies generally seek to provide automated solutions for traditional
sales channels through client/server solutions.
- - E-commerce application vendors - such as Broadvision, Calico Commerce,
Firepond, Kana, and Selectica. These companies target large enterprise
organizations and seek to provide advanced selling applications for
e-commerce that focus on specific aspects of customer relationships or
buying process.
- - Internet-based Sales or Small Business Community Portals - such as
Agillion and Sales.com. These companies seek to provide web-based
applications and services for individuals and small businesses through
online subscription services.
- - Hosted Web-based Sales Automation Applications - such as Salesforce.com
and Upshot.com. These companies provide hosted Web-based applications
for sales forces of small to mid-sized companies.
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 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, as new products and technologies are
introduced and as new competitors enter the market. Increased competition may
result in price reductions, lower gross margins and loss of our market share,
any of which could materially adversely affect our business, financial condition
and operating results. Although we believe we have advantages over our
competitors in terms of the comprehensiveness of our solution, there can be no
assurance that we can maintain our competitive position against current and
potential competitors.
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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.
OUR OPERATING RESULTS DEPEND 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. If the market acceptance of
Microsoft technology declines or we are unable to timely enhance our products
and technology to be compatible with new developments in Microsoft's technology,
our business, financial condition and operating results could be materially
adversely affected. 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.
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, and Bruce Chase and
Matt Chase, former officers of Enact, none of our key personnel are subject to
non-compete covenants. We have experienced significant management changes at the
executive officer level in the past. 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.
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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 business partners located in other countries and have supported our
international customers with our domestic customer support staff. We have opened
sales offices in the United Kingdom, Germany, and Australia, and we intend to
continue to expand our international operations and enter new international
markets, primarily through existing and new business partners 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 that 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;
- 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
business partners 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.
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OUR ABILITY TO COMPETE EFFECTIVELY DEPENDS UPON THIRD PARTIES CONTINUING TO
DELIVER, SUPPORT AND ENHANCE CURRENT AND NEW VERSIONS OF SOFTWARE INCORPORATED
INTO OUR PRODUCTS.
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 that software with comparable or
better software.
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 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. 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. 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, business partners and customers, although we have
not signed such agreements in every case. 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
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<PAGE> 26
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.
At December 31, 1999, the executive officers, directors and entities
affiliated with them beneficially own approximately 33.1% of our outstanding
common stock. 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.
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 our initial public
offering.
REMEDIATION OF UNDISCOVERED YEAR 2000-RELATED COMPUTER PROBLEMS COULD BE COSTLY
AND TIME-CONSUMING.
We believe that the current versions of our internally developed
software products, as well as our management and information systems, are Year
2000 compliant. When the century changed, we experienced no significant
disruption of our business operations and no significant product failures as a
result of Year 2000 compliance issues or otherwise. The costs we incurred in
connection with remediating our systems during 1999 were immaterial. At this
time, we are
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<PAGE> 27
not aware of any material defects resulting from Year 2000 issues, either with
our products, our internal systems, or the products and services of third
parties on which we rely. Nevertheless, some Year 2000 problems may not appear
until several months after January 1, 2000. As a result, we may still face
claims for undiscovered Year 2000 errors in our own products or for Year 2000
issues arising from third-party products that we integrate into our products or
with which our products and systems exchange data. In addition, if our suppliers
or distributors encounter Year 2000 problems, our ability to deliver our
products and services could be disrupted.
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 ("SOP") 97-2, "Software Revenue Recognition," was
issued in October 1997 by the American Institute of Certified Public Accountants
and amended by SOP 98-4 and SOP 98-9. We adopted SOP 97-2 effective January 1,
1998. Based on our interpretation of SOP 97-2, SOP 98-4 and SOP 98-9, we believe
our current revenue recognition policies and practices are consistent with these
pronouncements. 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, stock-based
compensation, and Internet revenue recognition. Any changes to these standards
or any other accounting standards could materially adversely affect our
operating results.
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<PAGE> 28
ITEM 2. PROPERTIES
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 have an
additional development facility located in approximately 17,500 square feet in
Scottsdale, Arizona. We also maintain international offices in London, England,
Dusseldorf, Germany, Melbourne, Australia and Sydney, Australia. In 2000, we
signed a lease for additional space in San Jose, California and Eugene, Oregon
related to our acquisition of the ACT! product line.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings that, if adversely
determined, would have a material adverse effect on our business, financial
condition and operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By proxy dated March 13, 2000, we have requested our shareholders to
increase the number of shares reserved for options under the 1996 Equity
Incentive Plan from 4,500,000 to 6,300,000 and to the change the name of our
company from SalesLogix Corporation to Interact Commerce Corporation. The
shareholders will vote on these matters at a special meeting on April 3, 2000.
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<PAGE> 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the
symbol "SLGX." At March 6, 2000, there were 308 holders of record of our common
stock.
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.
We completed an initial public offering of our common stock in May
1999. Prior to our initial public offering, there was no public market for our
stock. The following table sets forth, for each period indicated, the high and
low closing prices for our common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
4th quarter $42.375 $20.25
3rd quarter $25.438 $14.125
2nd quarter (beginning May 27, 1999) $14.875 $ 9.00
</TABLE>
During the quarter ended December 31, 1999, we issued and sold (i)
35,817 shares of our common stock registered on Form S-8 to employees pursuant
to the exercise of stock options under our 1996 Equity Incentive Plan in
exchange for an aggregate purchase price of $35,531, (ii) 5,420 unregistered
shares of our common stock to former employees of Opis Corporation pursuant to
the exercise of options we assumed in connection with our acquisition of Opis in
exchange for an aggregate purchase price of $6,198, and (iii) 12,557
unregistered shares of our common stock to our business partners pursuant to the
exercise of stock options under our 1998 Business Partner Stock Option Plan in
exchange for an aggregate purchase price of $45,813. The options were granted in
consideration of these individuals' services to SalesLogix or, in the case of
former employees of Opis, in consideration of services rendered to Opis. In
issuing the foregoing unregistered securities, we relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) of the Securities Act.
During the quarter ended December 31, 1999, we also issued and sold (a)
623,247 unregistered shares of our common stock to Symantec Corporation in
connection with our acquisition of the ACT! product line and (b) unregistered
warrants to acquire up to 841,107 unregistered shares of our common stock to BA
Technology I, LLC and GE Capital Equity Investments, Inc. in connection with our
issuance of Senior Subordinated Notes. In issuing these unregistered securities,
we relied on an exemption from registration pursuant to Section 4(2) under the
Securities Act.
On May 27, 1999, our initial public offering registered on Form S-1,
file number 333-75353, became effective. During the three month period ending
December 31, 1999, we used approximately $1.0 million in connection with the
acquisition of the ACT! product line from
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<PAGE> 30
Symantec Corporation and approximately $3.0 million of the net proceeds from the
offering to purchase office and computer equipment.
ITEM 6. 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, 1999. 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 report, as well as the section of this report
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.
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<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
-------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses $ 3,504 $ 10,105 $ 24,005
Services 1,275 5,538 12,290
-------- -------- --------
Total revenues 4,779 15,643 36,295
Costs of revenues:
Licenses 118 604 1,755
Services 1,733 4,299 7,872
-------- -------- --------
Total costs of revenues 1,851 4,903 9,627
-------- -------- --------
Gross profit 2,928 10,740 26,668
Operating expenses:
Sales and marketing 4,953 10,077 20,292
Research and development 1,865 3,845 6,921
General and administrative 1,056 2,151 3,559
Amortization of acquisition related intangible assets 360 1,436 4,379
-------- -------- --------
Total operating expenses 8,234 17,509 35,151
-------- -------- --------
Loss from operations (5,306) (6,769) (8,483)
Interest and other income (expense), net 166 130 977
-------- -------- --------
Net loss $ (5,140) $ (6,639) $ (7,506)
======== ======== ========
Historic basic and diluted net loss per share $ (1.30) $ (1.76) $ (0.60)
======== ======== ========
Pro forma basic and diluted net loss per share $ (0.54) $ (0.45)
======== ========
Weighted average shares:
Historic 3,951 3,771 12,578
======== ======== ========
Pro forma 12,311 16,596
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 3,189 $ 11,377 $ 60,795
Working capital 1,650 10,843 49,878
Total assets 12,948 23,974 164,883
Long-term debt and capital lease obligations, less current portion 1,608 1,241 57,371
Total stockholders' equity 7,075 16,601 75,318
</TABLE>
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<PAGE> 32
ITEM 7. 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. 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 annual report.
OVERVIEW
SalesLogix Corporation is the leading provider of applications and
services that streamline selling processes for individuals and enable
collaborative selling networks for companies, customers and partners. These
solutions manage interactions between sellers and customers, such as inquiries
coming in over the web, online orders, outbound calls, support, e-mails,
letters, and customer meetings. By integrating personal computer (PC) and
wireless devise-based applications seamlessly with Internet services, without
forcing redundant data entry in Internet portals or eliminating the ability to
work offline, interactive selling communities that are familiar and easy to use
are created. These interactive selling networks dynamically share information
between community members; connect their e-business sales and customer
management applications with valuable Internet content and services; and
automatically manage selling transactions.
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.
In December 1997, we acquired Opis Corporation, a company engaged in
the development, marketing, and selling of customer support software primarily
to mid-sized organizations. 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. 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. 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
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<PAGE> 33
officers of Enact. We paid $4.2 million in cash for merger consideration, plus
transaction expenses and repayment of Enact's debt. We also entered into
employment agreements with officers of Enact in connection with the acquisition.
The transaction was 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 are included in our consolidated financial statements
beginning on April 30, 1999. In connection with this acquisition, we recorded
approximately $8.8 million in capitalized technology and other intangible assets
that will be amortized over three years, and expensed approximately $900,000 of
in-process research and development based upon an independent appraisal.
Through December 31, 1999, we derived revenues principally from the
sale of software licenses for our SalesLogix line of products and related 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 76% of license revenues in 1998 and 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 sell our SalesLogix line of 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.
On December 31, 1999, we acquired the ACT! product line and related
business from Symantec Corporation pursuant to an agreement dated December 6,
1999, as amended and closed on December 31, 1999. Under the terms of the
agreement, we acquired an exclusive, worldwide license to ACT! and an option to
purchase the product line at the end of the four year license term for an
aggregate purchase price of $60.0 million in cash, plus 623,247 shares of
SalesLogix common stock valued at $20.0 million. The transaction was recorded
under the purchase method of accounting and the results of operations of ACT!
and the fair value of the assets acquired and liabilities assumed are included
in our consolidated financial statements beginning on December 31, 1999. In
connection with this acquisition, we recorded approximately $61.9 million in
capitalized technology and other intangible assets that will be amortized over
four years. The cash portion of the purchase price has been discounted at 22.4%
to reflect the Company's borrowing rate in a simultaneous third party
transaction.
ACT! is a shrink-wrapped product that is sold through a two-tier retail
distribution channel. We will recognize ACT! revenue upon persuasive evidence of
an arrangement, delivery of software to the customer, determination that there
are no significant post-delivery obligations, and a probable collection of a
fixed or determinable fee. Product revenue related to all distribution channel
inventory in excess of defined in inventory levels in such channels will be
deferred. Revenue related to significant post-contract support agreements
(generally product
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<PAGE> 34
maintenance and upgrade insurance) will be deferred and recognized over the
period of the arrangement.
On December 31, 1999, we received net proceeds of $25.9 million from
the sale of senior subordinated debt. We paid a 1% commitment fee on the
subordinated debt and issued warrants to purchase 841,107 shares of our common
stock at $28.75 per share to the lenders. The fair value of these warrants,
determined using the Black Scholes method, as well as the commitment fee, have
been recorded as a discount to the debt and will be amortized to interest
expense using the interest method over the term of the loan. The first two
interest payments may be made "in kind" by increasing the principal balance by
the amount of interest due. The effective interest rate on the subordinated
debt, including amortization of this discount, is 22.4% at December 31, 1999.
In December 1999, we announced the development of Interact.com. When
released, Interact.com will provide fully Web-enabled interaction between
Interact and our ACT! and SalesLogix applications. The combination will offer
relevant e-business services in-context of application used for contact,
account, and opportunity management. We believe these combinations enable
interactive selling network solutions for individuals, organizations of any
size, and vertical communities.
During the fourth quarter of 1999, our operating expenses included $1.1
million related to the start-up of Interact.com and integration activities
related to ACT!
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 may not be indicative of results for any
future period.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
YEAR ENDED DECEMBER 31,
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues:
Licenses 73.3% 64.6% 66.1%
Services 26.7 35.4 33.9
----- ----- -----
Total revenues 100.0 100.0 100.0
Costs of revenues:
Licenses 2.5 3.8 4.8
Services 36.3 27.5 21.7
----- ----- -----
Total costs of revenues 38.8 31.3 26.5
----- ----- -----
Gross profit 61.2 68.7 73.5
Operating expenses:
Sales and marketing 103.7 64.4 55.9
Research and development 39.0 24.6 19.1
General and administrative 22.1 13.8 9.8
Amortization of acquisition related intangible assets 7.5 9.2 12.1
----- ----- -----
Total operating expenses 172.3 112.0 96.9
----- ----- -----
Loss from operations (111.1) (43.3) (23.4)
Interest and other income, net 3.5 0.9 2.7
----- ----- -----
Net loss (107.6)% (42.4)% (20.7)%
===== ===== =====
</TABLE>
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<PAGE> 35
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES
Total revenues increased from $15.6 million in the year ended December
31, 1998 to $36.3 million in the year ended December 31, 1999, an increase of
132%. No customer accounted for more than 10% of revenues in the years ended
December 31, 1998 and 1999. Our revenues outside of North America increased from
approximately $1.4 million in the year ended December 31, 1998 to approximately
$6.7 million in the year ended December 31, 1999.
License Revenues. Our license revenues increased from $10.1 million in
the year ended December 31, 1998 to $24.0 million in the year ended December 31,
1999, an increase of 138%. 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 the establishment
of our direct sales force in the second half of 1998. Our license revenues
represented 64.6% of our total revenues in the year ended December 31, 1998 and
66.1% in the year ended December 31, 1999.
Service Revenues. Service revenues include fees for maintenance,
technical support, consulting and training services. Our service revenues
increased from $5.5 million in the year ended December 31, 1998 to $12.3 million
in the year ended December 31, 1999, an increase of 122%. The 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 35.4% of our total revenues in the year ended December 31, 1998 and
33.9% in the year ended December 31, 1999. Service revenues as a percentage of
total revenues decreased as our business partner channel matured and completed
more installations without the assistance of our professional services group.
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 $604,000 in the year
ended December 31, 1998 to $1.8 million in the year ended December 31, 1999,
representing 6.0% of license revenues in the year ended December 31, 1998 and
7.3% of license revenues in the year ended December 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. We expect that the cost of license revenue for ACT!
will be higher than the costs we have historically experienced due to higher
manufacturing and packaging costs.
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 $4.3 million in the year ended December 31, 1998 to $7.9 million in the
year ended December 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 77.6% of service
revenues in the year ended December 31, 1998 and 64.1% in the year ended
December 31, 1999. This
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<PAGE> 36
decrease reflects a reduction in the time and expenses our consulting
organization incurred while providing free or low margin support to business
partners in their early implementations of our product. We expect cost of
service revenue to increase as a result of the ACT! acquisition due to the cost
of establishing and maintaining a technical support center to support ACT!
users.
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, costs of our direct sales force established in the
second half of 1998, and promotional costs to increase brand awareness in the
marketplace and to generate leads for our sales channels. Sales and marketing
expenses increased from $10.1 million in the year ended December 31, 1998 to
$20.3 million in the year ended December 31, 1999, an increase of 101%. The
increases in sales and marketing expenses from the year ended December 31, 1998
to the year ended December 31, 1999 reflected the hiring of additional sales and
marketing personnel, a full year of costs and the expansion of the direct sales
force that was established in the second half of 1998, expanded advertising and
other promotional activities and increased sales commissions and bonuses related
to increased license revenues. Sales and marketing expenses represented 64.4% of
our total revenues in the year ended December 31, 1998 and 55.9% of our total
revenues in the year ended December 31, 1999. We anticipate that we will
continue to invest significantly in sales and marketing and that these expenses
will increase in absolute dollars. We plan to spend significant amounts to
advertise and promote both ACT! and Interact.com.
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 $3.8 million in the year ended
December 31, 1998 to $6.9 million in the year ended December 31, 1999, an
increase of 80.0%. 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 24.6% of our total
revenues in the year ended December 31, 1998 and 19.1% of our total revenues in
the year ended December 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 $2.2 million in the year ended December
31, 1998 to $3.6 million in the year ended December 31, 1999. This increase was
primarily due to increased staffing and related expenses necessary to manage and
support the expansion of our operations 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. General and administrative
expenses represented 13.8% of our total revenues in the year ended December 31,
1998 and 9.8% of our total revenues in the year ended December 31, 1999. The
decrease
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<PAGE> 37
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 due
to the ACT! acquisition and our new e-business strategy and due to our rapid
international expansion.
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 increased from $1.4 million in the year
ended December 31, 1998 to $4.4 million in the year ended December 31, 1999. The
increase was due to the acquisition of Enact in April 1999. The acquisition of
ACT! on December 31, 1999 generated an additional $61.9 million of acquisition
related intangible assets. The amortization of intangible assets from the ACT!
acquisition will generate approximately $3.9 million of additional amortization
per quarter through 2003.
Interest Expense. Interest expense decreased from $255,000 in 1998 to
$160,000 in 1999 due to the repayment of outstanding borrowings with proceeds
from our initial public offering. We anticipate interest expense will increase
in 2000 primarily due to interest expense on our subordinated debt and imputed
interest on the payable for the purchase of ACT!.
Income Taxes. As of December 31, 1999, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $15.0 million. 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 $7.5 million as of December 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 12 to Consolidated Financial Statements.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
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
36
<PAGE> 38
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 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 $5.0
million in 1997 to $10.0 million in 1998, an increase of 103%. The increases in
sales and marketing expenses from 1997 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 64.4% 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 $1.9 million in 1997 to $3.8 million in 1998, an increase of 106%. The
increases from 1997 to 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 $1.1 million in 1997 to $2.2 million in 1998. These increases
from 1997 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.
37
<PAGE> 39
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 $360,000 in 1997 to $1.4
million in 1998. 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. Acquisition related intangible assets are
amortized over the estimated useful life of the acquired assets, over periods of
up to five years.
Our 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;
- 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
38
<PAGE> 40
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
On May 27, 1999, we raised approximated $34.1 million from an initial
public offering of our common stock and a concurrent private placement of our
common stock. Prior to the initial public offering, we financed operations
primarily through private placements of our preferred stock. To a lesser extent,
we have financed our operations through equipment financing and traditional bank
financing arrangements.
On December 31, 1999, the Company received net proceeds of $25.9
million from the sales of senior subordinated debt and warrants to purchase
841,107 shares of our common stock at $28.75 per share. The Company paid a 1%
commitment fee on the subordinated debt. The fair value of these warrants,
determined using the Black Scholes method, as well as the commitment fee, have
been recorded as a discount to the debt and will be amortized to interest
expense using the interest method over the term of the loan. The subordinated
debt is due on December 31, 2004. Warrants to purchase an additional 0.8125% of
the Company's fully diluted shares, as defined, are due to the lenders on June
30, 2000, July 31, 2000, and August 31, 2000 if the subordinated debt has not
been repaid on these dates. Warrants to purchase an additional 2.85% of the
Company's fully diluted shares, as defined, are due to the lenders if the
subordinated debt has not been repaid by April 2, 2001. The subordinated debt
bears interest at 11% and is payable quarterly. The first two interest payments
may be made "in kind" by increasing the principal balance by the amount of
interest due. The effective interest rate on the subordinated debt, including
amortization of the debt discount, is 22.4% at December 31, 1999.
On December 31, 1999, we acquired the ACT! product line and related
business from Symantec Corporation pursuant to a Software License Agreement
dated December 6, 1999, as amended and closed on December 31, 1999. Under the
terms of the agreement, we acquired an exclusive, worldwide license of ACT! and
an option to purchase the product line at the end of the four year license term
for an aggregate purchase price of $60.0 million in cash, plus 623,247 shares of
SalesLogix common stock valued at $20.0 million. We are accounting for the
transaction using the purchase method of accounting.
Amounts due to Symantec are based on a contractual formula and are
subject to maximums of $5.0 million per quarter in 2000, $4.25 million per
quarter in 2001, $2.75 million per quarter in 2002, and $2.25 million per
quarter in 2003. The maximum quarterly payment amounts total $57.0 million, and
we believe the limits will be reached in each quarter during the four year term
of the agreement. The final payment is equal to $60.0 million less amounts
previously paid. The cash portion of the purchase price has been discounted at
22.4% to reflect our incremental borrowing rate in a simultaneous third party
borrowing transaction.
As of December 31, 1999, we had cash and cash equivalents of $60.8
million, an increase of $49.4 million from December 31, 1998. Our working
capital at December 31, 1999 was $49.9 million, compared to $10.8 million at
December 31, 1998.
Our operating activities resulted in net cash outflows of $5.6 million
in 1997, $5.4 million in 1998, and $2.9 million in 1999. The operating cash
outflows resulted primarily
39
<PAGE> 41
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 $793,000 in 1997, $1.7 million in
1998, and $12.9 million, resulting primarily from the purchase of capital
equipment in each of the years and the total cash consideration and related
expenses paid in connection with the Opis acquisition in 1997 and the Enact
acquisition in 1999.
Cash provided by financing activities totaled $7.6 million in 1997,
$15.3 million in 1998, and $65.2 million in 1999. Financing cash flows in 1997
and 1998 resulted primarily from the issuance of Series C and Series E preferred
stock and $1.5 million in proceeds from a bank term loan received in December
1997, partially offset by payments on capital lease obligations. Cash provided
by financing activities for the year ended December 31, 1999 resulted from the
proceeds of our initial public offering, a concurrent private placement of
equity, and the sale of subordinated debt and related warrants.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we strive to:
- implement our new e-business strategy;
- integrate and expand the ACT! business;
- 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. We believe that our existing cash and cash equivalents will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures through December 31, 2000.
We require substantial capital to fund our business, particularly to
finance international expansion 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 our 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
40
<PAGE> 42
additional capital, if required, will be available on acceptable terms, or at
all. If we are unable to obtain the necessary 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.
Our e-business strategy depends in part upon maintaining the existing
ACT! business and capturing a significant percentage of the ACT! user base as
subscribers to our new Interact.com subscription products. If we are not
successful in maintaining revenues from the ACT! products and customer base, or
in transitioning the ACT! user base to our Web-based services, our financing
needs may accelerate. Accordingly, we may require additional financing through a
private placement of debt and/or equity securities, and/or a secondary public
offering of our common stock as early as in the second quarter of 2000, market
and other conditions permitting. Although we believe that such financing
alternatives will be available, there is no assurance that financing will be
available on reasonable business terms or terms acceptable to us, or that market
conditions will permit any secondary public offering on terms acceptable to us.
In addition, issuing additional equity securities will dilute current
stockholders' percentage ownership, and incurring substantial debt may impose
restrictions that could disrupt our ongoing business and increase our expenses.
If we are unable to obtain sufficient financing on terms acceptable to us or at
all, our business, financial condition and operating results would be materially
adversely affected.
YEAR 2000 COMPLIANCE
We believe that the current versions of our internally developed
software products, as well as our management and information systems, are Year
2000 compliant. When the century changed, we experienced no significant
disruption of our business operations and no significant product failures as a
result of Year 2000 compliance issues or otherwise. The costs we incurred in
connection with remediating our systems during 1999 were immaterial. At this
time, we are not aware of any material defects resulting from Year 2000 issues,
either with our products, our internal systems, or the products and services of
third parties on which we rely. Nevertheless, some Year 2000 problems may not
appear until several months after January 1, 2000. As a result, we may still
face claims for undiscovered Year 2000 errors in our own products or for Year
2000 issues arising from third-party products that we integrate into our
products or with which our products and systems exchange data. In addition, if
our suppliers or distributors encounter Year 2000 problems, our ability to
deliver our products and services could be disrupted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to market risk arises from foreign currency
exchange risk associated with our international operations and foreign currency
exchange risk associated with our U.S. sales made in foreign currency. We do not
currently use, nor have we historically used, derivative financial instruments
to manage or reduce market risk.
Beginning January 1, 2000 the functional currencies for our European,
German, and Australian operations are Pounds Sterling, Euro, and Australian
dollars, respectively. As such, there is potential market risk exposure for our
future earnings due to changes in exchange rates. Given the relatively short
duration of our international monetary assets and liabilities, the relative
stability
41
<PAGE> 43
of these currencies compared to the U.S. dollar, and the relative size of our
international operations, we consider this exposure to be minimal. We believe
that a 10% change in exchange rates would not have a significant impact on our
future earnings.
Our cash equivalents are exposed to financial market risk, including
changes in interest rates. We typically do not attempt to reduce or eliminate
our market exposures on these investment securities because of their short-term
duration. We believe that the fair value of our investment portfolio or related
income would not be significantly impacted by either a 100 basis point increase
or decrease in interest rates due mainly to the short-term nature of the major
portion of our investment portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Consolidated Financial Statements and
Notes to Consolidated Financial Statements begin on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be included in our proxy
statement for our 2000 annual meeting of stockholders or in an amendment to this
annual report and is incorporated by reference. We will file such proxy
statement or amendment within 120 days of December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our proxy
statement for our 2000 annual meeting of stockholders or in an amendment to this
annual report and is incorporated by reference. We will file such proxy
statement or amendment within 120 days of December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in our proxy
statement for our 2000 annual meeting of stockholders or in an amendment to this
annual report and is incorporated by reference. We will file such proxy
statement or amendment within 120 days of December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in our proxy
statement for our 2000 annual meeting of stockholders or in an amendment to this
annual report and is incorporated by reference. We will file such proxy
statement or amendment within 120 days of December 31, 1999.
43
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
1. Index to Consolidated Financial Statements PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1999................................ F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999........................................................ F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999........................................................ F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999........................................................ F-5
Notes to Consolidated Financial Statements.................................................. F-6
2. Index to Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth in
the schedules is included in the consolidated financial statements or related
notes.
(b) Reports on Form 8-K
On December 6, 1999, we filed a current report on Form 8-K announcing
the execution of a Software License Agreement pursuant to which we would acquire
the ACT! product line from Symantec Corporation, and on December 31, 1999, we
filed a current report on Form 8-K announcing the closing of that transaction.
(c) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1** Software License Agreement between the Company and Symantec Corporation dated
December 6, 1999.
2.2** Amendment to Software License Agreement between the Company and Symantec Corporation
dated December 31, 1999.
2.3** Exhibit A to Software License Agreement - Licensed Products.
2.4** Exhibit C to Software License Agreement - Other Transferred Assets.
2.5** Exhibit E to Software License Agreement - Transferred Liabilities.
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C>
2.6** Exhibit F to Software License Agreement - Transition Agreement.
2.7** Exhibit M to Software License Agreement - Registration Rights Agreement.
2.8** Exhibit N to Software License Agreement - Stockholder Agreement.
3.4* Fifth Restated Certificate of Incorporation of the registrant.
3.5* Second Restated Bylaws of the registrant.
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.
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 Outside Director Stock Option Plan
10.7* 1999 Employee Stock Purchase Plan.
10.8* Employment Agreement dated January 17, 1996 with Patrick M. Sullivan.
10.9 Senior Subordinated Note and Warrant
Purchase Agreement dated December 31,
1999 among the registrant, BA Technology
I, and GE Capital Equity Investments,
Inc.
10.10 Registration Rights Agreement dated
December 31, 1999 among the registrant,
BA Technology I, LLC and GE Capital
Equity Investments, Inc.
10.11 Common Stock Purchase Warrant dated December 31, 1999 issued to BA Technology I, LLC
10.12 Common Stock Purchase Warrant dated December 31, 1999 issued to GE Capital Equity
Investments, Inc.
10.13 Senior Subordinated Note Due 12/31/04 issued to BA Technology I, LLC
10.14 Senior Subordinated Note Due 12/31/04 issued to GE Capital Equity Investments, Inc.
10.15 Office Lease Agreement dated as of November 1, 1999 between the registrant and Opus
West Corporation.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
45
<PAGE> 47
- -----------------------
* Incorporated by reference to the Registration Statement on Form S-1 (No.
333-75353) filed by the registrant on March 31, 1999, as amended.
** Incorporated by reference to the Current Report on Form 8-K, filed by the
registrant for transaction dated December 31, 1999.
46
<PAGE> 48
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, 1999 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, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SalesLogix
Corporation and Subsidiaries at December 31, 1999 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, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
January 25, 2000
F-1
<PAGE> 49
SalesLogix Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 60,795 $ 11,377
Accounts receivable, net of allowance for doubtful accounts of $1,064 and
$455 at December 31, 1999 and 1998, respectively 12,609 4,570
Due from Symantec Corporation 5,609 --
Prepaid expenses and other current assets 2,953 922
-------------------------
Total current assets 81,966 16,869
Property and equipment, net 9,707 2,544
Intangible assets 72,049 4,465
Recoverable deposits and other assets 1,161 96
-------------------------
$ 164,883 $ 23,974
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,287 $ 1,243
Accrued expenses 3,143 1,774
Current portion of capital lease obligations 1,083 558
Current portion of long-term debt 11,775 691
Deferred revenues 10,800 1,760
-------------------------
Total current liabilities 32,088 6,026
Capital lease obligations, less current portion 2,264 458
Long-term debt 55,107 783
Deferred rental obligation 106 106
Stockholders' equity:
Convertible preferred stock -- 33,483
Preferred Stock, authorized 20,000,000 shares, no shares issued or -- --
outstanding at December 31, 1999 or 1998
Class A common stock, par value $.001 per share; authorized 50,000,000
shares, 19,348,791 shares issued and outstanding at December 31, 1999;
3,228,325 shares issued and 3,226,658 shares outstanding at
December 31, 1998 19 3
Class B common stock, par value $.001 per share; authorized 2,280,000
shares, no shares issued and outstanding at December 31, 1999; 72,827
issued and outstanding at December 31, 1998 -- --
Additional paid-in capital 102,816 2,282
Accumulated deficit (24,883) (17,377)
Less unearned compensation (2,634) (1,789)
Less shares of common stock held in treasury; 1,667 shares at cost at -- (1)
December 31, 1998
-------------------------
Total stockholders' equity 75,318 16,601
=========================
Total liabilities and stockholders' equity $ 164,883 $ 23,974
=========================
</TABLE>
See accompanying notes.
F-2
<PAGE> 50
SalesLogix Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Revenues:
Licenses $ 24,005 $ 10,105 $ 3,504
Services 12,290 5,538 1,275
-------------------------------------------------
Total revenues 36,295 15,643 4,779
-------------------------------------------------
Costs of revenues:
Licenses 1,755 604 118
Services 7,872 4,299 1,733
-------------------------------------------------
Total costs of revenues 9,627 4,903 1,851
-------------------------------------------------
Gross profit 26,668 10,740 2,928
Operating expenses:
Sales and marketing 20,292 10,077 4,953
Research and development 6,921 3,845 1,865
General and administrative 3,559 2,151 1,056
Amortization of acquisition related intangible assets 4,379 1,436 360
-------------------------------------------------
Total operating expenses 35,151 17,509 8,234
-------------------------------------------------
Loss from operations (8,483) (6,769) (5,306)
Other income (expense):
Interest income 1,137 362 189
Interest expense (160) (255) (86)
Other income, net -- 23 63
-------------------------------------------------
Loss before provision for income taxes (7,506) (6,639) (5,140)
Provision for income taxes -- -- --
-------------------------------------------------
Net loss $ (7,506) $ (6,639) $ (5,140)
=================================================
Historic basic and diluted net loss per share $ (0.60) $ (1.76) $ (1.30)
=================================================
Weighted average shares used in calculating basic and
diluted historic net loss per share 12,577,855 3,770,703 3,950,913
=================================================
Pro forma basic and diluted net loss per share $ (0.45) $ (0.54)
=================================================
Weighted average shares used in calculating pro forma
basic and diluted net loss per share 16,596,030 12,310,517
=================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 51
SalesLogix Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,285,000 $ 4,655 2,223,333 $ 2 1,723,334
Cash proceeds from issuance of
Series C Preferred Stock 4,031,057 6,448 -- -- --
Exercise of Series A common
stock options -- -- 16,062 -- --
Series D preferred stock and
options issued for purchase
of business 1,228,654 3,944 -- -- --
Equity based compensation -- -- -- -- --
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 10,544,711 15,047 2,239,395 2 1,723,334
Cash proceeds from issuance of
Series E Preferred Stock 4,556,651 18,439 -- -- --
Exercise of Series A common
stock options -- -- 988,930 1 --
Purchase of treasury stock -- -- -- -- --
Purchase of Series B Preferred
and Class B Common Stock (33,240) (3) -- -- (1,650,507)
Equity based compensation -- -- -- -- --
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 15,068,122 33,483 3,228,325 3 72,827
Cash proceeds from initial
public offering and concurrent
private placement, and
conversion of convertible
preferred stock (15,068,122) (33,483) 14,345,007 14 (72,827)
Exercise of Series A common
stock options -- -- 449,853 1 --
Issuance of common stock -
employee stock purchase plan -- -- 94,453 -- --
Exercise of warrants -- -- 6,667 -- --
Retirement of treasury stock -- -- (3,747) -- --
Acquisition of Enact -- -- 609,424 -- --
Acquisition of ACT! -- -- 623,247 1 --
Adjustment to the OPIS
acquisition -- -- (8,438) -- --
Warrants issued -- -- -- -- --
Shares issued for domain name -- -- 4,000 -- --
Equity based compensation -- -- -- -- --
Net loss -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 -- $ -- 19,348,791 $ 19 --
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TREASURY ACCUMU-
PAID-IN STOCK LATED
AMOUNT CAPITAL SHARES AMOUNT DEFICIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2 $ 277 -- $ -- $ (3,349)
Cash proceeds from issuance of
Series C Preferred Stock -- -- -- -- --
Exercise of Series A common
stock options -- 2 -- -- --
Series D preferred stock and
options issued for purchase
of business -- 232 -- -- --
Equity based compensation -- 2 -- -- --
Net loss -- -- -- -- (5,140)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2 513 -- -- (8,489)
Cash proceeds from issuance of
Series E Preferred Stock -- -- -- -- --
Exercise of Series A common
stock options -- 150 -- -- --
Purchase of treasury stock -- -- 1,667 (1) --
Purchase of Series B Preferred
and Class B Common Stock (2) (246) -- -- (2,249)
Equity based compensation -- 1,865 -- -- --
Net loss -- -- -- -- (6,639)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 -- 2,282 1,667 (1) (17,377)
Cash proceeds from initial
public offering and concurrent
private placement, and
conversion of convertible
preferred stock -- 67,565 -- -- --
Exercise of Series A common
stock options -- 244 -- -- --
Issuance of common stock -
employee stock purchase plan -- 723 -- -- --
Exercise of warrants -- 32 2,080 (32) --
Retirement of treasury stock -- (33) (3,747) 33 --
Acquisition of Enact -- 5,859 -- -- --
Acquisition of ACT! -- 19,999 -- -- --
Adjustment to the OPIS
acquisition -- (41) -- -- --
Warrants issued -- 6,233 -- -- --
Shares issued for domain name -- 68 -- -- --
Equity based compensation -- (115) -- -- --
Net loss -- -- -- -- (7,506)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $102,816 -- $ -- $ (24,883)
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNEARNED
COMPEN-
SATION TOTAL
- -------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 -- $ 1,587
Cash proceeds from issuance of
Series C Preferred Stock -- 6,448
Exercise of Series A common
stock options -- 2
Series D preferred stock and
options issued for purchase
of business -- 4,176
Equity based compensation -- 2
Net loss -- (5,140)
- -------------------------------------------------------------------------
Balance at December 31, 1997 -- 7,075
Cash proceeds from issuance of
Series E Preferred Stock -- 18,439
Exercise of Series A common
stock options -- 151
Purchase of treasury stock -- (1)
Purchase of Series B Preferred
and Class B Common Stock -- (2,500)
Equity based compensation (1,789) 76
Net loss -- (6,639)
- -------------------------------------------------------------------------
Balance at December 31, 1998 (1,789) 16,601
Cash proceeds from initial
public offering and concurrent
private placement, and
conversion of convertible
preferred stock -- 34,096
Exercise of Series A common
stock options -- 245
Issuance of common stock -
employee stock purchase plan -- 723
Exercise of warrants -- --
Retirement of treasury stock -- --
Acquisition of Enact (1,806) 4,053
Acquisition of ACT! -- 20,000
Adjustment to the OPIS
acquisition -- (41)
Warrants issued -- 6,233
Shares issued for domain name -- 68
Equity based compensation 961 846
Net loss -- (7,506)
- -------------------------------------------------------------------------
Balance at December 31, 1999 $ (2,634) $ 75,318
=========================================================================
</TABLE>
F-4
<PAGE> 52
SalesLogix Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,506) $ (6,639) $ (5,140)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, including amortization of leased assets 1,986 787 254
Amortization of acquisition related intangible assets 3,479 1,436 360
Write-off of in-process research and development 900 -- --
Provision for losses on accounts receivable 2,206 666 181
Warrant issuance expense -- 11 2
Noncash equity compensation 445 65 --
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable (10,006) (3,082) (2,133)
Prepaid expenses and other assets (1,299) (350) (369)
Accounts payable 3,911 200 432
Accrued expenses 244 466 226
Deferred revenues 2,788 898 571
Deferred rental obligation -- 106 --
---------------------------------------
Net cash used in operating activities (2,852) (5,436) (5,616)
---------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (6,063) (1,597) (234)
Payment for purchase of acquisitions, net of cash acquired (5,832) -- (559)
Increase in other assets (1,037) (91) --
---------------------------------------
Net cash used in investing activities (12,932) (1,688) (793)
---------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 25,942 -- 1,500
Repayments of long-term debt (1,474) (326) (100)
Net proceeds from initial public offering 34,096 -- --
Principal payments under capital lease obligations (563) (451) (227)
Net proceeds from issuance of preferred stock -- 18,439 6,448
Purchase of Series B preferred and Class B common stock -- (2,500) --
Purchase of treasury stock -- (1) --
Proceeds from employee stock purchase plan 723 -- --
Issuance of warrants 6,233 -- --
Proceeds from exercise of common stock options 245 151 2
---------------------------------------
Net cash provided by financing activities 65,202 15,312 7,623
---------------------------------------
Net increase in cash and cash equivalents 49,418 8,188 1,214
Cash and cash equivalents, beginning of period 11,377 3,189 1,975
=======================================
Cash and cash equivalents, end of period $ 60,795 $ 11,377 $ 3,189
=======================================
SUPPLEMENTAL CASH FLOW INFORMATION
Assets acquired under capital lease obligations $ 2,894 $ 607 $ 698
=======================================
Intangible assets acquired with common and preferred stock and
preferred stock options $ 24,053 $ -- $ 4,176
=======================================
Cash paid for interest $ 160 $ 255 $ 86
=======================================
</TABLE>
F-5
<PAGE> 53
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SalesLogix Corporation ("Company") is a leading provider of front
office and e-commerce software for mid-market companies. The Company's products
to create interactive selling networks that streamline prospect and customer
interactions and dynamically connect mobile sales, internal telesales, third
party reseller, marketing and support organizations.
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, 1999, 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 1999, 1998 or 1997. 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.
F-6
<PAGE> 54
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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
The Company recognizes software licensing revenue upon receipt of 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 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.
F-7
<PAGE> 55
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ADVERTISING COSTS
The costs of print advertising are expensed as incurred. The costs of television
advertisements are expensed upon first viewing. Advertising expense was
approximately $1.5 million, $1.2 million and $872,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, prepaid
expenses included $450,000 in capitalized advertising related to a television
advertisement that was charged to expense by the Company upon its first viewing
on January 1, 2000.
INCOME TAXES
Income taxes have been accounted for under the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes". Under the asset and
liability method of SFAS No. 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
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income 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).
F-8
<PAGE> 56
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Through December 31, 1999, 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" (SFAS No. 123). APB 25 provides that no compensation
expense is recognized on employee stock option grants when the exercise price of
such grants is equal to or greater than the market price of the Company's stock.
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
The Company reports comprehensive loss in accordance with SFAS No. 130,
"Reporting Comprehensive Income". Comprehensive loss is the same as net loss for
all periods presented.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (see Note
11).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133).
the Company adopted SFAS No. 133 on January 1, 2000. SFAS No. 133 requires the
Company to recognize all derivatives on the balance sheet at fair value. The
Company does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on its results of operations or financial position.
F-9
<PAGE> 57
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform to the 1999 presentation.
2. ACQUISITIONS
On December 31, 1999, the Company acquired the ACT! product line and related
business from Symantec Corporation pursuant to an agreement dated December 6,
1999, as amended and closed on December 31, 1999. Under the terms of the
agreement, we acquired an exclusive, worldwide license to ACT! and an option to
purchase the product line at the end of the four year license term for an
aggregate purchase price of $60.0 million in cash, plus 623,247 shares of
SalesLogix common stock valued at $20.0 million. The Company is accounting for
the transaction using the purchase method of accounting. Amounts due to Symantec
are based on a contractual formula and are subject to maximums of $5.0 million
per quarter in 2000, $4.25 million per quarter in 2001, $2.75 million per
quarter in 2002, and $2.25 million per quarter in 2003. The maximum quarterly
payment amounts total $57.0 million, and the Company believes the limits will be
reached in each quarter during the four year term of the agreement. The final
payment is equal to $60.0 million less amounts previously paid. The cash portion
of the purchase price has been discounted at 22.4% to reflect the Company's
incremental borrowing rate in a simultaneous third party borrowing transaction.
The Company has also assumed certain deferred revenue obligations for which
Symantec will provide reimbursement.
On April 30, 1999, the Company acquired Enact Incorporated ("Enact"), a provider
of sales configuration software for managing product catalogs and marketing
encyclopedias and generating proposals, quotes, and orders. The Company paid
$4.2 million in cash and issued 609,424 shares of common stock, of which 201,893
shares are subject to three year monthly vesting. In connection with the
acquisition, the Company incurred direct acquisition related expenses of
approximately $1.4 million. Upon consummation of the transaction, Enact was
merged into a wholly-owned subsidiary of the Company.
On December 30, 1997, the Company completed the acquisition of Opis Corporation
("Opis"), a company engaged in the development, marketing and sales of customer
support software primarily to mid-sized organizations. The Company paid $801,559
in cash and issued 1,228,654 shares of its 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 the Company's Series D preferred stock. The aggregate cost of the
acquisition was approximately $6.3 million (including direct acquisition costs).
Upon consummation of the transaction, Opis was merged into a wholly-owned
subsidiary of the Company.
The acquisitions of Act, Enact, and Opis were recorded using the purchase method
of accounting. The results of operations of the acquired companies and the fair
values of the acquired assets and liabilities were included in the Company's
financial statements beginning on the acquisition date.
F-10
<PAGE> 58
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The purchase prices of the acquired companies have been allocated to the assets
acquired and liabilities assumed as follows:
<TABLE>
<CAPTION>
ACT ENACT OPIS
------- ------- -------
<S> <C> <C> <C>
Purchased technology $37,128 $ 2,800 $ 1,200
Customer list and other 24,752 -- 320
Goodwill -- 5,969 4,381
Write-off of in-process research and development -- 900 360
------- ------- -------
$61,880 $ 9,669 $ 6,261
======= ======= =======
</TABLE>
The Company received independent appraisals of the intangible assets acquired
from Enact and Opis. These appraisals indicated that approximately $900,000 of
the acquired intangible assets from Enact and $360,000 of the acquired
intangible assets from Opis were in-process research and development that had
not yet reached technological feasibility. Because there can be no assurance
that the Company will be able to successfully complete the development and
integration of the in-process research and development into its suite of
software products or that the acquired technology has any alternative future
use, the acquired in-process research and development was charged to expense
upon acquisition. The write off of in-process research and development of
$900,000 in 1999, $0 in 1998, and $360,000 in 1997 has been included in
amortization of acquisition-related intangibles in the statements of operations.
The pro forma results of operations set forth below have been prepared to
reflect the acquisitions of Act and Enact, assuming both acquisitions had
occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998
-----------------------
(in thousands, except
per share data)
(unaudited)
<S> <C> <C>
Total revenues $ 74,261 $ 58,417
======== ========
Net loss ($25,767) ($25,653)
======== ========
Basic and diluted net loss per share ($ 1.45) ($ 1.89)
======== ========
</TABLE>
Act was not a subsidiary or a reportable segment of Symantec. Symantec
maintained separate accounts to capture research and development and certain
product specific marketing activities of Act. Symantec did not maintain separate
accounts to capture corporate services, information services, selling, other
marketing, or general and administrative expenses incurred at the corporate
level and allocated to Act by Symantec. Symantec's cost of revenue includes the
direct manufacturing costs of the Act product, royalties, and the allocation of
various manufacturing overhead costs to the Act. The costs included above
include the expenses attributed to Act by Symantec as well as the additional
expenses the Company estimates it would have incurred had
F-11
<PAGE> 59
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
it run Act since January 1, 1998. These costs are not necessarily indicative of
the costs that would have been incurred if SalesLogix had operated the business
for the periods presented. The expenses charged Act by Symantec are not
necessarily indicative of the expenses that would have been incurred had Act
operated as a stand-alone business.
The unaudited pro forma results of operations do not purport to present what the
Company's financial position or results of operations would actually have been
had the events leading to the pro forma adjustments in fact occurred on the date
or at the beginning of the periods indicated or to project the Company's
financial position or results of operations for any future date or period.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------
(in thousands)
<S> <C> <C>
Furniture and fixtures $ 1,577 $ 826
Computers and other equipment 10,809 2,673
Leasehold improvements 153 112
--------------------
12,539 3,611
Less accumulated depreciation and amortization 2,832 1,067
--------------------
$ 9,707 $ 2,544
====================
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------
(in thousands)
<S> <C> <C>
Purchased technology $41,128 $ 1,200
Customer list and other 25,072 320
Goodwill 10,350 4,381
--------------------
76,550 5,901
Amortization 4,501 1,436
--------------------
Net intangible assets of acquired businesses $72,049 $ 4,465
====================
</TABLE>
Purchased technology, goodwill, customer lists, and other intangibles are stated
at cost and are amortized over their estimated useful lives of three to five
years using the straight-line method.
F-12
<PAGE> 60
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------
(in thousands)
<S> <C> <C>
Compensation $1,239 $ 686
Benefits 879 380
Direct costs of acquisition 502 181
Other 523 527
------------------
$3,143 $1,774
==================
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------
(in thousands)
<S> <C> <C>
Senior subordinated debt, due December 31, 2004, stated interest at 11%
payable quarterly, net of unamortized discount of $6,558 $25,942 $ --
Payable for purchase of Act, no stated interest, quarterly payments
through December 31, 2003, net of unamortized discount of $19,060 40,940 --
Repaid in 1999 -- 1,474
--------------------
$66,882 $1,474
====================
</TABLE>
On December 31, 1999, the Company borrowed $32,500,000 of senior subordinated
debt ("the Subordinated Debt"). The first two interest payments may be made "in
kind" by increasing the principal balance by the amount of interest due. The
Company paid a 1% commitment fee on the Subordinated Debt and issued warrants to
purchase 841,107 shares of the Company's common stock at $28.75 per share to the
lenders. Warrants to purchase an additional 0.8125% of the Company's fully
diluted shares, as defined, are due to the lenders on June 30, 2000, July 31,
2000, and August 31, 2000 if the Subordinated Debt has not been repaid on these
dates. Warrants to purchase an additional 2.847% of the Company's fully diluted
shares, as defined, are due to the lenders if the Subordinated Debt has not been
repaid by April 2, 2001. The first two interest payments may be made "in kind"
by increasing the principal balance by the amount of interest due.
The fair value of these warrants, determined using the Black Scholes method, as
well as the commitment fee, have been recorded as a discount to the debt and
will be amortized to interest expense using the interest method over the term of
the loan. The effective interest rate on the Subordinated Debt, including
amortization of this discount, is 22.4% at December 31, 1999.
F-13
<PAGE> 61
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The payable for the purchase of Act does not have a stated interest rate.
Quarterly payments of $5,000,000 in 2000, $4,250,000 in 2001, $2,750,000 in
2002, and $2,250,000 and one payment of $3,000,000 in 2005 have been discounted
at 22.4% to reflect the Company's borrowing rate on the concurrent Subordinated
Debt financing.
The aggregate annual principal maturities of long-term debt, net of unamortized
discount, as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Subordinated
Debt Act Payable Total
------------------------------------
(in thousands)
<S> <C> <C> <C>
2000 $ -- $11,775 $11,775
2001 -- 11,381 11,381
2002 -- 7,629 7,629
2003 -- 7,312 7,312
2004 25,942 2,843 28,785
-------------------------------------
25,942 40,940 66,882
Less current portion -- 11,775 11,775
-------------------------------------
$25,942 $29,165 $55,107
=====================================
</TABLE>
7. LEASES
The Company leases furniture and equipment under capital leases that expire in
various years through 2003. The Company also leases office facilities under
noncancelable operating leases that expire in various years through 2005.
Property and equipment includes the following amounts for leases that have been
capitalized:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------
(in thousands)
<S> <C> <C>
Furniture and equipment $4,399 $1,729
Less accumulated amortization 1,088 753
------------------
$3,311 $ 976
==================
</TABLE>
Amortization of leased assets is included in operating expenses in the
accompanying consolidated statements of operations.
F-14
<PAGE> 62
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Future minimum annual payments under capital leases and noncancelable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------------------
(in thousands)
<S> <C> <C>
2000 $1,307 $1,869
2001 1,235 1,430
2002 1,107 1,440
2003 184 1,450
2004 -- 381
Thereafter -- 583
------------------
Total minimum lease payments 3,833 $7,153
======
Amounts representing interest 486
======
Present value of net minimum lease payments (including
current portion of $1,083) $3,347
======
</TABLE>
Total rent expense for the operating lease amounted to approximately $1,400,000,
$685,000 and $273,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
8. CAPITAL STOCK
In May 1999, the Company's initial public offering became effective. The Company
sold 3,823,750 shares of common stock at an offering price of $9.00 per share in
the offering and 402,994 shares of common stock at a purchase price of $8.685 in
a concurrent private placement. Net proceeds from the offering and private
placement were approximately $34.1 million.
Prior to its initial public offering, the Company had Series A, B, C, D and E
preferred stock and Class A and B common stock outstanding. Each share of Series
A, B, C, D and E preferred stock had a par value of $.001 per share and was
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 and Class B common stock automatically
converted into Class A common stock upon closing of the Company's initial public
offering in May 1999.
In July 1998, the Company repurchased 33,240 shares of Series B convertible
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 also dropped their
respective claims against each other.
F-15
<PAGE> 63
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The company had the following shares of Class A common stock reserved for future
issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------
<S> <C> <C>
1996 Equity Incentive Plan 3,104,832 2,361,674
Subordinated Debt warrants 2,057,869 --
1999 Employee Stock Purchase Plan 205,547 --
1999 Non-Employee Director Stock Option
Plan 200,000 --
1998 Business Partner Stock Option Plan 101,777 166,667
Series A preferred stock warrants 43,334 43,334
Series D preferred stock options 53,105 64,558
Series D preferred stock warrants -- 6,667
Conversion of preferred stocks -- 10,045,436
Conversion of Class B common stock -- 72,827
--------------------------
Total 5,766,464 12,761,163
==========================
</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 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 certain 1998 grants, the largest of which was 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. The Company also had additional grants at $1.53 from June to
October 1998 for which the fair value for accounting purposes was determined to
be higher by $0.97 to $1.97 per share. As a result, the Company recorded
unearned compensation of $1,856,377 which is being amortized over the four-year
vesting period of these options.
The Company has an equity incentive plan for certain employees, directors,
consultants and independent contractors ("1996 Plan"). Under the 1996 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 market value of the stock as of the date of the grant.
Incentive stock options have a term of ten years and are exercisable over four
years commencing on the one-year anniversary of the employees' hire date.
F-16
<PAGE> 64
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Option activity under the 1996 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES EXERCISE PRICE PRICE
-----------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 1,707,834 $ .15 $ .15
Granted 469,171 .20-.48 .33
Exercised (16,062) .15 .15
Expired or canceled (54,086) .15-.24 .18
-----------------------------------------
Outstanding at December 31, 1997 2,106,857 .15-.48 .19
Granted 911,171 .60-1.53 1.37
Exercised (988,930) .15-.48 .15
Expired or canceled (374,752) .15-1.53 .50
-----------------------------------------
Outstanding at December 31, 1998 1,654,346 .15-1.53 .80
Granted 1,728,220 9.00-42.75 16.42
Exercised (390,176) .15-9.00 .42
Expired or canceled (156,334) .20-21.38 6.26
-----------------------------------------
Outstanding at December 31, 1999 2,836,056 $.15-$42.75 $10.07
============ ======
Exercisable at December 31, 1999 470,867 $ 1.07
============ ======
</TABLE>
Outstanding options at December 31,1999 by range of exercise price were as
follows:
<TABLE>
<CAPTION>
Weighted
Options Options Weighted Average Average
Exercise Price Outstanding Exercisable Contractual Life Exercise Price
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$.15-$9.00 2,022,856 470,192 8.5 years $4.21
$9.01-$20.00 368,400 675 9.6 years $16.69
$20.01-$30.00 157,450 0 9.8 years $23.67
$30.01-$42.75 287,350 0 9.9 years $35.35
------------------------------------------------------------------------
2,836,056 470,867 8.9 years $10.07
========================================================================
</TABLE>
The weighted average fair value of employee stock options granted in 1999, 1998
and 1997 was $11.86, $0.24 and $0.06, respectively, with a weighted average
remaining contractual life of approximately 8.9, 8.7 and 8.6 years,
respectively.
The Company has a stock option grant program for its resellers (Business
Partners) entitled the 1998 Business Partner Stock Option Plan ("Business
Partners Plan"). Under the Business Partners Plan, options to purchase Class A
Common Stock are issued to Business Partners who meet certain minimum sales
levels. The options are granted at an exercise price equal to the fair value of
the Class A Common Stock at the date of grant. As the Business Partners are not
employees of the Company, expense is recognized at the time the shares become
issuable based
F-17
<PAGE> 65
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
upon the Black-Scholes pricing model. Option activity under the Business
Partners Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES EXERCISE PRICE PRICE
------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 -- -- --
Granted 63,000 $.60 $.60
Exercised -- -- --
Expired or canceled -- -- --
------------------------------------------------
Outstanding at December 31, 1997 63,000 .60 .60
Granted 24,503 9.00 9.00
Exercised -- -- --
Expired or canceled -- -- --
------------------------------------------------
Outstanding at December 31, 1998 87,503 .60-9.00 2.95
Granted -- -- --
Exercised (48,223) .60-9.00 1.51
Expired or canceled (4,000) .60 .60
------------------------------------------------
Outstanding at December 31, 1999 35,280 $.60-$9.00 $5.19
======= =====
Exercisable at December 31, 1999 35,280 $5.19
======= =====
</TABLE>
In 1999, the Company adopted the 1999 Non-Employee Director Stock Option Plan
("Director Plan"). Options issued under the Director Plan must have an exercise
price equal to the fair value of the Company's common stock. Each non-employee
director receives an option to purchase 12,500 shares of common stock upon
joining the Company's board of directors and an option to purchase an additional
12,500 shares after each annual meeting in which the director remains on the
board. The number of shares reserved for the Director Plan is automatically
increased each year by an amount equal to 12,500 shares multiplied by the number
of non-employee directors.
During 1999, options to purchase 87,500 shares of common stock were issued under
the Director Plan at exercise prices ranging from $9.38 to $22.38 per share. No
shares were exercised or canceled, and options to purchase 8,592 shares were
exercisable at December 31, 1999.
At December 31, 1999, warrants for the purchase of 65,000 shares of Series A
Preferred Stock are outstanding. The warrants are exercisable at $1.00 per share
and may be exercised on a net basis. The warrants expire in 2006. In addition,
options to purchase 79,658 shares of Series D Preferred Stock, issued in
connection with the Opis acquisition, are outstanding (see Note 2). The options
are exercisable at $.8515 per share and expire ten years from the date of grant.
Upon exercise of outstanding warrants, the Series A and Series D preferred stock
will immediately convert into 43,334 and 53,105 shares of common stock. Warrants
for the purchase of 841,107 shares of common stock are outstanding. These
warrants are exercisable at $28.75
F-18
<PAGE> 66
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
and may be exercised on a net basis. The holders of these warrants have certain
registration rights.
SFAS No. 123 requires the presentation of pro forma information regarding net
loss and net loss per share as if the Company has accounted for all its employee
stock options grants under the fair value method. For purposes of this pro forma
calculation, the fair value of options was estimated at the date of grant using
the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Valuation method Black-Scholes Minimum Value Minimum Value
Expected life of the award 5 years 4 years 4 years
Dividend yield 0% 0% 0%
Expected volatility 89.9% N/A N/A
Risk-free interest rate 5% 5% 5%
</TABLE>
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>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net loss as reported $(7,506) $(6,639) $(5,140)
Pro forma SFAS No. 123 expense (1,613) (40) (16)
APB 25 expense recognized 445 65 --
-----------------------------------------------------
SFAS No. 123 Pro forma net loss $(8,674) $(6,614) $(5,156)
=====================================================
SFAS No. 123 Pro forma basic and diluted net loss
per share $ (.69) $ (1.75) $ (1.30)
=====================================================
SFAS No. 123 Pro forma basic and diluted net loss
per share, assuming conversion of preferred
stock $ (.52) $ (.54)
=============================
</TABLE>
10. CONTINGENCIES
The Company is a party to legal proceedings which arise out of the ordinary
course of business from time to time. Management is of the opinion that any
pending matters will have no material adverse effect on the Company's
consolidated financial statements.
11. SEGMENT INFORMATION
The Company operates as a single business segment and licenses and markets its
products through direct and indirect channels in North America, Europe and
Asia-Pacific. Information regarding revenues in different geographic regions is
as follows:
F-19
<PAGE> 67
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
United States $29,593 $14,205 $ 4,642
International 6,702 1,438 137
---------------------------------------------------
Total revenues $36,295 $15,643 $ 4,779
===================================================
</TABLE>
12. 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>
DECEMBER 31
1999 1998
------------------------------
Deferred tax assets: (in thousands)
<S> <C> <C>
Net operating loss carryforwards
Company $ 5,370 $ 4,720
Opis 600 600
General business credits 573 --
Other 957 880
------------------------------
7,500 6,200
Less valuation reserve (7,500) (6,200)
------------------------------
Net deferred tax assets -- --
Deferred tax liabilities -- --
------------------------------
Net deferred taxes $ -- $ --
==============================
</TABLE>
The valuation allowance increased by $1,300,000 and $2,500,000 at December 31,
1999 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. As a result the Company's effective tax rate
differs from the Federal statutory rate by such rate.
At December 31, 1999 the Company has net operating loss carryforwards for
federal income tax purposes of approximately $15,000,000 that 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 that limit the annual
utilization of net operating losses.
The Company has no income tax expense or benefit and therefore 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.
F-20
<PAGE> 68
SalesLogix Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. 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 Internal Revenue Service limitations. The Company may
make discretionary annual contributions to the Plan. However, no contributions
were made during 1999, 1998 or 1997.
In 1999, the Company adopted an employee stock purchase plan. Under the employee
stock purchase plan, eligible employees may purchase shares of the Company's
common stock through payroll deductions, subject to certain limitations. The
price at which the stock may be purchased is equal to 85% of the market price of
the Company's stock on the lower of the first or last day of the applicable
offering period. During 1999, 94,453 shares of common stock were issued under
the employee stock purchase plan at a price of $7.65 per share.
F-21
<PAGE> 69
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Phoenix, State of Arizona, on March 30, 2000.
SALESLOGIX CORPORATION
By: /s/ Patrick M. Sullivan
-------------------------------------------
Patrick M. Sullivan
President and Chief Executive Officer
Each person whose individual signature appears below 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 to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Annual Report on Form 10-K, 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 each of them, full power
and authority to do and perform each and every act and thing as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or any of them or their or his
substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated below on
March 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Patrick M. Sullivan President, Chief Executive Officer and Chairman of
- ----------------------------------- the Board (Principal Executive Officer)
Patrick M. Sullivan
/s/ Gary R. Acord
- ----------------------------------- Vice President, Chief Financial Officer, Secretary
Gary R. Acord and Treasurer (Principal Financial and Accounting
Officer)
/s/ Deepak Kamra
- ----------------------------------- Director
Deepak Kamra
/s/ Anthony P. Morris
- ----------------------------------- Director
Anthony P. Morris
/s/ David D. Schwab
- ----------------------------------- Director
David D. Schwab
/s/ Steve Hansen
- ----------------------------------- Director
Steve Hansen
/s/ John B. Carrington
- ----------------------------------- Director
John B. Carrington
</TABLE>
<PAGE> 70
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SALESLOGIX CORPORATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------- ---------------- ------------------------------------ ------------------ -----------------
ADDITIONS
------------------------------------
CHARGED TO
BALANCE OF CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTION- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE (1) OF PERIOD
- -------------------------- ---------------- --------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for Doubtful
Accounts -- 181 -- -- 181
Year ended December 31, 1998:
Allowance for Doubtful
Accounts 181 666 -- 392 455
Year ended December 31, 1999:
Allowance for Doubtful
Accounts 455 2,206 -- 1,597 1,064
</TABLE>
- -----------------------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE> 71
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
2.1** Software License Agreement between the Company and Symantec
Corporation dated December 6, 1999.
2.2** Amendment to Software License Agreement between the Company
and Symantec Corporation dated December 31, 1999.
2.3** Exhibit A to Software License Agreement -- Licensed
Products.
2.4** Exhibit C to Software License Agreement -- Other Transferred
Assets.
2.5** Exhibit E to Software License Agreement -- Transferred
Liabilities.
2.6** Exhibit F to Software License Agreement -- Transition
Agreement.
2.7** Exhibit M to Software License Agreement -- Registration
Rights Agreement.
2.8** Exhibit N to Software License Agreement -- Stockholder
Agreement.
3.4* Fifth Restated Certificate of Incorporation of the
registrant.
3.5* Second Restated Bylaws of the registrant.
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.
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* Outside Director Stock Option Plan
10.7* Employee Stock Purchase Plan.
10.8* Employment Agreement dated January 17, 1996 with Patrick M.
Sullivan.
10.9 Senior Subordinated Note and Warrant Purchase Agreement
dated December 31, 1999 among the registrant, BA Technology
I, LLC and GE Capital Equity Investments, Inc.
10.10 Registration Rights Agreement dated December 31, 1999 among
the registrant, BA Technology I, LLC and GE Capital Equity
Investments, Inc.
10.11 Common Stock Purchase Warrant dated December 31, 1999 issued
to BA Technology I, LLC
10.12 Common Stock Purchase Warrant dated December 31, 1999 issued
to GE Capital Equity Investments, Inc.
10.13 Senior Subordinated Note Due 12/31/04 issued to BA
Technology I, LLC
10.14 Senior Subordinated Note Due 12/31/04 issued to GE Capital
Equity Investments, Inc.
10.15 Office Lease Agreement dated as of November 1, 1999 between
the Registrant and Opus West Corporation.
21.1 Subsidiaries of the registrant.
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (No.
333-75353) filed by the registrant on March 31, 1999, as amended.
** Incorporated by reference to the Current Report on Form 8-K, filed by the
registrant for transaction dated December 31, 1999.
<PAGE> 1
EXHIBIT 10.9
SENIOR SUBORDINATED NOTE
AND WARRANT PURCHASE AGREEMENT
THIS SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is dated as of December 31, 1999, by and among SALESLOGIX
CORPORATION, a Delaware corporation (the "Company"), BA TECHNOLOGY I, LLC, a
Delaware limited liability company ("BancAmerica") and GE CAPITAL EQUITY
INVESTMENTS, INC., a Delaware corporation ("GE", and, together with BancAmerica,
the "Purchasers").
Statement of Purpose
The Company has entered into a Software License Agreement, dated as of
December 6, 1999 (the "License Agreement"), between the Company and Symantec
Corporation ("Symantec") providing for the purchase by the Company of the ACT!
product line and certain related business (the "Acquired Business") from
Symantec (the "Acquisition"). In addition, the Company has established a new
business strategy involving the creation of a dynamic hosting environment to
support web based implementation of its products.
In connection with the Acquisition and the establishment of the
Company's new business strategy, (a) the Company proposes to issue 11% senior
subordinated notes in the aggregate principal amount of $32,500,000.00 and (b)
the Company proposes to issue from time to time warrants to purchase shares of
Common Stock of the Company, in each case as more particularly described herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Acquired Business" has the meaning assigned thereto in the Statement
of Purpose.
"Acquisition" has the meaning assigned thereto in the Statement of
Purpose.
"ACT! Documents" means the License Agreement and each other document
and instrument executed pursuant thereto in connection with the Acquisition.
"Adjustment Date" has the meaning assigned thereto in Section 2.01(b).
<PAGE> 2
"Adjustment Percentage" has the meaning assigned thereto in Section
2.01(b).
"Adjustment Warrants" means any capital stock purchase warrants issued
by the Company to the Purchasers from time to time pursuant to the provisions of
Section 2.01(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person; provided, that in no event shall any Purchaser
(or any Affiliate of any Purchaser) be deemed to be an Affiliate of the Company.
A Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power (a) to vote 10% or more of the securities
having ordinary voting power for the election of directors or other managers of
such other Person or (b) to direct or cause the direction of the management and
policies of such other Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Senior Subordinated Note and Warrant Purchase
Agreement, as amended or supplemented from time to time.
"BancAmerica" has the meaning assigned thereto in the initial paragraph
of this Agreement.
"BHCA" means the Bank Holding Company Act of 1956, as amended (12
U.S.C. Section 1891, et seq.) and the regulations promulgated thereunder, and
any successor provisions thereto.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina are authorized or
required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, partnership interests, membership interests or
other equivalent equity interests and any rights, warrants or options
exchangeable for or convertible into such capital stock or other equity
interests.
"Capitalized Lease Obligation" means, with respect to the Company, any
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended or supplemented from time to time.
"Change of Control" means (a) the acquisition of ownership, directly or
indirectly (in a single transaction or a series of related transactions),
beneficially or of record, by any Person or group (within the meaning of Section
13(d) and Section 14(d)(2) of the Exchange Act as in effect on the date hereof)
other than a Non-Controlling Investor of shares representing more than 30% of
the issued and outstanding Common Stock of the Company entitled to vote for the
members of the board of directors of the Company; (b) the acquisition of
ownership, directly or indirectly (in
2
<PAGE> 3
a single transaction or a series of related transactions), beneficially or of
record, by any Non-Controlling Investor of shares representing more than 50% of
the issued and outstanding Common Stock of the Company entitled to vote for the
members of the board of directors of the Company; (c) occupation of a majority
of the seats (other than vacant seats) on the board of directors of the Company
by Persons who were neither (i) nominated by the board of directors of the
Company nor (ii) appointed by directors so nominated; (d) any Person or group
(other than the group in Control of the Company on the date hereof) shall
otherwise directly or indirectly Control the Company; or (e) Patrick Sullivan
shall cease to be the chief executive officer of the Company (i) for any reason
other than his death or disability, or (ii) due to his death or disability, and
a successor reasonably satisfactory to the Required Holders does not assume his
responsibilities and position within one hundred and twenty (120) days of such
cessation.
"Closing" has the meaning assigned thereto in Section 2.04.
"Closing Date" has the meaning assigned thereto in Section 2.04.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means collectively (a) the Common Stock of the Company,
par value $0.001 per share, as described in the Company Charter Documents, (b)
any other class of capital stock which is not preferred as to dividends or
assets over any other class of any capital stock of the Company or (c) any other
capital stock into which the foregoing is reclassified or reconstituted.
"Company" has the meaning assigned thereto in the initial paragraph of
this Agreement.
"Company Charter Documents" means the Certificate of Incorporation and
the Bylaws of the Company, as amended or supplemented from time to time.
"Consolidated EBITDA" means, for any period, with respect to the
Company and its Subsidiaries on a consolidated basis, the sum of (a)
Consolidated Net Income for such period plus (b) the sum of the following to the
extent deducted in determining Consolidated Net Income: (i) income and franchise
taxes, (ii) interest expense and (iii) amortization, depreciation and other
non-cash charges, less (c) interest income and any extraordinary gains.
"Consolidated Net Income" means, for any period, with respect to the
Company and its Subsidiaries on a consolidated basis, net income after interest
expense, income taxes and depreciation and amortization, all as determined in
accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision of any
securities issued by such Person or of any indenture or credit agreement or any
agreement, instrument or other
3
<PAGE> 4
undertaking to which such Person is a party or by which it or any of its
property is bound or to which it may be subject.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Current Assets" means, with respect to the Company, at any date, the
amount at which all of the current assets of the Company would be properly
classified as current assets shown on a balance sheet, determined on a
consolidated basis in accordance with GAAP.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of the
Company or any ERISA Affiliate or (b) has at any time within the preceding six
years been maintained for the employees of the Company or any current or former
ERISA Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities (including
common law), relating to the protection of human health or the environment,
including, but not limited to, requirements pertaining to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
handling, reporting, licensing, permitting, investigation or remediation of
Hazardous Materials. Environmental Laws include, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601 et. seq.), the Hazardous Material Transportation Act (49 U.S.C.
Section 331 et. seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et. seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et. seq.), the Clean Air Act (42 U.S.C. Section 7401 et. seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et. seq.), the Safe
Drinking Water Act (42 U.S.C. Section 300, et. seq.), the Environmental
Protection Agency's regulations relating to underground storage tanks (40 C.F.R.
Parts 280 and 281), and the rules and regulations promulgated under each of
these statutes, each as amended or supplemented.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Company or any Subsidiary directly or
indirectly resulting from or based upon (i) violation of any Environmental Law,
(ii) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (iii) exposure to any Hazardous Materials,
(iv) the release or threatened release of any Hazardous Materials into the
environment or (v) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who together with the Company is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
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"Event of Default" has the meaning assigned thereto in Article XII
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning assigned thereto in Section
5.16(a).
"Fully Diluted" means, with respect to the Common Stock, as of a
particular time the total outstanding shares of Common Stock as of such time,
determined by treating all outstanding options, warrants and other rights for
the purchase or other acquisition of shares of Common Stock (whether or not then
vested or exercisable) as having been exercised and by treating all outstanding
securities directly or indirectly convertible into or exchangeable for shares of
Common Stock (whether or not then exercisable or convertible) as having been so
converted or exchanged.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GAAS" means generally accepted United States auditing standards set
forth in the Professional Standards prescribed by the American Institute of
Certified Public Accountants.
"GE" has the meaning assigned thereto in the initial paragraph of this
Agreement.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses, registrations and filings with, and reports to, all Governmental
Authorities.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantee" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
(whether by reason of being a general partner of a partnership or otherwise) any
Indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person: (a) to
purchase such Indebtedness or obligation or any property constituting security
therefor; (b) to advance or supply funds (i) for the purchase or payment of such
Indebtedness or obligation, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness or obligation; (c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of
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<PAGE> 6
such Indebtedness or obligation of the ability of any other Person to make
payment of the Indebtedness or obligation; or (d) otherwise to assure the owner
of such Indebtedness or obligation against loss in respect thereof; provided,
that in any computation of the Indebtedness or other liabilities of the obligor
under any Guarantee, the Indebtedness or other obligations that are the subject
of such Guarantee shall be assumed to be direct obligations of such obligor.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are or
become regulated by any Governmental Authority, (c) the presence of which
require investigation or remediation under any Environmental Law, (d) the
discharge or emission or release of which requires a permit or license under any
Environmental Law or other governmental approval, (e) which are deemed by a
Governmental Authority to pose a health or safety hazard to persons or
neighboring properties, (f) which are materials consisting of underground or
aboveground storage tanks, whether empty, filled or partially filled with any
substance, or (g) which contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum
derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic
gas.
"Holder" means each Purchaser and any other holder of any Note or, any
portion of the Warrant Securities.
"Indebtedness" means, with respect to any Person, without duplication:
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures by bonds, debentures, notes or
similar instruments; (c) financial obligations of such Person as the issuer of
capital stock redeemable in whole or in part at the option of any Person other
than such Person as issuer, at a fixed and determinable date or upon the
occurrence of an event or condition not solely within the control of such Person
as issuer; (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property acquired by such Person; (e) all
financial obligations of such Person in respect of the deferred purchase price
of property or services (excluding current trade accounts payable on customary
terms and incurred in the ordinary course of business); (f) financial
obligations under purchase money mortgages; (g) all Capital Lease Obligations of
such Person; (h) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances; (i) financial obligations under asset
securitization vehicles; and (j) obligations under direct or indirect Guarantees
in respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or financial obligations of others of the kinds referred to in
clauses (a) through (i) above, except to the extent such Guarantees are limited
to a lesser amount. The Indebtedness of any Person shall include, without
duplication, the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Party" has the meaning assigned thereto in Section 13.01.
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"Initial Warrants" means the common stock purchase warrants issued by
the Company to the Purchasers on the Closing Date pursuant to the provisions of
Section 2.01(a).
"Investment" means any investment, made in cash or by delivery of
property, by the Company or any of its Subsidiaries (i) in any Person, whether
by acquisition of stock, Indebtedness, or other obligation or security, or by
loan, guaranty, advance, capital contribution or otherwise, or (ii) in any
property.
"Judgments" has the meaning assigned thereto in Section 12.01(i).
"Junior Preferred Stock" means a series of Junior Participating
Non-Voting Convertible Preferred Stock of the Company having the following
characteristics:
(a) It shall have dividends and liquidation rights identical to
those of Common Stock, and entitling the Holder thereof to
receive dividends and liquidation proceeds in the same amounts
as if it were converted to Common Stock on or before the
record date or other applicable time for determining the
Holders entitled to receive such dividend or distribution;
(b) It shall have no voting rights except to the extent required
by law;
(c) It shall be convertible into Common Stock, at any time and
from time to time, at the option of the Holder, without
payment of any consideration; provided, however, that if the
Holder in any such conversion is subject to the BHCA, such
conversion may only be made if (i) the BHCA would not prohibit
such Holder from holding such shares of Common Stock, and (ii)
such shares of Common Stock to be received upon such
conversion will be held, distributed or sold in any other
manner permitted by the BHCA; and
(d) It shall contain antidilution protection provisions with
respect to such conversion rights comparable to the
antidilution protection provisions in Section 4 of the Form of
Warrant attached hereto as Exhibit B-1.
"Latest Balance Sheet Date" has the meaning assigned thereto in Section
5.16(a).
"Liabilities" has the meaning assigned thereto in Section 13.01.
"License Agreement" has the meaning assigned thereto in the Statement
of Purpose.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including, in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"Material Adverse Effect" means a material adverse effect upon (a) the
business, assets, properties, results of operations, condition (financial or
otherwise) or prospects of the Company,
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taken as a whole (after giving effect to the Acquisition), (b) the ability of
the Company to repay the Notes, or (c) the ability of the Company to perform its
material obligations hereunder, or under any Warrant.
"Money Borrowed" means, with respect to the Company and its
Subsidiaries, (a) Indebtedness arising from the lending of money by any Person
to the Company or any of its Subsidiaries; (b) Indebtedness, whether or not in
any such case arising from the lending by any Person of money to the Company or
any of its Subsidiaries, (i) which is represented by notes payable or drafts
accepted that evidence extensions of credit, (ii) which constitutes obligations
evidenced by bonds, debentures, notes or similar instruments, or (iii) upon
which interest charges are customarily paid (other than accounts payable) or
that was issued or assumed as full or partial payment for property; (c)
Indebtedness that constitutes Capitalized Lease Obligations; (d) reimbursement
obligations with respect to letters of credit or guaranties of letters of
credit; and (e) Indebtedness of the Company or any of its Subsidiaries under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (a) through (c) hereof, if owed directly by such Person.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate is making, or is
accruing an obligation to make, or has made or accrued an obligation to make,
contributions within the preceding six years.
"Net Cash Proceeds" means, with respect to any Public Offering or any
asset disposition, the gross cash proceeds received by the Company or any of its
Subsidiaries therefrom less (a) all legal, accounting, consulting and investment
banking and other fees and expenses incurred in connection therewith and (b) in
the case of an asset disposition, the amount of liabilities, if any, which are
required to be repaid concurrently and in connection with the consummation of
such asset disposition.
"Non-Controlling Investor" means a Person that, in connection with its
acquisition of shares of Common Stock, satisfies clauses (i) and (ii) of Rule
13d-1(b)(1) of the Exchange Act and thereafter has not made a filing on Schedule
13D under the Exchange Act in respect of the Common Stock.
"Note" means any Senior Subordinated Promissory Note issued pursuant to
this Agreement, as amended or supplemented from time to time, and "Notes" means
each such Note, collectively.
"Note Register" has the meaning assigned thereto in Section 14.04(b).
"Participant" has the meaning assigned thereto in Section 14.04(c).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of the Company
or any ERISA Affiliates or (b) has at any time within the
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preceding six years been maintained for the employees of the Company or any of
its current or former ERISA Affiliates.
"Permitted Acquisitions" has the meaning assigned thereto in Section
9.01(c).
"Permitted Disposition" has the meaning assigned thereto in Section
9.06.
"Permitted Investments" has the meaning assigned thereto in Section
9.07.
"Person" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" means the preferred stock of the Company, par value
$0.001 per share, as described in the Company Charter Documents.
"Public Offering" means any underwritten primary public offering of any
class or series of Capital Stock of the Company or any of its Subsidiaries
pursuant to a registration statement declared effective under the Securities
Act.
"Purchasers" has the meaning assigned thereto in the initial paragraph
of this Agreement.
"Qualified Public Offering" means a Public Offering resulting in Net
Cash Proceeds in an amount equal to or greater than the principal amount of the
Notes plus any accrued and unpaid interest thereon at the time of consummation
of such Public Offering.
"Redemption Notice" has the meaning assigned thereto in Section
10.03(b).
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof, by and among the Company and the Purchasers,
substantially in the form attached hereto as Exhibit C, as amended, supplemented
or otherwise modified from time to time.
"Regulatory Constraint" has the meaning assigned thereto in Section
8.11.
"Regulatory Requirement" has the meaning assigned thereto in Section
8.11.
"Required Holders" means Holders holding at least a majority of the
aggregate principal balance of Notes then outstanding.
"Requirements of Law" means, with respect to a Person, the certificate
of incorporation and bylaws or other organizational or governing documents of
such Person, and any law, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject or pertaining to any or all of the transactions contemplated or referred
to herein.
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"SEC Documents" has the meaning assigned thereto in Section 5.20.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Solvent" means, as to the Company and its Subsidiaries on a particular
date, that any such Person (a) has capital sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage and is able to pay its debts as they mature, (b) owns property having a
value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
"Subsidiary" means, as to any Person, (a) any corporation more than 50%
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (b) any partnership, limited liability
company, association, joint venture or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
"Symantec" has the meaning assigned thereto in the Statement of
Purpose.
"Transaction Documents" means, collectively, this Agreement, the Notes,
the Warrants and the Registration Rights Agreement.
"Warrant Securities" means, collectively, the Warrants and any shares
of Capital Stock the Company issued upon exercise of the Warrants, and any other
shares of the Company's Capital Stock issued with respect to such shares.
"Warrants" means collectively, the Initial Warrants and the Adjustment
Warrants, and any other warrants issued in replacement or substitution thereof.
"Wholly-Owned Subsidiary" means, as to any Person, (a) any corporation
100% of whose Capital Stock (other than director's qualifying shares) is at the
time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such
Person and (b) any partnership, limited liability company, association, joint
venture or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
1.02 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" means such accounting practice as, in the opinion of
the independent certified public accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis except for changes
with which such accountants concur. If any changes in accounting principles are
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hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions of or are otherwise required by, the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found herein,
then the parties hereto agree to enter into and diligently pursue negotiations
in order to amend such financial covenants, standards or terms so as to reflect
fairly and equitably such changes, with the desired result that the criteria for
evaluating the financial condition and results of operations of the Company
shall be the same after such changes as if such changes had not been made;
provided, that prior to any such amendments, compliance with the financial
covenants contained herein shall continue to be determined in accordance with
GAAP as in effect prior to such change.
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS
2.01 Purchase and Sale of Notes and Warrants.
(a) Subject to the terms and conditions hereof, on the Closing Date (i)
the Company will issue to the Purchasers, and each Purchaser will, severally and
not jointly, acquire from the Company, Notes in the aggregate principal amounts
set forth opposite their names in Schedule 2.01(a) under the heading "Aggregate
Principal Amount of Notes" and (ii) the Company shall issue to each Purchaser,
and each Purchaser shall acquire from the Company, the Initial Warrants
exercisable for the numbers of shares of Fully Diluted Common Stock (after
taking into effect the issuance of the Initial Warrants) set forth opposite
their names in Schedule 2.01(a) under the heading "Initial Warrants." The Notes
shall be substantially in the form of Exhibit A attached hereto, and the Initial
Warrants shall be substantially in the form of Exhibit B-1 attached hereto, in
each case, as appropriately completed in conformity herewith.
(b) If on any of the dates set forth on Schedule 2.01(b) under the
heading "Adjustment Date" (each such date, an "Adjustment Date") any principal,
interest, or any other amount due under the Notes shall not have been
irrevocably paid in full, then, on any such date, the Company shall issue to
each Purchaser (or, if the Initial Warrants or a portion thereof have been
transferred in accordance with the provisions thereof and of this Agreement, to
the Holder holding such Initial Warrants), and each Purchaser (or each such
Holder) shall acquire from the Company, Adjustment Warrants exercisable for the
number of shares of Fully Diluted Common Stock (the "Aggregate Number", as
defined in the Form of Warrant attached hereto as Exhibit B-2) which, on such
Adjustment Date, would constitute the percentage of all issued and outstanding
Fully Diluted Common Stock of the Company (after taking into effect the issuance
of such Adjustment Warrants) set forth in Schedule 2.01(b) opposite such
Purchaser's name under the heading "Adjustment Percentage" (or, in the case of a
Holder other than a Purchaser, the applicable pro rata portion thereof) (each
such percentage, an "Adjustment Percentage"); provided, however that in the
event the Notes are redeemed in part but not in whole on or before an Adjustment
Date, the Adjustment Percentage applicable to Adjustment Warrants issued on or
after such partial redemption shall be equal to the applicable Adjustment
Percentage set forth on Schedule 2.01(b) multiplied by a fraction, the numerator
of which shall be the principal balance of
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the Notes (including any Pik Notes, as such term is defined in Exhibit A) as of
the Adjustment Date in question and the denominator of which shall be
$32,500,000; and provided, further, that, in the event that the proposed Holder
thereof notifies the Company and any Purchaser who is a Holder at such time (it
being understood that the failure by such proposed Holder to notify any such
Purchaser shall not in any way prejudice its rights hereunder) in writing of a
Regulatory Constraint in connection with the pending issuance of an Adjustment
Warrant and requests that the Capital Stock issuable upon the exercise of such
Adjustment Warrant be Junior Preferred Stock, the Company shall expeditiously
take all necessary action to authorize such Junior Preferred Stock, including
filing appropriate documents with the Delaware Secretary of State, and shall
issue to such proposed Holder (and to any other proposed Holder who so elects in
writing) such Adjustment Warrant as a warrant to purchase shares of Junior
Preferred Stock in a number, which if converted to Common Stock pursuant to the
terms of the Junior Preferred Stock, would constitute the applicable Adjustment
Percentage and with such other conforming changes as are appropriate for the
Holder thereof to realize the benefits originally intended hereunder. In the
Adjustment Warrants, the Exercise Price initially will be the Current Market
Price (as such capitalized terms are defined in the Form of Adjustment Warrant
attached hereto as Exhibit B-2) determined as of the Business Day immediately
preceding the Adjustment Date and will be subject to adjustment as provided in
Section 2 of the Form of Adjustment Warrant attached hereto as Exhibit B-2;
provided, however, in the case of an Adjustment Warrant to purchase Junior
Preferred Stock, the aggregate initial Exercise Price for all the shares of
Junior Preferred Stock subject to such Adjustment Warrant shall equal the
aggregate of such Current Market Price of all the shares of Common Stock into
which such shares of Junior Preferred Stock would be convertible. The Adjustment
Warrants shall be substantially in the form of Exhibit B-2 attached hereto, as
appropriately completed in conformity herewith.
2.02 Purchase Price. The aggregate purchase price of the Notes and the
Warrants shall be Thirty-Two Million Five Hundred Thousand Dollars
($32,500,000.00) which shall be payable by the Purchasers on the Closing Date as
attached in Schedule 2.01(a). The Company hereby acknowledges and agrees that
the purchase price paid by the Purchasers on the Closing Date is an aggregate
purchase price for the Notes and the Warrants, and that no further payments will
be made by the Purchasers or by any other Holder in consideration for any
issuance of the Adjustment Warrants.
2.03 Original Issue Discount. The Company and the Purchasers
acknowledge that under the regulations of the United States Department of
Treasury, the issuance of the Notes and the Warrants for an aggregate, combined
purchase price will result in the creation of "original issue discount" on the
Notes equal to the value of the Warrants. After taking into account all relevant
factors (including the general condition of the financial markets at this time,
the exercise price for shares of Common Stock issuable upon exercise of the
Warrants, the nature of the rights provided for in the Warrants and all other
matters concerning the transactions contemplated by this Agreement), the Company
and the Purchasers agree that the aggregate original issue discount on the Notes
(i.e., the aggregate value of the Warrants) is $5,600,000. Neither the Company
nor the Purchasers will take any position for United States federal income tax
purposes that is inconsistent with the provisions of this Section 2.03
2.04 Closing.
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(a) Subject to the terms and conditions of this Agreement, the issuance
and purchase of the Notes and the Initial Warrants shall take place at the
closing (the "Closing") to be held at the offices of Osborn Maledon, P.A., The
Phoenix Plaza, 2929 North Central Avenue, Phoenix, Arizona 85012-2794, effective
as of 11:59 p.m. (Arizona time), on December 31, 1999, or at such other time and
place as the Company and the Purchasers may agree in writing (the "Closing
Date"); provided, that in any event the Closing Date shall be on or before
January 3, 2000. At the Closing, the Company shall execute and deliver to each
Purchaser the Notes in the principal amounts and the Initial Warrants
exercisable for the number of shares of Common Stock set forth opposite such
Purchaser's name in Schedule 2.01(a) against delivery to the Company by each
Purchaser of the purchase price therefor, in the amount set forth opposite such
Purchaser's name on Schedule 2.01(a) under the heading "Total Purchase Price,"
by wire transfer of immediately available funds or by delivery of cashier's or
certified check; provided, however, that, subject to the occurrence of the
Closing on or before January 3, 2000, GE shall deliver or cause to be delivered
its purchase price to the Company by wire transfer of immediately available
funds on January 3, 2000. The Closing shall be deemed to have occurred on
December 31, 1999 if all conditions set forth in Article III have been satisfied
or waived on December 31, 1999 other than GE's delivery of the purchase price
pursuant to the proviso of the second sentence of this Section 2.04(a). The
Company and the Purchasers hereby agree that the Closing shall not occur with
respect to any Purchaser, and therefore, such Purchaser shall have no
obligations hereunder, unless and until the Closing occurs with respect to all
Purchasers.
(b) The issuance and purchase of any Adjustment Warrants, if
any, required to be issued by Section 2.01(b) shall be consummated by delivery
by the Company to the applicable Holder of such Adjustment Warrants on a
Business Day no later than five (5) Business Days after the date such Adjustment
Warrants are required to be issued as set forth in Schedule 2.01(b) at the
offices of such Holder at the address set forth in Section 14.02 hereof, or at
such other time and place as the Company and such Holder may agree in writing.
ARTICLE III
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Notes and Warrants, to
pay the purchase price therefor at the Closing and to perform any obligations
hereunder, shall be subject to the satisfaction as determined by the Purchasers
of the following conditions on or before the Closing Date:
3.01 Representations and Warranties. The representations and warranties
contained in Article V hereof shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of such date.
3.02 Compliance with this Agreement. The Company shall have performed
and complied in all material respects with all of the agreements and conditions
set forth or
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contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
3.03 Officer's Certificate. Each Purchaser shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company, in form and substance satisfactory to
such Purchaser, to the effect that (a) all representations and warranties of the
Company contained in this Agreement are true, correct and complete in all
material respects, (b) the Company is not in material violation of any of the
covenants contained in this Agreement and (c) all conditions precedent to the
Closing of this Agreement to be performed by the Company have been duly
performed in all material respects.
3.04 Secretary's Certificates. Each Purchaser shall have received a
certificate from the Company dated as of the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company certifying (a) that the
attached copies of the Company Charter Documents and resolutions of the Board of
Directors of the Company approving this Agreement and the transactions
contemplated hereby, are all true, complete and correct and remain unamended and
in full force and effect, (b) as to the incumbency and specimen signature of
each officer of the Company executing this Agreement and any other document
delivered in connection herewith on behalf of the Company and (c) as to the good
standing of the Company in the jurisdiction of its incorporation and in each
other state in which the Company is transacting business.
3.05 Transaction Documents; ACT! Documents. Each Purchaser shall have
received true, complete and correct copies of the Transaction Documents, the
ACT! Documents and such other documents as it may reasonably request in
connection therewith, all in form and substance satisfactory to the Purchaser.
3.06 Financial Matters.
(a) Financial Statements. The Purchasers shall have received copies of
the financial statements referred to in Section 5.16.
(b) Payment at Closing. There shall have been paid by the Company to
each Purchaser any accrued and unpaid fees due each Purchaser (including,
without limitation, all reasonable legal fees and expenses required to be paid
pursuant to Section 14.16, and the commitment fees payable pursuant to Section
14.17), and to any other Person such amount as may be due, including all taxes,
fees and other charges in connection with the execution, delivery, recording,
filing and registration of any of the Transaction Documents.
3.07 Contracts. Each Purchaser shall have received copies of all
contracts and agreements evidencing the Contractual Obligations described in
Section 5.15 to which the Company and its Subsidiaries will be a party
immediately after the Closing Date, each as originally executed and delivered by
the parties thereto and as in effect on the Closing Date.
3.08 Purchase Permitted by Applicable Laws. The acquisition of and
payment for the Notes and the Warrants to be acquired by each Purchaser
hereunder and the consummation of the transactions contemplated hereby (a) shall
not be prohibited by any Requirement of Law and (b)
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shall not subject such Purchaser to any penalty or, in its reasonable judgment,
other onerous condition under or pursuant to any Requirement of Law.
3.09 Consents and Approvals. All consents, exemptions, authorizations
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Company required in connection with the
execution, delivery or performance by the Company or enforcement against the
Company of this Agreement and the other Transaction Documents shall have been
obtained and be in full force and effect, and each Purchaser shall have been
furnished with appropriate evidence thereof, and all waiting periods shall have
lapsed without extension or the imposition of any conditions or restrictions.
3.10 Registration Rights Agreement. The Registration Rights Agreement
shall have been duly executed and delivered by each of the parties thereto.
3.11 No Waivers. The Acquisition and the other transactions
contemplated by the ACT! Documents shall have been consummated prior to or
concurrently with the Closing pursuant to the terms and conditions thereof,
without the waiver of any conditions precedent thereto required to be performed
on or prior to the consummation of the transactions contemplated thereby which
are for the benefit of the Company, or any waiver of any terms thereof other
than the conditions precedent if, in either case, the waiver thereof, in the
reasonable judgment of the Purchasers, could be expected to have a Material
Adverse Effect.
3.12 No Material Adverse Change. Except as disclosed in writing to the
Purchasers, since September 30, 1999, no event shall have occurred which has had
or could reasonably be expected to have a Material Adverse Effect, including any
event having a material adverse effect on the Acquired Business.
3.13 Opinion of Counsel. Each Purchaser shall have received an opinion
of Osborn Maledon P.A., counsel to the Company, dated the Closing Date and in
substantially the form attached hereto as Exhibit D hereto.
3.14 Disbursement Instructions. The Purchasers shall have received
written instructions from the Company directing the payment of the purchase
price of the Notes and the Warrants.
3.15 Side Letter. The Company shall have delivered to GE a side letter
in form and substance reasonably acceptable to GE regarding the use by the
Company of the name of GE and its Affiliates.
3.16 Other Documents. The Company shall have delivered to each
Purchaser such other documents, certificates and opinions as such Purchaser or
its counsel may reasonably request.
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ARTICLE IV
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Notes and to issue
the Warrants to a Purchaser, and the obligations of the Company to perform its
other respective obligations hereunder with respect to such Purchaser, shall be
subject to the satisfaction as determined by the Company of the following
conditions on or before the Closing Date:
4.01 Representations and Warranties. The representations and warranties
of such Purchaser contained in Article VI hereof shall be true and correct in
all material respects on and as of the Closing Date as of made on and as of such
date.
4.02 Compliance with this Agreement. Such Purchaser shall have
performed and complied in all material respects with all of its agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by such Purchaser on or before the Closing Date.
4.03 Issuance Permitted by Requirements of Laws. The issuance of the
Notes and the Warrants by the Company and the consummation of the transactions
contemplated hereby (a) shall not be prohibited by any Requirement of Law and
(b) shall not subject the Company or such Purchaser to any penalty or, in its
reasonable judgment, other onerous condition under or pursuant to any
Requirement of Law.
4.04 Consents and Approvals. All consents, exemptions, authorizations
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons in respect of all Requirements of Law and Contractual
Obligations of such Purchaser required in connection with the execution,
delivery or performance by such Purchaser or enforcement against such Purchaser
of this Agreement shall have been obtained and be in full force and effect, and
the Company shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser, after
giving effect to the Acquisition and the other transactions contemplated by this
Agreement and the other Transaction Documents, as of the Closing Date, as
follows:
5.01 Corporate Existence and Power. Each of the Company and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power and authority to own and
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operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is currently proposed to be, engaged
and (c) has the corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each other Transaction Document to
which it is or will be a party.
5.02 Corporate Authorization; Compliance with Laws.
(a) The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is or will be a party
and the transactions contemplated hereby and thereby, including without
limitation the issuance by the Company of the Notes and the Warrants, (i) have
been duly authorized by all necessary corporate, and if required, stockholder
action (other than any such action necessary for the authorization of the Junior
Preferred Stock or the issuance of Adjustment Warrants exercisable therefor),
(ii) do not contravene the terms of the Company Charter Documents or the
organizational documents of any of the Company's Subsidiaries and (iii) will not
violate, conflict with or result in any breach or contravention of or the
creation of any Lien under, any Contractual Obligation of the Company or any of
its Subsidiaries, or any Requirement of Law applicable to the Company or any of
its Subsidiaries.
(b) Except to the extent that the failure to do so (individually or in
the aggregate) could not reasonably be expected to have a Material Adverse
Effect, and except as disclosed in Schedule 5.02(b) each of the Company and its
Subsidiaries (i) has all Governmental Approvals required under any Requirement
of Law for it to conduct its business, each of which is in full force and
effect, is final and not subject to review on appeal and is not the subject of
any pending or, to the best of its knowledge, threatened attack by direct or
collateral proceeding, (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other Requirements of Law relating
to it or any of its respective properties and (iii) has timely filed all
material reports, documents and other materials required to be filed by it under
any Requirement of Law with any Governmental Authority and has retained all
material records and documents required to be retained by it under any
Requirement of Law.
5.03 Governmental Authorization; Third Party Consents. Except as
contemplated by the Transaction Documents and except to the extent previously
and duly obtained or made and in full force and effect, no approval, consent,
compliance, exemption, authorization or other action by, or notice to, or filing
with, any Governmental Authority or any other Person in respect of any
Requirement of Law or Contractual Obligation, and no lapse of a waiting period
under any Requirement of Law or Contractual Obligation, is necessary or required
in connection with the execution, delivery or performance by the Company or
enforcement against the Company of this Agreement and the other Transaction
Documents to which it is a party or the transactions contemplated hereby or
thereby.
5.04 Binding Effect. This Agreement and the other Transaction Documents
to which the Company is a party will, upon the due execution and delivery
thereof by the Company, constitute the legal, valid and binding obligation of
the Company enforceable against the Company in accordance with their respective
terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
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enforcement of creditors' rights generally and by general principles of equity
relating to enforceability.
5.05 Litigation; Environmental Matters.
(a) There are no legal actions, suits, proceedings, claims or disputes
pending, or to the knowledge of the Company, threatened, at law, in equity, in
arbitration or before any Governmental Authority against or affecting the
Company or any of its Subsidiaries (a) which affects the legality, validity or
enforceability of this Agreement or any other Transaction Document or which
seeks to obtain damages or obtain relief as a result of, the transactions
contemplated by this Agreement or any other Transaction Document or (b) which
could reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order, decree or any order of any nature has been
issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any of the
other Transaction Documents.
(b) Except with respect to any other matters that, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Company nor any of its Subsidiaries (i) has failed to comply
with any Environmental Law or to obtain, maintain or comply with any permit,
license or other approval required under any Environmental Law, (ii) has become
subject to any Environmental Liability, (iii) has received notice of any claim
with respect to any Environmental Liability or (iv) knows of any basis for any
Environmental Liability.
5.06 No Default or Breach. Neither the Company nor any of its
Subsidiaries is in default under or with respect to any Contractual Obligation
in any respect, which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect.
5.07 ERISA. The execution and delivery of this Agreement and each of
the other Transaction Documents, the purchase and sale of the Notes and the
Warrants hereunder and the consummation of the transactions contemplated hereby
and thereby will not result in any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code or any other violations of
ERISA or any other Requirement of Law related thereto.
5.08 Disclosure. This Agreement and any other document, certificate or
statement furnished to any Purchaser by or on behalf of the Company on or prior
to the Closing Date do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
were made, not misleading. There is no fact known to the Company which the
Company has not disclosed to each Purchaser in writing which has had or could
reasonably be expected to have a Material Adverse Effect.
5.09 Use of Proceeds. No part of the proceeds of the Notes or the
Warrants will be used for any purpose which violates, or which would be
inconsistent with, the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
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5.10 Taxes. Each of the Company and its Subsidiaries has timely filed
or caused to be filed all tax returns and reports required to have been filed
and has paid or caused to be paid all taxes required to have been paid by it,
except (a) taxes that are being contested in good faith by appropriate
proceedings and for which the Company or such Subsidiary, as applicable, has set
aside on its books adequate reserves or (b) to the extent that the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
5.11 Capitalization. The authorized Capital Stock of the Company and
each of its Subsidiaries and the issued and outstanding shares thereof are as
described on Schedule 5.11. All outstanding shares of Capital Stock of the
Company and each of its Subsidiaries will be duly authorized and validly issued,
fully paid, nonassessable and free and clear of any Lien created by the Company.
The Common Stock or the Junior Preferred Stock, as the case may be, to be issued
upon exercise of the Warrants will be validly authorized and, when issued upon
due exercise of the Warrants, will be fully paid, nonassessable and free and
clear of any Lien other than Liens created by the Purchasers. Except as
described in Schedule 5.11, (a) no other Capital Stock of the Company or any of
its Subsidiaries is authorized or outstanding, (b) neither the Company nor any
of its Subsidiaries has outstanding any rights (either preemptive or other) or
options to subscribe for or purchase from the Company or any of its Subsidiaries
any warrants or other agreements providing for or requiring the issuance by the
Company or any of its Subsidiaries of, any Capital Stock, (c) none of the
Company, any of its Subsidiaries or any of its shareholders is a party to any
agreement with respect to the voting or transfer of the Capital Stock of the
Company or any of its Subsidiaries and (d) neither the Company nor any of its
Subsidiaries is under any obligation to register under the Securities Act or
under any other securities law, any of its presently outstanding securities or
any securities that may be subsequently issued. The number of shares of Common
Stock set forth in each Initial Warrant as being subject to issuance upon
exercise of such Initial Warrant represents, in the case of the Initial Warrant
to be purchased by BancAmerica, two and eight hundred and thirteen thousandths
percent (2.813%), and, in the case of the Initial Warrant to be purchased by GE,
zero and eight hundred and forty-four thousandths percent (0.844%), of all the
shares of Common Stock of the Company on a Fully Diluted basis as of December 3,
1999 (after taking into effect the issuance of Common Stock in connection with
the Acquisition and the issuance of the Initial Warrants). The number of shares
of Common Stock or Junior Preferred Stock (if converted to Common Stock pursuant
to the terms thereof), as the case may be, subject to issuance upon exercise of
each Adjustment Warrant, will represent, when each such Adjustment Warrant is
issued, a percentage of shares of Common Stock of the Company equal to the
Adjustment Percentage set forth on Schedule 2.01(b) for such Adjustment Warrant
on a Fully Diluted basis as of the Adjustment Date set forth in Schedule 2.01(b)
for such Adjustment Warrant.
5.12 Investments. Set forth in Schedule 5.12 is a complete and correct
list of all Investments (other than Permitted Investments) held by the Company
in any Person on the date hereof and, for each such Investment, (x) the identity
of the Person or Persons holding such Investment and (y) the nature of such
Investment. Except as disclosed in Schedule 5.12, the Company owns, free and
clear of all Liens, all such Investments.
5.13 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Notes or the
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Warrants. Assuming the truth of the representations made in Article VI, no
registration of the Notes or the Warrants pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws will be required by
the offer, sale or issuance of the Notes, the Warrants or the shares of Common
Stock issuable upon exercise of the Warrants.
5.14 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or any other Transaction Document to
which the Company is a party, based on any agreement, arrangement or
understanding with the Company or any action taken by the Company, other than
the fees payable pursuant to Section 14.7.
5.15 Contractual Obligations, etc. Except for the Transaction
Documents, Schedule 5.15 hereto sets forth a complete and accurate list of all
material Contractual Obligations (including the Contractual Obligations acquired
or assumed in connection with the Acquisition) of the Company and its
Subsidiaries. Each such Contractual Obligation (including Contractual
Obligations evidencing Indebtedness and Liens) is, and after giving effect to
the consummation of the transactions contemplated by the Transaction Documents
will be, in full force and effect in accordance with the terms thereof and there
are no material defaults by the Company or its Subsidiaries or, to the best
knowledge of the Company and its Subsidiaries, by any other party under any such
Contractual Obligation, except for such defaults that are not reasonably
expected (individually or in the aggregate) to have a Material Adverse Effect.
5.16 Financial Statements.
(a) Schedule 5.16 hereto contains copies of the audited consolidated
balance sheet as of December 31, 1998 and the unaudited interim consolidated
balance sheet as of September 30, 1999 (the "Latest Balance Sheet") for the
Company and its Subsidiaries, and the related audited consolidated statements
(other than the unaudited interim consolidated statements for the period ending
September 30, 1999) of operations, stockholders' deficit and cash flows of the
Company and its Subsidiaries for the fiscal periods then ended (collectively,
the "Financial Statements"). The Financial Statements (i) fairly present, in all
material respects, the financial condition and the results of operations of the
Company as at the dates and for the periods indicated therein, (ii) were based
on the books and records of the Company and were prepared on a consistent basis
for the Company, and (iii) have been prepared in accordance with GAAP. The
Company and its Subsidiaries have no Indebtedness, material contingent
obligation, or other unusual forward or long-term commitment which is not fairly
reflected in the Financial Statements or in the notes thereto. Since September
30, 1999, there has been no material change in the condition, financial or
otherwise, of the Company as shown on the Latest Balance Sheet as of such date,
except the Acquisition and changes in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse. The fiscal
year of the Company and each of its Subsidiaries ends on December 31 of each
year.
(b) The estimated pro forma unaudited balance sheet of the Company as
of the Closing Date adjusted to give effect to the issuance of the Notes, the
Warrants, the Acquisition and the other transactions contemplated to occur on
the Closing Date pursuant to the Transaction Documents and the application of
the proceeds of the Notes, as prepared by the Company and heretofore delivered
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to the Purchasers, presents a good faith estimate of the pro forma financial
condition of the Company and its Subsidiaries (after giving effect to the
Acquisition, the issuance of the Notes, the Warrants, the other transactions
contemplated to occur on the Closing Date pursuant to the Transaction Documents
and the application of the proceeds received in connection therewith) and has
been prepared in accordance with GAAP consistently applied.
(c) The pro forma projected financial statements (including certain
balance sheets and statements of operations and cash flow) prepared by the
Company and heretofore delivered to the Purchasers, were prepared on a basis
consistent with the Financial Statements and based on good faith estimates and
assumptions made by the management of the Company at the time made, and there
are no statements or conclusions in any of such projections which, at the time
made, were based upon or include information known to the Company to be
misleading or which fail to take into account material information regarding the
matters reported therein.
5.17 ACT! Documents. The Company has delivered to each Purchaser true,
complete and correct copies of the License Agreement and the other ACT!
Documents, together with all amendments and modifications thereto. Such
documents (including the schedules and exhibits thereto) comprise a full and
complete copy of all material agreements between the Company and Symantec with
respect to the subject matter thereof and all transactions related thereto, and
there are no material agreements or understandings, oral or written, or side
agreements between the Company and Symantec not contained therein that relate to
or modify the substance thereof. The License Agreement and the other ACT!
Documents have been duly authorized by all necessary corporate action on the
part of the Company, and, when executed and delivered by the Company, will be
the legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors' rights
generally and by general principles of equity relating to enforceability. To the
best of the Company's knowledge, each of the representations and warranties
contained in Articles 11 and 12 of the License Agreement is true and correct in
all material respects and Symantec is not in default in any material respect
under any covenants thereunder.
5.18 Debt Agreements.
(a) Schedule 5.18(a) is a complete and correct list of each credit
agreement, loan agreement, indenture, purchase agreement, guarantee, letter of
credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guarantee by, the Company or any of its Subsidiaries, outstanding
on the date hereof, and the aggregate principal or face amount outstanding or
that may become outstanding under each such arrangement is correctly described
in Schedule 5.18(a). There exists no default under the provisions of any
instrument evidencing or securing any Indebtedness of the Company and its
Subsidiaries or of any agreement otherwise relating thereto which has had or
would reasonably be expected to have a Material Adverse Effect.
(b) Schedule 5.18(b) is a complete and correct list of each Lien
securing Indebtedness of any Person outstanding on the date hereof and covering
any property of the Company or any
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of its Subsidiaries, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the property covered by each such Lien is
correctly described in Schedule 5.18(b).
5.19 Other Transaction Documents. The Company has delivered to each
Purchaser true, complete and correct copies of each other Transaction Document
together with all amendments and modifications thereto. Such documents
(including the schedules and exhibits thereto) comprise a full and complete copy
of all agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto. Such Transaction Documents have
been duly authorized by all necessary corporate action on the part of the
Company and, when executed and delivered by the Company, will be the legal,
valid and binding obligations of the Company, enforceable in accordance with
their terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
general principles of equity relating to enforceability. Neither the Company nor
any Subsidiary thereof is in default, nor has any event occurred or is any
condition continuing which with the passage of time or giving of notice or both
would constitute a default or event of default by the Company or any Subsidiary
thereof, under any other Transaction Document.
5.20 SEC Documents. The Company has filed in a timely manner all
documents that the Company was required to file with the Commission under
Sections 13, 14(a) and 15(d) of the Exchange Act, since its initial public
offering. As of their respective filing dates, all documents filed by the
Company with the Commission (the "SEC Documents") complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as
applicable. None of the SEC Documents as of their respective dates contained any
untrue statement of a material fact or omitted to state material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto.
5.21 Year 2000 Compliance. All computer systems and applications of the
Company and its Subsidiaries that are material to the Company's or its
Subsidiaries' business and operations are able to perform as set forth in
Exhibit E hereto.
5.22 Intellectual Property Matters. Each of the Company and its
Subsidiaries owns or possesses rights to use all intellectual property rights
which are required to conduct its business except to the extent that the failure
to do so could not reasonably be expected to have a Material Adverse Effect. No
event has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such rights, and neither the
Company nor its Subsidiaries is liable to any Person for infringement under any
Requirement of Law with respect to any such rights as a result of its business
operation except to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
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5.23 Solvency. As of the Closing Date and after giving effect to the
issuance of the Notes and the Warrants, and the consummation of the transactions
contemplated by the ACT! Documents, the Company and each of its Subsidiaries on
a consolidated basis will be Solvent.
5.24 Government Regulation. Neither the Company nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company" (as each such term is defined or used in the Investment Company Act of
1940, as amended) and neither the Company nor any Subsidiary thereof is, or
after giving effect to the transactions contemplated by the Transaction
Documents, will be, subject to regulation under the Public Utility Holding
Company Act of 1935 or the Interstate Commerce Act, each as amended, or any
other Requirement of Law which limits its ability to incur or consummate the
transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, as of the Closing Date, as follows:
6.01 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and the other Transaction
Documents to which such Purchaser is a party, and the transactions contemplated
hereby and thereby, (a) is within such Purchaser's power and authority and has
been duly authorized by all necessary action, (b) does not contravene the terms
of such Purchaser's organizational documents or any amendment thereof and (c)
will not violate, conflict with or result in any breach or contravention of any
Contractual Obligation of such Purchaser or any Requirement of Law directly
relating to such Purchaser.
6.02 Binding Effect. This Agreement, and the other Transaction
Documents to which such Purchase is a party have been duly executed and
delivered by such Purchaser, and this Agreement and the other Transaction
Documents to which such Purchase is a party constitute the legal, valid and
binding obligations of such Purchaser enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally or by general equitable principles
relating to enforceability.
6.03 Accredited Investor; Purchase for Own Account. Such Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act. The Notes and the Warrants are being or will be acquired for its own
account and with no intention of distributing or reselling such securities or
any part thereof in any transaction that would be in violation of the Securities
Act or the securities laws of any state, without prejudice, however, to the
rights of such Purchaser at all times to sell or otherwise dispose of all or any
part of the Notes, the Warrants or the shares of Common Stock issued upon
exercise of the Warrants under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act. If such Purchaser should in the future decide to dispose of the
Notes, the Warrants or the shares of Common Stock issued upon exercise of the
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Warrants, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Such Purchaser agrees to the imprinting, so long as required by law,
of a legend on the Notes, the Warrants and the shares of Common Stock issued
upon exercise of the Warrants to the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
6.04 ERISA. No part of the funds used by such Purchaser to purchase the
Notes or the Warrants hereunder constitutes assets of any Pension Plan or any
"plan" (as defined in Section 4975 of the Code).
6.05 Broker's, Finder's or Similar Fees. Except for the commitment fees
payable pursuant to Section 14.17, there are no brokerage commissions, finder's
fees or similar fees or commissions payable in connection with the transactions
contemplated hereby, or by any other Transaction Document to which such
Purchaser is a party, based on any agreement, arrangement or understanding with
such Purchaser or any action taken by such Purchaser.
6.06 Governmental Authorization; Third Party Consent. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law
or Contractual Obligation, and no lapse of a waiting period under any
Requirement of Law or Contractual Obligation, is necessary or required in
connection with the execution, delivery or performance by such Purchaser or
enforcement against such Purchaser of this Agreement and the other Transaction
Documents to which it is a party or the transactions contemplated hereby or
thereby.
6.07 Corporate Existence and Power. Such Purchaser (a) is a corporation
or limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or formation and (b) has the corporate or other power and
authority to execute, deliver and perform its obligations under this Agreement
and each other Transaction Document to which it is a party.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until the later of (a) such time as the Company has paid all principal
of and interest on the Notes and all other amounts due under this Agreement and
the Notes and (b) such time when no Warrants are outstanding (or in the case of
Section 7.01(c), at such earlier time as set forth therein),
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the Company hereby covenants and agrees as follows with each Purchaser and each
Holder that is an Affiliate of a Purchaser:
7.01 Financial Statements and Other Information. The Company shall
deliver to each Purchaser and each Holder that is an Affiliate of a Purchaser:
(a) Quarterly Financials. As soon as available, but in any event within
thirty (30) days after the end of each fiscal quarter of the Company, the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such quarter and the related unaudited consolidated statements of
operations, cash flows and shareholders' equity for such quarter and for the
portion of the fiscal year ended with the last day of such quarter, setting
forth in each case comparative figures for the corresponding quarter in the
prior fiscal year, all of which shall be certified by the chief financial
officer or equivalent officer of the Company, subject to normal year-end audit
adjustments (and the absence of footnotes and presentation items); and
(b) Year-End Financials. As soon as available, but in any event within
ninety (90) days after the end of each fiscal year of the Company, the
consolidating and consolidated balance sheet of the Company and its Subsidiaries
as at the end of such year and the related consolidating and consolidated
statements of operations, cash flows and shareholders' equity for such year,
setting forth in each case comparative figures for the previous year and
budgeted figures for such period as set forth in the respective budget delivered
pursuant to Section 7.01(f). All such financial statements shall be complete and
correct in all material respects and shall be prepared in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by the accountants preparing such statements or the
chief financial officer, as the case may be, and disclosed therein) and, in the
case of the consolidated financial statements, accompanied by a report thereon
of independent certified public accountants of recognized national standing,
which report shall state that such financial statements present fairly the
financial position of the Company and its Subsidiaries as at the dates indicated
and the results of their operations and cash flow for the periods indicated in
conformity with GAAP and that the examination by such accountants in connection
with such financial statements has been made in accordance with GAAS.
(c) Compliance Certificate. Until such time as the Company has paid all
principal of and interest on the Notes and all other amounts due under this
Agreement and the Notes or the earlier termination of this Agreement, together
with each delivery of financial statements pursuant to Sections 7.01(a) and
7.01(b) above, a fully and properly completed compliance certificate signed by
the chief executive officer or chief financial officer or equivalent officer of
the Company certifying that the Company is in compliance in all material
respects with each of the covenants contained in Articles VII, VIII and IX
hereof.
(d) Accountants' Reports. Promptly upon receipt thereof, copies of all
significant reports submitted to the Company or any of its Subsidiaries by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of the Company and its Subsidiaries
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit.
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(e) Management Report. Together with each delivery of financial
statements pursuant to Section 7.01(a) and (b) above, a management report: (i)
describing the operations and financial condition of the Company and its
Subsidiaries for the quarter then ended and the portion of the current fiscal
year then elapsed (or for the fiscal year then ended in the case of year-end
financials), (ii) setting forth in comparative form the corresponding figures
for the corresponding periods of the previous fiscal year and the corresponding
figures from the most recent board-approved budget for the current fiscal year
delivered to such Purchaser pursuant to Section 7.01(f) and (iii) discussing the
reasons for any significant variations from such projections. The information
above shall be presented in reasonable detail and shall be certified by the
chief financial officer or equivalent officer of the Company to the effect that
such historical information (including the financial statements of the Company
delivered pursuant to Section 7.01(a) and (b)) fairly presents the results of
operations and financial condition of the Company and its Subsidiaries, if any,
as at the dates and for the periods indicated, except for normal year-end audit
adjustments (and absence of footnotes and presentation items, in the case of
quarterly financials).
(f) Budgets. As soon as available and in any event not later than
thirty (30) days after the last day of each fiscal year of the Company, an
annual budget in the form prepared for the Company's board of directors
(including budgeted balance sheets, statements of operations, cash flows and
shareholders' equity) prepared by the Company for each fiscal quarter of the
following fiscal year, prepared in reasonable detail, with appropriate
presentation and discussion of the principal assumptions upon which such budget
is based, which shall be accompanied by the statement of the chief executive
officer or chief financial officer of the Company to the effect that, to the
best of his knowledge, such budget is a reasonable estimate for the periods
respectively covered thereby.
(g) SEC Filings, Stockholder Mailings and Press Releases. Promptly upon
their becoming available, copies of all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the Company or any
Subsidiary thereof with any securities exchange or with the Commission, any
quarterly and annual reports, proxy statements and any other documents which it
mails to its stockholders and any press release or other written or electronic
information publicly disseminated by the Company to the business or financial
media.
(h) Other Information. With reasonable promptness, such other
information and data with respect to the Company and its Subsidiaries as from
time to time may be reasonably requested by any Purchaser or any Holder that is
an Affiliate of a Purchaser.
(i) Notices. Prompt (but in no event later than ten (10) days after an
officer of the Company obtains knowledge thereof) written notice of: (i) the
commencement of all proceedings and investigations by or before any Governmental
Authority (including any notice of violation of any Requirement of Law) and all
actions and proceedings in any court or before any arbitrator against or
involving the Company or any Subsidiary thereof or any of its or their
respective properties, assets or businesses, in each case involving a claim or
liability which could reasonably be expected to have a Material Adverse Effect,
(ii) any labor controversy that has resulted in or threatens to result in, a
strike or other work action against the Company or any Subsidiary thereof that
could reasonably be expected to have a Material Adverse Effect, (iii) any
attachment, judgment,
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levy or order assessed against the Company or any Subsidiary thereof that could
reasonably be expected to have a Material Adverse Effect, (iv) any act or
condition arising under ERISA that would constitute grounds for the termination
of any Plan or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan or for the imposition of any
liability on the Company or any Subsidiary thereof under Title IV of ERISA, (v)
any Event of Default, or any event which constitutes or which with the passage
of time or giving of notice or both would constitute an Event of Default, and
(vi) any notice given or received by the Company of any event of default, or any
event which constitutes or which with the passage of time or giving of notice or
both would constitute a default or event of default under any agreement or
instrument evidencing any Senior Indebtedness (as defined in Article XI of this
Agreement).
7.02 Board of Directors Observation Rights.
(a) The Company shall provide each Purchaser the right to have one
representative present (whether in person or by telephone) at all meetings of
the board of directors of the Company and its executive committee; provided,
that such representative shall not be entitled to vote at such meetings;
provided further, that such representative shall not be entitled to attend that
portion of meetings during which the board of directors shall discuss (a) any
matter which the board of directors believes, in good faith, would represent a
conflict of interest vis-a-vis such Purchaser, or (b) any matter which, in the
reasonable written opinion of the Company's counsel, is entitled to
attorney/client privilege; provided further, that once the Company has paid all
principal of and interest on the Notes and all other amounts due under this
Agreement and the Notes, each Purchaser shall have the right to have one
representative present (whether in person or by telephone) only at the regularly
scheduled quarterly meetings of the board of directors of the Company and its
executive committee (provided that the payment of all principal and interest on
the Notes and all other amounts due under this Agreement and the Notes shall not
affect the Purchasers' rights to receive notices of all meetings and materials
distributed for all meetings of the board of directors of the Company and its
executive committee pursuant to Section 7.02(b)).
(b) The Company shall provide each Purchaser with a notice of each
meeting of the board of directors of the Company or its executive committee as
is distributed to its directors or members, as the case may be, in accordance
with the Company Charter Documents together with all materials that are
distributed to the directors or members, as the case may be, pertaining to such
meeting.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until such time as the Company has paid all principal of and interest
on the Notes and all other amounts due under this Agreement and the Notes, the
Company hereby covenants and agrees with each Holder as follows:
8.01 Preservation of Corporate Existence and Related Matters. The
Company and each Subsidiary thereof shall preserve and maintain its separate
corporate existence and all rights, franchises, licenses and privileges
necessary to the conduct of its business; and qualify and
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remain qualified as a foreign corporation and authorized to do business in each
jurisdiction in which (a) the character of its properties or the nature of its
business requires such qualification or authorization, and (b) where failure to
qualify would have a Material Adverse Effect.
8.02 Maintenance of Property. The Company and each Subsidiary thereof
shall protect and preserve all properties necessary and material to its
business, including copyrights, patents, trade names and trademarks; maintain in
good working order and condition all buildings, equipment and other tangible
real and personal property; and from time to time make or cause to be made all
renewals, replacements and additions to such property necessary for the conduct
of its business so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
8.03 Maintenance of Insurance. The Company and each Subsidiary thereof
shall maintain insurance with responsible insurance companies against such risks
and in such amounts as are customarily maintained by similar businesses or as
may be required by any Requirement of Law, and on the Closing Date and from time
to time thereafter deliver to each Holder upon its request a detailed list of
the insurance then in effect, stating the names of the insurance companies, the
amounts and rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby.
8.04 Payment and Performance of Obligations. The Company and each
Subsidiary thereof shall (a) pay and perform all its obligations under this
Agreement and the other Transaction Documents, (b) pay or perform all material
taxes, assessments and other governmental charges that may be levied or assessed
upon it or any of its property (including, without limitation, withholding,
social security, payroll and similar employment related taxes on the dates such
taxes are due), (c) pay or perform all other material indebtedness, obligations
and liabilities in accordance with customary trade practices and (d) comply in
all material respects with each material Contractual Obligation entered into in
the conduct of its business; provided, that any such Person may contest any item
described in clauses (b), (c) and (d) hereof in good faith so long as adequate
reserves are maintained with respect thereto in accordance with GAAP.
8.05 Accounting Methods and Financial Records. The Company and each
Subsidiary thereof shall maintain a system of accounting, and keep such books,
records and accounts (which shall be true and complete in all material respects)
as may be required or as may be necessary to permit the preparation of financial
statements in accordance with GAAP consistently applied and in compliance with
the regulations of any Governmental Authority having jurisdiction over it or any
of its properties.
8.06 Compliance With Laws and Obligations. The Company and each
Subsidiary thereof shall observe and remain in compliance with all Requirements
of Law and Contractual Obligations, including, without limitation, the Foreign
Corrupt Practices Act, in each case applicable or necessary to the conduct of
its business, except when the failure to do so could not reasonably expected to
have a Material Adverse Effect.
8.07 Visits and Inspections. The Company and each Subsidiary thereof
shall permit representatives of any Purchaser (but not any other Holders or
Participants other than any such
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Holders or Participants who are Affiliates of the Purchaser), from time to time,
during normal business hours, to visit and inspect its properties; inspect,
audit and make extracts from its books, records and files, including, but not
limited to, management letters prepared by independent accountants; and discuss
with its principal officers and its independent accountants, its business,
assets, liabilities, financial condition, results of operations and business
prospects.
8.08 Use of Proceeds. The Company shall use the proceeds of the sale of
the Notes and the Warrants hereunder only (a) in connection with the Acquisition
and the implementation of the Company's new business strategy and (b) for the
payment of fees and expenses in connection with the transactions contemplated by
the Transaction Documents.
8.09 Pro Forma and Projected Financial Statements.
(a) Within thirty (30) days following the Closing Date, the Company
shall deliver to each Purchaser pro forma projected financial statements
(including balance sheets and statements of operations and cash flow and related
footnotes) prepared after the Closing and reflecting the forecasted financial
condition and results of operations of the Company and each of its Subsidiaries
(A) on an annual basis for the two-year period commencing on January 1, 2000 and
(B) on a quarterly basis for the period commencing on January 1, 2000 through
December 31, 2001, prepared by the Company and adjusted to give effect to the
issuance of the Notes, the Warrants, the Acquisition and the other transactions
contemplated to occur on the Closing Date pursuant to the Transaction Documents
and the application of the proceeds of the Notes, which such pro forma financial
statements shall be in form and substance satisfactory to each Purchaser.
(b) The projections delivered under this Section 8.09 will be prepared
on a basis consistent with the Financial Statements and will be based on good
faith estimates and assumptions made by the management of the Company.
8.10 Reservation of Shares. The Company shall at all times reserve and
keep available out of the aggregate of its authorized but unissued shares, free
of preemptive rights, such number of its duly authorized shares of Common Stock
and Preferred Stock as shall be sufficient to enable the Company to issue Common
Stock, and Junior Preferred Stock to the extent required by the proviso to the
first sentence in Section 2.01(b), upon the exercise of the Warrants.
8.11 Regulatory Requirements and Restrictions. In the event of any
reasonable determination by any Holder that, by reason of any existing or future
federal or state law, statute, rule, regulation, guideline, order, court or
administrative ruling, request or directive (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) (a
"Regulatory Requirement"), such Holder is effectively restricted or prohibited
from holding its Warrant or the related Warrant Securities (including any shares
of Capital Stock or other securities distributable to such Warrantholder in any
merger, reorganization, readjustment or other reclassification), or otherwise
realize upon or receive the benefits intended under its Warrant (a "Regulatory
Constraint"), the Company shall, and shall use its reasonable efforts to have
its shareholders, take such action as such Holder may deem reasonably necessary
to permit such Holder to comply with such Regulatory Requirement, including the
issuance of one or more
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Adjustment Warrants to purchase Junior Preferred Stock in lieu of warrants to
purchase Common Stock, as contemplated by the proviso to the first sentence of
Section 2.01(b). The costs of taking such action shall be borne by the Company.
Such action to be taken may include, without limitation, the Company's
authorization of one or more new classes of Capital Stock for which such Warrant
may be exercised or to make such modifications and amendments to the Company
Charter Documents, this Agreement, the related Warrant or any other documents
and instruments related to or executed in connection herewith or with the
Warrants as may be deemed reasonably necessary by such Holder. Such Holder shall
give written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps reasonably necessary to comply with such determination as
expeditiously as possible. In the event that any Holder becomes entitled to
receive securities or other property other than Common Stock as a result of a
Regulatory Constraint, the Company shall provide notice to each other Holder of
such event, and each such other Holder shall, at its election, have the right to
receive such other securities or property upon exercise of its Warrants in the
same manner as the Holder subject to such Regulatory Constraint.
ARTICLE IX
NEGATIVE COVENANTS
Until such time as the Company has paid all principal of and interest
on the Notes and all other amounts due under this Agreement and the Notes or
unless the Company has obtained the prior written consent of the Required
Holders, the Company hereby covenants and agrees with each Holder as follows:
9.01 Limitations on Mergers; Consolidations; and Acquisitions. The
Company will not, nor will the Company permit any Subsidiary thereof to, merge
or consolidate with (including any share exchange involving the Company's
shareholders) any Person, acquire all or substantially all of the outstanding
shares of Capital Stock issued by a Person, or acquire all or any substantial
part of the assets of any Person, except for:
(a) any merger or consolidation of the Company with any Wholly-Owned
Subsidiary; provided, that the Company is the surviving Person of such merger;
(b) any merger of a Subsidiary of the Company into a Wholly-Owned
Subsidiary of the Company; and
(c) acquisitions involving consideration (including the assumption of
Indebtedness) aggregating less than $20,000,000 individually and $30,000,000 in
the aggregate; provided, that prior to each such acquisition and after giving
effect thereto, no default or Event of Default shall have occurred and be
continuing hereunder (each, a "Permitted Acquisition").
9.02 Limitations on Loans. Except to fund Permitted Investments, the
Company will not, nor will the Company permit any Subsidiary thereof to, make
any loans or other advances of money (other than for salary, travel advances,
advances against commissions and other similar
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advances in the ordinary course of business) to any Person, except intercompany
loans permitted pursuant to section 9.03 below.
9.03 Limitations on Total Indebtedness. The Company will not, nor will
the Company permit any Subsidiary thereof to, create, incur, assume, or suffer
to exist, any Indebtedness, except:
(a) Obligations hereunder and under the Notes;
(b) Obligations of any Subsidiary of the Company to the Company or
another Subsidiary of the Company; and
(c) Indebtedness not included in paragraphs (a) or (b) above which does
not exceed at any time, in the aggregate for all of the Company and its
Subsidiaries, the greater of (i) $25,000,000 or (ii) an amount equal to three
(3) times Consolidated EBITDA for the then most recently ended period of twelve
(12) consecutive months.
9.04 Limitations on Affiliate Transactions. The Company will not, nor
will the Company permit any Subsidiary thereof to, enter into or be a party to,
any transaction with any Affiliate or stockholder of the Company or Subsidiary,
except in the ordinary course of business and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms which are (i) fully disclosed to each Purchaser and any Holder
who, together with its Affiliates, holds Notes having a principal balance of at
least $5,000,000.00 and (ii) are no less favorable to the Company or such
Subsidiary than it would obtain in a comparable arm's length transaction with a
Person not an Affiliate or stockholder of the Company or Subsidiary.
9.05 Limitations on Distributions. The Company will not, nor will the
Company permit any Subsidiary thereof, to authorize, declare or pay any
dividends or make any other distributions on its Capital Stock or purchase,
defease, redeem, or otherwise acquire or retire its Capital Stock, except for
the following:
(a) cash dividends paid by any Subsidiary to the Company or any
Wholly-Owned Subsidiary of the Company; and
(b) dividends payable solely in Capital Stock or in options, warrants
or other rights to purchase Capital Stock.
9.06 Limitations on Disposition of Assets. Unless the Company complies
with Section 10.02(c), the Company will not, nor will the Company permit any
Subsidiary thereof to, sell, lease or otherwise dispose of any of its
properties, including any disposition of property as part of a sale and
leaseback transaction, to or in favor of any Person, except for (collectively,
"Permitted Dispositions"):
(a) sales of inventory in the ordinary course of business;
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(b) transfers of property to the Company by a Subsidiary of the
Company;
(c) sales of equipment where such equipment is replaced within 60 days
after the sale with equipment that is comparable or better;
(d) sales or other disposition of obsolete inventory and equipment; or
(e) dispositions of other assets for cash which, in the aggregate
during any consecutive 12-month period, have a fair market value or book value
(whichever is greater) of $2,000,000 or less.
9.07 Limitations on Investments. The Company will not, nor will the
Company permit any Subsidiary thereof to, make or have any investment made in
cash or by delivery of property to any Person, whether by acquisition of Capital
Stock, Indebtedness or other obligation, or by loan, advance or capital
contribution, or otherwise, except the following (collectively, "Permitted
Investments"):
(a) investments by the Company to the extent existing on the Closing
Date, in one or more Subsidiaries of the Company;
(b) Permitted Acquisitions;
(c) property to be used in the ordinary course of business;
(d) Current Assets arising from the sale of goods and services in the
ordinary course of business of the Company and its Subsidiaries;
(e) a convertible promissory note investment in i-tinerary.com, Inc.
("i-tinerary") of up to $500,000.00 pursuant to the term sheet that the Company
has provided to the Purchasers or capital stock of i-tinerary issuable upon
conversion of such promissory note;
(f) (i) interest bearing open-ended or time deposits accounts, money
market accounts, and certificates of deposit of any federally insured bank, (ii)
short-term government securities, and (iii) other similarly liquid investments;
and
(g) up to $1,000,000.00 of loans to or Investments in other Persons at
any time; provided that such loans or Investments (i) are approved by the board
of directors of the Company, (ii) are made for a strategic need of the Company
and (iii) do not entitle the Company to receive more than twenty percent (20%)
of the outstanding capital stock or other equity securities of such Person.
9.08 Limitations on Liens. The Company will not, nor will the Company
permit any Subsidiary thereof to, create, incur, assume or suffer to exist, any
Lien on or with respect to any of its assets or properties (including without
limitation shares of capital stock or other ownership interests of a
Subsidiary), real or personal, whether now owned or hereafter acquired, except:
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(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired or which are
being contested in good faith and by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, (i) which are not overdue for a period of more
than sixty (60) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary course
of business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar legislation;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do not,
in any case, detract from the value of such property or impair the use thereof
in the ordinary conduct of business;
(e) Liens in existence on the Closing Date and described on Schedule
5.18(b); and
(f) Liens securing Senior Indebtedness (as defined in Article XI
hereof).
9.09 Limitations on Tax Consolidation. The Company will not, nor will
the Company permit any Subsidiary thereof to, file or consent to the filing of
any consolidated income tax return with any Person other than the Company or its
Wholly-Owned Subsidiaries.
9.10 Limitations on Changes in Fiscal Year End. The Company will not,
nor will the Company permit any Subsidiary thereof to, change its fiscal year
end.
9.11 Limitations or Modifications of Transaction Documents and Certain
Other Agreements. The Company will not, nor will the Company permit any
Subsidiary thereof to, amend, modify or change any Transaction Documents unless
in each case such amendment, modification, change or other action contemplated
by this clause could not reasonably be considered adverse to the interests of
the Holders in any material respect.
ARTICLE X
REDEMPTION OF NOTES
10.01 Optional Redemption of Notes. The Company shall have the right to
redeem the Notes, in whole or in part, at any time or from time to time on a pro
rata basis in accordance with the provisions of Section 10.04, at a redemption
price equal to the unpaid principal thereof, plus accrued and unpaid interest
thereon through the date fixed for redemption.
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10.02 Mandatory Redemption of Notes.
(a) The Company shall redeem the Notes in full on December 31, 2004, at
a redemption price equal to the unpaid principal thereof plus accrued and unpaid
interest thereon through the date fixed for redemption.
(b) Upon any of (i) the consummation of a Qualified Public Offering by
the Company or any of its Subsidiaries, (ii) a Change of Control, (iii) the
occurrence of an Event of Default, or (iv) the consummation by the Company of a
merger, consolidation or share exchange with any other Person (other than as
permitted by Section 9.01), or a sale of substantially all of its assets, the
Company shall, if so directed by the Required Holders, redeem the Notes of all
Holders in full at a redemption price equal to the unpaid principal thereof plus
accrued and unpaid interest thereon through the date fixed for redemption.
(c) The Company shall, if directed by the Required Holders, redeem the
Notes, partially in an amount equal to (i) fifty percent (50%) of the Net Cash
Proceeds of any Public Offering by the Company or any of its Subsidiaries which
is not a Qualified Public Offering and (ii) one hundred percent (100%) of the
Net Cash Proceeds of any asset disposition other than a Permitted Disposition,
in both (i) and (ii), on a pro rata basis in accordance with the provisions of
Section 10.04, at a redemption price equal to the unpaid principal thereof plus
accrued and unpaid interest thereon through the date fixed for redemption.
10.03 Notice of Redemption.
(a) Optional Redemption. Any call for redemption of the Notes pursuant
to Section 10.01 shall be made by giving written notice to the Holders of the
Notes to be redeemed no less than ten (10) Business Days nor more than thirty
(30) days prior to the date fixed for redemption, which notice shall specify the
principal amount of such Notes to be redeemed. If less than all the Notes are to
be redeemed, the notice of redemption shall identify the Notes and portion
thereof to be redeemed. Notice of call for redemption having been given as
aforesaid, the principal amount to be redeemed, together with accrued and unpaid
interest thereon to the date of redemption, shall on the date designated in such
notice become due and payable. From and after such date, unless the Company
shall default in payment of such principal amount when so due and payable,
together with accrued and unpaid interest, interest on such principal amount
shall cease to accrue.
(b) Mandatory Redemption. In the event the Company or any of its
Subsidiaries or any shareholders of the Company propose to effect any
transaction described in Sections 10.02(b) or (c) (other than Section
10.02(b)(iii)), the Company shall give each Holder written notice thereof not
later than twenty (20) days prior to the proposed date of consummation of such
transaction. Each Holder that desires to exercise its option to cause the
Company to redeem its Notes shall give the Company irrevocable written notice (a
"Redemption Notice") of such election not later than ten (10) days after receipt
of such notice from the Company, or, in the case of a redemption pursuant to
Section 10.02(b)(iii), after knowledge of the applicable Event of Default by
such Holder. If the Company shall have received Redemption Notices from the
Required Holders, it shall redeem in full all Notes then outstanding, or, in the
case of a partial redemption pursuant to Section 10.02(c), as set forth in such
Section 10.02(c) and Section 10.04. If any transaction does not occur for any
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reason, the Company shall promptly notify each Holder that such redemption shall
not be made by the Company and no such redemption shall be required.
10.04 Allocation and Application of Payments. In the case of the
redemption of less than all the Notes at the time outstanding, the amount of any
such redemption shall be allocated to the aggregate principal amount of the
Notes to be redeemed among the Holders of all the Notes at the time outstanding
in proportion, as nearly as practicable, to the respective aggregate unpaid
principal amounts of the Notes then held by them.
10.05 Notation of Partial Payments. Upon any partial redemption of any
Note, such Note, at the option of the Company, shall be either (a) surrendered
to the Company in exchange for a new Note in a principal amount equal to the
principal amount remaining unpaid on the Note surrendered and otherwise having
the same terms and provisions as the Note surrendered or (b) made available to
the Company at its office herein provided for notation thereon of the portion of
the principal so redeemed.
ARTICLE XI
SUBORDINATION OF NOTES
11.01 Definitions. As used in this Article XI, the following terms
shall have the following meanings:
"Post-Petition Interest" means interest accruing in respect of Senior
Indebtedness after the commencement of any bankruptcy, insolvency, receivership
or similar proceedings by or against the Company, at the rate applicable to such
Senior Indebtedness pursuant to the terms applicable thereto, whether or not
such interest is allowed as a claim enforceable against the Company in any such
proceedings.
"Senior Covenant Default" means any default under any Senior
Indebtedness (other than a Senior Payment Default) which continues uncured for
the period of grace, if any, with respect thereto.
"Senior Default" means a Senior Payment Default or a Senior Covenant
Default.
"Senior Indebtedness" means the following obligations of the Company:
(a) all principal, interest (including any Post-Petition Interest) and all other
amounts outstanding under or in respect of any instrument evidencing
Indebtedness of the Company; provided, that such Indebtedness is specifically
designated in such instrument as "Senior Indebtedness" for purposes of this
Agreement and (b) any and all refinancings, replacements or refundings of any of
the amounts referred to in clause (a) above; provided, however, that the
aggregate principal amount of Senior Indebtedness permitted under clause (a),
and any refinancing, replacement or refunding thereof permitted under clause (b)
(including the maximum amount of the aggregate commitments of the lenders to
extend any revolving credit facility thereunder) shall not exceed at any time
$15,000,000.
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"Senior Payment Default" means any default in the payment of any Senior
Indebtedness whether upon the scheduled maturity thereof, upon acceleration or
otherwise which, in each case, continues uncured for the period of grace, if
any, with respect thereto.
11.02 Subordination. The Company, for itself and its successors and
assigns, and each Purchaser covenants and agrees, and each Holder, by its
acceptance of any Note, shall be deemed to have agreed, that the payment from
whatever source of the Indebtedness of the Company evidenced by this Agreement
and the Notes, including the principal thereof and interest thereon, and any
other amounts owing hereunder or thereunder, shall be subordinate and subject in
right of payment, to the extent and in the manner hereinafter set forth, to the
prior payment in full of all Senior Indebtedness, and that each holder of such
Senior Indebtedness, with respect to the Senior Indebtedness now existing or
hereafter arising, shall be deemed to have acquired such Senior Indebtedness in
reliance upon the covenants and provisions contained in this Article XI.
11.03 Subordination Upon Distribution of Assets.
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding-up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings or pursuant to any assignment for the benefit
of creditors or any other marshalling of assets and liabilities of the Company
(including upon any event described in Section 12.01(g) or (h)), all Senior
Indebtedness shall first be paid in full or duly provided for before any payment
is made on account of the Notes, and any such payment or distribution which
otherwise would be payable or deliverable upon or with respect to the Notes
shall be paid or delivered directly to the holders of the Senior Indebtedness or
as otherwise directed by such holders or a court of competent jurisdiction for
application to the payment or prepayment of the Senior Indebtedness (in such
order as the holders of the Senior Indebtedness may elect) until the Senior
Indebtedness shall have been paid in full or duly provided for.
(b) For purposes of this Section 11.03, the words "cash, property or
securities" shall not be deemed to include (i) any payment or distribution of
securities of the Company or any other corporation authorized by an order or
decree giving effect, and stating in such order or decree that effect is given,
to the subordination of the Notes to the Senior Indebtedness, and made by a
court of competent jurisdiction in a reorganization proceeding under any
applicable bankruptcy, insolvency or other similar law, or (ii) securities of
the Company or any other corporation provided for by a plan of reorganization or
readjustment which are subordinated, to at least the same extent as the Notes,
to the payment of all Senior Indebtedness then outstanding.
11.04 Prohibitions and Limitations on Payment.
(a) Subject to Section 11.03 hereof, upon receipt by the Company of a
Blockage Notice (as defined below) in respect of any Senior Payment Default and
unless and until such Senior Payment Default shall have been cured or
effectively waived in writing by the holders of the Senior Indebtedness, no
direct or indirect payment (in cash, property, securities or by set-off or
otherwise) shall be made of or on account of the Notes or in respect of any
redemption, retirement, purchase or
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other acquisition of the Notes and the Holders shall not accept (in cash,
property, securities or by setoff or otherwise) from the Company any payment of
or on account of the Notes. Upon the earlier of the cure or waiver of such
Senior Payment Default, the Company shall, subject to Section 11.03 hereof,
promptly pay to the Holders all sums then due and payable under the Notes as a
result of this Section 11.04(a).
(b) Subject to Section 11.03 hereof, upon receipt by the Company of a
Blockage Notice in respect of any Senior Covenant Default and until the earlier
of (i) such Senior Covenant Default shall have been cured or effectively waived
in writing by the holders of the Senior Indebtedness and (ii) the expiration of
the applicable Blockage Period (as defined below), no direct or indirect payment
(in cash, property, securities or by set-off or otherwise) shall be made of or
on account of the Notes or in respect of any redemption, retirement, purchase or
other acquisition of the Notes and the Holders shall not accept (in cash,
property, securities or by setoff or otherwise) from the Company any payment of
or on account of the Notes. Upon the earlier of the dates described in clauses
(i) and (ii) above, the Company shall, subject to Section 11.03 hereof, promptly
pay to the Holders all sums then due and payable under the Notes as a result of
this Section 11.04(b).
(c) For purposes of this Section 11.04, a "Blockage Notice" is a notice
of a Senior Default given to the Company by the holders of the majority of the
aggregate principal amount of the Senior Indebtedness under which such Senior
Default has occurred (or their authorized agent) and a "Blockage Period" is the
period commencing upon the Company's receipt of such Blockage Notice and ending
on the date one hundred eighty (180) days thereafter; provided that (i) no
Blockage Notice may be given by reason of the continuance of any Senior Default
which existed at the time of the giving of a prior Blockage Notice unless such
Senior Default shall have been cured for a period of not less than sixty (60)
days, and (ii) no more than one Blockage Notice may be given in any three
hundred sixty (360)-day period. Upon receipt of any Blockage Notice, the Company
shall promptly, but in any event with five (5) Business Days of receipt, deliver
the same to each Holder.
11.05 Limitation on Remedies. So long as any Senior Indebtedness
remains outstanding, upon the occurrence of an Event of Default, no Holder shall
declare or join in any declaration of any of the Notes to be due and payable by
reason of such Event of Default or otherwise take or cause to be taken any
action against the Company (including, without limitation, commencing any legal
action against the Company or filing or joining in the filing of any insolvency
petition against the Company) until the expiration of the Remedy Standstill
Period (as defined below) with respect to such Event of Default; provided, that
any Remedy Standstill Period shall expire immediately and, subject to the
provisions of Sections 11.03 and 11.04 hereof, the Holders shall be entitled to
exercise all rights and remedies under Section 12.02 hereof in the event (a) the
holders of a majority of the aggregate principal amount of the Senior
Indebtedness shall have caused such Senior Indebtedness to become due prior to
its stated maturity, (b) the Senior Covenant Default in respect of which any
Blockage Period shall have commenced shall have been cured to the satisfaction
of the holders of a majority of the aggregate principal amount of the Senior
Indebtedness or effectively waived in writing by the holders of a majority of
the aggregate principal amount of the Senior Indebtedness, (c) an Event of
Default pursuant to Section 12.01(g) or (h) shall have occurred and be
continuing, or (d) any holder of the Senior Indebtedness commences any action to
foreclose upon, attach, seize, take control of or otherwise exercise remedies
under any agreement governing such Senior
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Indebtedness or any security therefor on or with respect to a material portion
of the assets of the Company. For the purposes of this Section 11.05, a "Remedy
Standstill Period" is the period commencing on the date a written notice of
intention to exercise remedies on account of the occurrence of an Event of
Default shall have been given by the Required Holders to the Company and
expiring on the later of (i) thirty (30) Business Days after the date of such
notice and (ii) the earlier of (A) the expiration of any Blockage Period in
effect on the last day of such thirty (30) Business Day period or (B) the one
hundred eightieth (180th) day after the date of such notice.
11.06 Payments and Distributions Received. If any Holder shall have
received any payment from, or distribution of assets of, the Company in respect
of any of the Notes in contravention of the terms of this Article XI, then and
in such event such payment or distribution shall be received and held in trust
for and shall be paid over or delivered to the holders of the Senior
Indebtedness (or to the applicable agent on their behalf) for application to the
Senior Indebtedness, to the extent necessary to pay all such Senior Indebtedness
in full in the form received (except for the endorsement or assignment of such
Holder where necessary).
11.07 Proofs of Claim. If, while any Senior Indebtedness is
outstanding, any event described in Section 11.03(a) occurs, the Holders shall
duly and promptly take such action as any holder of the Senior Indebtedness may
reasonably request to collect any payment with respect to the Notes for the
account of the holders of the Senior Indebtedness and to file appropriate claims
or proofs of claim in respect of the Notes and to execute and deliver on demand
such powers of attorney, proofs of claim, assignments of claim or other
instruments as may be required to enforce any and all claims on or with respect
to the Notes. Upon the failure of any Holder to take any such action, each
holder of the Senior Indebtedness is hereby irrevocably authorized and empowered
(in its own name or otherwise), but shall have no obligation, to demand, sue
for, collect and receive every payment or distribution referred to in respect of
the Notes and to file claims and proofs of claim with respect to the Notes and
each of the Holders hereby appoints each holder of the Senior Indebtedness or
its representative as attorney-in-fact for such Holder to take any and all
actions permitted by this paragraph to be taken by such Holder.
11.08 Subrogation. After all amounts payable under or in respect of the
Senior Indebtedness have been paid in full or duly provided for, the Holders
shall be subrogated to the rights of the holders of the Senior Indebtedness to
receive payments or distributions applicable to the Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of the Senior Indebtedness. A distribution made under this Article
XI to a holder of the Senior Indebtedness which otherwise would have been made
to a Holder is not, as between the Company and such Holder, a payment by the
Company on the Senior Indebtedness.
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11.09 Relative Rights. This Article XI defines the relative rights of
the Holders and the holders of the Senior Indebtedness. Nothing in this Article
XI shall (a) impair, as between the Company and the Holders, the obligations of
the Company, which are absolute and unconditional, to pay principal of and
interest (including default interest) on the Notes in accordance with their
terms, (b) affect the relative rights of the Holders and creditors of the
Company other than holders of the Senior Indebtedness, or (c) prevent the
Holders from exercising their available remedies upon a default or Event of
Default, subject to the rights, if any, under this Article XI of holders of the
Senior Indebtedness.
11.10 Subordination Not Impaired; Benefit of Subordination. Each of the
Holders agrees and consents that without notice to or assent by such Holder, and
without affecting the liabilities and obligations of the Company and any holder
of the Notes and the rights and benefits of the holders of the Senior
Indebtedness set forth in this Article XI:
(a) Subject to the terms and conditions hereof, the obligations and
liabilities of the Company and any other party or parties for or upon the Senior
Indebtedness may, from time to time, be increased, renewed, refinanced,
extended, modified, amended, restated, compromised, supplemented, terminated,
waived or released;
(b) The holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Indebtedness and the subordination provisions
hereof, including, without limitation, accelerating the Senior Indebtedness or
exercising any right of set-off; and
(c) Any balance or balances of funds with any holder of the Senior
Indebtedness at any time outstanding to the credit of the Company may, from time
to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on their behalf, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Notes to the Senior Indebtedness provided for herein.
11.11 Covenants of the Holders. Until all of the Senior Indebtedness
has been fully paid and discharged:
(a) No Holder shall hereafter (i) give any further subordination to any
other creditor in respect of the Notes, or (ii) sell, assign, transfer or pledge
the Notes or any part thereof unless expressly subject to the terms of this
Article XI.
(b) No Holder shall release, exchange, extend the time of payment of,
compromise, set off or otherwise discharge any part of the Notes or modify or
amend the Notes in such a manner as to have an adverse effect upon the rights of
the holders of the Senior Indebtedness.
(c) Each Holder hereby undertakes and agrees for the benefit of the
holders of the Senior Indebtedness that, upon the occurrence and during the
continuance of a Senior Default, it
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shall take any actions reasonably requested by any holder of the Senior
Indebtedness to effectuate the full benefit of the subordination contained
herein.
11.12 Miscellaneous.
(a) To the extent permitted by applicable law, the Holders and the
Company hereby waive (i) notice of acceptance hereof and reliance hereon by the
holders of the Senior Indebtedness and (ii) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(b) The Company and the Holders hereby expressly agree that the holders
of the Senior Indebtedness may enforce any and all rights derived herein by
suit, either in equity or law, for specific performance of any agreement
contained in this Article XI or for judgment at law and any other relief
whatsoever appropriate to such action or procedure.
(c) Each Holder acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of the Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the date of this Agreement,
and each holder of the Senior Indebtedness shall be deemed conclusively to have
relied upon such subordination provisions in acquiring and continuing to hold
such Senior Indebtedness.
ARTICLE XII
EVENTS OF DEFAULT
12.01 Events of Default. An "Event of Default" shall occur hereunder
if:
(a) the Company shall default in the payment of the principal of the
Notes, when and as the same shall become due and payable, whether at maturity or
at a date fixed for prepayment or by acceleration or otherwise; or
(b) the Company shall default in the payment of any installment of
interest on the Notes according to its terms, when and as the same shall become
due and payable and such default shall continue unremedied for a period of two
(2) Business Days; or
(c) the Company shall default in the due observance or performance of
any covenant, condition or agreement contained in Articles IX or X of this
Agreement; or
(d) (i) the Company shall default in the due observance or performance
of any covenant, condition or agreement contained in Section 2.01(b), 2.04(b) or
8.10, and such default is not remedied or waived within 10 days after receipt by
the Company of written notice from the Required Holders of such default or (ii)
the Company shall default in the due observance or performance of any covenant,
condition or agreement contained herein or in the Notes (other than those
referred to in clauses (a), (b), (c) or (d)(i) of this Section 12.01), and such
default is not remedied or waived within 30 days after receipt by the Company of
written notice from the Required Holders of such default; or
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(e) any representation, warranty, certification or statement made by or
on behalf of the Company herein, in any Note, or in any certificate or other
document delivered by the Company to the Holders pursuant hereto or thereto
shall have been incorrect in any material respect when made; or
(f) (i) the Company or any Subsidiary thereof shall default (as
principal or guarantor) in the payment of any principal or interest (or similar
payment in the case of Capitalized Lease Obligations) of any Indebtedness of the
Company or any of its Subsidiaries (other than the Notes) and such Indebtedness
is in an amount, individually or in the aggregate, in excess of $1,000,000, (ii)
an event of default shall have occurred with respect to any Senior Indebtedness
(as defined in Article XI hereof) and remains uncured after the applicable grace
period, if any, or (iii) any Indebtedness of the Company or any of its
Subsidiaries, which individually or in the aggregate is in excess of $1,000,000,
shall become (whether automatically or by demand of the lender thereof) due and
payable in advance of the stated maturity thereof by virtue of any acceleration
or similar provision relating thereto; or
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Company or any Subsidiary thereof or of a substantial part of
its respective property or assets, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or a similar official for the
Company or any Subsidiary thereof or for a substantial part of its respective
property or assets, or (iii) the winding up or liquidation of the Company or any
Subsidiary thereof; and such proceeding or petition shall continue undismissed
for sixty (60) days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(h) the Company or any Subsidiary thereof shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding for the filing of any petition described in paragraph (g)
of this Section 12.01, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or Subsidiary, or for a substantial part of its property or assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the benefit
of creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for the
purpose of effecting the foregoing; or
(i) one or more judgments, writs of attachment or similar process
(collectively, "Judgments") (i) in the case of money Judgments, in an amount of
$3,000,000 or more for any single Judgment or $3,000,000 or more for all such
Judgments in the aggregate, in each case in excess of any applicable insurance
with respect to which the insurer has admitted liability and (ii) in the case of
non-monetary Judgments, such Judgment or Judgments (in the aggregate) are
reasonably likely to have a Material Adverse Effect, shall be rendered against
the Company or any
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Subsidiary thereof and the same shall remain undischarged, unpaid, or unstayed
for a period of thirty (30) days.
12.02 Acceleration. If an Event of Default occurs under Section
12.01(g) or 12.01(h), then the outstanding principal of and accrued and unpaid
interest on the Notes and all obligations under this Agreement shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived. If any other
Event of Default occurs and is continuing, the Required Holders, by written
notice to the Company, may (subject to the terms and conditions of Article XI
hereof) declare the principal of and accrued and unpaid interest on the Notes
and all obligations under this Agreement to be due and payable immediately. Upon
any such declaration of acceleration, such principal, interest and other
obligations shall become immediately due and payable and subject to the terms
and conditions of Article XI hereof, each Holder shall be entitled to exercise
all of its rights and remedies hereunder and under its Note whether at law or in
equity.
12.03 Set-Off. Upon the occurrence of an Event of Default, in addition
to all other rights and remedies that may then be available to any Holder, each
Holder is hereby authorized at any time and from time to time, without notice to
the Company (any such notice being expressly waived by the Company), subject to
Article XI hereof, to set off and apply any and all indebtedness at any time
owing by such Holder to or for the credit or the account of the Company against
all amounts which may be owed to such Holder by the Company in connection with
this Agreement or any Notes. If any Holder shall obtain from the Company payment
of any principal of or interest on any Note or payment of any other amount under
this Agreement or any Note held by it or any other Transaction Document through
the exercise of any right of set-off, and, as a result of such payment, such
Holder shall have received a greater percentage of the principal, interest or
other amounts then due hereunder by the Company to such Holder than the
percentage received by any other Holders, it shall promptly make such
adjustments with such other Holders from time to time as shall be equitable, to
the end that all the Holders shall share the benefit of such excess payment (net
of any expenses which may be incurred by such Holder in obtaining or preserving
such excess payment) pro rata in accordance with the unpaid principal and/or
interest on the Notes or other amounts (as the case may be) owing to each of the
Holders. To such end all the Holders shall make appropriate adjustments among
themselves if such payment is rescinded or must otherwise be restored. Any
Holder taking action under this Section 12.03 shall promptly provide written
notice to the Company of any such action taken; provided, that the failure of
such Holder to provide such notice shall not necessarily prejudice its rights
hereunder.
ARTICLE XIII
INDEMNIFICATION
13.01 Indemnification. In addition to all other sums due hereunder or
provided for in this Agreement, the Company shall indemnify and hold harmless
each Holder and its Affiliates and its officers, directors, agents, employees,
subsidiaries, partners and controlling persons (each, an "Indemnified Party") to
the fullest extent permitted by law, from and against any and all losses,
claims, damages, expenses (including reasonable fees, disbursements and other
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charges of counsel) or other liabilities (collectively, "Liabilities") resulting
from or arising out of any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement, the Notes or any Warrant, including
without limitation, the failure to make payment when due of amounts owing
pursuant to the Notes on the due date thereof (whether at the scheduled
maturity, by acceleration or otherwise) or any legal, administrative or other
actions (including actions brought by any Holder or the Company or any equity
holders of the Company or derivative actions brought by any Person claiming
through or in the Company's name), proceedings or investigations (whether formal
or informal), based upon, relating to or arising out of this Agreement, the
Notes or any Warrant or the transactions contemplated hereby and thereby, or any
Indemnified Party's role therein or in the transactions contemplated thereby;
provided, that the Company shall not be liable under this Section 13.01 to an
Indemnified Party: (a) for any amount paid in settlement of claims without the
prior written consent of the Company, (b) to the extent that it is judicially
determined that such Liabilities resulted from the willful misconduct or gross
negligence of such Indemnified Party or (c) to the extent that it is determined
that such Liabilities resulted from the material breach by such Indemnified
Party of any representation, warranty, covenant or other agreement of such
Indemnified Party contained herein, in any Notes or in any Warrant; and
provided, further, that if and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws. In connection with the obligation of the Company to
indemnify for expenses as set forth above, the Company further agrees, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
Indemnified Party; provided, that if an Indemnified Party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is judicially determined that the Liabilities in question resulted
from (i) the willful misconduct or gross negligence of such Indemnified Party or
(ii) the material breach by such Indemnified Party of any representation,
warranty, covenant or other agreement of such Indemnified Party contained in
this Agreement, the Notes or any Warrant.
13.02 Notification. Each Indemnified Party under this Article XIII
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company under this Article
XIII, notify the Company in writing of the commencement thereof. The omission of
any Indemnified Party so to notify the Company of any such action shall not
relieve the Company from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article XIII or (b) under this Article
XIII unless, and only to the extent that, such omission results in the
forfeiture by the Company of substantive rights or defenses or the Company are
otherwise prejudiced in defending such proceeding. In case any such action,
claim or other proceeding shall be brought against any Indemnified Party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to assume the defense thereof at its own expense, with counsel
reasonably satisfactory to such Indemnified Party; provided, that such
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which both the Company, on the one hand, and an Indemnified
Party, on the other hand, is, or is reasonably likely to become, a party, such
Indemnified Party shall have the right to employ
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separate counsel at the expense of the Company and to control its own defense of
such action, claim or proceeding if, in the reasonable opinion of counsel to
such Indemnified Party, a conflict or potential conflict exists between the
Company, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable. The Company agrees that it
will not, without the prior written consent of the Required Holders, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby (if any
Indemnified Party is a party thereto or has been actually threatened to be made
a party thereto) unless such settlement, compromise or consent includes an
unconditional release of each Holder and each other Indemnified Party from all
liability arising or that may arise out of such claim, action or proceeding. The
Company shall not be liable for any settlement of any claim, action or
proceeding effected against an Indemnified Party without the prior written
consent of the Company. The rights accorded to Indemnified Parties hereunder
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise.
ARTICLE XIV
MISCELLANEOUS
14.01 Survival of Representations and Warranties. The representation of
the Company set forth in Section 5.11 shall survive indefinitely, regardless of
acceptance of the Notes and the Warrants and payment therefor. All of the other
representations and warranties made herein shall survive until the later of (i)
one year following the payment in full of all principal and interest on the
Notes and all other amounts due under the Notes or (ii) December 31, 2004.
14.02 Notices. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately by hand, if personally
delivered; when delivered by courier, if delivered by commercial overnight
courier service; five Business Days after being deposited in the mail, postage
prepaid, if mailed; and when receipt is acknowledged, if telecopied, in each
such case if addressed as follows:
(a) if to the Company:
SalesLogix Corporation
8800 North Gainey Center Drive
Suite 200
Scottsdale, AZ 85258
Attention: Chief Financial Officer
Telecopy: (480) 368-3799
with a required copy to:
Thomas H. Curzon, Esq.
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Osborn Maledon, P.A.
2929 North Central Avenue
Suite 2100
Phoenix, AZ 85012
Telecopy: (602) 640-6067
(b) if to BancAmerica:
BA Technology I, LLC
c/o BancAmerica Capital Investors I, L.P.
100 N. Tryon Street, Suite 2500
Charlotte, NC 28255-001
Attention: Ann Hayes
Telecopy: (704) 386-6432
(c) if to GE:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attention: Paul Gelburd
Telecopy: (203) 357-3945
with a required copy to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Attention: Siobhan McBreen Burke, Esq.
Telecopy: (213) 627-0705
(d) if to any other Holder:
At the address designated by such Holder and shown on
the Note Register.
14.03 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement, the Notes and each Warrant shall be made in U.S. Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
payee thereof not later than 2:00 p.m. Charlotte time on the date on which such
payment shall become due (each such payment made after such time on such due
date to be deemed
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to have been made on the next succeeding Business Day). Each such payment shall
be made in accordance with written payment instructions furnished by such payee
from time to time. If the due date of any payment under this Agreement or any
Note would otherwise fall on a day which is not a Business Day, such date shall
be extended to the next succeeding Business Day and interest shall be payable
for any principal so extended for the period of such extension.
(b) Each payment or prepayment of principal in respect of the Notes
shall be made and applied pro rata, as nearly as may be, to all outstanding
Notes according to the respective unpaid principal amounts thereof, and each
payment of interest in respect of the Notes shall be made and applied pro rata,
as nearly as may be, to all outstanding Notes according to the respective
amounts of such interest then due and payable.
(c) Neither the Company, nor any of its Affiliates shall, directly or
indirectly, acquire any Note, by purchase or otherwise, except by way of payment
or prepayment thereof in accordance with the provisions of the Notes and of this
Agreement (including, without limitation, the provisions of this Agreement
requiring the payment and application of all such payments or prepayments pro
rata to all outstanding Notes).
14.04 Assignments and Participation.
(a) The Company may not assign its rights or obligations hereunder or
under the Notes without the prior consent of the Required Holders. The Company
may not assign its rights or obligations under a Warrant except in accordance
with the terms of such Warrant.
(b) (i) Each Holder may assign to one or more of its Affiliates or
other third parties all or a portion of its interests, rights and obligations
under this Agreement and the Notes; provided, that unless the assignee is a
Holder or an Affiliate of the transferring Holder, the principal amount of the
Notes being assigned must equal or exceed $1,000,000 or represent 100% of the
principal amount of such Holder's Note. The Company will keep at its principal
executive office or at such other office as the Company may designate in writing
to the Holders a register (the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), it will provide for the registration and transfer of
Notes. Upon registration and transfer of any Note in compliance herewith, the
assignee thereof shall become the Holder thereof (or such portion thereof as
shall have been transferred and registered to such assignee) for purposes of
this Agreement and the other Transaction Documents and shall thereupon, in
respect of such Note (or portion thereof) be entitled to the benefits and liable
for the obligations of a Holder hereunder.
(ii) Whenever any Note shall be surrendered for transfer or
exchange in compliance herewith either at such office of the Company or at the
place of payment named in such Note, within five Business Days thereafter the
Company will deliver in exchange therefor a new Note or Notes, as may be
requested by such Holder, in the same aggregate unpaid principal amount as the
unpaid principal amount of the Note so surrendered, duly executed by the
Company. Each such Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer, duly executed by the registered Holder or such Holder's attorney duly
authorized in writing. Any Note issued in exchange for any other Note or
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<PAGE> 47
upon transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, and neither
gain nor loss of interest shall result from any such transfer or exchange. Any
transfer tax relating to such transaction shall be paid by the Holder requesting
the exchange.
(iii) The Company and any agent of the Company may deem and
treat the Person in whose name any Note is registered as the owner of such Note
for the purpose of receiving payment of the principal and interest on such Note
and for all other purposes whatsoever.
(c) A Holder may sell or agree to sell to one or more other Persons (a
"Participant") a participation in all or any part of any Notes held by it;
provided, that unless the Participant is a Holder or an Affiliate of the
transferring Holder, the principal amount of the Notes being participated must
equal or exceed $500,000 or represent 100% of the principal amount of such
Holder's Note. The Participant's rights in respect of such participation shall
be those set forth in the agreements executed by such Holder in favor of the
Participant, and such Participant shall have no direct right under the Notes,
this Agreement or the other Transaction Documents, including rights to give
consents or waivers or to execute amendments, and the Company shall have no
obligations whatsoever to any Participant. In no event shall a Holder that sells
a participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Transaction Document, except that such
Holder may agree with the Participant that it will not, without the consent of
the Participant, agree to (i) extend the date fixed for the payment of principal
of or interest on the related Notes, (ii) reduce the amount of any such payment
of principal and (iii) reduce the rate at which interest is payable thereon to a
level below the rate at which the Participant is entitled to receive such
interest. In connection with any sale by a Holder to a Participant of any
interest in any Note, such Holder shall be required to comply with all
Requirements of Law, including without limitation all securities laws and
regulations of any Governmental Authority.
(d) A Holder may furnish any information concerning the Company or any
Subsidiary thereof in the possession of such Holder from time to time to
assignees and Participants (including prospective assignees and Participants) in
a manner reasonably necessary to assure the confidentiality of information
identified as confidential; provided, that if the intended recipient of such
information is not a financial institution or a financial investor, then such
Holder shall notify the Company in writing of the identity of the prospective
assignee or Participant and shall not furnish such information to the
prospective assignee or Participant if within 10 days of such Holder's notice to
the Company, the Company notifies such Holder in writing that the Company has
determined in good faith that such prospective assignee or Participant is a
competitor of the Company or its being an assignee or Participant would
otherwise be materially harmful to the Company. Except as provided in the
preceding sentence, each Holder and its assignees and Participants agree to
maintain in confidence, use only for purposes of analyzing and monitoring its
investment in the Company, and not to disclose to third parties information
regarding the Company furnished to such Holder or its assignees or Participants
by the Company (or in the case of an assignment or participation, by any Holder)
in writing, which writing clearly identifies such information as confidential or
any information that such Purchaser learns through the exercise of its
observation rights pursuant to Section 7.02 hereof or through the exercise of
its inspection rights pursuant to Section 8.07 hereof; provided that this
confidentiality agreement shall not apply (i) to the extent that such Holder or
its assignee or Participant in its sole discretion determines that
47
<PAGE> 48
disclosure to one or more third parties is necessary to satisfy any legal or
regulatory obligations or requests or to enforce its rights under any
Transaction Documents, (ii) to disclosures by such Holder or its assignee or
Participant to its directors, officers, employees, attorneys and accountants
(provided that such Persons shall themselves agree to maintain the
confidentiality of such information in accordance with the requirements hereof),
or (iii) to any information (A) which was publicly known or available at the
time of its disclosure to such Holder or its assignee or Participant, (B) which
subsequently becomes publicly known or available other than as a result of a
breach by such Holder or its assignee or Participant of its non-disclosure
obligations under this sentence or (C) which becomes known to such Holder or its
assignee or Participant from a source, other than from the Company, entitled to
disclose the information.
(e) Each Purchaser, and each other Holder by its acceptance of a Note
or a Warrant, acknowledges that so long as the Capital Stock of the Company
continues to be registered under Section 12(g) of the Exchange Act, the Insider
Trading and Securities Fraud Act of 1988 and other federal statutes impose
Requirements of Laws regarding the purchase and sale of the Capital Stock of the
Company, including by Persons who have received material non-public information.
14.05 Lost, Etc. Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Note, and (in case of loss, theft or destruction) of indemnity satisfactory
to it (which indemnity from a party other than the Holder or any Affiliate of
the Holder, in the Company's reasonable judgment, may be a secured indemnity
obligation) and upon surrender and cancellation of such Note, if mutilated,
within five Business Days thereafter the Company will deliver in lieu of such
Note a new Note in a like unpaid principal amount, duly executed by the Company,
dated as of the date to which interest has been paid thereon. The affidavit of
any Holder's treasurer or assistant treasurer (or other responsible official),
setting forth the circumstances with respect to the loss, theft or destruction
of a Note shall be accepted as satisfactory evidence thereof.
14.06 Amendments, Determinations, Requests or Consents. Any amendment,
supplement or modification of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by the
Company from the terms of any provision of this Agreement, shall be effective
(a) only if it is made or given in writing and signed by the Company, and the
Holders in accordance with this Section and (b) only in the specific instance
and for the specific purpose for which made or given. All determinations,
requests, consents, waivers or amendments (collectively "consent") to be made by
the Holders pursuant to this Agreement shall be made by the Required Holders and
not all the Holders; provided, that the consent of all Holders is needed to: (i)
reduce the principal of or rate of interest on the Notes, (ii) extend the final
scheduled maturity date of the principal amount of the Notes, (iii) change the
percentage of the Holders or the aggregate principal amount of Notes, as the
case may be, which shall be required for the Holders to take any action
hereunder, (iv) amend the provisions of Article XI hereof or (v) amend or waive
this Section 14.06; and provided, further, that the consent of the Holders of at
least 80% of the aggregate principal balance of Notes then outstanding is needed
with respect to any consent in connection with a transaction in which any Holder
or Holders of 20% or more, in the aggregate, of the outstanding principal amount
of the Notes, or their respective Affiliates, have a direct financial interest
other than as a Holder of Notes or Warrant Securities; and provided, further,
that no Holder shall have the right
48
<PAGE> 49
to give any consent hereunder nor shall such Holder's consent be required if
such Holder has acquired any Notes in violation of Section 14.04 hereof.
Notwithstanding anything to the contrary contained herein, the consent of the
holders of the Warrant Securities shall not be required except in connection
with any proposed amendment, supplement or modification of this Agreement, or
waiver or consent hereunder, unless it would materially adversely affect the
rights and privileges pertaining to the Warrant Securities, in which case such
the of the holders of a majority of the then outstanding Warrant Securities
shall also be required.
14.07 Remedies Cumulative. No failure or delay on the part of the
Company or any Holder in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or any Holder at law, in equity or otherwise.
14.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
14.09 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
14.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
14.11 Jurisdiction. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York or of the United States of America
located in the Borough of Manhattan, the City of New York and hereby expressly
submits to the personal jurisdiction and venue of such courts for the purposes
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum. Each party hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such suit, action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 14.02, such service to
become effective 10 days after such mailing.
14.12 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH HOLDER AND THE COMPANY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE NOTES, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
49
<PAGE> 50
14.13 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14.14 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
14.15 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
14.16 Certain Expenses. The Company shall pay or reimburse (a)
BancAmerica for all out-of-pocket costs and expenses (including, without
limitation, reasonable attorneys' and consulting fees and expenses, subject,
with respect to the following clause (i) only, to the limits set forth in the
commitment letter dated as of December 17, 1999, from BancAmerica to the
Company) in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement, the Notes and the other Transaction Documents and
the consummation of the transactions contemplated thereby and (ii) any
amendment, modification or waiver of any of the terms of this Agreement, the
Notes or the other Transaction Documents; (b) GE for all out-of-pocket costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, subject, with respect to the following clause (i) only, to a limit of
$20,000.00) in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement, the Notes and the other Transaction Documents and
the consummation of the transactions contemplated thereby and (ii) any
amendment, modification or waiver of any of the terms of this Agreement, the
Notes or the other Transaction Documents; (c) each Holder for all costs and
expenses of the Holders (including, without limitation, reasonable attorney's
fees and expenses) in connection with (i) any Event of Default and any
enforcement or collection proceedings resulting therefrom and (ii) the
enforcement of this Section 14.16; and (d) each Holder for transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement, the Notes or the
Transaction Documents or any other document referred to herein or therein.
14.17 Commitment Fees. At Closing, the Company shall pay each Purchaser
a closing fee equal, in each case, to 1% of the aggregate principal amount of
the Note purchased by such Purchaser.
50
<PAGE> 51
14.18 Publicity. Except as may be required by applicable law, none of
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto (which
approval will not be unreasonably withheld). If any announcement is required by
law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
14.19 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
51
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
COMPANY:
SALESLOGIX CORPORATION
By:____________________________________________
Name: Gary R. Acord
Title: Secretary and Chief Financial Officer
PURCHASERS:
BA TECHNOLOGY I, LLC
By: BancAmerica Capital Investors I, L.P.,
Its sole manager
By: BancAmerica Capital Management I,
L.P., Its general partner
By:_______________________________________
Name:__________________________________
Title:_________________________________
GE CAPITAL EQUITY INVESTMENTS, INC.
By:____________________________________________
Name:
Title:
<PAGE> 53
SCHEDULE 2.01(a)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Aggregate Principal, Total
Purchaser Amount of Note Total Initial Warrants Purchase Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BancAmerica $25,000,000.00 647,005 $25,000,000.00
- -----------------------------------------------------------------------------------------------------------------
GE 7,500,000.00 194,102 7,500,000.00
- -----------------------------------------------------------------------------------------------------------------
Total 32,500,000.00 841,107 32,500,000.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 54
SCHEDULE 2.01(b)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Adjustment Date Adjustment Percentage Adjustment Percentage
(BancAmerica) (GE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
June 30, 2000 0.625%(1) .1875%
- -----------------------------------------------------------------------------------------------------------------
July 31, 2000 0.625% .1875%
- -----------------------------------------------------------------------------------------------------------------
August 31, 2000 0.625% .1875%
- -----------------------------------------------------------------------------------------------------------------
April 2, 2001 2.190% .657%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) By way of example, assuming 20,000,000 Fully Diluted shares outstanding on
June 30, 2000 and no prepayments or redemptions of any Notes, the Aggregate
Number for the first Adjustment Warrant would be 125,786 shares (.625% x
(20,000,000 + 125,786) = 125,786).
<PAGE> 1
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is dated as of December 31, 1999
(this "Agreement"), by and among SALESLOGIX CORPORATION, a Delaware corporation
(the "Company"), BA TECHNOLOGY I, LLC, a Delaware limited liability company
("BancAmerica"), and GE CAPITAL EQUITY INVESTMENTS, INC., a Delaware corporation
("GE").
Statement of Purpose
Pursuant to a Senior Subordinated Note and Warrant Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), the Company has issued
BancAmerica and GE $32,500,000 of its 11.0% senior subordinated notes due 2004
(the "Subordinated Notes") and warrants to purchase an aggregate of 841,107
shares of the Company's common stock. Pursuant to the terms of the Purchase
Agreement, the Company may from time to time after the date hereof issue to
BancAmerica, GE and any person to whom either such person transfers the Initial
Warrants additional warrants to purchase shares of the Company's common stock.
BancAmerica and GE have requested, as a condition precedent to their entering
into the Purchase Agreement, that the Company provide, and the Company has
agreed to provide, to BancAmerica, GE and their respective transferees certain
registration rights with respect to the Registrable Securities (as hereinafter
defined). The Company has previously granted certain registration rights to
holders of capital stock of the Company pursuant to each of the Original
Registration Rights Agreement, the Enact Registration Rights Agreement, the Opis
Registration Rights Agreement and the Symantec Registration Rights Agreement
(all as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. DEFINITIONS. For the purposes of this Agreement, in addition
to the terms defined elsewhere in this Agreement, the following terms have the
meanings set forth below:
"Commission" means the Securities and Exchange Commission or any
similar agency that may from time to time have jurisdiction to enforce or
administer the Securities Act.
"Common Stock" means the common stock, $.001 par value, of the Company,
and any other capital stock into which such common stock is reclassified or
reconstituted.
"Enact Registration Rights Agreement" means the Enact Investor Rights
Agreement dated as of April 30, 1999 by and among the Company and the persons
whose names appear on the signature pages of such Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Registration Rights Agreements" means, collectively, the
Original Registration Rights Agreement, the Enact Registration Rights Agreement,
the Opis Registration Rights Agreement and the Symantec Registration Rights
Agreement.
<PAGE> 2
"GE Holders" means GE and any of its affiliates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act).
"Holders" means any person owning or having the right to acquire
Registrable Securities.
"Initial Warrants" has the meaning ascribed thereto in the Purchase
Agreement.
"Majority of the Registrable Securities" means that portion of the
Registrable Securities representing more than 50% of the shares of Common Stock
then outstanding or issuable upon exercise of the Warrants.
"NASD" means the National Association of Securities Dealers, Inc.
"Opis Registration Rights Agreement" means the Opis Investor Rights
Agreement dated as of December 30, 1997 by and among the Company and the
individuals whose names appear on the signature page of such Agreement.
"Original Registration Rights Agreement" means the Amended and Restated
Investors' Rights Agreement dated as of June 4, 1998, as amended as of April 22,
1999 and as of December 31, 1999, by and among the Company and the persons and
entities listed on Schedule A thereto.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by merger
or otherwise) of such entity.
"Registrable Securities" means (a) the Warrants, (b) shares of Common
Stock issued or issuable upon exercise of the Warrants and (c) any other equity
securities of the Company (i) issued in exchange for, upon a reclassification
of, or in a distribution with respect to, the Common Stock or the Warrants or
(ii) issued in connection with Section 4 of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Short Form Registration Statement" means (i) a Registration Statement
on Form S-2 or S-3 (or any successor to such forms) or (ii) any other
registration statement that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
Commission.
"Symantec Registration Rights Agreement" means the Registration Rights
Agreement dated as of December 31, 1999 by and between the Company and Symantec
Corporation.
"Warrants" means the Initial Warrants together with any additional
warrants to purchase shares of Common Stock that may be issued to BancAmerica,
GE and their transferees from time to time in the future pursuant to the
Purchase Agreement.
2
<PAGE> 3
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) Registrable Securities. For the purposes of this
Agreement, Registrable Securities shall be treated as such until they have been
previously registered in the manner contemplated by this Agreement or sold in a
transaction so that all transfer restrictions and restrictive legends with
respect thereto are removed upon consummation of such sale, or until all such
Registrable Securities held by such Holder may immediately be sold during any 90
day period without registration in compliance with Rule 144.
(b) Holders of Registrable Securities. A Person is deemed to
be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company may act upon the basis of the instructions,
notice or election received from the registered owner of such Registrable
Securities. Registrable Securities issuable upon exercise of an option, warrant
or other right or upon conversion of another security shall be deemed
outstanding for the purposes of this Agreement. A person need not exercise any
Warrants prior to the Company's effecting the registration of the Common Stock
issuable upon exercise of such Warrants.
SECTION 3. REQUEST FOR SHORT-FORM REGISTRATION.
(a) At any time that the Company is eligible to file a
Short-Form Registration Statement, either (i) the holders of a Majority of the
Registrable Securities or (ii) the GE Holders (so long as, in the case of both
clauses (i) and clause (ii), such person(s) hold, and intend to cause to be
registered, Registrable Securities having an anticipated aggregate offering
price (before underwriting discounts and commissions) of at least $2,000,000)
may make a written request that the Company file a registration statement under
the Securities Act covering all or any portion of the Registrable Securities
held by the person(s) making the request (the "Initiating Holders"). Upon
receipt of such notice, the Company shall:
(A) within ten (10) days of the receipt thereof give
written notice of such request to all Holders; and
(B) effect as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under
the Securities Act of all Registrable Securities which the Holders
request to be registered, subject to the limitations of Section 3(b),
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 14(f).
If the Company is eligible to file a Short-Form Registration Statement with
respect to only a portion of the Registrable Securities, then registration
pursuant to this Section 3 may be requested with respect to such Registrable
Securities only and need not include other Registrable Securities that are not
then eligible to be registered on a Short-Form Registration Statement.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 3(a) and the Company shall include such information
3
<PAGE> 4
in the written notice referred to in Section 3(a). The underwriter will be
selected by, and shall be reasonably acceptable to, the Company and a
majority-in-interest of the Initiating Holders. In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority-in-interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in Section 5(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 3, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities that
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company that each such Holder has requested to be included in such offering;
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting shall not be reduced unless all other securities
are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
3 a certificate signed by the Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve-month
period.
(d) The Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 3:
(i) in the case of any registration initiated
pursuant to Section 3(a)(i), after the Company has effected two
registrations pursuant to this Section 3 that were initiated by the
Holders of a Majority of the Registrable Securities and such
registrations have been declared or ordered effective and continued to
be effective, all in the manner contemplated by this Agreement; and
(ii) in the case of any registration initiated
pursuant to Section 3(a)(ii), after the Company has effected one
registration pursuant to this Section 3 that was initiated by the GE
Holders and such registration has been declared or ordered effective
and continued to be effective, all in the manner contemplated by this
Agreement.
Without limiting the foregoing, the Company also shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 3 during the period starting with the date thirty (30) days prior to the
Company's good faith estimate of the date of filing of and ending on a date one
hundred eighty (180) days after the effective date of a registration subject to
Section 4
4
<PAGE> 5
hereof; provided, that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective.
SECTION 4. PIGGY-BACK REGISTRATION. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock or other securities under the Securities Act in connection with
the public offering of such securities solely for cash (other (i) a registration
relating solely to the sale of securities to participants in a Company stock
plan or (ii) 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, but including any registration
statements filed in connection with the Existing Registration Rights
Agreements), the Company 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 the Company in
accordance with Section 14(f), the Company shall, subject to the provisions of
Section 8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered. The
Company shall not be required to include in any such registration statement any
Registrable Securities that are not eligible to be registered on the
registration statement form that the Company was proposing to file.
SECTION 5. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
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 equal to the lesser of one
hundred eighty (180) days or until the distribution contemplated in the
Registration Statement has been completed; provided, however, that (i) such
180-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 the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis; such 180-day
period shall be extended, to the extent necessary, to keep the registration
statement effective until all such Registrable Securities are sold; provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, provided, further, that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (I)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(II) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement; provided, however, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall provide counsel for the Holders with an adequate and
appropriate opportunity to participate in the preparation of such registration
5
<PAGE> 6
statement and each prospectus included therein (and each amendment or supplement
thereto) to be filed with the Commission.
(b) Prepare and file with the Commission 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 Securities 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 Securities 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 the Company 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 the Company is already subject to service in such jurisdiction and except
as may be required by the Securities 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 in usual and customary form.
(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 Securities 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
hereto to be listed on each securities exchange or automated quotation system on
which similar securities issued by the Company 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 this Agreement, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, 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 the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an
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<PAGE> 7
underwritten public offering, 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 the
Company, 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.
(j) Keep counsel to the sellers of Registrable Securities
reasonably advised as to the initiation and progress of any registration under
Section 3 or 4 hereof.
(k) Provide officers' certificates and other customary closing
documents.
(l) Reasonably cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD.
(m) Use its best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby and
reasonably cooperate with the holders of such Registrable Securities to
facilitate the disposition of such Registrable Securities pursuant hereto.
SECTION 6. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company 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.
SECTION 7. EXPENSES OF REGISTRATION. All expenses (other than
underwriting discounts and commissions) including all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of two counsel
for the selling Holders shall be borne by the Company; provided, however, that
the Company and the Holders proposing to include Registrable Securities in a
registration begun pursuant to Section 3 shall each bear 50% of the Company
Out-of-Pocket Expenses (as defined below) in connection with such a registration
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered, unless the
Holders initiating such registration agree to forfeit their right to one demand
registration pursuant to Section 3; provided, further, however, that if at the
time of such withdrawal the Holders have learned of a material adverse change in
the condition, business, or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any such expenses
and shall retain their rights pursuant to Section 3. The Holders' respective
portion of such expenses shall be borne on a pro rata basis according to the
number of shares initially requested to be included in such registration.
"Company Out-of-Pocket Expenses" means all the reasonable out-of-pocket expenses
actually incurred by the Company in connection with such registration (but
specifically excluding any internal costs associated with such registration).
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<PAGE> 8
SECTION 8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 4 to include any of the Holders' securities
in such underwriting unless they accept the terms of the underwriting as
reasonably agreed upon between the Company 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 the Company. 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
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company 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:
(i) the amount of securities of the holders of
securities exercising their piggyback registration rights pursuant to
this Agreement and the Existing Registration Rights Agreements included
in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering (it being understood
that such holders of piggy-back registration rights shall be entitled
to include shares of securities on a pro rata basis according to the
total amount of securities requested to be included in any such
offering by each such holder); or
(ii) notwithstanding (i) above, any shares being sold
by a stockholder exercising a demand registration right pursuant to
Section 3 or any other demand registration right be excluded from such
offering.
The parties acknowledge that if an underwritten offering is effected in
connection with a demand registration request pursuant to Section 3 hereof, the
cutback provisions of such section shall apply to the Holders of Registrable
Securities in the event marketing factors require a limitation of the number of
shares to be underwritten in connection with such an offering. 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 who is
controlled by, or under common control with a selling stockholder shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based 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.
SECTION 9. 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 Agreement.
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<PAGE> 9
SECTION 10. INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder, such Holder's officers, directors,
members, partners, employees and agents, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange 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 the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, officer,
director, member, partner, employee, agent, 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 Section 10(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 the Company (which consent shall not be unreasonably withheld),
nor shall the Company 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,
severally and not jointly, indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
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 Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or action 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 Section 10(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 10(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, further, that, in no event shall any
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<PAGE> 10
indemnity under this Section 10(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 10 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 10, 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 (i)
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, (ii) there may be one or more legal defenses
available to it that are different from or additional to those available to the
indemnifying party or (iii) the indemnifying party fails to assume the defense
of any such action with legal counsel reasonably satisfactory to the indemnified
party. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10 but only to the extent that the indemnifying party is actually and materially
prejudiced thereby; provided, however, 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 10.
(d) If the indemnification provided for in this Section 10 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. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in this paragraph.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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<PAGE> 11
(f) The indemnity and contribution covenants contained in this
Section 10 shall remain operative and in full and effect regardless of (i) any
investigation made by or on behalf of a Holder or any person controlling a
Holder, (ii) any sale of any Registrable Securities pursuant to this Agreement
and receipt by the Holders of the proceeds thereof or (iii) any termination of
this Agreement for any reason.
SECTION 11. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act ("Rule 144") and any other rule or regulation of the SEC that
may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a Short-Form Registration Statement, the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
and take such other action as is necessary to permit the Company to file
Short-Form Registration Statements; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, or that it qualifies as a registrant whose
securities may be resold pursuant to a Short-Form Registration Statement (at any
time after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, 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 a Short-Form
Registration Statement.
SECTION 12. RULE 144A. The Company agrees, at any time when any Holder
desires to make sales of any Registrable Securities in reliance on Rule 144A
under the Securities Act (or any successor rule or regulation) ("Rule 144A") and
Rule 144A is available to such Holder with respect to the proposed sales, to
provide such Holder or any prospective purchaser therefrom with the information
required by Rule 144A (the "144A Information"), and to otherwise reasonably
cooperate with the Holder in connection with such sale. The Company's
obligations under this Section shall at all times be contingent upon the Holder
obtaining from a prospective purchaser an agreement to take all reasonable
precautions to safeguard the 144A Information from disclosure to anyone other
than employees of and advisors to the prospective purchaser who require access
to the 144A Information for the sole purpose of evaluating its purchase of the
Company's securities.
SECTION 13. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a Majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 3 hereof
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<PAGE> 12
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which should result in such registration statement being declared effective
within one hundred twenty (120) days after the effective date of any
registration effected pursuant to Section 3.
SECTION 14. MISCELLANEOUS.
(a) Recapitalizations, Exchanges, Etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to the
Registrable Securities, to any and all shares of equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for or in substitution of, the Registrable Securities and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
(b) No Inconsistent Agreements. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders of the Registrable Securities in this Agreement.
(c) Acknowledgment of Previous Grants of Registration Rights.
BancAmerica and GE acknowledge that the Company has previously granted
registration rights to other holders of securities of the Company pursuant to
the Existing Rights Agreements and that the rights of holders of Registrable
Securities under Section 4 hereof shall be pari passu with the piggyback rights
of the holders under the Existing Rights Agreements, and that the Holders'
rights under this Agreement are subject to the rights of the holders under the
Existing Rights Agreements.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless agreed to in writing by the Company and the holders of a
Majority of the Registrable Securities.
(e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopy,
recognized overnight courier service or personal delivery:
(i) if to the Company:
SalesLogix Corporation
8800 North Gainey Center Drive
Suite 200
Scottsdale, Arizona 85258
Attention: Chief Financial Officer
Telecopy: (480) 368-3799
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With a required copy to:
Osborn Maledon, P.A.
2929 N. Central Avenue, Suite 2100
Phoenix, Arizona 85012
Attention: Thomas H. Curzon, Esq.
Telecopy: (602) 640-9050
(ii) if to BancAmerica:
BancAmerica Capital Investors SBIC I, L.P.
Bank of America Corporate Center
100 North Tryon Street, 25th Floor
NC1-007-25-02
Charlotte, North Carolina 28202
Attention: Ann B. Hayes
Telecopy: (704) 386-6432
(iii) if to GE:
GE Capital Equity Investments, Inc.
120 LongRidge Road
Stamford, CT 06927
Attention: Paul Gelburd
Telecopy: (203) 357-3945
(iii) if to any other holder of Registrable
Securities:
To the most recent address of such holder
shown in the Company's record of
securityholders
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five business
days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties. The rights to cause the Company to register Registrable Securities
pursuant to this Agreement may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such securities who,
after such assignment or transfer, holds 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 of a Holder hereunder); provided: (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration
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<PAGE> 14
rights are being assigned; (b) such transferee or assignee agrees in writing to
be bound by and subject to the terms and conditions of this Agreement; and (c)
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act. Notwithstanding any transfer of such rights, all of
the obligations of the Company hereunder shall survive any such transfer and
shall continue to inure to the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law of such state.
(j) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY, BANCAMERICA AND GE IRREVOCABLY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER
PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY
RIGHTS OR OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
(k) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the holders of Registrable
Securities shall be enforceable to the fullest extent permitted by law.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE> 15
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the day and year first above written.
SALESLOGIX CORPORATION
By:________________________________________________
Name:___________________________________________
Title:__________________________________________
BA TECHNOLOGY I, LLC
By: BancAmerica Capital Investors I, L.P.,
Its sole manager
By: BancAmerica Capital Management I, L.P.,
Its general partner
By:____________________________________
Name:__________________________________
Title:_________________________________
GE CAPITAL EQUITY INVESTMENTS, INC.
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
[Registration Rights Agreement
Signature Page]
<PAGE> 1
EXHIBIT 10.11
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAWS.
SALESLOGIX CORPORATION
COMMON STOCK PURCHASE WARRANT
December 31, 1999 Certificate Number 1
THIS IS TO CERTIFY that BA TECHNOLOGY I, LLC, and its transferees,
successors and assigns (the "Warrantholder"), for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, is
entitled to purchase from SALESLOGIX CORPORATION, a Delaware corporation (the
"Company"), at an initial Exercise Price of $28.75 per share, subject to
adjustment as provided herein, Six Hundred Forty-Seven Thousand Five (647,005)
shares (the "Aggregate Number") of the fully paid and nonassessable Common
Stock. The Aggregate Number is subject to adjustment or reduction as set forth
in Section 4 of this Common Stock Purchase Warrant (this "Warrant").
SECTION 1. DEFINITIONS. As used herein, in addition to the terms
defined elsewhere herein, the following terms shall have the following meanings.
Capitalized terms not appearing below and not otherwise defined herein shall
have the meaning ascribed to them in the Note and Warrant Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person; provided, that in no event shall BancAmerica
or GE (or any Affiliate of either BancAmerica or GE) be deemed to be an
Affiliate of the Company. A Person shall be deemed to control another Person if
such Person possesses, directly or indirectly, the power (a) to vote 10% or more
of the securities having ordinary voting power for the election of directors or
other managers of such other Person or (b) to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Aggregate Number" has the meaning assigned thereto in the first
paragraph hereof.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina or New York, New York are
authorized or required by law or executive order to close.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended or supplemented from time to time.
<PAGE> 2
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act or the
Exchange Act.
"Common Stock" means collectively (a) the Common Stock of the Company,
par value $0.001 per share, as described in the Certificate of Incorporation or
(b) any other capital stock into which the foregoing is reclassified or
reconstituted.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which, directly or indirectly, are exchangeable for or
exercisable or convertible into Common Stock.
"Current Market Price" shall refer to the per share value of the Common
Stock and shall mean, with respect to the value of a share of Common Stock on
any Business Day, (a) if the Common Stock is Publicly Traded at the time of
determination, the average of the closing prices on such day of the Common Stock
on all domestic securities exchanges on which the Common Stock is then listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted on NASDAQ as of 4:00 P.M. New York
time, on such day, or if on any day such security is not quoted on NASDAQ, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of twenty (20) days consisting of the day as of which "Current
Market Price" is being determined and the nineteen (19) consecutive Business
Days prior to such day; or (b) if the Common Stock is not Publicly Traded at the
time of determination, the value determined in good faith by the Board of
Directors of the Company based on the per share price for which all the
outstanding shares of Common Stock (on a Fully Diluted basis, assuming receipt
of applicable consideration for any conversion, exchange or exercise of any
Convertible Securities or Options which are exchangeable for or convertible or
exercisable into Common Stock unless they are Out of the Money) could be sold in
an arm's-length transaction to a third party which is not an Affiliate, treating
the Company and its Subsidiaries as a going concern and assuming such sales were
between a willing buyer and a willing seller and without regard to any discount
for minority interest, restrictions on transfer or lack of marketability.
"Exercise Price" means the price per share of Common Stock (or price
per share of Other Securities) at which the Common Stock (or Other Securities)
are purchasable pursuant to this Warrant. The Exercise Price is subject to
adjustment as provided herein.
"Expiration Date" means the tenth (10th) anniversary of the date
hereof.
"Fully Diluted" means, with respect to the Common Stock, as of a
particular time the total outstanding shares of Common Stock as of such time,
determined by treating all outstanding Options, warrants and other rights for
the purchase or other acquisition of shares of Common Stock (whether or not then
vested and exercisable and whether or not Out of the Money) as having been
exercised and by treating all outstanding securities directly or indirectly
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<PAGE> 3
convertible into or exchangeable for shares of Common Stock (whether or not then
exercisable or convertible and whether or not Out of the Money) as having been
so converted or exchanged.
"Majority Warrantholders" means the holders of at least fifty-one
percent (51%) of the Senior Warrants (based on the number of shares of Common
Stock for which such Senior Warrants may be exercised).
"Note and Warrant Purchase Agreement" means the Senior Subordinated
Note and Warrant Purchase Agreement dated as of the date hereof, by and among
the Purchasers and the Company.
"Option" shall mean any warrant, option or other right to subscribe for
or purchase a specified security of the Company.
"Other Securities" shall mean any stock and other securities of the
Company or any other Person (corporate or otherwise) which the Warrantholder at
any time shall be entitled to receive, upon the exercise of this Warrant or
pursuant to Section 4 hereof, in lieu of or in addition to Common Stock.
"Out of the Money" means (a) in the case of an Option, that the fair
market value of the shares of Common Stock, which the holder thereof is entitled
to purchase or subscribe for is less than the exercise price of such Option and
(b) in the case of a Convertible Security, that the quotient resulting from
dividing the face value of such Convertible Security by the number of shares of
Common Stock into or for which such Convertible Security is exercisable,
convertible or exchangeable is greater than the fair market value of a share of
Common Stock.
"Principal Office" means the Company's principal office as set forth in
Section 15(a) hereof or such other principal office of the Company in the United
States of America the address of which first shall have been set forth in a
notice to the Warrantholder.
"Publicly Traded" means, with respect to any security, that such
security is (a) listed on a domestic securities exchange, (b) quoted on NASDAQ
or (c) traded in the domestic over-the-counter market, which trades are reported
by the National Quotation Bureau, Incorporated.
"Senior Warrants" means (a) this Warrant, (b) the Initial Warrant
issued to the Purchaser other than the Warrantholder on the date hereof and (c)
any Adjustment Warrants.
"Warrant Shares" means (a) the shares of Common Stock that have been
issued upon exercise of this Warrant in accordance with its terms and, (b) all
other shares of the Company's capital stock issued with respect to such shares
by way of stock dividend, stock split or other reclassification or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's capital stock, or acquired by way of any rights offering
or similar offering made in respect of the capital stock referred to in this
clause (b) or the foregoing clause (a).
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<PAGE> 4
SECTION 2. EXERCISE PRICE. The initial Exercise Price is $28.75 and is
subject to adjustment pursuant to Section 4 in connection with an adjustment of
the Aggregate Number. In addition, (a) in the event the Notes have not been
redeemed in full on August 31, 2000, the Exercise Price, effective on and after
August 31, 2000, shall be the lower of $28.75 or the Current Market Price
determined as of August 30, 2000; and (b) in the event the Notes have not been
redeemed in full on April 2, 2001, the Exercise Price, effective on and after
April 2, 2001, shall be the lower of (i) the Exercise Price as determined under
clause (a) of this sentence or (ii) the Current Market Price determined as of
March 30, 2001.
SECTION 3. EXERCISE.
(a) Right to Exercise; Exercise Amount. On or before the Expiration
Date, the Warrantholder, in accordance with the terms hereof, may exercise this
Warrant in whole or in part at any time by delivering this Warrant to the
Company during normal business hours on any Business Day at the Principal
Office, together with an Election to Purchase, in the form attached hereto as
Exhibit A (the "Election to Purchase"), duly executed, and payment of the
Exercise Price for each share to be purchased (with the total number of shares
to be purchased being referred to as the "Exercise Amount") as specified in the
Election to Purchase. If the Expiration Date is not a Business Day, then this
Warrant may be exercised on the next succeeding Business Day. The aggregate
Exercise Price (the "Aggregate Exercise Price") to be paid for the Exercise
Amount shall equal the product of (i) the Exercise Amount multiplied by (ii) the
Exercise Price.
(b) Payment of Aggregate Exercise Price. Payment of the Aggregate
Exercise Price shall be made to the Company in cash or other immediately
available funds or as provided in Section 3(c) or (d) or a combination thereof.
In the case of payment of all or a portion of the Aggregate Exercise Price
pursuant to Section 3(c) or (d) below, the direction by the Warrantholder to
apply a portion of the Note held by the Warrantholder and/or to make a "Cashless
Exercise" shall serve as accompanying payment for that portion of the Aggregate
Exercise Price.
(c) Cancellation of Note to Pay Aggregate Exercise Price. During any
period of time when the Warrantholder is also the Holder of a Note, the
Warrantholder shall have the right to pay all or a portion of the Aggregate
Exercise Price by applying all or any part of such Note, regardless of whether
such amount is then due or whether the Note is then redeemable, to the payment
of the Aggregate Exercise Price. The amount of the Note so applied shall be
treated as a payment of accrued and unpaid interest under the Note until such
accrued and unpaid interest is paid in full, and then shall be treated as the
prepayment of principal. Any part of the Note not so applied to payment of the
Aggregate Exercise Price shall continue to be due in accordance with the terms
thereof.
(d) Cashless Exercise. The Warrantholder shall have the right to pay
all or a portion of the Aggregate Exercise Price by making a "Cashless Exercise"
pursuant to this Section 3(d), in which case the portion of the Aggregate
Exercise Price to be so paid shall be paid by reducing the number of shares of
Common Stock otherwise issuable pursuant to the Election to Purchase by an
amount of Common Stock with an aggregate Current Market Price equal to the
Aggregate Exercise Price to be so paid.
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<PAGE> 5
(e) Issuance of Shares of Common Stock. Upon receipt by the Company of
this Warrant at the Principal Office in proper form for exercise, and
accompanied by payment of the Aggregate Exercise Price as aforesaid, the
Warrantholder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered.
Upon such surrender of this Warrant and payment of the Aggregate Exercise Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to, or upon the written order of, the Warrantholder (and in
such name or names as the Warrantholder may designate) a certificate or
certificates for the Exercise Amount, subject to any reduction as provided in
Section 3(d) for a Cashless Exercise.
(f) Fractional Shares. The Company shall not be required to deliver
fractions of shares of Common Stock upon exercise of this Warrant. If any
fraction of a share of Common Stock would be deliverable upon exercise of this
Warrant, the Company may, in lieu of delivering such fraction of a share of
Common Stock, make a cash payment to the Warrantholder in an amount equal to the
same fraction of the Current Market Price.
(g) Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue to the Warrantholder a Warrant in like form for
the unexercised portion thereof.
SECTION 4. ADJUSTMENTS TO AGGREGATE NUMBER. The Aggregate Number shall
be subject to adjustment from time to time as set forth in this Section 4.
(a) Adjustments for Stock Dividends, Subdivisions or Combinations. In
the event that at any time or from time to time, the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock (a "Stock Dividend"),
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock (a "Stock Subdivision"), or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock (a "Stock Combination"),
then the Aggregate Number in effect immediately prior thereto shall,
concurrently with the effectiveness of such event, be (1) proportionately
increased in the case of a Stock Dividend or a Stock Subdivision (with the
Exercise Price proportionately decreased; provided, that the Company shall not
be required to reduce the Exercise Price below the par value of the Common
Stock) and (2) proportionately decreased in the case of a Stock Combination
(with the Exercise Price proportionately increased). In the event the Company
shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made a Stock Dividend in an amount of shares
equal to the maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
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<PAGE> 6
(b) Adjustments for Other Distributions. In case at any time or from
time to time the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or other distribution
(collectively, a "Distribution") of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its
capital stock (other than additional shares of Common Stock) or any
other securities or property of any nature whatsoever (other than
cash), or
(iii) any options or warrants or other rights to subscribe for
or purchase any of the following: any evidences of its indebtedness,
any shares of its capital stock (other than additional shares of Common
Stock) or any other securities or property of any nature whatsoever,
then the Warrantholder shall be entitled to receive upon the exercise of this
Warrant at any time on or after the taking of such record the number of Warrant
Shares to be received upon exercise of this Warrant determined as stated herein
and, in addition and without further payment, the cash, evidences of
indebtedness, stock, securities, other property, options, warrants and/or other
rights to which the Warrantholder would have been entitled by way of the
Distribution and subsequent dividends and distributions through the date of
exercise as if the Warrantholder (1) had exercised this Warrant immediately
prior to such Distribution and (2) had retained the Distribution in respect of
the Common Stock and all subsequent dividends and distributions of any nature
whatsoever in respect of any stock or securities paid as dividends and
distributions and originating directly or indirectly from such Common Stock.
(c) Adjustments for Reclassification, Exchange and Substitution. If the
Common Stock issuable upon exercise of this Warrant shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification, merger, share exchange or
otherwise (other than a Stock Dividend, Stock Subdivision or Stock Combination
provided for above), the Aggregate Number then in effect, the Exercise Price
then if effect and the type of security purchasable under this Warrant shall,
concurrently with the effectiveness of such reorganization, reclassification,
merger, share exchange or other transaction, be appropriately and equitably
adjusted such that this Warrant shall be exercisable for, in lieu of the number
of shares of Common Stock which the Warrantholder would otherwise have been
entitled to receive, that number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the Warrantholder upon exercise of this Warrant
immediately before such change and at an Exercise Price economically equivalent
to the Exercise Price in effect immediately before such change.
(d) Consolidation, Merger, Share Exchange, etc. In case a
consolidation, merger or share exchange of the Company shall be effected with
another Person on or after the date hereof, or the sale, lease or transfer of
all or substantially all of its assets to another Person shall be effected on or
after the date hereof, then, as a condition of such consolidation, merger, share
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<PAGE> 7
exchange, sale, lease or transfer, lawful and adequate provision shall be made
whereby the Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified herein and in
lieu of each Warrant Share immediately theretofore purchasable and receivable
upon the exercise of this Warrant, such shares of stock, securities, cash or
other property receivable upon such consolidation, merger, share exchange, sale,
lease or transfer by the holder of the number of shares of Common Stock issuable
pursuant to this Warrant immediately prior to such event. In any such case,
appropriate and equitable provision also shall be made with respect to the
rights and interests of the Warrantholder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, cash or other property thereafter deliverable upon the
exercise of this Warrant. The Company shall not effect any such consolidation,
merger, share exchange, sale, lease or transfer unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, merger or share exchange or the
Person purchasing, leasing or otherwise acquiring such assets shall assume, by
written instrument mailed to the Warrantholder at its last address appearing on
the books of the Company, the obligation to deliver to the Warrantholder such
shares of stock, securities, cash or other property as, in accordance with the
foregoing provisions, the Warrantholder may be entitled to purchase. The above
provisions of this Section 4(d) shall similarly apply to successive
consolidations, mergers, share exchanges, sales, leases or transfers.
(e) Certificate as to Adjustments. The Company shall, upon the written
request at any time by the Warrantholder, furnish or cause to be furnished to
the Warrantholder a certificate setting forth such adjustments and
readjustments, the Aggregate Number at the time in effect and the amount, if
any, of other property which at the time would be received upon exercise of this
Warrant. Upon the occurrence of each adjustment or readjustment of the Aggregate
Number pursuant to this Section 4, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to the Warrantholder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
(f) Notices of Record Date. In the event that the Company shall propose
at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether or not a regular cash dividend or a dividend payable in
shares of capital stock and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any
class or series, or any other rights;
(iii) to effect any reclassification or recapitalization of
its outstanding Common Stock involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up or enter
into any share exchange; then, in connection with each such event, the
Company shall send to the Warrantholder:
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<PAGE> 8
(A) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying
the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect
of the matters referred to in clauses (iii) and (iv) above and
which such notice shall set forth such facts with respect
thereto as shall be reasonably necessary to indicate the
effect of such action on the Common Stock, if any, and any
adjustment which will be required to be made to the Aggregate
Number and the Exercise Price as a result of such action; and
(B) in the case of matters referred to in clauses
(iii) and (iv) above, in the event a record date is taken with
respect to any such matter, at least twenty (20) days' prior
written notice of such record date or, if no such record date
is taken, at least twenty (20) days' prior written notice of
the date when such matters shall take place (and specifying
the date on which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon the occurrence
of such event).
(g) No Dilution or Impairment. The Company will not, by amendment of
the Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, share exchange,
dissolution or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, including without limitation
the adjustments required under this Section 4, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such
action as may be necessary or appropriate to protect the rights of the
Warrantholder against the type or nature of dilution or other impairment for
which protection is contemplated to be afforded the Warrantholder in this
Warrant.
SECTION 5. WARRANTHOLDER'S RIGHTS IN CASE OF OTHER SECURITIES. If the
Warrantholder at any time shall have received or shall be entitled to receive
Other Securities pursuant to the terms hereof, appropriate provision shall be
made so that the Warrantholder receives with respect to such Other Securities as
nearly as possible the intended benefits of this Agreement with respect thereto.
SECTION 6. NO IMPAIRMENT. The Company (a) will not increase the par
value of any shares of Common Stock receivable on the exercise of this Warrant
or take any other action if as a result thereof such par value would exceed the
Exercise Price and (b) will take all such action as may be reasonably necessary
or appropriate so that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock on the exercise of this Warrant.
SECTION 7. RESERVATION TO COMMON STOCK AND OTHER COVENANTS.
(a) Reservation of Authorized Common Stock. The Company shall at all
times reserve and keep available out of the aggregate of its authorized but
unissued shares, free of preemptive rights, such number of its duly authorized
shares of Common Stock, or other stock or
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<PAGE> 9
securities deliverable pursuant to Section 4 hereof, as shall be sufficient to
enable the Company at any time to fulfill all of its obligations hereunder.
(b) Affirmative Actions to Permit Exercise and Realization of Benefits.
If any shares of Common Stock reserved or to be reserved for the purpose of
exercise of this Warrant, or any shares or other securities reserved or to be
reserved for the purpose of issuance pursuant to Section 4 hereof, require
registration with or approval of any governmental authority under any federal or
state law before such shares or other securities may be validly delivered upon
exercise of this Warrant, then the Company covenants that it will, at its sole
expense, secure such registration or approval, as the case may be. The Company's
obligation hereunder shall apply also to approvals or expirations of waiting
periods required under the Hart-Scott-Rodino Antitrust Improvements Act (the
"HSR Act"), and with respect to any filings under the HSR Act, whether by the
Company, the Warrantholder or any other Person, the Company shall bear the costs
of all such filing fees with respect to such filings.
(c) Validly Issued Shares. The Company covenants that all shares of
Common Stock that may be delivered upon exercise of this Warrant (including
those issued pursuant to Section 4 hereof) shall upon delivery by the Company be
duly authorized and validly issued, fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue or delivery thereof and
otherwise free of all other security interests, encumbrances and claims of any
nature whatsoever other than those created by the Warrantholder.
(d) Restrictions on Performance. The Company shall not at any time
after the date hereof enter into an agreement or other instrument which, by its
terms, restricts its ability to perform its obligations hereunder or making such
performance or the issuance of shares of Common Stock upon the exercise of this
Warrant a default under any such agreement or instrument.
(e) Modification of Certificate of Incorporation and By-Laws. The
Company shall not amend or consent to any modification, supplement or waiver of
any provision of the Certificate of Incorporation or the bylaws of the Company
in any manner which would have a material adverse effect on the rights of the
Warrantholder hereunder without the prior written consent of the Majority
Warrantholders (which consent shall not be unreasonably withheld or delayed).
SECTION 8. NOTICE OF EXPIRATION DATE. The Company shall give to the
Warrantholder notice of the Expiration Date. Such notice may be given by the
Company not less than 30 days but not more than 60 days prior to the Expiration
Date; provided, that if the Company fails to give timely notice, the Expiration
Date will be extended to the date which is 30 days after the day on which such
notice is given.
SECTION 9. TRANSFERS OF THE WARRANT.
(a) Transfer and Exchanges. The Company shall initially record this
Warrant on a register to be maintained by the Company with its other stock books
and, subject to Section 9(b) hereof, from time to time thereafter shall transfer
this Warrant on such register when this Warrant is: (i) surrendered for transfer
in accordance with the terms hereof, and (ii) properly
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<PAGE> 10
endorsed and accompanied by appropriate instructions. Upon any such transfer, a
new Warrant or Warrants shall be issued to the transferee and the Warrantholder
(in the event that this Warrant is only partially transferred) and the
surrendered Warrant shall be canceled. Each such transferee shall succeed to the
rights of the transferring Warrantholder hereunder to the extent of such
transfer. This Warrant may be exchanged at the option of a Warrantholder, when
surrendered at the Principal Office of the Company, for another Warrant or other
Warrants of like tenor and representing in the aggregate the right to purchase a
like number of shares of Common Stock, subject to adjustment as more fully set
forth herein.
(b) Transfers Subject to Securities Laws; Registration Rights; and
Purchase Agreement. Subject to the securities law restrictions set forth in the
legend on the first page of this Warrant, the Warrantholder may at any time and
from time to time freely transfer its Warrant and the Warrant Shares in whole or
in part. Pursuant to the Registration Rights Agreement dated as of the date
hereof, among the Company and the Purchasers, Company has granted certain
registration rights to the holders of the Senior Warrants. This Warrant, the
Adjustment Warrants and the Warrant Shares are issued or issuable subject to the
provisions and conditions contained herein and in the Note and Warrant Purchase
Agreement.
SECTION 10. NO VOTING RIGHTS. Prior to the exercise of this Warrant,
the Warrantholder shall not be entitled to any voting or other rights as a
stockholder of the Company as a result of being a holder of the Warrant except
as expressly provided herein.
SECTION 11. PAYMENT OF TAXES. The Company shall pay all stamp taxes
attributable to the initial issuance of shares or other securities issuable upon
the exercise of this Warrant or issuable pursuant to Section 4 hereof, excluding
any tax or taxes which may be payable because of the transfer involved in the
issuance or delivery of any certificates for shares or other securities in a
name other than that of the Warrantholder in respect of which such shares or
securities are issued.
SECTION 12. REPLACEMENT WARRANT. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company; provided, that (a) if the Warrantholder is
BancAmerica, an indemnity by Bank of America Corp. shall be satisfactory and (b)
if the Warrantholder is GE, an indemnity by General Electric Capital Corp. shall
be satisfactory.
SECTION 13. [INTENTIONALLY OMITTED].
SECTION 14. DELAYS, OMISSIONS AND INDULGENCES. No delay or omission to
exercise any right, power or remedy accruing to the Warrantholder upon any
breach or default of the Company hereunder shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach or default,
or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
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<PAGE> 11
deemed a waiver of any other breach or default theretofor or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the Warrantholder's part of any breach or default hereunder or under this
Warrant, or any waiver on the Warrantholder's part of any provisions or
conditions hereof must be in writing and that all remedies, either hereunder or
by law or otherwise afforded to the Warrantholder, shall be cumulative and not
alternative.
SECTION 15. NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopy,
overnight courier service or personal delivery and shall be addressed to such
party at the address set forth below or such other address as may hereafter be
designated in writing by such party:
(a) if to the Company:
SalesLogix Corporation
8800 North Gainey Center Drive
Suite 200
Scottsdale, AZ 85258
Attention: Chief Financial Officer
Telecopy: (480) 368-3799
With a required copy to:
Osborn Maledon, P.A.
2929 North Central Avenue
Suite 2100
Phoenix, AZ 85012
Telecopy: (602) 640-6067
Thomas H. Curzon, Esq.
(b) If to the initial Warrantholder hereunder:
BA Technology I, LLC
100 North Tryon Street
25th Floor
Charlotte, NC 28255
Attention: Ann Hayes
Telecopy: (704) 386-6432
(c) if to any subsequent Warrantholder, to the respective
address set forth on the corporate records of the
Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
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SECTION 16. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that the Company shall have no right to assign its rights,
or to delegate its obligations, hereunder without the prior written consent of
the Warrantholder.
SECTION 17. AMENDMENTS. No amendment to or waiver of any Senior Warrant
shall be effective unless in writing and executed by the Majority
Warrantholders; provided, that no amendment to any Senior Warrant that unfairly
discriminates against the holder thereof shall be made without the written
consent of such holder.
SECTION 18. SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
SECTION 19. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT IS TO BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
SECTION 20. ENTIRE AGREEMENT. This Warrant and the Note and Warrant
Purchase Agreement are intended by the parties as a final expression of their
agreement and are intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
SECTION 21. RULES OF CONSTRUCTION. The titles and captions of the
Sections and other provisions hereof are for convenience of reference only and
are not to be considered in construing this Agreement. Unless the context
otherwise requires "or" is not exclusive, and references to sections or
subsections refer to sections or subsections of this Warrant. All pronouns and
any variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first above written.
SALESLOGIX CORPORATION
By:_______________________________________________
Name: Gary R. Acord
Title: Chief Financial Officer
<PAGE> 14
EXHIBIT A
FORM OF ELECTION TO PURCHASE
To: SALESLOGIX CORPORATION
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise such Warrant with respect to ________ shares of Common
Stock (the "Exercise Amount"). Capitalized terms used but not otherwise defined
herein have the meanings ascribed thereto in the attached Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Aggregate Exercise Price to be paid by each type of payment):
____ Exercise for Cash
____ Note Cancellation
____ Cashless Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as follows:
__________________________________________________
(Name of Record Warrantholder/Transferee)
and deliver such certificate or certificates to the following address:
_____________________________________________
_____________________________________________
_____________________________________________
(Address of Record Warrantholder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
<PAGE> 15
5. If the Exercise Amount is less than all of the shares of Common
Stock purchasable hereunder, please issue a new warrant representing the
remaining balance of such shares, as follows:
__________________________________________________
(Name of Record Warrantholder/Transferee)
and deliver such warrant to the following address:
_____________________________________________
_____________________________________________
_____________________________________________
(Address of Record Warrantholder/Transferee)
In witness whereof, the undersigned Warrantholder has caused this
Election to Purchase to be executed as of this _____ day of __________, ______.
_________________________________________________
(Name of Warrantholder)
By:_______________________________________________
<PAGE> 1
EXHIBIT 10.12
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAWS.
SALESLOGIX CORPORATION
COMMON STOCK PURCHASE WARRANT
December 31, 1999 Certificate Number 2
THIS IS TO CERTIFY that GE CAPITAL EQUITY INVESTMENTS, INC., and its
transferees, successors and assigns (the "Warrantholder"), for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, is
entitled to purchase from SALESLOGIX CORPORATION, a Delaware corporation (the
"Company"), at an initial Exercise Price of $28.75 per share, subject to
adjustment as provided herein, One Hundred Ninety-Four Thousand One Hundred Two
(194,102) shares (the "Aggregate Number") of the fully paid and nonassessable
Common Stock. The Aggregate Number is subject to adjustment or reduction as set
forth in Section 4 of this Common Stock Purchase Warrant (this "Warrant").
SECTION 1. DEFINITIONS. As used herein, in addition to the terms
defined elsewhere herein, the following terms shall have the following meanings.
Capitalized terms not appearing below and not otherwise defined herein shall
have the meaning ascribed to them in the Note and Warrant Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person; provided, that in no event shall BancAmerica
or GE (or any Affiliate of either BancAmerica or GE) be deemed to be an
Affiliate of the Company. A Person shall be deemed to control another Person if
such Person possesses, directly or indirectly, the power (a) to vote 10% or more
of the securities having ordinary voting power for the election of directors or
other managers of such other Person or (b) to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Aggregate Number" has the meaning assigned thereto in the first
paragraph hereof.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina or New York, New York are
authorized or required by law or executive order to close.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended or supplemented from time to time.
<PAGE> 2
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act or the
Exchange Act.
"Common Stock" means collectively (a) the Common Stock of the Company,
par value $0.001 per share, as described in the Certificate of Incorporation or
(b) any other capital stock into which the foregoing is reclassified or
reconstituted.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which, directly or indirectly, are exchangeable for or
exercisable or convertible into Common Stock.
"Current Market Price" shall refer to the per share value of the Common
Stock and shall mean, with respect to the value of a share of Common Stock on
any Business Day, (a) if the Common Stock is Publicly Traded at the time of
determination, the average of the closing prices on such day of the Common Stock
on all domestic securities exchanges on which the Common Stock is then listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day or, if on any such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted on NASDAQ as of 4:00 P.M. New York
time, on such day, or if on any day such security is not quoted on NASDAQ, the
average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of twenty (20) days consisting of the day as of which "Current
Market Price" is being determined and the nineteen (19) consecutive Business
Days prior to such day; or (b) if the Common Stock is not Publicly Traded at the
time of determination, the value determined in good faith by the Board of
Directors of the Company based on the per share price for which all the
outstanding shares of Common Stock (on a Fully Diluted basis, assuming receipt
of applicable consideration for any conversion, exchange or exercise of any
Convertible Securities or Options which are exchangeable for or convertible or
exercisable into Common Stock unless they are Out of the Money) could be sold in
an arm's-length transaction to a third party which is not an Affiliate, treating
the Company and its Subsidiaries as a going concern and assuming such sales were
between a willing buyer and a willing seller and without regard to any discount
for minority interest, restrictions on transfer or lack of marketability.
"Exercise Price" means the price per share of Common Stock (or price
per share of Other Securities) at which the Common Stock (or Other Securities)
are purchasable pursuant to this Warrant. The Exercise Price is subject to
adjustment as provided herein.
"Expiration Date" means the tenth (10th) anniversary of the date
hereof.
"Fully Diluted" means, with respect to the Common Stock, as of a
particular time the total outstanding shares of Common Stock as of such time,
determined by treating all outstanding Options, warrants and other rights for
the purchase or other acquisition of shares of Common Stock (whether or not then
vested and exercisable and whether or not Out of the Money) as having been
exercised and by treating all outstanding securities directly or indirectly
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<PAGE> 3
convertible into or exchangeable for shares of Common Stock (whether or not then
exercisable or convertible and whether or not Out of the Money) as having been
so converted or exchanged.
"Majority Warrantholders" means the holders of at least fifty-one
percent (51%) of the Senior Warrants (based on the number of shares of Common
Stock for which such Senior Warrants may be exercised).
"Note and Warrant Purchase Agreement" means the Senior Subordinated
Note and Warrant Purchase Agreement dated as of the date hereof, by and among
the Purchasers and the Company.
"Option" shall mean any warrant, option or other right to subscribe for
or purchase a specified security of the Company.
"Other Securities" shall mean any stock and other securities of the
Company or any other Person (corporate or otherwise) which the Warrantholder at
any time shall be entitled to receive, upon the exercise of this Warrant or
pursuant to Section 4 hereof, in lieu of or in addition to Common Stock.
"Out of the Money" means (a) in the case of an Option, that the fair
market value of the shares of Common Stock, which the holder thereof is entitled
to purchase or subscribe for is less than the exercise price of such Option and
(b) in the case of a Convertible Security, that the quotient resulting from
dividing the face value of such Convertible Security by the number of shares of
Common Stock into or for which such Convertible Security is exercisable,
convertible or exchangeable is greater than the fair market value of a share of
Common Stock.
"Principal Office" means the Company's principal office as set forth in
Section 15(a) hereof or such other principal office of the Company in the United
States of America the address of which first shall have been set forth in a
notice to the Warrantholder.
"Publicly Traded" means, with respect to any security, that such
security is (a) listed on a domestic securities exchange, (b) quoted on NASDAQ
or (c) traded in the domestic over-the-counter market, which trades are reported
by the National Quotation Bureau, Incorporated.
"Senior Warrants" means (a) this Warrant, (b) the Initial Warrant
issued to the Purchaser other than the Warrantholder on the date hereof and (c)
any Adjustment Warrants.
"Warrant Shares" means (a) the shares of Common Stock that have been
issued upon exercise of this Warrant in accordance with its terms and, (b) all
other shares of the Company's capital stock issued with respect to such shares
by way of stock dividend, stock split or other reclassification or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's capital stock, or acquired by way of any rights offering
or similar offering made in respect of the capital stock referred to in this
clause (b) or the foregoing clause (a).
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<PAGE> 4
SECTION 2. EXERCISE PRICE. The initial Exercise Price is $28.75 and is
subject to adjustment pursuant to Section 4 in connection with an adjustment of
the Aggregate Number. In addition, (a) in the event the Notes have not been
redeemed in full on August 31, 2000, the Exercise Price, effective on and after
August 31, 2000, shall be the lower of $28.75 or the Current Market Price
determined as of August 30, 2000; and (b) in the event the Notes have not been
redeemed in full on April 2, 2001, the Exercise Price, effective on and after
April 2, 2001, shall be the lower of (i) the Exercise Price as determined under
clause (a) of this sentence or (ii) the Current Market Price determined as of
March 30, 2001.
SECTION 3. EXERCISE.
(a) Right to Exercise; Exercise Amount. On or before the Expiration
Date, the Warrantholder, in accordance with the terms hereof, may exercise this
Warrant in whole or in part at any time by delivering this Warrant to the
Company during normal business hours on any Business Day at the Principal
Office, together with an Election to Purchase, in the form attached hereto as
Exhibit A (the "Election to Purchase"), duly executed, and payment of the
Exercise Price for each share to be purchased (with the total number of shares
to be purchased being referred to as the "Exercise Amount") as specified in the
Election to Purchase. If the Expiration Date is not a Business Day, then this
Warrant may be exercised on the next succeeding Business Day. The aggregate
Exercise Price (the "Aggregate Exercise Price") to be paid for the Exercise
Amount shall equal the product of (i) the Exercise Amount multiplied by (ii) the
Exercise Price.
(b) Payment of Aggregate Exercise Price. Payment of the Aggregate
Exercise Price shall be made to the Company in cash or other immediately
available funds or as provided in Section 3(c) or (d) or a combination thereof.
In the case of payment of all or a portion of the Aggregate Exercise Price
pursuant to Section 3(c) or (d) below, the direction by the Warrantholder to
apply a portion of the Note held by the Warrantholder and/or to make a "Cashless
Exercise" shall serve as accompanying payment for that portion of the Aggregate
Exercise Price.
(c) Cancellation of Note to Pay Aggregate Exercise Price. During any
period of time when the Warrantholder is also the Holder of a Note, the
Warrantholder shall have the right to pay all or a portion of the Aggregate
Exercise Price by applying all or any part of such Note, regardless of whether
such amount is then due or whether the Note is then redeemable, to the payment
of the Aggregate Exercise Price. The amount of the Note so applied shall be
treated as a payment of accrued and unpaid interest under the Note until such
accrued and unpaid interest is paid in full, and then shall be treated as the
prepayment of principal. Any part of the Note not so applied to payment of the
Aggregate Exercise Price shall continue to be due in accordance with the terms
thereof.
(d) Cashless Exercise. The Warrantholder shall have the right to pay
all or a portion of the Aggregate Exercise Price by making a "Cashless Exercise"
pursuant to this Section 3(d), in which case the portion of the Aggregate
Exercise Price to be so paid shall be paid by reducing the number of shares of
Common Stock otherwise issuable pursuant to the Election to Purchase by an
amount of Common Stock with an aggregate Current Market Price equal to the
Aggregate Exercise Price to be so paid.
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<PAGE> 5
(e) Issuance of Shares of Common Stock. Upon receipt by the Company of
this Warrant at the Principal Office in proper form for exercise, and
accompanied by payment of the Aggregate Exercise Price as aforesaid, the
Warrantholder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered.
Upon such surrender of this Warrant and payment of the Aggregate Exercise Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to, or upon the written order of, the Warrantholder (and in
such name or names as the Warrantholder may designate) a certificate or
certificates for the Exercise Amount, subject to any reduction as provided in
Section 3(d) for a Cashless Exercise.
(f) Fractional Shares. The Company shall not be required to deliver
fractions of shares of Common Stock upon exercise of this Warrant. If any
fraction of a share of Common Stock would be deliverable upon exercise of this
Warrant, the Company may, in lieu of delivering such fraction of a share of
Common Stock, make a cash payment to the Warrantholder in an amount equal to the
same fraction of the Current Market Price.
(g) Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue to the Warrantholder a Warrant in like form for
the unexercised portion thereof.
SECTION 4. ADJUSTMENTS TO AGGREGATE NUMBER. The Aggregate Number shall
be subject to adjustment from time to time as set forth in this Section 4.
(a) Adjustments for Stock Dividends, Subdivisions or Combinations. In
the event that at any time or from time to time, the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock (a "Stock Dividend"),
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock (a "Stock Subdivision"), or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock (a "Stock Combination"),
then the Aggregate Number in effect immediately prior thereto shall,
concurrently with the effectiveness of such event, be (1) proportionately
increased in the case of a Stock Dividend or a Stock Subdivision (with the
Exercise Price proportionately decreased; provided, that the Company shall not
be required to reduce the Exercise Price below the par value of the Common
Stock) and (2) proportionately decreased in the case of a Stock Combination
(with the Exercise Price proportionately increased). In the event the Company
shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made a Stock Dividend in an amount of shares
equal to the maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
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<PAGE> 6
(b) Adjustments for Other Distributions. In case at any time or from
time to time the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or other distribution
(collectively, a "Distribution") of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its
capital stock (other than additional shares of Common Stock) or any
other securities or property of any nature whatsoever (other than
cash), or
(iii) any options or warrants or other rights to subscribe for
or purchase any of the following: any evidences of its indebtedness,
any shares of its capital stock (other than additional shares of Common
Stock) or any other securities or property of any nature whatsoever,
then the Warrantholder shall be entitled to receive upon the exercise of this
Warrant at any time on or after the taking of such record the number of Warrant
Shares to be received upon exercise of this Warrant determined as stated herein
and, in addition and without further payment, the cash, evidences of
indebtedness, stock, securities, other property, options, warrants and/or other
rights to which the Warrantholder would have been entitled by way of the
Distribution and subsequent dividends and distributions through the date of
exercise as if the Warrantholder (1) had exercised this Warrant immediately
prior to such Distribution and (2) had retained the Distribution in respect of
the Common Stock and all subsequent dividends and distributions of any nature
whatsoever in respect of any stock or securities paid as dividends and
distributions and originating directly or indirectly from such Common Stock.
(c) Adjustments for Reclassification, Exchange and Substitution. If the
Common Stock issuable upon exercise of this Warrant shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification, merger, share exchange or
otherwise (other than a Stock Dividend, Stock Subdivision or Stock Combination
provided for above), the Aggregate Number then in effect, the Exercise Price
then if effect and the type of security purchasable under this Warrant shall,
concurrently with the effectiveness of such reorganization, reclassification,
merger, share exchange or other transaction, be appropriately and equitably
adjusted such that this Warrant shall be exercisable for, in lieu of the number
of shares of Common Stock which the Warrantholder would otherwise have been
entitled to receive, that number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the Warrantholder upon exercise of this Warrant
immediately before such change and at an Exercise Price economically equivalent
to the Exercise Price in effect immediately before such change.
(d) Consolidation, Merger, Share Exchange, etc. In case a
consolidation, merger or share exchange of the Company shall be effected with
another Person on or after the date hereof, or the sale, lease or transfer of
all or substantially all of its assets to another Person shall be effected on or
after the date hereof, then, as a condition of such consolidation, merger, share
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<PAGE> 7
exchange, sale, lease or transfer, lawful and adequate provision shall be made
whereby the Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified herein and in
lieu of each Warrant Share immediately theretofore purchasable and receivable
upon the exercise of this Warrant, such shares of stock, securities, cash or
other property receivable upon such consolidation, merger, share exchange, sale,
lease or transfer by the holder of the number of shares of Common Stock issuable
pursuant to this Warrant immediately prior to such event. In any such case,
appropriate and equitable provision also shall be made with respect to the
rights and interests of the Warrantholder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, cash or other property thereafter deliverable upon the
exercise of this Warrant. The Company shall not effect any such consolidation,
merger, share exchange, sale, lease or transfer unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, merger or share exchange or the
Person purchasing, leasing or otherwise acquiring such assets shall assume, by
written instrument mailed to the Warrantholder at its last address appearing on
the books of the Company, the obligation to deliver to the Warrantholder such
shares of stock, securities, cash or other property as, in accordance with the
foregoing provisions, the Warrantholder may be entitled to purchase. The above
provisions of this Section 4(d) shall similarly apply to successive
consolidations, mergers, share exchanges, sales, leases or transfers.
(e) Certificate as to Adjustments. The Company shall, upon the written
request at any time by the Warrantholder, furnish or cause to be furnished to
the Warrantholder a certificate setting forth such adjustments and
readjustments, the Aggregate Number at the time in effect and the amount, if
any, of other property which at the time would be received upon exercise of this
Warrant. Upon the occurrence of each adjustment or readjustment of the Aggregate
Number pursuant to this Section 4, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to the Warrantholder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
(f) Notices of Record Date. In the event that the Company shall propose
at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether or not a regular cash dividend or a dividend payable in
shares of capital stock and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any
class or series, or any other rights;
(iii) to effect any reclassification or recapitalization of
its outstanding Common Stock involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up or enter
into any share exchange; then, in connection with each such event, the
Company shall send to the Warrantholder:
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<PAGE> 8
(A) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such
dividend, distribution or subscription rights (and specifying
the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect
of the matters referred to in clauses (iii) and (iv) above and
which such notice shall set forth such facts with respect
thereto as shall be reasonably necessary to indicate the
effect of such action on the Common Stock, if any, and any
adjustment which will be required to be made to the Aggregate
Number and the Exercise Price as a result of such action; and
(B) in the case of matters referred to in clauses
(iii) and (iv) above, in the event a record date is taken with
respect to any such matter, at least twenty (20) days' prior
written notice of such record date or, if no such record date
is taken, at least twenty (20) days' prior written notice of
the date when such matters shall take place (and specifying
the date on which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon the occurrence
of such event).
(g) No Dilution or Impairment. The Company will not, by amendment of
the Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, share exchange,
dissolution or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, including without limitation
the adjustments required under this Section 4, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such
action as may be necessary or appropriate to protect the rights of the
Warrantholder against the type or nature of dilution or other impairment for
which protection is contemplated to be afforded the Warrantholder in this
Warrant.
SECTION 5. WARRANTHOLDER'S RIGHTS IN CASE OF OTHER SECURITIES. If the
Warrantholder at any time shall have received or shall be entitled to receive
Other Securities pursuant to the terms hereof, appropriate provision shall be
made so that the Warrantholder receives with respect to such Other Securities as
nearly as possible the intended benefits of this Agreement with respect thereto.
SECTION 6. NO IMPAIRMENT. The Company (a) will not increase the par
value of any shares of Common Stock receivable on the exercise of this Warrant
or take any other action if as a result thereof such par value would exceed the
Exercise Price and (b) will take all such action as may be reasonably necessary
or appropriate so that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock on the exercise of this Warrant.
SECTION 7. RESERVATION TO COMMON STOCK AND OTHER COVENANTS.
(a) Reservation of Authorized Common Stock. The Company shall at all
times reserve and keep available out of the aggregate of its authorized but
unissued shares, free of preemptive rights, such number of its duly authorized
shares of Common Stock, or other stock or
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<PAGE> 9
securities deliverable pursuant to Section 4 hereof, as shall be sufficient to
enable the Company at any time to fulfill all of its obligations hereunder.
(b) Affirmative Actions to Permit Exercise and Realization of Benefits.
If any shares of Common Stock reserved or to be reserved for the purpose of
exercise of this Warrant, or any shares or other securities reserved or to be
reserved for the purpose of issuance pursuant to Section 4 hereof, require
registration with or approval of any governmental authority under any federal or
state law before such shares or other securities may be validly delivered upon
exercise of this Warrant, then the Company covenants that it will, at its sole
expense, secure such registration or approval, as the case may be. The Company's
obligation hereunder shall apply also to approvals or expirations of waiting
periods required under the Hart-Scott-Rodino Antitrust Improvements Act (the
"HSR Act"), and with respect to any filings under the HSR Act, whether by the
Company, the Warrantholder or any other Person, the Company shall bear the costs
of all such filing fees with respect to such filings.
(c) Validly Issued Shares. The Company covenants that all shares of
Common Stock that may be delivered upon exercise of this Warrant (including
those issued pursuant to Section 4 hereof) shall upon delivery by the Company be
duly authorized and validly issued, fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue or delivery thereof and
otherwise free of all other security interests, encumbrances and claims of any
nature whatsoever other than those created by the Warrantholder.
(d) Restrictions on Performance. The Company shall not at any time
after the date hereof enter into an agreement or other instrument which, by its
terms, restricts its ability to perform its obligations hereunder or making such
performance or the issuance of shares of Common Stock upon the exercise of this
Warrant a default under any such agreement or instrument.
(e) Modification of Certificate of Incorporation and By-Laws. The
Company shall not amend or consent to any modification, supplement or waiver of
any provision of the Certificate of Incorporation or the bylaws of the Company
in any manner which would have a material adverse effect on the rights of the
Warrantholder hereunder without the prior written consent of the Majority
Warrantholders (which consent shall not be unreasonably withheld or delayed).
SECTION 8. NOTICE OF EXPIRATION DATE. The Company shall give to the
Warrantholder notice of the Expiration Date. Such notice may be given by the
Company not less than 30 days but not more than 60 days prior to the Expiration
Date; provided, that if the Company fails to give timely notice, the Expiration
Date will be extended to the date which is 30 days after the day on which such
notice is given.
SECTION 9. TRANSFERS OF THE WARRANT.
(a) Transfer and Exchanges. The Company shall initially record this
Warrant on a register to be maintained by the Company with its other stock books
and, subject to Section 9(b) hereof, from time to time thereafter shall transfer
this Warrant on such register when this Warrant is: (i) surrendered for transfer
in accordance with the terms hereof, and (ii) properly
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<PAGE> 10
endorsed and accompanied by appropriate instructions. Upon any such transfer, a
new Warrant or Warrants shall be issued to the transferee and the Warrantholder
(in the event that this Warrant is only partially transferred) and the
surrendered Warrant shall be canceled. Each such transferee shall succeed to the
rights of the transferring Warrantholder hereunder to the extent of such
transfer. This Warrant may be exchanged at the option of a Warrantholder, when
surrendered at the Principal Office of the Company, for another Warrant or other
Warrants of like tenor and representing in the aggregate the right to purchase a
like number of shares of Common Stock, subject to adjustment as more fully set
forth herein.
(b) Transfers Subject to Securities Laws; Registration Rights; and
Purchase Agreement. Subject to the securities law restrictions set forth in the
legend on the first page of this Warrant, the Warrantholder may at any time and
from time to time freely transfer its Warrant and the Warrant Shares in whole or
in part. Pursuant to the Registration Rights Agreement dated as of the date
hereof, among the Company and the Purchasers, Company has granted certain
registration rights to the holders of the Senior Warrants. This Warrant, the
Adjustment Warrants and the Warrant Shares are issued or issuable subject to the
provisions and conditions contained herein and in the Note and Warrant Purchase
Agreement.
SECTION 10. NO VOTING RIGHTS. Prior to the exercise of this Warrant,
the Warrantholder shall not be entitled to any voting or other rights as a
stockholder of the Company as a result of being a holder of the Warrant except
as expressly provided herein.
SECTION 11. PAYMENT OF TAXES. The Company shall pay all stamp taxes
attributable to the initial issuance of shares or other securities issuable upon
the exercise of this Warrant or issuable pursuant to Section 4 hereof, excluding
any tax or taxes which may be payable because of the transfer involved in the
issuance or delivery of any certificates for shares or other securities in a
name other than that of the Warrantholder in respect of which such shares or
securities are issued.
SECTION 12. REPLACEMENT WARRANT. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company; provided, that (a) if the Warrantholder is
BancAmerica, an indemnity by Bank of America Corp. shall be satisfactory and (b)
if the Warrantholder is GE, an indemnity by General Electric Capital Corp. shall
be satisfactory.
SECTION 13. [INTENTIONALLY OMITTED].
SECTION 14. DELAYS, OMISSIONS AND INDULGENCES. No delay or omission to
exercise any right, power or remedy accruing to the Warrantholder upon any
breach or default of the Company hereunder shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach or default,
or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
10
<PAGE> 11
deemed a waiver of any other breach or default theretofor or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the Warrantholder's part of any breach or default hereunder or under this
Warrant, or any waiver on the Warrantholder's part of any provisions or
conditions hereof must be in writing and that all remedies, either hereunder or
by law or otherwise afforded to the Warrantholder, shall be cumulative and not
alternative.
SECTION 15. NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopy,
overnight courier service or personal delivery and shall be addressed to such
party at the address set forth below or such other address as may hereafter be
designated in writing by such party:
(a) if to the Company:
SalesLogix Corporation
8800 North Gainey Center Drive
Suite 200
Scottsdale, AZ 85258
Attention: Chief Financial Officer
Telecopy: (480) 368-3799
With a required copy to:
Osborn Maledon, P.A.
2929 North Central Avenue
Suite 2100
Phoenix, AZ 85012
Telecopy: (602) 640-6067
Thomas H. Curzon, Esq.
(b) If to the initial Warrantholder hereunder:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Telecopy: (602) 640-6067
Paul Gelburd, Managing Director
(c) if to any subsequent Warrantholder, to the respective
address set forth on the corporate records of the
Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
11
<PAGE> 12
SECTION 16. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that the Company shall have no right to assign its rights,
or to delegate its obligations, hereunder without the prior written consent of
the Warrantholder.
SECTION 17. AMENDMENTS. No amendment to or waiver of any Senior Warrant
shall be effective unless in writing and executed by the Majority
Warrantholders; provided, that no amendment to any Senior Warrant that unfairly
discriminates against the holder thereof shall be made without the written
consent of such holder.
SECTION 18. SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
SECTION 19. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT IS TO BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
SECTION 20. ENTIRE AGREEMENT. This Warrant and the Note and Warrant
Purchase Agreement are intended by the parties as a final expression of their
agreement and are intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
SECTION 21. RULES OF CONSTRUCTION. The titles and captions of the
Sections and other provisions hereof are for convenience of reference only and
are not to be considered in construing this Agreement. Unless the context
otherwise requires "or" is not exclusive, and references to sections or
subsections refer to sections or subsections of this Warrant. All pronouns and
any variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
* * * * *
12
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date first above written.
SALESLOGIX CORPORATION
By:_______________________________________________
Name: Gary R. Acord
Title: Chief Financial Officer
<PAGE> 14
EXHIBIT A
FORM OF ELECTION TO PURCHASE
To: SALESLOGIX CORPORATION
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise such Warrant with respect to ________ shares of Common
Stock (the "Exercise Amount"). Capitalized terms used but not otherwise defined
herein have the meanings ascribed thereto in the attached Warrant.
2. The undersigned herewith tenders payment for such shares in the
following manner (please check type, or types, of payment and indicate the
portion of the Aggregate Exercise Price to be paid by each type of payment):
____ Exercise for Cash
____ Note Cancellation
____ Cashless Exercise
3. Please issue a certificate or certificates representing the shares
issuable in respect hereof under the terms of the attached Warrant, as follows:
____________________________________________________
(Name of Record Warrantholder/Transferee)
and deliver such certificate or certificates to the following address:
______________________________________________
______________________________________________
______________________________________________
(Address of Record Warrantholder/Transferee)
4. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
<PAGE> 15
5. If the Exercise Amount is less than all of the shares of Common
Stock purchasable hereunder, please issue a new warrant representing the
remaining balance of such shares, as follows:
_________________________________________________
(Name of Record Warrantholder/Transferee)
and deliver such warrant to the following address:
______________________________________________
______________________________________________
______________________________________________
(Address of Record Warrantholder/Transferee)
In witness whereof, the undersigned Warrantholder has caused this
Election to Purchase to be executed as of this _____ day of __________, ______.
_________________________________________
(Name of Warrantholder)
By:______________________________________
<PAGE> 1
EXHIBIT 10.13
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBJECT TO THE TERMS OF A SENIOR SUBORDINATED NOTE AND WARRANT
PURCHASE AGREEMENT, DATED AS OF DECEMBER 31, 1999, BY AND AMONG SALESLOGIX
CORPORATION, AS ISSUER, AND BA TECHNOLOGY I, LLC AND GE CAPITAL EQUITY
INVESTMENTS, INC., AS PURCHASERS (AS AMENDED OR OTHERWISE MODIFIED, THE "NOTE
PURCHASE AGREEMENT").
SALESLOGIX CORPORATION
SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2004
December 31, 1999
FOR VALUE RECEIVED, the undersigned SALESLOGIX CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to BA TECHNOLOGY I, LLC, a
Delaware limited liability company (the "Purchaser"), or registered and
permitted assigns, the principal amount of Twenty Five Million Dollars
($25,000,000.00) on December 31, 2004, with interest (computed on the basis of a
360-day year consisting of twelve 30-day months) payable in the manner provided
below (i) on the unpaid balance thereof at the rate of eleven percent (11%) per
annum from the date hereof, quarterly on the last day of March, June, September
and December of each year (provided that if the last day of any such month is
not a Business Day, then on the next succeeding Business Day) (each, a "Payment
Date"), commencing with the Payment Date next succeeding the date hereof, until
the principal hereof shall have become due and payable, and (ii) upon and during
the occurrence of any Event of Default (as defined in the Note Purchase
Agreement), quarterly as aforesaid on any amount then in default (or, at the
option of the registered holder, on demand) at the rate of thirteen percent
(13%) per annum (but only to the extent permitted by law). The principal amount
of this Note shall be payable in full on December 31, 2004.
Payment of interest herein may be made, for the interest periods ending
on March 31, 2000 and June 30, 2000 only, at the option of the Company, in cash
or by delivery by the Company to the Holder hereof of a promissory note
substantially in the form of this Note and in the principal amount of the
interest payment then due (a "Pik Note"). Each Pik Note issued in payment of
interest hereunder shall be deemed one of the Notes issued under the Note
Purchase Agreement and shall be entitled to all of the benefits thereof and the
obligations thereunder. Payment of interest for any other interest periods shall
be made in immediately available funds.
<PAGE> 2
No provision of this Note shall be deemed to establish or require the
payment of interest at a rate in excess of the maximum rate permitted under
applicable law. In the event that the rate of interest required to be paid under
this Note exceeds the maximum rate permitted under applicable law, the rate of
interest required hereunder shall be automatically reduced to the maximum rate
permitted by applicable law.
This senior subordinated promissory note (the "Note") is issued
pursuant to the Note Purchase Agreement and is entitled to the benefits thereof
and is subordinated in right of payment and collection to the payment of the
Senior Indebtedness (as defined in the Note Purchase Agreement) to the extent
and in the manner set forth in Article XI of the Note Purchase Agreement.
This Note is a registered Note and, as provided and subject to the
restrictions contained in the Note Purchase Agreement, upon surrender of this
Note for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior
to due presentment for registration of transfer, the Company may treat the
person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary. Reference is hereby made to the Note
Purchase Agreement for a description of certain restrictions on the transfer of
or sale of a participation interest in this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SUCH STATE.
The Company may redeem this Note in whole or in part in accordance with
the terms and provisions of the Note Purchase Agreement. This Note is subject to
mandatory redemption by the Company in certain circumstances specified in the
Note Purchase Agreement and the maturity hereof may be accelerated following an
Event of Default (as defined in the Note Purchase Agreement), all as provided in
the Note Purchase Agreement, to which reference is made for the terms and
conditions of such circumstances and provisions. In the event this Note is not
paid when due, the Company will pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees, and the holder hereof
shall be entitled to all the rights and remedies set forth in the Note Purchase
Agreement.
All payments in respect of a partial redemption of this Note shall be
applied first to all costs, expenses, indemnities and other amounts payable
hereunder and under the Note Purchase Agreement, then to payment of default
interest, if any, then to payment of accrued interest and thereafter to payment
of principal.
Except as expressly provided herein or in the Note Purchase Agreement,
the undersigned hereby waives presentment, demand, protest and all other notices
of any kind.
2
<PAGE> 3
IN WITNESS WHEREOF, this Note is executed on the date first above
written.
SALESLOGIX CORPORATION
By:________________________________
Name: Gary Acord
Title: Chief Financial Officer
and Secretary
3
<PAGE> 1
EXHIBIT 10.14
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBJECT TO THE TERMS OF A SENIOR SUBORDINATED NOTE AND WARRANT
PURCHASE AGREEMENT, DATED AS OF DECEMBER 31, 1999, BY AND AMONG SALESLOGIX
CORPORATION, AS ISSUER, AND BA TECHNOLOGY I, LLC AND GE CAPITAL EQUITY
INVESTMENTS, INC., AS PURCHASERS (AS AMENDED OR OTHERWISE MODIFIED, THE "NOTE
PURCHASE AGREEMENT").
SALESLOGIX CORPORATION
SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2004
December 31, 1999
FOR VALUE RECEIVED, the undersigned SALESLOGIX CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to GE CAPITAL EQUITY
INVESTMENTS, INC., a Delaware corporation (the "Purchaser"), or registered and
permitted assigns, the principal amount of Seven Million Five Hundred Thousand
Dollars ($7,500,000.00) on December 31, 2004, with interest (computed on the
basis of a 360-day year consisting of twelve 30-day months) payable in the
manner provided below (i) on the unpaid balance thereof at the rate of eleven
percent (11%) per annum from January 3, 2000, quarterly on the last day of
March, June, September and December of each year (provided that if the last day
of any such month is not a Business Day, then on the next succeeding Business
Day) (each, a "Payment Date"), commencing with the Payment Date next succeeding
the date hereof, until the principal hereof shall have become due and payable,
and (ii) upon and during the occurrence of any Event of Default (as defined in
the Note Purchase Agreement), quarterly as aforesaid on any amount then in
default (or, at the option of the registered holder, on demand) at the rate of
thirteen percent (13%) per annum (but only to the extent permitted by law). The
principal amount of this Note shall be payable in full on December 31, 2004.
Payment of interest herein may be made, for the interest periods ending
on March 31, 2000 and June 30, 2000 only, at the option of the Company, in cash
or by delivery by the Company to the Holder hereof of a promissory note
substantially in the form of this Note and in the principal amount of the
interest payment then due (a "Pik Note"). Each Pik Note issued in payment of
interest hereunder shall be deemed one of the Notes issued under the Note
Purchase Agreement and shall be entitled to all of the benefits thereof and the
<PAGE> 2
obligations thereunder. Payment of interest for any other interest periods shall
be made in immediately available funds.
No provision of this Note shall be deemed to establish or require the
payment of interest at a rate in excess of the maximum rate permitted under
applicable law. In the event that the rate of interest required to be paid under
this Note exceeds the maximum rate permitted under applicable law, the rate of
interest required hereunder shall be automatically reduced to the maximum rate
permitted by applicable law.
This senior subordinated promissory note (the "Note") is issued
pursuant to the Note Purchase Agreement and is entitled to the benefits thereof
and is subordinated in right of payment and collection to the payment of the
Senior Indebtedness (as defined in the Note Purchase Agreement) to the extent
and in the manner set forth in Article XI of the Note Purchase Agreement.
This Note is a registered Note and, as provided and subject to the
restrictions contained in the Note Purchase Agreement, upon surrender of this
Note for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior
to due presentment for registration of transfer, the Company may treat the
person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary. Reference is hereby made to the Note
Purchase Agreement for a description of certain restrictions on the transfer of
or sale of a participation interest in this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SUCH STATE.
The Company may redeem this Note in whole or in part in accordance with
the terms and provisions of the Note Purchase Agreement. This Note is subject to
mandatory redemption by the Company in certain circumstances specified in the
Note Purchase Agreement and the maturity hereof may be accelerated following an
Event of Default (as defined in the Note Purchase Agreement), all as provided in
the Note Purchase Agreement, to which reference is made for the terms and
conditions of such circumstances and provisions. In the event this Note is not
paid when due, the Company will pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees, and the holder hereof
shall be entitled to all the rights and remedies set forth in the Note Purchase
Agreement.
All payments in respect of a partial redemption of this Note shall be
applied first to all costs, expenses, indemnities and other amounts payable
hereunder and under the Note Purchase Agreement, then to payment of default
interest, if any, then to payment of accrued interest and thereafter to payment
of principal.
2
<PAGE> 3
Except as expressly provided herein or in the Note Purchase Agreement,
the undersigned hereby waives presentment, demand, protest and all other notices
of any kind.
IN WITNESS WHEREOF, this Note is executed on the date first above
written.
SALESLOGIX CORPORATION
By:_____________________________
Name: Gary Acord
Title: Chief Financial Officer
and Secretary
3
<PAGE> 1
EXHIBIT 10.15
OFFICE LEASE AGREEMENT
This Office Lease Agreement is made and entered into as of the
Effective Date by and between OPUS WEST CORPORATION, a Minnesota corporation, as
landlord, and SalesLogix CORPORATION, a Delaware corporation, as Tenant.
DEFINITIONS
Capitalized terms used in this Lease have the meanings ascribed to them
on the attached EXHIBIT "A".
BASIC TERMS
The following Basic Terms are applied under and governed by the
particular section(s) in this Lease pertaining to the following information:
1. PREMISES: Suite 200, consisting of 16,g18 rentable square feet
located on the second floor of the Building. The Premises is depicted on EXHIBIT
"C". The Building contains 140,756 rentable square feet.
2. LEASE TERM: Five years (60 months)
EXTENSION OPTIONS: One, five-year option
3. DELIVERY DATE: November 1, 1999
4. BASIC RENT:
<TABLE>
<CAPTION>
Annual Basic Rent per rentable
Months square foot of the Premises Monthly Installments
--------------------------------------------------------------------
<S> <C> <C>
1-60 $27.00 $38,065.00
</TABLE>
5. TENANT'S SHARE OF EXCESS EXPENSES PERCENTAGE: 12.02%
6. EXPENSE STOP: $7.50
7. IMPROVEMENT ALLOWANCE: 523.00 per usable square foot of the
Premises.
8. SECURITY DEPOSIT: 5190,327.50
1
<PAGE> 2
9. PROPERTY MANAGER Opus West Management Corporation
RENT PAYMENT ADDRESS: 2415 East Camelback Road, Suite 840
Phoenix, Arizona 85016-4201
Attn: Mr. Bret Borg
Telephone: (602) 912-8880
Facsimile: (602) 912-8881
10. ADDRESS OF LANDLORD Opus West Corporation
FOR NOTICES: 2415 East Camelback Road, Suite 800
Phoenix, Arizona 85016
Attn. President
Telephone: (602) 468-7000
Facsimile: (602) 468-7045
With a copy to: Opus West Corporation
2415 East Camelback Road, Suite 800
Phoenix, Arizona 85016-4201
Attn. Legal Department
Telephone: (602) 468-7000
Facsimile: (602) 468-7045
With a copy to: Gallagher & Kennedy, P.A.
2600 North Central Avenue
Phoenix, Arizona 85004-3020
Attn: Gregory L. Mast
Telephone: (602) 530-8310
Facsimile: (602) 257-9459
With a copy to: Property manager at the address set forth
above
11. ADDRESS OF TENANT SalesLogix Corporation
FOR NOTICES: 8800 North Gainey Center Drive, Suite 200
Scottsdale, Arizona 85258
Attn: Mr. Jim Valenzuela
Telephone: (602) 368-3700
Facsimile: (602) 368-3797
12. BROKER(S): CB Richard Ellis
Lee & Associates
13. GUARANTOR(S): None
2
<PAGE> 3
ARTICLE 1.
LEASE OF PREMISES AND LEASE TERM
1.1. Premises. In consideration of the covenants and agreements set
forth In this Lease and Other good and valuable consideration, Landlord leases
the Premises to Tenant and Tenant leases the Premises from Landlord, upon and
subject to the terms, covenants and conditions set forth in this Lease. Landlord
and Tenant stipulate and agree that the Premises contains the amount of rentable
square feet specified in the basic Terms. If for any reason it is subsequently
determined by Landlord or Tenant (to Landlord's satisfaction) that the actual
rentable square footage of the Premises differs from that set forth in the Basic
Terms, the Basic Terms (including Basic Rent and the Tenant's Share of Excess
Expenses Percentage) will be promptly adjusted accordingly by an amendment to
this Lease; provided that any such adjustment will apply only prospectively and
no retroactive adjustments or payments (in favor of either Landlord or Tenant)
on account of any prior excess or shortfall in area will be required.
1.2. Term, Delivery and Commencement.
1.2.1. Commencement and Expiration of Term The Term of this
Lease is the period stated in the Basic Terms. The Term commences on the
Commencement Date and expires on the last day of the last Calendar month of the
Term.
1.2.2. Tender of Possession. Landlord will use commercially
reasonable efforts to tender possession of the Premises to Tenant on or before
the Delivery Date, subject to Force Majeure and Tenant Delay. If Landlord is
unable to tender possession of the Premises to Tenant on or before the Delivery
Date for any reason, this Lease remains in full force and effect and Landlord is
not liable to Tenant for any resulting loss or damage; provided, however, that
unless the delay is Caused by Tenant Delay, Landlord will appropriately adjust
the Commencement Date and Rent Commencement Date.
1.2.3. Commencement Date Memorandum. Promptly after the
Commencement Date, Landlord will deliver to Tenant the Commencement Date
Memorandum with all blanks completed. Tenant will, within 10 days after
receiving it, execute and deliver to Landlord the Commencement Date Memorandum.
Tenant's failure to execute and deliver to Landlord the Commencement Date
Memorandum does not affect any obligation of Tenant under this Lease. If Tenant
does not timely execute and deliver to Landlord the Commencement Date
Memorandum, Landlord and any prospective purchaser or encumbrances may
conclusively rely on the information Contained in the unexecuted Commencement
Date Memorandum which Landlord delivered to Tenant.
1.2.4. Early Occupancy. Tenant will not occupy the Premises
before Substantial Completion without Landlord's prior written consent, which
consent Landlord may grant, withhold or condition in its sole and absolute
discretion. If Landlord consents, during the early occupancy period Tenant may
only install Tenant's furniture, fixtures and equipment in the Premises and must
comply with and observe all terms and conditions of this Lease (other than
Tenant's obligation to pay Basic Rent)
1
<PAGE> 4
1.2.5. Extension of Term. Provided that no Event of Default
exists at the time of exercise, Tenant may extend the Term of this Lease for one
(1) additional period of five (5) years. Tenant must exercise such right of
extension by delivering written notice of Tenant's exercise at least nine (9),
but not more than fifteen (15), months prior to the expiration of the Term. Such
extension of the Term will be on the same terms, covenants and Conditions as in
this Lease, other than basic Rent. Basic Rent will be the fair market basic rent
rate of the Premises for the extension period, as reasonably determined by
Landlord in relation to comparable (in quality, location and size) space
allocated in the Building and/or in the City. Landlord's determination of such
fair market basic rent rate will be delivered to Tenant not later than thirty
(30) days after Landlord receives Tenant's exercise notice. In no event will
Basic Rent for such extension of the Term be less than the Basic Rent (exclusive
of temporary abatements) payable by Tenant immediately prior to commencement of
such extension period.
1.3. Effect of Occupancy. Subject to the Warranty Terms, Tenant's
occupancy of the Premises conclusively establishes that Landlord completed the
Improvements as required by this Lease in a manner satisfactory to Tenant.
Tenant's failure to strictly comply with the Warranty Terms with respect to any
item included as part of the Improvements constitutes Tenant's waiver and
release of any and all rights, benefits, claims or warranties available to
Tenant under this Lease, at law or in equity in connection with each such item.
ARTICLE 2.
RENTAL AND OTHER PAYMENTS
2.1. Basic Rent. Tenant will pay Basic Rent in monthly installments to
Landlord, in advance, without offset or deduction, commencing on the Rent
Commencement Date and continuing on the first day of each and every calendar
month after the Rent Commencement Date during the Term. Tenant will make all
Basic Rent payments to Property Manager at the address specified in the basic
Terms or at such other place or in such other manner as Landlord may from time
to time designate in writing. Tenant will make all basic Rent payments without
Landlord's previous demand, invoice or notice for payment. Landlord and Tenant
will prorate, on a per diem basis, Basic Rent for any partial month within the
Term. An amount equal to one full month of basic Rent at the initial rate
specified in the Basic Terms will be paid to Landlord by Tenant upon execution
of this Lease by Tenant, to be applied against the first installment of Basic
Rent by Landlord when due.
2.2. Additional Rent. Article 3 of this tease requires Tenant to pay
certain Additional Rent pursuant to estimates Landlord delivers to Tenant.
Tenant will make all payments of estimated Additional Rent in accordance with
Sections 3.3 and 3.4 without deduction or offset and without Landlord's previous
demand, invoice or notice for payment. Tenant will pay all other Additional Rent
described in this Lease that is not estimated under Sections 3.3 and 3.4 within
10 days after receiving Landlord's invoice for such Additional Rent. Tenant will
make all Additional Rent payments to the same location and, except as described
in the previous sentence, in the same manner as Tenant's Basic Rent payments.
2.3. Delinquent Rental Payments. If Tenant does not pay any installment
of Basic Rent or any Additional Rent within five days after the date the payment
is due, Tenant will pay
2
<PAGE> 5
Landlord a late payment charge equal to 5% of the amount of the delinquent
payment. Further, if Tenant does not pay any installment of Basic Rent or any
Additional Rent within 30 days after the date the payment is due, Tenant will
pay Landlord interest on the delinquent payment calculated at the Maximum Rate
from the date when the payment is due through the date the payment is made.
Landlord's right to such compensation for the delinquency is in addition to all
of Landlord's rights and remedies under this Lease, at law or in equity.
2.4. Independent Obligations. Notwithstanding any contrary term or
provision of this Lease, Tenant's covenant and obligation to pay Rent is
independent from any of Landlord's covenants, obligations, warranties or
representations in this Lease. Tenant will pay Rent without any right of offset
or deduction.
ARTICLE 3.
PROPERTY TAXES AND OPERATING EXPENSES
3.1. Payment of Excess Expenses. Tenant will pay, as Additional Rent
and in the manner this Article 3 describes, Tenant's Share of Excess Expenses
due and payable during any calendar year of the Term. Landlord will prorate
Tenant's Share of Excess Expenses due and payable during the calendar year in
which the Lease commences or terminates as of the Commencement Date or
termination date, as applicable, on a per diem basis based on the number of days
of the Term within such calendar year.
3.2. Estimation of Tenant's Share of Excess Expenses, Landlord will
deliver to Tenant a written estimate of the following for each calendar year of
the Term: (a) Property Taxes, (b) Operating Expenses, (c) Excess Expenses, (d)
Tenant's Share of Excess Expenses, and (e) the annual and monthly Additional
Rent attributable to Tenant's Share of Excess Expenses.
3.3. Payment of Estimated Tenant's Shares of Excess expenses. Tenant
will pay the amount Landlord estimates as Tenant's Share of Excess Expenses
under Section 3.2 for each calendar year of the Term in equal monthly
installments, in advance, commencing on the Rent Commencement Date and
thereafter on the first day of each and every calendar month during the Term. If
Landlord has not delivered the estimates to Tenant by the first day of January
of the applicable calendar year, Tenant will continue paying Tenant's Share of
Excess Expenses based on Landlord's estimates for the previous calendar year.
when Tenant receives Landlord's estimates for the current calendar year, Tenant
will pay the estimated amount (less amounts Tenant paid to Landlord in
accordance with the immediately preceding sentence) in equal monthly
installments over the balance of such calendar year, with the number of
installments being equal to the number of full calendar months remaining in such
calendar year. Notwithstanding anything contained herein to the contrary, Tenant
is not obligated to pay Tenant's Share of Excess Expenses during the first 12
months of the Term.
3.4. Re-Estimation of Excess Expenses. Landlord may re-estimate Excess
Expenses from time to time during the Term. In such event, Landlord will
re-estimate the monthly Additional Rent attributable to Tenant's Share of Excess
Expenses to an amount sufficient for Tenant to pay the re- estimated monthly
amount over the balance of the calendar year. Landlord
3
<PAGE> 6
will notify Tenant of the re- estimate and Tenant will pay the re-estimated
amount in the manner provided in the last sentence of Section 3.3.
3.5. Confirmation of Tenant's Share of Excess Expenses. After the end
of each calendar year within the Term, Landlord will determine the actual amount
of Excess Expenses and Tenant's Share of Excess Expenses for the expired
calendar year and deliver to Tenant a written statement of such amounts. If
Tenant paid less than the amount of Tenant's Share of Excess Expenses specified
in the statement, Tenant will pay the difference to Landlord as Additional! Rent
in the manner described in Section 2.2. If Tenant paid mom than the amount of
Tenant's Share of Excess Expenses specified In the statement, Landlord will, at
Landlord's option, either (a) refund the excess amount to Tenant, or (b) credit
the excess amount against Tenant's next due monthly installment or installments
of estimated Additional Rent If Landlord is delayed in delivering such statement
to Tenant, such delay does not constitute Landlord's waiver of Landlord's rights
under this Section.
3.6. Tenant's Inspection and Audit Rights. If Tenant disputes
Landlord's determination of the actual amount of Excess Expenses or Tenant's
Share of Excess Expenses for any calendar year, and provided that (a) no Event
of Default exists under this Lease, and (b) Tenant delivers to Landlord written
notice of the dispute within 30 days after Landlord's deliver of the statement
of such amount under Section 3.5, then Tenant (but not any subtenant or
assignee) may, at its sole cost and expense, upon prior written notice and
during regular business hours at ~ time and place reasonably acceptable to
landlord (which may be the location where Landlord or Property Manager maintains
the applicable records), cause a certified public accountant reasonably
acceptable to landlord to audit Landlord's records relating to the disputed
amounts Tenant's objection to Landlord's determination of Excess Expenses or
Tenant's Share of Excess Expenses is deemed withdrawn unless Tenant completes
and delivers the audit to Landlord within 60 days after the date Tenant delivers
its dispute notice to Landlord under this Section, If the audit shows that the
amount Landlord charged Tenant for Tenant's Share of Excess Expenses was greater
than the amount this Article 3 obligates Tenant to pay, unless Landlord
reasonably contests the audit, Landlord will refund the excess amount to Tenant,
together with interest on the excess amount at the Maximum Rate (computed from
the date Tenant delivers its dispute notice to landlord) within 10 days after
landlord receives a copy of the audit report. If the audit shows that the amount
Landlord charged Tenant for Tenant's Share of Excess Expenses was less than the
amount this Article 3 obligates Tenant to pay, Tenant will pay to Landlord, as
Additional Rent, the difference between the amount Tenant paid and the amount
determined in the audit, together with interest on the difference at the Maximum
Rate (computed from the date Tenant delivers its dispute notice to Landlord)
Pending resolution of any audit under this Section, Tenant will continue to pay
to Landlord the estimated amounts of Tenant's Share of Excess Expenses in
accordance with Sections 3 and 3.4. Tenant must keep all information it obtains
in any audit strictly confidential and may only use such information for the
limited purpose this Section describes and for Tenant's own account.
3.7. Annual Amendment to Tenant's Share of Excess Expenses Percentage.
Notwithstanding any contrary language in this Lease, Landlord may change
Tenant's Share of Excess Expenses Percentage each calendar year to the
percentage Landlord calculates by dividing the rentable area of the Premises by
the greater of (a) 95% of the rentable area of the Building for such calendar
year; or (b) the rentable area of the Building actually leased pursuant
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to leases under which the terms have commenced for such calendar year. In no
event will Landlord include basement storage space or garage space in Landlord's
calculation of the rentable area of the Building.
3.8. Personal Property Taxes. Tenant will pay, prior to delinquency,
all taxes charged against Tenant's trade fixtures and other personal property.
Tenant will use all reasonable efforts to have such trade fixtures and other
personal property taxed separately from the Property, If any of Tenant's trade
fixtures and other personal property are taxed with the Property, Tenant will
pay the taxes attributable to Tenant's trade fixtures and other personal
property to Landlord as Additional Rent
3.9. Landlord's Right to Contest Property Taxes, landlord may, but is
not obligated to, contest the amount or validity, in whole or in part, of any
Property Taxes, landlord's contest will be at landlord's sole cost and expense
except that if Property Taxes are reduced (or if a proposed increase is avoided
or reduced) because of Landlord's contest, Landlord may include in its
computation of Property Taxes the costs and expenses landlord incurred in
connection with contesting the Property Taxes, including without limitation
reasonable attorney's fees, up to the amount of any Property Tax reduction
landlord realized from the contest or any Property Tax increase avoided or
reduced in connection with the contest, as the case may be. Tenant may not
contest Property Taxes.
3.10. Adjustment for Variable Operating Expenses. Notwithstanding any
contrary language in this Article 3, if 95% or more of the rentable area of the
Building is not occupied at all times during any calendar year pursuant to
leases under which the terms have commenced for such calendar year, Landlord
will reasonably and equitably adjust Its computation of Operating Expenses for
that calendar year to obligate Tenant to pay all components of Operating
Expenses that vary based on occupancy in an amount equal to the amount Tenant
would have paid for such components of Operating Expenses had 95% of the
rentable area of the Building been occupied at all times during such calendar
year pursuant to leases under which the terms have commenced for such calendar
year. Landlord will also equitably adjust Operating Expenses to account for any
Operating Expense any tenant of the Building pays directly to a service
provider.
3.11. Rent Tax. Tenant shall pay to Landlord all Rent Tax due in
connection with this Lease or the payment of Rent hereunder, which Rent Tax
shall be paid by Tenant to Landlord concurrently with each payment of Rent made
by Tenant to Landlord under this Lease.
ARTICLE 4.
USE
4.1. Permitted Use. Tenant will occupy and operate the Premises at all
times during the Term and will not vacate the Premises prior to the expiration
of the Term without Landlord's prior written consent, which consent Landlord may
grant or withhold in its sole and absolute discretion. Tenant will not use the
Premises for any purpose" other than general office purposes. Tenant will not
use the Property or knowingly permit the Premises to be used in violation of any
Laws or in any manner that would (a) violate any certificate of occupancy
affecting the Property; (b) make void or voidable any insurance now or after the
Effective Date in force with respect to
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the Property; (c) cause injury or damage to the Property or to the person or
property of any other tenant on the Property; (d) cause substantial diminution
in the value or usefulness of all or any part of the Property (reasonable wear
and tear excepted); or (e) constitute a public or private nuisance or waste.
Tenant will obtain and maintain, at Tenant's sole cost and expense, all permits
and approvals required under the Laws for Tenant's use of the Premises.
4.2. Acceptance of Premises. Except for the Warranty Terms, Tenant
acknowledges that neither Landlord nor any agent, contractor or employee of
Landlord has made any representation or warrant of any kind with respect to the
Premises, the Building or the Property, specifically including, but not limited
to, any representation or warranty of suitability of fitness of the Premises,
Building or the Property for any particular purpose. Subject to the Warranty
Terms, Tenant accepts the Premises, the Building and the Property in an "AS IS -
WHERE IS" condition.
4.3. Increased Insurance. Tenant will not do on the Property or permit
to be done on the Premises anything that will (a) increase the premium of any
insurance policy Landlord carries covering the Premises or the Property; (b)
cause a cancellation of or be in conflict with any such insurance policy; (c)
result in any insurance company's refusal to issue or continue any such
insurance in amounts satisfactory to Landlord; or (d) subject Landlord to any
liability or responsibility for injury to any person or property by reason of
Tenant's operations in the Premises or use of the Property. Tenant will, at
Tenant's sole cost and expense, comply with all rules, orders, regulations and
requirements of insurers and of the American Insurance Association or any other
organization performing a similar function. Tenant will reimburse Landlord, as
Additional Rent, for any additional premium charges for such policy or policies
resulting from Tenant's failure to comply with the provisions of this Section.
4.4. Laws/Building Rules. This lease is subject and subordinate to all
Laws. A copy of the current building Rules is attached to this Lease as EXHIBIT
"E". Landlord may amend the Building Rules from time to time in Landlord's sole
and absolute discretion.
4.5. Common Area. Landlord grants Tenant the non-exclusive right,
together with all other occupants of the Building and their agents, employees
and invitees, to use the Common Area during the Term, subject to all laws.
Landlord may, at landlord's sole and exclusive discretion, make changes to the
Common Area. Landlord's rights regarding the Common Area include, but are not
limited to, the right to (a) restrain unauthorized persons from using the Common
Area; (b) place permanent or temporary kiosks, displays, carts or stands in the
Common Area and to lease the same to tenants; (c) temporarily close any portion
of the Common Area (i) (or repairs, improvements or Alterations, (ii) to
discourage unauthorized use, (iii) to prevent dedication or prescriptive rights,
or (iv) for any other reason landlord deems sufficient in Landlord's judgment;
(d) change the shape and size of the Common Area; (e) add, eliminate or change
the location of any improvements located in the Common Area and construct
buildings or other structures in the Common Area; and (f) impose and revise
Building Rules concerning use of the Common Area, including any parking
facilities comprising a portion of the Common Area.
4.6. Signs. Landlord will initially provide to Tenant (a) one building
standard tenant identification sign adjacent to the entry door of the Premises
and (b) one standard building directory listing. The signs will conform to
Landlord's sign criteria. Tenant will not install or
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permit to be installed In the Premises any other sign, decoration or advertising
material of any kind that is visible from the exterior of the Premises. Landlord
may immediately remove, at Tenant's sole cost and expense, any sign, decoration
or advertising material that violates this Section.
ARTICLE 5.
HAZARDOUS MATERIALS
5.1. Compliance with Hazardous. Materials Laws. Tenant will not cause
any Hazardous Material to be brought upon, kept or used on the Property in a
manner or for a purpose prohibited by or that could result in liability under
any Hazardous Materials Law. Tenant, at its sole cost and expense, will comply
with all Hazardous Materials Laws and prudent industry practice relating to the
presence, treatment, storage, transportation, disposal, release or management of
Hazardous Materials in, on, under or about the Property required for Tenant's
use of the Premises and will notify Landlord of any and all Hazardous Materials
Tenant brings upon, keeps or uses on the Property (other than small quantities
of office cleaning or other once supplies as are customarily used by a tenant in
the ordinary course in a general office facility). On or before the expiration
or earlier termination of this Lease, Tenant, at its sole cost and expense, will
completely remove from the Property (regardless whether any Hazardous Materials
Law requires removal), in compliance with all Hazardous Materials Laws, all
Hazardous Materials Tenant causes to be present in, on, under or about the
Property. Tenant will not take any remedial action in response to the presence
of any Hazardous Materials in on, under or about the Property, nor enter into
any settlement agreement, consent decree or other compromise with respect to any
Claims relating to or in any way connected with Hazardous Materials in, on,
under or about the Property, without first notifying Landlord of Tenant's
intention to do so and affording Landlord reasonable opportunity to investigate,
appear, intervene and otherwise assert and protect Landlord's interest in the
Property.
5.2. Notice of Actions. Tenant will notify Landlord of any of the
following actions affecting Landlord, Tenant or the Property that result from or
in any way relate to Tenant's use of the Property immediately after receiving
notice of the same: (a) any enforcement, clean-up, renewal or other governmental
or regulatory action instituted, completed or threatened under any Hazardous
Materials Law; (b) any Claim made or threatened by any person relating to
damage, contribution, liability, cost recovery, compensation, loss or injury
resulting from or claimed to result from any Hazardous Material; and (c) any
reports made by any person, including Tenant, to any environmental agency
relating to any Hazardous Material, including any complaints, notices, warnings
or asserted violations. Tenant will also deliver to Landlord, as promptly as
possible and in any event within five Business Days after Tenant first receives
or sends the same, copies of all Claims, reports, complaints, notices, warnings
or asserted violations relating in any way to the Premises or Tenant's use of
the Premises. Upon Landlord's written request, Tenant will promptly deliver to
Landlord documentation acceptable to Landlord reflecting the legal and proper
disposal of all Hazardous Materials removed or to be removed from the Premises.
All such documentation will list Tenant or its agent as a responsible party and
will not attribute responsibility for any such Hazardous Materials to Landlord
or Property Manager.
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5.3. Disclosure and Warning Obligations. Tenant acknowledges and agrees
that all reporting and warning obligations required under Hazardous Materials
Laws resulting from or in any way relating to Tenant's use of the Premises or
Property are Tenant's sole responsibility, regardless whether the Hazardous
Materials Laws permit or require Landlord to report or warn.
5.4. Indemnification. Tenant will indemnify, defend (with counsel
reasonably acceptable to Landlord), protect and hold harmless the Landlord
Parties from and against any and all Claims whatsoever arising or resulting, in
whole or in part, directly or indirectly, from the presence, treatment, storage,
transportation, disposal, release or management of Hazardous Materials in, on,
under, upon or from the Property (including water tables and atmosphere)
resulting from or in any way related to Tenant's use of the Premises or
Property, Tenant's obligations under this Section include, without limitation
and whether foreseeable or unforeseeable, (a) the costs of any required or
necessary repair, clean-up, detoxification or decontamination of the Property;
(b) the costs of implementing any closure, remediation or other required action
in connection therewith as stated above; (c) the value of any loss of use and
any diminution in value of the Property; and (d) consultants' fees, experts'
fees and response costs The obligations of Tenant under this Section survive the
expiration or earlier termination of this Lease
ARTICLE 6.
SERVICES
6.1. Landlord's Obligations. Landlord will provide the following
services, the costs of which are Operating Expenses.
6.1.1. Janitorial Service. Janitorial service in the Premises,
five times per week, including cleaning, trash removal, vacuuming, maintaining
towels, tissue and other restroom supplies and such other work as is Customarily
performed in connection with nightly janitorial services in office complexes
similar in construction, location, use and occupancy to the Property. Landlord
will also provide periodic interior and exterior window washing and cleaning and
waxing of uncarpeted floors in accordance with Landlord's schedule for the
Building.
6.1.2. Electrical Energy. Electrical energy to the Premises
for lighting and for operating office machines for general office use.
Electrical Energy will be sufficient for Tenant to operate personal computers
and other equipment of similar low electrical consumption, but will not be
sufficient for lighting in excess of 2.2 watts per square foot installed or for
electrical convenience outlets in excess of 3.5 watts per square foot installed.
Tenant will not use any equipment requiring electrical energy in excess of the
above standards without receiving Landlord's prior written consent, which
consent Landlord will not unreasonably withhold but may condition on Tenant
paying all costs of installing the equipment and facilities necessary to furnish
such excess energy and an amount equal to the average cost per unit of
electricity for the Building applied to the excess use as reasonably determined
either by an engineer selected by Landlord or by submeter installed at Tenant's
expense. Landlord will replace all lighting bulbs, tubes, ballasts and starters
within the Premises at Tenant's sole cost and expense unless the costs of such
replacement are included in Operating Expenses. If such costs are not included
in Operating Expenses, Tenant will pay such costs as Additional Rent.
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6.1.3. Heating, Ventilation and Air Conditioning. During
Business Hours, heating, ventilation and air conditioning to the Premises
sufficient to maintain, in Landlord's reasonable judgment, comfortable
temperatures In the Premises. During other times, Landlord will provide heat and
air conditioning upon Tenant's reasonable advance notice (not less than one
hour). Tenant will pay Landlord, as Additional Rent, for such extended service
on an hourly basis at the prevailing rates Landlord reasonably establishes. If
extended service is not a continuation of the service Landlord furnished during
Business Hours, Landlord may inquire Tenant to pay for a minimum of one hour of
such service. Landlord will provide air conditioning to the Premises based on
standard lighting and general office use only.
6.1.4. Water. Hot and cold water from standard building
outlets for lavatory, restroom and drinking purposes.
6.1.5. Elevator Service. Elevator service to be used by Tenant
in common with other tenants. Landlord may restrict Tenant's use of elevators
for freight purposes to the freight elevator and to hours landlord reasonably
determines. Landlord may limit the number of elevators in operation at times
other than Business Hours.
6.2. Tenant's Obligations. Tenant is solely responsible for paying
directly to the applicable utility companies, prior to delinquency, all
separately metered or separately charged utilities, if any, to the Premises or
to Tenant. Such separately metered or charged amounts are not Operating
Expenses. Except as provided in Sections 6.1 and 17.1, Tenant will also obtain
and pay for all other utilities and services Tenant requires with respect to the
Premises (including, but not limited to, hook-up and connection charges).
6.3. Other Provisions Relating of Services. No interruption in, or
temporary stoppage of, any of the services this Article 6 describes is to be
deemed an eviction or disturbance of Tenant's use and possession of the
Premises, nor does any interruption or stoppage relieve Tenant from any
obligation this Lease describes, render Landlord liable for damages or entitle
Tenant to any Rent abatement, Landlord is not required to provide any heat, air
conditioning, electricity or other senvice in excess of that permitted by
voluntary or involuntary governmental guidelines or other Laws. Landlord has the
exclusive right and discretion to select the provider of any utility or service
to the Property and to determine whether the Premises or any other portion of
the Property may or will be separately metered or separately supplied. Landlord
reserves the right, from time to time, to make reasonable and non-discriminatory
modifications to the above standards for utilities and services.
6.4. Tenant Devices. Tenant will not, without Landlord's prior written
consent, use any apparatus or device in or about the Premises that causes
substantial noise, odor or vibration. Tenant will not connect any apparatus or
device to electrical current or water except through the electrical and water
outlets Landlord installs in the Premises.
ARTICLE 7.
MAINTENANCE AND REPAIR
7.1. Landlord's Obligations. except as otherwise provided in this
Lease, Landlord will repair and maintain the following in good order, condition
and repair: (B) the foundations,
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exterior walls and roof of the Building; and (b) the electrical, mechanical,
plumbing, heating and air Conditioning systems, facilities and components
located in the Building and used in common by all tenants of the Building
Landlord will also maintain and repair Common Area and the windows, doors, plate
glass and the exterior surfaces of walls that are adjacent to Common Area.
Landlord's repair and maintenance costs under this Section 7.1 are Operating
Expenses. Neither basic Rent nor Additional Rent will be reduced, nor will
Landlord be liable, for loss or injury to or interference with Tenant's
property, profits or business arising from or in connection with Landlord's
performance of its Obligations under this Section.
7.2. Tenant's Obligations.
7.2.1. Maintenance of Premises. Except as otherwise
specifically provided in this Lease, Landlord is not required to furnish any
services or facilities, or to make any repairs or Alterations, in, about or to
the Premises or the Property. Except as specifically described in Section 7.1,
Tenant assumes the full and sole responsibility for the condition, operation,
repair, replacement, maintenance and management of the Premises. Except as
specifically described in section 7.1, Tenant, at Tenant's sole cost and
expense, will keep and maintain the Premises (including, but not limited to, all
non- structural interior portions, systems and equipment; interior surfaces of
exterior walls; interior moldings, partitions and ceilings; and interior
electrical, Lighting and plumbing fixtures) in good order, condition and repair,
reasonable wear and tear and damage from insured casualties excepted. Tenant
will keep the Premises in B neat and sanitary condition and will not commit any
nuisance or waste in, on or about the Premises or the Property. If Tenant
damages or injures the Common Area or any part of the Property other than the
Premises, Landlord will repair the damage and Tenant will pay Landlord for all
uninsured costs and expenses of Landlord in connection with the repair as
Additional Rent. Tenant will maintain the Premises in a first-class and fully
operative condition. Tenant's repairs will be at least equal In quality and
workmanship to the original work and Tenant will make the repairs in accordance
with all Laws.
7.2.2. Alterations Required by Laws. If any governmental
authority requires any Alteration to the Building or the Premises as a result of
Tenant's particular use of the Premises or as a result of any Alteration to the
Premises made by or on behalf of Tenant or if Tenant's particular use of the
Premises subjects Landlord or the Property to any obligation under any Laws,
Tenant will pay the cost of all such Alterations or the cost of compliance, as
the case may be. If any such Alterations are Structural Alterations, Landlord
will make the Structural Alterations, provided that Landlord may first require
Tenant to deposit with Landlord an amount sufficient to pay the cost of the
Structural Alterations (including, without limitation- reasonable overhead and
administrative costs), If the Alterations are not Structural Alterations, Tenant
will make the Alterations at Tenant-s sole cost and expense in accordance with
ARTICLE 8.
ARTICLE 8.
CHANGES AND ALTERATIONS
8.1. Landlord Approval. Tenant will not make any Structural
Alterations. Tenant will not make any other Alterations without landlord's prior
written Consent, which consent Landlord may grant, withhold or condition in its
sole and absolute discretion. Along with any request for
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Landlord's consent- Tenant will deliver to Landlord plans and specifications for
the Alterations and names and addresses of all prospective contractors for the
Alterations. If Landlord approves the proposed Alterations- Tenant will, before
commencing the Alterations or delivering (or accepting delivery of any materials
to be used in connection with the Alterations, deliver to Landlord copies of all
contracts, proof of insurance required by Section 8,2, copies of any contractor
safety programs, copies of all necessary permits and licenses and such other
information relating to the Alterations as Landlord reasonably requests. Tenant
will not commence the Alterations before Landlord has, in Landlord's reasonable
discretion, provided Landlord's written approval of the foregoing deliveries.
Tenant will construct all approved Alterations or cause all approved Alterations
to be constructed (a) promptly by a contractor Landlord approves in writing in
Landlord-s sole and absolute discretion, (b) in a good and workmanlike manner,
(c) in Compliance with all Laws, (d) in accordance with all orders, rules and
regulations of the Board of Fire Underwriters having jurisdiction over the
Premises and any other body exercising similar functions, (e) during times
reasonably determined by Landlord to minimize interference with other tenants'
use and enjoyment of the Property, and (f) in full compliance with all of
Landlord's rules and regulations applicable to third party contractors,
subcontractors and suppliers performing work at the Property,
8.2. Tenant's Responsibility for Cost and Insurance Tenant will pay the
cost and expense of all Alterations, including, without limitation, a reasonable
charge for Landlord's review, inspection and engineering time, and for any
painting, restoring or repairing of the Premises or the Building the Alterations
occasion. Prior to commencing the Alterations, Tenant will deliver the following
to Landlord in form and amount reasonably satisfactory to Landlord: (a)
demolition (if applicable) and payment and performance bonds, (b) builder's "all
risk" insurance in an amount at least equal to the replacement value of the
Alterations, and (c) evidence that Tenant and each of Tenant's contractors have
in force liability insurance insuring against construction related risks in at
least the form, amounts and coverages required of Tenant under Article 10, The
insurance policies described in clauses (b) and (c) of this Section must name
Landlord, Landlord's lender (if any) and Property Manager as additional
insureds.
8.3. Construction Obligations and Ownership, Landlord may inspect
construction of the Alterations Immediately after Completing the Alterations,
Tenant will furnish Landlord with contractor affidavits, full and final lien
waivers and receipted bills covering all labor and materials expended and used
in Connection with the Alterations, Tenant will remove any Alterations Tenant
constructs in violation of this Article 8 within 10 days after Landlord's
written request and in any event prior to the expiration or earlier termination
of this Lease. All Alterations Tenant makes or installs (including all
telephone, computer and other wiring and cabling located within the walls of and
outside the Premises, but excluding Tenant's movable trade fixtures, furniture
and equipment) become the property of Landlord and a part of the Building
immediately upon installation and, unless Landlord requires Tenant to remove the
Alterations, Tenant will surrender the Alterations to Landlord upon the
expiration or earlier termination of this Lease at no cost to Landlord.
8.4. Liens. Tenant will keep the Property free from any mechanics',
materialmens', designers' or other liens arising out of any work performed,
materials furnished or obligations incurred by or for Tenant or any person or
entity claiming by, through or under Tenant. Tenant will notify Landlord in
writing 30 days prior to Commencing any Alterations in order to provide
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Landlord the opportunity to record and post notices of non-responsibility or
such other protective notices available to Landlord under the Laws. If any such
liens are filed and Tenant, within 15 days after such filing, does not release
the same of record or provide Landlord with a bond or other surety satisfactory
to Landlord protecting Landlord and the Property against such liens, Landlord
may, without waiving its rights and remedies based upon such breach by Tenant
and without releasing Tenant from any obligation under this Lease, cause such
liens to be released by any means Landlord deems proper, including, but not
limited to, paying the claim giving rise to the lien or posting security to
cause the discharge of the lien. In such event, Tenant will reimburse Landlord,
as Additional Rent, for all amounts Landlord pays (including, without
limitation, reasonable attorneys' fees and costs).
8.5. Indemnification. To the fullest extent allowable under the Laws,
Tenant will indemnity, protect, defend (with Counsel reasonably acceptable to
Landlord) and hold harmless the Landlord Parties and the Property from and
against any Claims in any manner relating to or arising out of any Alterations
or any other work performed, materials furnished or obligations incurred by or
for Tenant or any person or entity claiming by, through or under Tenant.
ARTICLE 9.
RIGHTS RESERVED BY LANDLORD
9.1. Landlord's Entry. subject to the Building Rules, and paragraph 25
thereof in particular, Landlord and its authorized representatives may at all
reasonable times and upon reasonable notice to Tenant enter the Premises to; (a)
inspect the Premises; (b) show the Premises to prospective purchasers,
mortgagees and tenants; (c) post notices of non-responsibility or Other
protective notices available under the Laws; or (d) exercise and perform
Landlord's rights and obligations under this Lease. Landlord may in the event of
any emergency enter the Premises without notice to Tenant. Landlord's entry into
the Premises is not to be construed as a forcible or unlawful entry into, or
detainer of, the Premises or as an eviction of Tenant from all or any part of
the Premises. Tenant will also permit Landlord (or its designees) to erect,
install, use, maintain, replace and repair pipes, cables, conduits, plumbing and
vents, and telephone, electric and other wires or Other items, in, to and
through the Premises if Landlord determines that such activities are necessary
or appropriate for properly operating and maintaining the Building.
9.2. Control of Property. Landlord reserves all rights respecting the
Property and Premises not specifically granted to Tenant under this Lease,
including, without limitation, the right to: (a) change the name or street
address of the Building; (b) designate and approve all types of signs, window
coverings, internal lighting and other aspects of the Premises and its contents
that may be visible from the exterior of the Premises; (c) grant any party the
exclusive right to conduct any business or render any service in the Building,
provided such exclusive right to conduct any business or render any service in
the Building does not prohibit Tenant from any permitted use for which Tenant is
then using the Premises; (d) prohibit Tenant from installing vending or
dispensing machines of any kind in or about the Premises other than those Tenant
installs in the Premises solely for use by Tenant's employees; (e) close the
Building after Business Hours, except that Tenant and its employees and invitees
may access the Premises after Business Hours in accordance with such rules and
regulations as Landlord may prescribe from
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time to time for security purposes; (f) install, operate and maintain security
systems that monitor, by Closed circuit television or otherwise, all persons
entering or leaving the Building; (g) install and maintain pipes, ducts,
conduits, wires and structural elements in the Premises that serve other parts
or other tenants of the Building; and (h) retain and receive master keys or pass
keys to the Premises and all doors in the Premises. Notwithstanding the
foregoing, or the provision of any security-related services by Landlord,
Landlord is not responsible for the security of persons or property on the
Property and Landlord is not and will not be liable in any way whatsoever for
any breach of security not solely and directly caused by the gross negligence or
willful misconduct of Landlord, its agents or employees,
9.3. Right to Cute. If Tenant defaults in the performance of any
obligation under this Lease, Landlord may, but is not obligated to, perform any
such obligation on Tenant's part without waiving any rights based upon such
default and without releasing Tenant from any obligations hereunder. Tenant must
pay to Landlord, within 10 days after delivery by Landlord to Tenant of
statements therefor, sums equal to expenditures reasonably made and obligations
incurred by Landlord in connection with the remedying by Landlord of Tenant's
defaults. Such obligations survive the termination or expiration of this Lease.
9.4. Space Planning Substitution. Upon not less than 45 days prior
written notice to Tenant, Landlord may relocate Tenant to other space of
comparable size (and comparable quality improvements) within the Building.
Landlord will move or pay for moving Tenant's personal property and equipment
from the original Premises to the new space and will reimburse Tenant for
reasonable, documented out-of-pocket costs Tenant incurs (not exceeding two
months' Basic Rent) as a result of the relocation. Prior to or concurrently with
the relocation, Landlord will prepare, and the parties will execute, an
amendment to this Lease to evidence the relocation and make any necessary
changes to the Basic Terms resulting from the relocation.
ARTICLE 10.
INSURANCE
10.1. Tenant's Insurance Obligations. Tenant will at all times during
the Term and during any early occupancy period, at Tenant's sole cost and
expense, maintain the insurance this Section 10.1 describes.
10.1.1. Liability Insurance. Commercial general liability
insurance (providing coverage at least as broad as the current ISO form) with
respect to the Premises and Tenant's activities in the Premises and upon and
about the Property, on an "occurrence" basis, with minimum limits of $1,000,000
each occurrence and $3,000,000 general aggregate. Such insurance must include
specific coverage provisions or endorsements (a) for broad form contractual
liability insurance insuring Tenant's obligations under this Lease; (b) naming
Landlord and Property Manager as additional insureds by an "Additional Insured -
Managers or Lessors of Premises" endorsement (or equivalent coverage or
endorsement); (c) waiving the insurers subrogation rights against all Landlord
Parties; (d) providing Landlord with at least 30 days prior notice of
modification, cancellation or expiration; (e) expressly stating that Tenants
insurance will be provided on a primary basis and will not contribute with any
insurance Landlord maintains; and (f) providing that the insurer has a duty to
defend all insureds under the
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policy (including additional insureds), and that defense costs are paid in
addition to, and do not deplete, the policy limits. If Tenant provides such
liability insurance under a blanket policy, the insurance must be made
specifically applicable to the Premises and this Lease on a "per location"
basis.
10.1.2. Property Insurance. Property insurance providing
coverage at least as broad as the current ISO Special Form ("all-risks") policy
in an amount not less than the full insurable replacement cost of all of
Tenant's trade fixtures and other personal property within the Premises and
including business income insurance covering at Least nine months loss of income
from Tenant's business in the Premises. Such property insurance must include
"agreed amount, no coinsurance" provisions.
10.1.3. Other Insurance. Such other insurance as may be
required by any Laws from time" to time. If insurance obligations generally
required of tenants in similar space in similar office buildings in the area in
which the Premises is located increase or otherwise change, Landlord may
likewise increase or otherwise change Tenant's insurance obligations under this
Lease.
10.1.4. Miscellaneous Insurance" Provisions. All of Tenant's
insurance will be written by companies rated at least "Best A-Vll" and otherwise
reasonably satisfactory to Landlord. Tenant will deliver a certified copy of
each policy, or other evidence of insurance satisfactory to Landlord, (a) on or
before the Commencement Date (and prior to any earlier occupancy by Tenant), (b)
not later than 30 days prior to the expiration of any current policy or
certificate, and (c) at such other times as Landlord may reasonably request (but
not more than two additional times in any calendar year). If Landlord allows
Tenant to provide evidence of insurance by certificate, Tenant will deliver an
ACORD Form 27 (or equivalent) certificate and will attach or cause to be
attached to the certificate copies of the endorsements this Section 10.1
requires (including specifically, but without limitation, the "additional
insured" endorsement). Tenant's insurance must permit releases of liability and
provide for waiver of subrogation as provided in Section 10.1.5.
10.1.5. Tenant's Waiver and Release of Claims and Subrogation.
To the" extent not prohibited by the Laws, Tenant, on behalf of Tenant and its
insurers, waives, releases and discharges the Landlord Parties from all Claims
arising out of damage to or destruction of the Premises, Property or Tenant's
trade fixtures, other personal property or business, and any loss of us" or
business interruption, occasioned by any fir" or other casualty or occurrence
whatsoever (whether similar or dissimilar), regardless whether any such Claim
results from the negligence or fault of any Landlord Party or otherwise, but
only to the extent that the damage, destruction or loss is covered by the
insurance required to be carried by Tenant pursuant to Section 10,1,2
(regardless of whether Tenant maintains such coverage)~ Tenant is solely
responsible for obtaining such insurance as Tenant may desire to cover loss of
Tenant's business or profits as a result of any casual; and, provided that such
casualty is not the result of Landlord's, its agents or employees gross
negligence or willful misconduct, Landlord shall have no liability to Tenant for
loss of business or profits as a result of any such casualty, Except as
otherwise expressly provided herein, Tenant's trade fixtures, other personal
property and all other property in Tenant's care, custody or control, is located
at the Property at Tenant's sole risk, and Landlord is not liable for any damage
to such property or for any theft, misappropriation or loss of such
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property, Tenant is solely responsible for providing such insurance as may be
required to protect Tenant, its employees and invitees against any injury, loss,
or damage to persons or property occurring in the Premises or at the Property,
including, without limitation, any loss of business or profits from any casualty
or other occurrence at the Property.
10.1.6. No Limitation. Landlord's establishment of minimum
insurance requirements is not a representation by Landlord that such limits are
sufficient and does not limit Tenant's liability under this Lease in any manner.
10.2. Landlord's Insurance Obligations. Landlord will (except for the
optional coverages and endorsements Section 10.2.1 describes) at all times
during the Term maintain the insurance this Section 10.2 describes. All premiums
and other costs and expenses Landlord incurs in connection with maintaining such
insurance (except for optional endorsements that are not commercially
reasonable) are Operating Expenses.
10.2.1. Property Insurance. Property insurance on the Building
providing coverage at least as broad as the current ISO Special Form
("all-risks") policy in an amount not less than the full insurable replacement
Cost of the Building (less foundation, grading and excavation costs), insuring
against (at a minimum) loss or damage by such risks as are covered by the
current ISO Special Form policy. Landlord may, at its option, obtain such
additional coverages or endorsements as Landlord deems appropriate or necessary,
including, without limitation, insurance covering foundation, grading,
excavation and debris removal costs; business income and rent loss insurance;
boiler and machinery insurance; ordinance or laws coverage; earthquake
insurance; flood insurance; and other coverages. Landlord may maintain such
insurance in whole or in part under blanket policies. Such insurance will not
cover or be applicable to any property of Tenant within the Premises or
otherwise located at the Property. Landlord's policy or policies of property
insurance will permit waiver of subrogation as provided in Section 10.2.3.
10.2.2. Liability Insurance. Commercial general liability
insurance against claims for bodily injury, personal injury, and property damage
occurring at the Property in such amounts as Landlord deems necessary or
appropriate. Such liability insurance will protect only Landlord and, at
landlord's option, Landlord's lender and some or all of the Landlord Parties,
and does not replace or supplement the liability insurance this Lease obligates
Tenant to carry.
10.2.3. Landlord's Waiver and Release of Claims and
Subrogation. To the extent not expressly prohibited by the Laws, Landlord, on
behalf of Landlord and its insurers, waives, releases and discharges Tenant and
its officers, directors, members, partner, agents and employees from all Claims
arising out of damage to or destruction of the Premises or Property, or loss of
use of the Property or any personal property of Landlord located at the
Property, occasioned by fire or other casualty, regardless of whether any such
Claim results from the negligence or fault of Tenant or its officers, directors,
members, partners, agents or employees or otherwise, but only to the extent the
damage, destruction or loss is covered by the insurance required to be carried
by Landlord pursuant to Section 10.2.1 (regardless of whether Landlord maintains
such coverage). Landlord's policy or policies of property insurance will permit
waiver of subrogation as provided in this Section 10,2.3.
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10.3. Tenant's Indemnification of Landlord. In addition to Tenant's
other indemnification obligations in this Lease but subject to Landlord's
agreements in Section 10.2, Tenant releases and will, to the fullest extent
allowable under the Laws, indemnify, protect, defend (with counsel reasonably
acceptable to Landlord) and hold harmless the Landlord Parties from and against
all Claims arising from (a) any breach or default by Tenant in the performance
of any of Tenant's covenants or agreements in this Lease, (b) any act, omission,
negligence or misconduct of Tenant, (c) any accident, injury, occurrence or
damage in, about or to the Premises, and (d) to the extent caused by Tenant, any
accident, injury, occurrence or damage in, about or to the Property.
10.4. Tenant's Waiver. In addition to the other waivers of Tenant
described in this Lease and to the extent not expressly prohibited by the Laws,
Landlord and the other Landlord Parties are not liable for, and Tenant waives,
any and all Claims against Landlord and the other Landlord Parties for any
damage to Tenant's trade fixtures, other personal property or business, and any
loss of use or business interruption, resulting directly or indirectly from (a)
any existing or future condition, defect, matter or thing in the Premises or on
the Property, (b) any equipment or appurtenance becoming out of repair, (c) any
occurrence, act or omission of any Landlord Party, any other tenant or occupant
of the Building or any other person. This Section applies especially, but not
exclusively, to damage caused by the flooding of basements or other Subsurface
areas and by refrigerators, sprinkling devices, air conditioning apparatus,
water, snow, frost, steam, excessive heat or cold, falling plaster, broken
glass, sewage, gas, odors, noise or the bursting or leaking of pipes or plumbing
fixtures. The waiver this Section describes applies regardless whether any such
damage results from an act of God, an act or omission of other tenants or
Occupants of the Property or an act or omission of any other person. The waiver
in this Section excludes Claims caused solely by the gross negligence or willful
misconduct of Landlord. If Landlord fails to perform a maintenance or repair
obligation of Landlord expressly set forth in this Lease and such failure is not
cured within the applicable cure period available to Landlord under this Lease,
then the waiver set forth in this Section will not be applicable to any Claims
Tenant may have against Landlord arising as a result of the failure of Landlord
to perform such maintenance or repair obligation,
10.5. Tenant's Failure to Insure. Notwithstanding any contrary language
in this Lease and any notice and cure rights this Lease provides Tenant, if
Tenant fails to provide Landlord with evidence of insurance as required under
Section 10,1.4, Landlord may assume that Tenant is not maintaining the insurance
Section 10.1 requires Tenant to maintain and Landlord may, but is not obligated
to, without further demand upon Tenant or notice to Tenant and without giving
Tenant any cure right or waiving or releasing Tenant from any obligation
contained in this Lease, obtain such insurance for Landlord's benefit. In such
event, Tenant will pay to Landlord, as Additional Rent, all costs and expenses
Landlord incurs obtaining such insurance. Landlord's exercise of its rights
under this Section does not relieve Tenant from any default under this Lease.
ARTICLE 11.
DAMAGE OR DESTRUCTION
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11.1. Tenantable Within 180 Days. Except as provided in Section 11.3,
if fire or other casualty renders the whole or any material part of the Premises
untenantable and Landlord determines (in Landlord's reasonable discretion) that
Landlord can make the Premises tenantable within 180 days after the date of the
casualty, then Landlord will notify Tenant that Landlord will repair and restore
the Building and the Premises to as near their condition prior to the casualty
as is reasonably possible within the 180 day period (subject to Tenant Delay and
Force Majeure). Landlord will provide the notice within 30 days after the date
of the casualty.
11.2. Not Tenantable Within 180 Days. If fire or other casualty renders
the whole or any material part of the Premises untenantable and Landlord
determines (in Landlord's reasonable discretion) that Landlord cannot make the
Premises tenantable within 180 days after the date of the casualty, then
Landlord will so notify Tenant within 30 days after the date of the casualty and
may, in such notice, terminate this Lease effective on the date 30 days after
the date of Landlord's notice. If Landlord does not terminate this Lease as
provided in this Section, Tenant may terminate this Lease by notifying Landlord
within 30 days after the date of Landlord's notice, which termination will be
effective 30 days after the date of Tenant's notice.
11.3. Building Substantially Damaged. If the Building is damaged or
destroyed by fire or other casualty (regardless whether the Premises is
affected) and either (a) less than 15 months remain in the Term, or (b) the
damage reduces the value of the improvements on the Property by more than 50%
(as Landlord reasonably determines value before and after the casualty), then
regardless whether Landlord determines (in Landlord's reasonable discretion)
that Landlord can make the Building tenantable within 180 days after the date of
the casualty, Landlord may, at Landlord's option, by notifying Tenant within 30
days after the casualty, terminate this Lease effective on the date 30 days
after the date of Landlord's termination notice.
11.4. Insufficient Proceeds. Notwithstanding any contrary language in
this Article 11, if Landlord does not receive sufficient Insurance proceeds
(excluding the amount of any policy deductible) to repair all damage to the
Premises or the Building caused by fire or other casualty, or if Landlord's
lender does not allow Landlord to use sufficient proceeds to repair all such
damage, then Landlord may, at Landlord's option, by notifying Tenant within 30
days after the casualty, terminate this Lease effective on the date 30 days
after the date of Landlord's notice.
11.5. Landlord's Repair; Rent Abatement, If this Lease is not
terminated under Sections 11.1 through 11.4 following a fire or other casualty,
then Landlord will repair and restore the Premises and the Building to as near
their condition prior to the fire or other casualty as is reasonably possible
with all commercially reasonable diligence and speed (subject to Tenant Delay
and Force Majeure) and Basic Rent and Tenant's Share of Excess Expenses for the
period during which the Premises are untenantable will abate pro rata (based
upon the rentable area of the untenantable portion of the Premises as compared
with the rentable are" of the entire Premises). In no event is Landlord
Obligated to repair or restore any Alterations or Tenant'6 Improvements that are
not covered by Landlord's insurance, any special equipment or improvements
installed by Tenant, any personal property, or any other property of Tenant
Landlord will, if necessary, equitably adjust Tenant's Share of Excess Expenses
Percentage to account for any reduction in the rentable area of the Premises or
Building resulting from a casualty.
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11.6. Rent Apportionment Upon Termination. If either Landlord or Tenant
terminates this Lease under this Article 11, Landlord will apportion Basic Rent
and Tenant's Share of Excess Expenses on a per diem basis and Tenant will pay
the Basic Rent and Tenant's Share of Excess Expenses to (a) the date of the fire
or other casualty if the event renders the Premises Completely untenantable or
(b) if the event does not render the Premises completely untenantable, the
effective date of such termination (provided that if a portion of the Premises
is rendered untenantable, but the remaining portion is tenantable, then, except
as provided in Section 11.5, Tenant's obligation to pay Basic Rent and Tenant's
Share of Excess Expenses abates pro rata [based upon the rentable area of the
untenantable portion of the Premises divided by the rentable area of the entire
Premises from the date of the casualty and Tenant will pay the unabated portion
of the Rent to the date of such termination on the portion terminated).
11.7. Exclusive Casualty Remedy. The provisions of this Article 11 are
Tenant's sole and exclusive rights and remedies in the event of a casualty. To
the extent permitted by the Laws, Tenant waives the benefits of any Law that
provides Tenant any abatement or termination rights (by virtue of a casualty)
not specifically described in this Article 11.
ARTICLE 12.
EMINENT DOMAIN
12.1. Termination of Lease, If the Condemning Authority desires to
effect a Taking of all or any material part of the Property, Landlord will
notify Tenant and Landlord and Tenant will reasonably determine whether the
Taking will render the Premises unsuitable for Tenant's intended purposes. If
Landlord and Tenant conclude that the Taking will render the Premises unsuitable
for Tenant's intended purposes, Landlord and Tenant will document such
determination and this Lease will terminate as of the date the Condemning
Authority takes possession of the portion of the Property taken. Tenant will pay
Rent to the date of termination. If a Condemning Authority takes all or any
material part of the Building or if a Taking reduces the value of the Property
by 50% or more (as reasonably determined by Landlord), regardless whether the
Premises is affected, then Landlord, at Landlord's option, by notifying Tenant
prior to the date the Condemning Authority takes possession of the portion of
the Property taken, may terminate this Lease effective on the date the
Condemning Authority takes possession of the portion of the Property taken.
12.2. Landlord's Repair Obligations. If this Lease does not terminate
with respect to the entire Premises under Section 12.1 and the Taking includes a
portion of the Premises, this Lease automatically terminates as to the portion
of the Premises taken as of the date the Condemning Authority takes possession
of the portion taken and Landlord will, at its sole cost and expense, restore
the remaining portion of the Premises to a complete architectural unit with all
Commercially reasonable diligence and speed and will reduce the Basic Rent for
the period after the date the Condemning Authority takes possession of the
portion of the Premises taken to a sum equal to the product of the Basic Rent
provided for in this Lease multiplied by a fraction, the numerator of which is
the rentable area of the Premises after the Taking and after Landlord restores
the Premises to a complete architectural unit, and the denominator of which is
the rentable area of the Premises prior to the Taking. Landlord will also
equitably adjust Tenant's Share of Excess Expenses Percentage for the same
period to account for the reduction in the
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rentable area of the Premises or the Building resulting from the Taking.
Tenant's obligation to pay Basic Rent and Tenant's Share of Excess Expenses will
abate on a proportionate basis with respect to that portion of the Premises
remaining after the Taking that Tenant is unable to use during Landlord's
restoration for the period of time that Tenant is unable to use such portion of
the Premises.
12.3. Tenant's Participation. Landlord is entitled to receive and keep
all damages, awards or payments resulting from or paid on account of the Taking.
Accordingly, Tenant waives and assigns to Landlord any interest of Tenant in any
such damages, awards or payments. Tenant may prove in any condemnation
proceedings and may receive any separate award for damages to or condemnation of
Tenant's movable trade fixtures and equipment and for moving expenses; provided
however, that Tenant has no right to receive any award for its interest in this
Lease or for loss of leasehold.
12.4. Exclusive Taking Remedy. The provisions of this Article 12 are
Tenant's sole and exclusive rights and remedies in the event of a Taking. To the
extent permitted by the Laws, Tenant waives the benefits of any Law that
provides Tenant any abatement or termination rights or any right to receive any
payment or award (by virtue of a Taking), provided that Tenant does not waive
the right to receive any award to which Tenant is entitled pursuant to Section
12.3 of this Lease.
ARTICLE 13.
TRANSFERS
13.1. Restriction on Transfers. Tenant will not cause or suffer a
Transfer without obtaining Landlord's prior written consent. Landlord may grant
or withhold consent in Landlord's sole and absolute discretion. Landlord may
also, at Landlord's option by notifying Tenant, recapture" any portion of the
Premises that would be affected by such Transfer. Tenant's request for consent
to a Transfer must describe in detail the parties, terms, portion of the
Premises, and other circumstances involved in the proposed Transfer. Landlord
will notify Tenant of Landlord's election to consent, withhold consent and/or
recapture within 30 days of Landlord's receipt of such a written request for
consent to the Transfer from Tenant. Tenant will provide Landlord with any
additional information Landlord reasonably requests regarding the proposed
Transfer or the proposed Transferee. If Landlord consents to the Transfer,
Landlord may impose on Tenant or the transferee such conditions as Landlord, in
its sole and absolute discretion, deems appropriate. No Transfer releases Tenant
from any liability of obligation under this Lease and Tenant remains liable to
Landlord after such a Transfer as a principal and not as a surety_ If Landlord
consents to any transfer, Tenant will pay to Landlord, as Additional Rent, 50%
of any amount Tenant receives on account of the Transfer in excess of the
amounts this Lease otherwise requires Tenant to pay. In no event may Tenant
cause or permit a Transfer to another tenant of the Building. Any attempted
Transfer in violation of this Lease is null and void and constitutes an Event of
Default under this Lease.
13.2. Costs. Tenant will pay to Landlord, as Additional Rent, all costs
and expenses Landlord incurs in connection with any Transfer, including, without
limitation, reasonable attorneys' fees and costs, regardless whether Landlord
consents to the Transfer.
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ARTICLE 14.
DEFAULTS; REMEDIES
14.1. Events of Default. The occurrence of any of the following
constitutes an "Event of Default" by Tenant under this lease_ Landlord and
Tenant agree that the notices required by this Section 14.1 are intended to
satisfy any and all notice requirements imposed by the Laws and are not in
addition to any such requirements.
14.1.1. Failure to Pay Rent. Tenant fails to pay Basic Rent,
any monthly installment of Tenant's Share of Excess Expenses or any other
Additional Rent amount as and when due and such failure continues for five days
after Landlord notifies Tenant_
14.1.2. Failure to Perform. Tenant breaches or fails to
perform any of Tenant's nonmonetary obligations under this Lease and the breach
or failure continues for a period of 30 days after Landlord notifies Tenant of
Tenant's breach or failure; provided that if Tenant cannot cure its breach or
failure within a 30 day period, Tenant's breach or failure is not an Event of
Default if Tenant commences to cure its breach or failure within the 30 day
period and thereafter diligently pursues the cure and effects the cure within a
period of time that does not exceed an additional 15 days after the expiration
of the initial 30 day period. Notwithstanding any contrary language contained in
this Section 14.1,2. Tenant is not entitled to any notice or cure period before
an uncurable breach or failure of this Lease becomes an Event of Default.
14.1.3. Misrepresentation. The existence of any material
misrepresentation or omission in any financial statements, correspondence or
other information provided to Landlord by or on behalf of Tenant or any
Guarantor in connection with (a) Tenant's negotiation or execution of this
Lease; (b) Landlord's evaluation of Tenant as a prospective tenant at the
Property; (c) any proposed or attempted Transfer; or (d) any consent or approval
Tenant requests under this Lease.
14.1.4. Guaranty Default. Guarantor's default (beyond any
applicable notice and grace periods) under any guaranty now or after the
Effective Date securing all or any part of Tenant's obligations under this
Lease.
14.1.5. Other Defaults. (a) Tenant makes a general assignment
or general arrangement for the benefit of creditors; (b) a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed by
Tenant; (c) a petition for adjudication of bankruptcy or for reorganization or
rearrangement is filed against Tenant and is not dismissed within 30 days; (d) a
trustee or receiver is appointed to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease
and possession is not restored to Tenant within 30 days; or (e) substantially
all of Tenant's assets, substantially all of Tenant's assets located at the
Premises, or Tenant's interest in this Lease is subjected to attachment,
execution or other judicial seizure not discharged within 30 days. If a court of
competent jurisdiction determines that any act described in this Section does
not constitute an Event of Default, and the court appoints a trustee to take
possession of the Premises (or if Tenant remains a debtor in possession of the
Premises) and such trustee or Tenant Transfers Tenant's interest hereunder, then
Landlord is entitled to receive, as Additional Rent, the amount by which the
Rent
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(or any other consideration) paid in Connection with the Transfer exceeds the
Rent otherwise payable by Tenant under this Lease.
14.2. Remedies. Upon the occurrence of any Event of Default, Landlord
may at any time and from time to time, and without preventing Landlord from
exercising any other right or remedy, exercise any one or more of the following
remedies:
14.2.1. Termination of Tenant's Possession/Re-entry and
Reletting Right. Terminate Tenant's right to possess the Premises by any lawful
means with or without terminating this Lease, in which event Tenant will
immediately surrender possession of the Premises to Landlord. In such event,
this Lease continues in full force and effect (except for Tenant's right to
possess the Premises) and Tenant continues to be obligated for and must pay all
Rent as and when due under this Lease. Unless Landlord specifically states that
it is terminating this Lease, Landlord's termination of Tenant's right to
possess the Premises is not to be construed as an election by Landlord to
terminate this Lease or Tenant's obligations and liabilities under this Lease.
If Landlord terminates Tenant's right to possess the Premises, Landlord is not
obligated to, but may re-enter the Premises and remove all persons and property
from the Premises. Landlord may store any property Landlord removes from the
Premises in a public warehouse or elsewhere at the cost and for the account of
Tenant. Upon such re-entry, Landlord is not obligated to, but may relet all or
any part of the Premises to a third party or parties for Tenant's account.
Tenant is immediately liable to Landlord for all Re-entry Costs and must pay
Landlord the same within five days after Landlord's notice to Tenant. Landlord
may relet the Premises for a period shorter or longer than the remaining Term.
If Landlord relets all or any part of the Premises, Tenant will Continue to pay
Rent when due under this Lease and Landlord will refund to Tenant the Net Rent
Landlord actually receives from the reletting up to a maximum amount equal to
the Rent Tenant paid that came due after Landlord's reletting. If the Net Rent
Landlord actually receives from reletting exceeds such Rent, Landlord will apply
the excess sum to future Rent due under this Lease. Landlord may retain any
surplus Net Rent remaining at the expiration o(the Term.
14.2.2. Termination of Lease. Terminate this lease effective
on the date Landlord specifies in Landlord's notice to Tenant. Upon termination,
Tenant will immediately surrender possession of the Premises to Landlord If
Landlord terminates this Lease, Landlord may recover from Tenant and Tenant will
pay to landlord on demand all damages Landlord incurs by reason of Tenant's
default, including, without limitation, (a) all Rent due and payable under this
Lease as of the effective date of the termination; (b) any amount necessary to
compensate Landlord for any detriment proximately caused Landlord by Tenant's
failure to perform its obligations under this Lease or which in the ordinary
course would likely result from Tenant's failure to perform, including, but not
limited to, any Re-entry Costs; (c) an amount equal to the difference between
the present worth, as of the effective date of the termination, of the Basic
Rent for the balance of the Term remaining after the effective date of the
termination (assuming no termination) and the present worth, as of the effective
date of the termination, of a fair market basic rent for the Premises for the
same period (as Landlord reasonably determines the fair market basic rent); and
(d) Tenant's Share of Excess Expenses to the extent Landlord is not otherwise
reimbursed for such Excess Expenses. For purposes of this Section, Landlord will
compute present worth by utilizing a discount rate of 8% per annum. Nothing in
this Section limits or prejudices Landlord's right to prove and obtain damages
in an amount equal to the maximum amount
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allowed by the Laws, regardless whether such damages are greater than the
amounts set forth in this Section.
14.2.3. Present Worth of Rent. Recover from Tenant, and Tenant
will pay to Landlord on demand, an amount equal to the then present worth, as of
the effective date of termination, of the aggregate of the Rent and any other
charges payable by Tenant under this Lease for the unexpired portion of the Term
Landlord will employ a discount rate of 8% per annum to compute present worth.
14.2.4. Other Remedies. Exercise any other right or remedy
available to Landlord under this Lease, or otherwise at law or in equity.
14.3. Costs. Tenant will reimburse and compensate Landlord on demand
and as Additional Rent for any actual loss Landlord incurs in connection with,
resulting from or related to any breach or default of Tenant under this Lease,
regardless whether the breach or default constitutes an Event of Default, and
regardless whether suit is commenced or judgment is entered. Such loss includes
all reasonable legal fees, costs and expenses (including paralegal fees and
other professional fees and expenses) Landlord incurs investigating,
negotiating, settling or enforcing any of Landlord's rights or remedies or
otherwise protecting Landlord's interests under this Lease. Tenant will also
indemnify, defend (with counsel reasonably acceptable to Landlord), protect and
hold harmless the Landlord Parties from and against all Claims Landlord or any
of the other Landlord Parties incurs if Landlord or any of the other Landlord
Parties becomes or is made a party to any claim or action (a) instituted by
Tenant or by or against any person holding any interest in the Premises by,
under or through Tenant; (b) for foreclosure of any lien for labor or material
furnished to or for Tenant or such other person; or (c) otherwise arising out of
or resulting from any act or omission of Tenant or such other person. In
addition to the foregoing, Landlord is entitled to reimbursement of all of
Landlord's fees, expenses and damages, including, but not limited to, reasonable
attorneys' fees and paralegal and other professional fees and expenses, Landlord
incurs In connection with protecting its interests in any bankruptcy or
insolvency proceeding involving Tenant, including, without limitation, any
proceeding under any chapter of the Bankruptcy Code; by exercising and
advocating rights under Section 365 of the Bankruptcy Code; by proposing a plan
of reorganization and objecting to competing plans; and by filing motions for
relief from stay. Such fees and expenses are payable on demand, or, in any
event, upon assumption or rejection of this Lease in bankruptcy.
14.4. Waiver and Release by Tenant. Tenant waives and releases all
Claims Tenant may have resulting from Landlord's re-entry and taking possession
of the Premises by any lawful means and removing and storing Tenant's property
as permitted under this Lease, regardless whether this Lease is terminated and,
to the fullest extent allowable under the Laws, Tenant releases and will
indemnity, defend (with counsel reasonably acceptable to Landlord), protect and
hold harmless the Landlord Parties from and against any and all Claims
occasioned thereby. No such reentry is to be considered or construed as a
forcible entry by Landlord.
14.5. Landlord's Default. If Landlord defaults in the performance of
any of its obligations under this Lease, Tenant will notify Landlord of the
default and landlord will have 30 days after receiving such notice to cure the
default. If Landlord is not reasonably able to cure the default within a 30 day
period, Landlord will have an additional reasonable period of time to
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cure the default as long as Landlord commences the cure within the 30 day period
and thereafter diligently pursues the cure. If Landlord fails to cure the
default within the cure period stated above, Tenant may provide a second notice
of the default to Landlord (which notice must specifically state that it is a
second notice) and if Landlord fails to cure such default within fifteen (15)
days after receiving such second notice, then Tenant may exercise or pursue such
rights or remedies as are available to Tenant under the law; provided, however,
that in no event is Landlord liable to Tenant or any other person for
consequential, special or punitive damages, including, without limitation, lost
profits.
14.6. No Waiver. No failure by Landlord to insist upon the performance
of any provision of this Lease or to exercise any right or remedy upon a breach
or default thereof, and no acceptance by Landlord of full or partial Rent from
Tenant or any third party during the continuance of any such breach or default,
constitutes Landlord's waiver of any Such breach or of any such default by
Tenant in Tenant's performance of its obligations under this Lease. No waiver of
any default by Tenant in the performance of its obligations under this Lease may
be implied from any omission by Landlord to take any action on account of such
default. None of the terms of this Lease to be kept, Observed or performed by
Tenant, and no breach of default thereof, may be waived, altered or modified
except by a written instrument executed by Landlord. One or more waivers by
Landlord is not to be construed as a waiver of a subsequent breach or default of
the same covenant, term or condition. No statement on a payment check from
Tenant or in a letter accompanying a payment check is binding on Landlord.
Landlord may, with or without notice to Tenant, negotiate such check without
being bound to the conditions of any such statement. If Tenant pays any amount
other than the actual amount due Landlord, receipt or collection of such partial
payment does not constitute an accord and satisfaction Landlord may retain any
such partial payment, whether restrictively endorsed or otherwise, without
prejudice to Landlord's right to Collect the balance properly due. If all or any
portion of any payment is dishonored for any reason, payment will not be deemed
made until the entire amount due is actually collected by Landlord. The
foregoing provisions box agent or other person on Landlord's behalf.
ARTICLE 15.
CREDITORS; ESTOPPEL CERTIFICATES
15.1. Subordination. This Lease, all rights of Tenant in this Lease,
and all interest or estate of Tenant in the Property, is subject and subordinate
to the lien of any Mortgage. Tenant will, on Landlord's demand, execute and
deliver to Landlord or to any other person Landlord designates any instruments,
releases or other documents reasonably required to Confirm the self-effectuating
subordination of this Lease as provided in this Section to the lien of any
Mortgage. The subordination to any future Mortgage provided for in this Section
is expressly conditioned upon the mortgagee's agreement that as long as Tenant
is not in default in the payment of Rent or the performance and observance of
any Covenant, condition, provision, term or agreement to be performed and
observed by Tenant under this Lease, beyond any applicable grace or cure period
this Lease provides Tenant, the holder of the Mortgage will not disturb Tenant's
rights under this Lease. The lien of any existing or future Mortgage will not
cover Tenant's moveable trade fixtures or other personal property of Tenant
located in or on the Premises.
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15.2. Attornment. If any ground lessor, the holder of any Mortgage at a
foreclosure sale or any other transferee acquires Landlord's interest in this
Lease, the Premises or the Property, Tenant will adorn to the transferee of or
successor to Landlord's interest in this lease, the Premises or the Property (as
the case may be) and recognize such transferee or successor as landlord under
this lease. Tenant waives the protection of any statute or rule of law that
gives or purports to give Tenant any right to terminate this lease or surrender
possession of the Premises upon the transfer of Landlord's interest.
15.3. Mortgagee Protection Clause. Tenant will give the holder of any
Mortgage, by registered mail, a copy of any notice of default Tenant serves on
Landlord, provided that Landlord or the holder of the Mortgage previously
notified Tenant (by way of notice of assignment of rents and leases or
otherwise) of the address of such holder. Tenant further agrees that if landlord
fails to cure such default within the time provided for in this Lease, then
Tenant will provide written notice of such failure to such holder and such
holder will have an additional 30 days within which to cure the default. If the
default cannot be cured within the additional 30 day period, then the holder
will have such additional time as may be necessary to effect the cure if, within
the 30 day period, the holder has commenced and is diligently pursuing the cure
(including without limitation commencing foreclosure proceedings if necessary to
effect the cure).
15.4. Estoppel Certificates.
15.4.1. Contents. Upon Landlord's written request, Tenant will
execute, acknowledge and deliver to Landlord a written statement in form
satisfactory to Landlord certifying: (a) that this Lease (and all guaranties, if
any) is unmodified and in full force and effect (or, if there have been any
modifications, that the Lease is in full force and effect, as modified, and
stating the modifications); (b) that this Lease has not been canceled or
terminated; (c) the last date of payment of Rent and the time period covered by
such payment; (d) whether there are then existing any breaches or defaults by
Landlord under this Lease known to Tenant, and, if so, specifying the same; (e)
specifying any existing claims or defenses in favor of Tenant against the
enforcement of this Lease (or of any guaranties); and (f) such other factual
statements as Landlord, any lender, prospective lender, investor or purchaser
may request. Tenant will deliver the statement to Landlord within 10 Business
Days after Landlord's request. Landlord may give any such statement by Tenant to
any lender, prospective lender, investor or purchaser of all or any part of the
Property and any such party may conclusively rely upon such statement as true
and correct.
15.4.2. Failure to Deliver. If Tenant does not timely deliver
the statement referenced in Section 15.4.1 to Landlord, (a) Landlord may execute
and deliver the statement to any third party on behalf of Tenant and (b) such
failure constitutes an Event of Default under this Lease. Further, if Tenant so
fails to timely deliver the statement, Landlord and any lender, prospective
lender, investor or purchaser may conclusively presume and rely that, except as
otherwise represented by Landlord (i) the terms and provisions of this Lease
have not been changed; (ii) this Lease has not been Canceled or terminated;
(iii) not more than one month's Rent has been paid in advance; and (iv) Landlord
is not in default in the performance of any of its obligations under this Lease.
In such event, Tenant is estopped from denying the truth of such facts.
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ARTICLE 16.
TERMINATION OF LEASE
16.1. Surrender of Premises. Tenant will surrender the Premises to
Landlord at (he expiration or earlier termination of this Lease in good order,
condition and repair, reasonable wear and tear, permitted. Alternations and
damage by insured casualty or condemnation" excepted, and will surrender all
keys to the Premises to Property Manager or to Landlord at the place then fixed
for Tenant's payment o( Basic Rent or as Landlord or Property Manager otherwise
direct. Tenant will also inform Landlord of all combinations on locks, safes and
vaults, if any, in the Premises or on the Property. Tenant will at such time
remove all of its property from the Premises and, if Landlord so requests, all
specified Alterations and improvements Tenant placed on the Premises Tenant will
promptly repair any damage to the Premises caused by such removal. Tenant
releases and will indemnify, defend (with counsel reasonably acceptable to
Landlord), protect and hold harmless Landlord from and against any Claim
resulting from Tenant's failure or delay in surrendering the Premises in
accordance with this section, including, without limitation, any Claim made by
any succeeding occupant (rounded on such delay. All property of Tenant( not
removed on or before the last day of the Term is deemed abandoned. Tenant
appoints Landlord as tenants agent to remove, at Tenants sole cost and expense,
all of Tenant's property from the Premises upon termination of (his Lease and to
cause its transportation and storage for Tenant's benefit, all at the sole cost
and risk of Tenant, and Landlord will not be liable for damage, theft,
misappropriation or loss thereof or in any manner in respect hereto.
16.2. Holding Over. If Tenant possesses the Premises after the Term
expires or is otherwise terminated without executing a new lease but with
Landlord's written consent (which consent may be given or withheld by Landlord
in its sole discretion) (such period being hereinafter referred to as (the
"Permitted Holdover Period"), Tenant is deemed to be occupying the Premises
during the Permitted Holdover Period as a tenant from month-to-month, subject to
all provisions, conditions and obligations of this Lease applicable to a
month-to-month tenancy, except that (a) Rent during the Permitted Holdover
Period will equal 125% of the greater of (i) the Rent payable by Tenant in the
last Lease Year of the Term or (ii) the basic rent and additional rent (on a
daily basis) Landlord charges during the Permitted Holdover Period on new leases
in the Property for space similar to the Premises, and (b) either Landlord or
Tenant may terminate the Permitted Holdover Period at any time upon thirty (30)
days prior written notice to the other party. The permitted Holdover Period will
not exceed three months. If Landlord does not give its written consent to such
holding over by Tenant and Tenant nevertheless possesses the Premises after the
Term expires or is otherwise terminated, or if Landlord gives its written
consent as provided above but Tenant remains in possession of the Premises after
the expiration of the Permitted Holdover Period, Tenant is deemed to be
occupying the Premises without claim of right (but subject to all terms and
conditions of this Lease) and, in addition to Tenant's liability for failing to
surrender possession of the Premises as provided in Section 18.1, Tenant will
pay Landlord a charge for each day of occupancy after expiration of the Term (or
after the expiration of the Permitted Holdover Period, if applicable) in an
amount equal to double the greater of Tenant's then-existing Rent or the basic
rent and additional rent (on a daily basis) Landlord charges at the time of the
holdover on new leases in the Property or space similar to the Premises.
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ARTICLE 17.
ADDITIONAL PROVISIONS
17.1. Initial improvements.
17.1.1. Landlord's Improvements. Landlord will provide, at no
cost to Tenant, the Landlord's Improvement(s. Landlord will either stockpile or
install, as applicable, Landlord's Improvements.
17.1.2. Tenant's Improvements. Landlord will cause Opus West
Construction Corporation ("General Contractor') to construct, at Tenant's sole
cost and expense, all tenants Improvements. Tenant's Improvements will be
designed as described in this Section 17.1. Tenant will pay (i) all of General
Contractor(s direct and indirect costs in connection with the design and
construction of Tenant's Improvements, plus (ii) 10% of the sum of all such
direct and indirect costs for General Contractor's overhead and profit. Such
costs of General Contractor may include, without limitation, space planning
costs, construction document preparation costs, design costs, construction
drawing costs, general conditions, construction costs and all costs General
Contractor incurs in connection with obtaining permits for Tenant's
Improvements. Since General Contractor will be charging 10% for overhead and
profit (as stated above), Landlord will not separately charge for overhead or
profit. Upon General Contractor's selection of a subcontractor bid, the
applicable bid amount will be included in the amount set forth in clause (i)
above without any mark-up by Landlord or General Contractor (other than the 10%
overhead and profit charged by General Contractor pursuant to clause (ii)
above), Tenant's Improvements become the property of Landlord and a part of the
Building immediately upon installation,
17.1.3. Improvement Allowance. Landlord will credit an amount
not to exceed the Improvement Allowance, against Tenant's obligation to pay for
the design and installation of Tenant's Improvements. Landlord is not obligated
to pay or incur any amounts that exceed the Improvement Allowance. If the cost
of Tenant's Improvements exceeds the Improvement allowance, Tenant will pay the
excess to Landlord in cash as Additional Rent. Tenant will also pay, as
Additional Rent, all of Landlord's costs (including lost rent) resulting from
Tenant Delay. If Landlord reasonably estimates that the cost of Tenant's
Improvements will exceed the Improvement Allowance, Landlord may require Tenant
to deposit with Landlord, within six (60) days of the date this Lease Is
executed, an amount equal to one-half (1/2) of the amount by which the cost of
tenants Improvements exceeds the Improvement Allowance. The remaining one-half
(1/2) of the amount by which the cost of Tenant's Improvements exceeds the
Improvement Allowance will be paid upon the earlier of occupancy of the Premises
or the Rent Commencement Date.
17.1.4. Project Manager Site Superintendent. Contractor is the
general contractor for all Tenant's Improvements. In connection with installing
Tenant's Improvements, Contractor will utilize a project manager and site
superintendent, the fees of which are payable by Tenant on an hourly basis as a
direct cost of the Tenant's Improvements.
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17.1.5. Space Plan. On or before July 1, 1999, Tenant will
provide Landlord with a space plan for Tenant's Improvements. The space plan
must (a) be compatible with the base building and the mechanical components of
the base building (as reasonably determined by Landlord); (b) be adequate, in
Landlord's reasonable discretion, for Landlord to prepare construction drawings
for Tenant's Improvements; (c) show, in reasonable detail, the design and
appearance of the finishing material Landlord will use in connection with
installing Tenant's Improvements; (d) contain such other detail or description
as may be necessary for Landlord to adequately outline the scope of Tenant's
Improvements; (e) conform to all applicable governing codes and ordinances; and
(f) contain all information necessary for construction cost estimating. All
space plan drawings must be not less than 1/8" scale. Without limiting those
general requirements, the space plan must expressly specify and include (without
limitation) all of the following: (1) wall types and heights and insulation, if
needed; (2) door types and hardware groups; (3) door frame types; (4) ceiling
heights; (5) ceiling materials; (6) floor covering materials and locations; (7)
all wall finishes; (8) any appliances, special systems or equipment to be
furnished as e part of the construction; (9) any mechanical requirements beyond
that provided in the base building; (10) any fire protection requirements beyond
that provided in the base building; (11) any plumbing requirements; (12) all
power and data locations; (13) any power required other than building standard
power distribution; (14) any power requirements for modular furniture; (15) any
emergency power requirement; (16) any lighting requirements beyond that provided
in the base building; (17) millwork elevations and details; (18) specific floor
material selections and designations; and (19) specific wall material selections
and designations. Landlord will provide building standard materials, systems and
capacities i( not otherwise noted. The space plan must also include enlarged
sketch layouts for any non-standard rooms, including reflected ceiling plans,
and must state the approximate usable and rentable square footage of the
Premises. If Tenant fails to provide Landlord with a space plan meeting the
foregoing requirements by the date set forth above in this Section, then such
delay is a Tenant Delay until such space plan is delivered to Landlord.
17.1.6. Construction Drawings and Specifications. After
Landlord receives Tenant's space plan, Landlord will provide Tenant with the
Construction Drawings and Specifications. Tenant will approve or disapprove
(specifically describing any reasons for disapproval) the Construction Drawings
and Specifications in writing within three Business Days after receiving them.
Any failure by Tenant to timely deliver such approval or disapproval is a Tenant
Delay until received. If Tenant disapproves the Construction Drawings and
Specifications, Landlord will provide appropriately revised Construction
Drawings and Specifications to Tenant for approval (or disapproval) within three
Business Days on the same basis as set forth above. If the review and approval
process is not concluded (with Tenant having approved the Construction Drawings
and Specifications) on or before August 1, 1999, then such delay is a Tenant
Delay until Tenant's approval is received. After Tenant's approval, Landlord
will submit the Construction Drawings and Specifications for permits and
construction bids. Tenant will not withhold any approval except for reasonable
cause and will not act in an arbitrary or capricious manner in connection with
the review, revision, approval or disapproval of the Construction Drawings and
Specifications. Tenant will not specify long lead time items that would delay
Substantial Completion of Tenant's Improvements.
17.1.7. Changes to Construction Drawings and Specifications.
Tenant will immediately notify Landlord if Tenant desires to make any changes to
Tenant's Improvements
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after Tenant has approved the Construction Drawings and Specifications. If
Landlord approves the revisions, Landlord will notify Tenant of the anticipated
additional cost and delay in completing Tenant's Improvements which would be
caused by such revisions. Tenant will approve or disapprove the increased cost
and delay within three Business Days after such notice. If Tenant approves,
Landlord will prepare, and Landlord and Tenant will execute, a Change owner
describing the revisions and the anticipated additional cost and delay. Any
delay relating to a request for revisions or a Change Order is a Tenant Delay.
If the Change Order causes the cost of Tenant's Improvements to exceed the
Improvement Allowance (or if the cost of Tenant's improvements already exceeds
the Improvement Allowance), Landlord may require Tenant to prepay the added
costs of the Change Order.
17.1.8. Tenant's Representative. Tenant designates Jim
Valenzuela as the representative of Tenant having authority to approve the
Construction Drawings and Specifications, request or approve any Change Order,
and to bind Tenant by signing such documents and all other notices and
directions to Landlord regarding Tenant's Improvements.
17.1.9. Substantial Completion. Landlord will use commercially
reasonable efforts to achieve Substantial Completion of Tenant's Improvements on
or before the Delivery Date, subject to Tenant Delay and delays caused by Force
Majeure. A Tenant Delay automatically extends the Delivery Date for Tenant's
Improvements and the Commencement Date but does not extend the Rent Commencement
Date of this Lease.
17.1.10. Punch List. Within 20 days after Substantial
Completion, Landlord and Tenant will inspect the Premises and develop a Punch
List. Landlord will complete (or repair, as the case may be the items listed on
the Punch List with commercially reasonable diligence and speed, subject to
Tenant Delay and Force Majeure. If Tenant refuses to inspect the Premises with
Landlord within the 20- day period, Tenant is deemed to have accepted the
Premises as delivered, subject to Section 17.1.11.
17.1.11. Construction Warranty. Landlord warrants Tenant's
Improvements against defective workmanship and materials for a period of one
year after Substantial Completion. Landlord's sole obligation under this
warranty is to repair or replace, as necessary, any defective item caused by
poor workmanship or materials if Tenant notices Landlord of the defective item
within such one year period. Landlord has no obligation to repair or replace any
item after such one year period expires, THE WARRANTY TERMS PROVIDE THE SOLE AND
EXCLUSIVE RIGHT AND REMEDY OF TENANT FOR INCOMPLETE OR DEFECTIVE WORKMANSHIP OR
MATERIALS OR OTHER DEFECTS IN THE PREMISES IN LIEU OF ANY CONTRACT, WARRANTY OR
OTHER RIGHTS, WHETHER EXPRESS OR IMPLIED, THAT MIGHT OTHERWISE BE AVAILABLE
UNDER APPLICABLE LAW. ALL OTHER WARRANTIES ARE EXPRESSLY DISCLAIMED.
17.2. Security Deposit: Application to Basic Rent. Concurrently with
Tenant's execution of this Lease, Tenant will deposit with Landlord the Security
Deposit. If Tenant defaults with respect to any of the terms, provisions,
covenants and conditions of this Lease, Landlord may use, apply or retain the
whole or any part of the Security Deposit for the payment of any Rent in default
or any other sum which Landlord expends by reason of Tenant's default, Tenant is
not entitled to any interest on the Security Deposit. It is expressly agreed
that the
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Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in the case of Tenant's default. Upon application of all or any part of
the Security Deposit as provided above, Tenant must upon demand restore the
Security Deposit to its original amount. Any application of the Security Deposit
by Landlord shall not be deemed to have cured Tenant's default. If Tenant is not
in default under this Lease on the first day of the sixth, twelfth, eighteenth,
and sixtieth full calendar months of the Term, then on each of such dates, a
portion of the Security Deposit shall be applied to pay the Basic Rent due for
such month.
17.3. Cap on Controllable Operating Expenses. Landlord agrees that,
during the initial five- year Term of this Lease, in calculating Tenant's Share
of Excess Expenses pursuant to Article 3, that portion of Operating Expenses
which are controllable by Landlord (specifically excluding, without limitation,
insurance premiums, taxes [including Property Taxes and costs of utilities) will
not increase more than six percent (6%) per year, compounded annually, over the
amount of such controllable Operating Expenses for the calendar year in which
the Rent Commencement Date occurs.
17.4. First Right of Offer Subject to the terms and conditions set
forth in this Section, Landlord hereby grants to Tenant the first right ("First
Right") to be offered by Landlord the opportunity to lease the approximately
1,400 rentable square feet of space located on the second floor of the Building
and designated on EXHIBIT "C" attached hereto and incorporated herein by this
reference If, at any time while this First Right is in effect, Landlord should
intend to lease such space to a third party lessee, then Landlord shall first
offer to lease such space to Tenant. If Landlord offers to Lease such space to
Tenant pursuant to this Section and Tenant desires to lease such space, Tenant
will, within five (5) Business Days of its receipt of Landlord's notice, prepare
and provide to Landlord a letter of intent describing the terms on which Tenant
desires to lease such space from Landlord, and Tenant will, within ten (10)
Business Days of its receipt of Landlord's notice, prepare and provide to
Landlord a space plan for such space. If Tenant notices Landlord in writing
within such five-day period that Tenant does not desire to lease such space, or
if Tenant does not provide Landlord with a letter of intent within such five-day
period, then, in either of the above instances, Landlord's obligations under
this Section will automatically terminate and Landlord will thereafter be
entitled to lease such space. If Tenant provides Landlord with a letter of
intent within such five-day period, the parties shall thereafter negotiate for
Tenant's lease of the space from Landlord; provided, however, that if Landlord
and Tenant are unable to mutually agree upon the terms of Tenant's lease of such
space and to execute a written amendment to this Lease within the ten-day period
referenced above (which amendment shall contain the terms mutually agreed to by
the parties for Tenants lease of such space), then Landlord's obligations under
this Section shall automatically terminate at the end of such ten-day period.
Notwithstanding anything to the contrary contained in this Section, if Tenant's
First Right as set forth in this Section is still in effect at the end of the
initial five-year Term, such First Right will automatically terminate on the
last day thereof. The purpose of this Section is to provide notice to Tenant so
that Tenant may be in a position to offer to lease such space on a competitive
basis with others, and, notwithstanding anything to the contrary contained in
this Section, nothing in this Section shall be deemed to be an option or right
of first refusal.
17.5. Parking. For so long as this Lease remains in effect, Landlord
licenses 54 Unreserved Spaces to Tenant. Tenant will pay Landlord $45.00 per
month for each of such Unreserved Spaces, and Landlord will not change the fee
for such Unreserved Spaces during the
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initial five-year Term. Thereafter, Tenant will pay Landlord's then-current fee
for each such space Tenant will also pay Landlord's then- current fee for any
additional spaces licensed hereunder. All parking fees will be paid as
Additional Rent at the same time, place and manner as Basic Rent. landlord may
change its parking fees at any time o" not less than thirty (30) days prior
notice to Tenant Landlord reserves the right to convert parking fees to Basic
Rent, in which event Landlord and Tenant will execute an amendment to this Lease
evidencing same. Parking at the Property by Tenant is subject to the other
provisions of this Lease, including without limitation, the Building Rules. In
no event will Landlord be liable for any loss, damage or theft of, to or from
any vehicle at the Property, and Tenant will indemnify and defend the Landlord
Parties against any claim therefor.
17.6. Landlord's Indemnification of Tenant. Subject to Tenant's waivers
and agreements in Article 10 and elsewhere in this Lease, landlord will, to the
fullest extent allowable under the laws, indemnify, protect, defend (with
counsel reasonably acceptable to Tenant) and hold harmless Tenant from and
against any claims and actions brought against Tenant by third parties which (a)
arise out of any bodily injury, death or property damage occurring to such third
parties at the Property (other than within the Premises), (b) are not caused in
whole or in part by Tenant, and (c) are caused in whole or in part by the gross
negligence or willful misconduct of Landlord.
ARTICLE 18.
MISCELLANEOUS PROVISIONS
18.1. Notices. All Notices must be in writing and must be sent by
personal delivery, United States registered or certified mail (postage prepaid)
or by an independent overnight courier service, addressed to the addresses
specified in the Basic Terms or at such other place as either party may
designate to the other party by written notice given in accordance with this
Section. Notices given by mail are deemed delivered three Business Days after
the party sending the Notice deposits the Notice with the United States Post
Office. Notices delivered by courier are deemed delivered on the next Business
Day after the day the party delivering the Notice timely deposits the Notice
with the courier for overnight (next day) delivery.
18.2. Transfer of landlord's interest. If landlord Transfers (other
than for collateral security purposes) the ownership of Landlord's interest in
the Premises, the transferor is automatically relieved of all obligations on the
part of Landlord accruing under this Lease from and after the date of the
Transfer, provided that the transferor will deliver to the transferee any funds
the" transferor holds in which Tenant has an interest (such as a security
deposit). landlord's covenants and obligations in this Lease bind each
successive Landlord only during and with respect to its respective period of
ownership. However, notwithstanding any such Transfer, the transferor remains
entitled to the benefits of Tenant's releases and indemnity and insurance
obligations (and similar obligations) under this Lease with respect to matters
arising or accruing during the transferor's period of ownership.
18.3. Successors. The covenants and agreements contained in this Lease
bind and inure to the benefit of Landlord, its successors and assigns, bind
Tenant and its successors and assigns and inure to the benefit of Tenant and its
permitted successors and assigns.
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18.4. Captions and interpretation. The captions of the articles and
sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular includes the plural and the plural includes
the singular.
18.5. Relationship of Parties. This Lease does not create the
relationship of principal and agent, or of partnership, joint venture, or of any
association or relationship between Landlord and Tenant other than that of
landlord and tenant.
18.6. Entire Agreement; Amendment. The Basic Terms and all exhibits,
addenda and schedules attached to this Lease are incorporated into this Lease as
though fully set forth in this Lease and together with this Lease contain the
entire agreement between the parties with respect to the improvement and leasing
of the Premises. All preliminary and contemporaneous negotiations, including,
without limitation, any letters of intent or other proposals and any drafts and
related correspondence, a% merged into and superseded by this Lease. No
subsequent alteration, amendment, change or addition to this Lease (other than
to the Building Rules) is binding on Landlord or Tenant unless it is in writing
and signed by the party to be charged with performance.
18.7. Severability. If any covenant, condition, provision, term or
agreement of this Lease is, to any extent, held invalid or unenforceable, the
remaining portion thereof and all other covenants, conditions, provisions, terms
and agreements of this Lease will not be affected by such holding, and will
remain valid and in force to the fullest extent permitted by law.
18.8. Landlord's Limited Liability. Tenant will to look solely to
Landlord's interest in the Property for recovering any judgment or collecting
any obligation from Landlord or any other Landlord Party. Tenant agrees that
neither Landlord nor any other Landlord Party will be personally liable for any
judgment or deficiency decree.
18.9. Survival. All of Tenant's obligations under this Lease (together
with interest on payment oblations at the Maximum Rate) accruing prior to
aspiration or other termination of this Lease survive the expiration or other
termination of this Lease. Further, all of Tenant's releases and
indemnification, defense and hold harmless obligations under this Lease survive
the expiration or other termination of this Lease, without limitation.
18.10. Attorneys' Fees. If either Landlord or Tenant commences any
litigation or judicial action to determine or enforce any of the provisions of
this Lease, the prevailing party in any such litigation or judicial action is
entitled to recover all of its costs and expenses (including, but not limited
to, reasonable attorneys' fees, costs and expenditures) from the nonprevailing
party.
18.11. Brokers, Landlord and Tenant each represents and warrants to the
other that it has not had any dealings with any realtors, brokers, enders or
agents in connection with this Lease (except as may be specifically set forth in
the Basic Terms) and each releases and agrees to indemnify, defend and hold the
other harmless from and against any Claims based on the failure or alleged
failure to pay any realtors, brokers, finders or agents (other than any brokers
specified in the Basic Terms) and from any cost, expense or liability for any
compensation, commission or
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<PAGE> 34
changes claimed by any realtors, brokers, finders or agents (other than any
brokers specified in the Basic Terms) claiming by, through or on behalf of it
with respect to this Lease or (he negotiation of this Lease. Landlord will pay
any brokers named in the Basic Terms in accordance with the applicable listing
agreement for the Property.
18.12. Governing Law. This Lease is governed by, and must be
interpreted under, the internal laws of the State. Any suit arising from or
relating to this Lease must be brought in the County; Landlord and Tenant waive
the right to bring suit elsewhere.
18.13. Time is of the Essence. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance is
a factor.
18.14. Joint and Several Liability. All parties signing (his Lease as
Tenant and any Guarantor(s) of this Lease are jointly and severally liable for
performing all of Tenant's obligations under this Lease.
18.15. Tenant's Waiver, Any claim Tenant may have against Landlord for
default in performance of any of Landlord's obligations under this Lease is
deemed waived unless Tenant notifies Landlord of the default within 90 days
after Tenant knew or should have known of the default.
18.16. Tenant's Organization Documents; Authority. If Tenant is an
entity, Tenant will, within 10 days after Landlord's written request, deliver to
Landlord: (a) Certificate(s) of Good Standing from the state of formation of
Tenant and, if different, the State, confirming that Tenant is in good standing
under the laws governing formation and qualification to transact business in
such state(s); and (b) a copy of Tenant's organizational documents and any
amendments or modifications thereof, certified as true and correct by an
appropriate official of Tenant. Tenant and each individual signing this Lease on
behalf of Tenant represents and warrants that they are duly authorized to sign
on behalf of and to bind Tenant and that this Lease is a duly authored, binding
and enforceable obligation of Tenant.
18.17. Provisions are Covenants and Conditions. All provisions of this
Lease, whether covenants or conditions, are deemed both covenants and
conditions.
18.18. Force Majeure. If Landlord is delayed or prevented from
performing any obligation under this Lease (excluding, however, the payment of
money) by reason of Force Majeure, Landlord's performance of such obligation is
excused for a period equal to (a) the duration of the Force Majeure event, or
(b) if longer, the period of delay actually caused by the Force Majeure event.
18.19. Management. Property Manager is authorized to manage the
Property. Landlord appointed Property Manager to act as Landlord's agent for
leasing, managing and operating the Property. The Property Manager then serving
is authorized to accept service of process and to receive and give notices and
demands on Landlord's behalf.
18.20. Financial Statements. Tenant will, prior to Tenant's execution
of this Lease and within 10 days after Landlord's request( at any time during
the Term, deliver to Landlord complete, accurate and up-to-date financial
statements with respect to Tenant and any
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<PAGE> 35
Guarantor(s) or other parties obligated upon this Lease, which financial
statements must be (a) prepared according to generally accepted accounting
principles consistently applied, and (b) certified by an independent certified
public accountant or by Tenant's (or Guarantor's, as the case may be) chief
financial officer that the same are a true, complete and correct statement of
Tenant's (or Guarantors) financial condition as of the date of such financial
statements.
18.21. Quiet Enjoyment. Landlord covenants and agrees that Tenant will
quietly hold, occupy and enjoy the Premises during the Term, subject to the
terms and conditions of this Lease free from molestation or hindrance by
Landlord or any person claiming by, through or under Landlord, if Tenant pays
all Rent as and when due and keeps, observes and fully satisfies all other
covenants, obligations and agreements of Tenant under this Lease.
18.22. No Recording. Tenant will not record this Lease or a Memorandum
of this Lease without Landlord's prior written consent, which consent Landlord
may grant or withhold in its sole and absolute discretion.
18.23. Nondisclosure of Lease Terms. The terms and conditions of this
Lease constitute proprietary information of Landlord that Tenant will keep
confidential. Tenant's disclosure of the terms and conditions of this Lease
could adversely affect Landlord's ability to negotiate other leases and impair
Landlord's relationship with other tenants. Accordingly, Tenant will not,
without Landlord's consent, which consent Landlord may grant or withhold in its
sole and absolute discretion, directly or indirectly disclose the terms and
conditions of this Lease to any other tenant or prospective tenant of the
Building or to any other person or entity other than Tenant's employees and
agents who have a legitimate need to know such information (and who will also
keep the same in confidence).
18.24. Construction of Lease and Terms. The terms and provisions of
this Lease represent the results of negotiations between Landlord and Tenant,
each of which and sophisticated parties and each of which has been represented
or been given the opportunity to be represented by counsel of its own choosing,
and neither of which has acted under any duress or compulsion, whether legal,
economic or otherwise. Consequently, the terms and provisions of this lease must
be interpreted and construed in accordance with their usual and customary
meanings, and Landlord and Tenant each waive the application of any rule of law
that ambiguous or conflicting terms or provisions contained in this Lease are to
be interpreted or construed against the party who prepared the executed Lease or
any earlier draft of the same, Landlord's submission of this instrument to
Tenant for examination or signature by Tenant does not constitute a reservation
of or an option to lease and is not effective as a lease or otherwise until
Landlord and Tenant both execute and deliver this Lease. The parties agree that,
regardless of which party provided the initial form of this Lease, drafted or
modified one or more provisions of this Lease, or compiled, printed or copied
this Lease, this Lease is to be construed solely as an offer from Tenant to
lease the Premises, executed by Tenant and provided to Landlord for acceptance
on the terms set forth in this Lease, which acceptance and the existence of a
binding agreement between Tenant and Landlord may then be evidenced only by
Landlord's execution of this Lease.
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<PAGE> 36
Landlord and Tenant caused this Lease to be executed and delivered by
their duly authorized representatives to be effective as of the Effective Date.
LANDLORD:
Date executed by Landlord: OPUS WEST CORPORATION, a Minnesota
corporation
_____________________________
By: ________________________________
Name: ______________________________
Title: _____________________________
TENANT:
SALESLOGIX CORPORATION, a Delaware
corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
34
<PAGE> 37
EXHIBIT "A"
DEFINITIONS
"ADDITIONAL RENT" means any charge, fee or expense (other than Basic Rent)
payable by Tenant under this Lease, however denoted.
"ALTERATION" means any change, alteration, addition or improvement to the
Premises or Property.
"BANKRUPTCY CODE" means the United States Bankruptcy Code as the same now exists
and as the same may be amended, including any and all rules and regulations
issued pursuant to or in connection with the United States Bankruptcy Code now
in force or in effect after the Effective Date.
"BASIC RENT" means the basic rent payable by Tenant under this Lease, initially
in the amounts specified in the Basic Terms.
"BASIC TERMS" means the terms of this Lease identified as the "Basic Terms"
before Article 1 of the Lease.
"BUILDING" means that certain office building to be constructed on the Land.
"BUILDING RULES" means those certain rules attached to this Lease as EXHIBIT
"E", as landlord may amend the same from time to time.
"BUSINESS DAYS" means any day other than Saturday, Sunday or a legal holiday in
the State.
"BUSINESS HOURS" means Monday through Friday from 7:00 a.m. to 6:00 p.m. and on
Saturdays from 8:00 a.m. to 1:00 p.m., excluding holidays.
"CERTIFICATE OF OCCUPANCY" means a certificate of occupancy or similar document
or permit (whether conditional, unconditional, temporary or permanent) which
must be obtained from the appropriate governmental authority as a condition to
the lawful occupancy by a tenant of space in the Building.
"CITY" means Scottsdale, Arizona
"CHANGE ORDER" means the documentation for a change to Tenant's Improvements
which is initiated after the Construction Drawings and Specifications have been
approved as provided in Section 17.1.6.
"CLAIMS" means all claims, actions, demands, liabilities, damages, costs,
penalties, forfeitures, losses or expenses, including, without limitation,
reasonable attorneys' fees and the costs and expenses of enforcing any
indemnification, defense or hold harmless obligation under the Lease.
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<PAGE> 38
"COMMENCEMENT DATE" means the earlier of (a) five days after the date of
Substantial Completion of Tenant's Improvements; or (b) the date Tenant
commences business operations in the Premises.
"COMMENCEMENT DATE MEMORANDUM" means the form of memorandum attached to the
Lease as EXHIBIT "D".
"COMMON AREA" means the parking area, driveways, lobby areas, and other areas of
the Property Landlord may designate from time to time as common area available
to all tenants.
"CONDEMNING AUTHORITY" means any person or entity with a statutory or other
power of eminent domain.
"CONSTRUCTION DRAWINGS AND SPECIFICATIONS" means the construction drawings and
specifications prepared based upon the space plan for the construction of
Tenant's Improvements, as provided in Section 17.1.
"CONTRACTOR" means Opus West Construction Corporation, a Minnesota corporation.
"COUNTY" means Maricopa County, Arizona.
"DELIVERY DATE" means the target date for Landlord's delivery of the Premises to
Tenant, which initially is the delivery date specified in the Basic Terms.
"EFFECTIVE DATE" means the date Landlord executes this Lease, as indicated on
the signature page.
"EVENT OF DEFAULT" means the occurrence of any of the events specified in
Section 14.1 of the Lease, or the occurrence of any other event which this Lease
expressly labels as an "Event of Default".
"EXCESS EXPENSES" means the total amount of Property Taxes and Operating
Expenses due and payable with respect to the Property during any calendar year
of the Term minus the product obtained by multiplying the expense stop specified
in the Basic Terms by the number of rentable square feet in the Building.
"FLOOR PLAN" means the floor plan attached to the Lease as EXHIBIT "C".
"FORCE MAJEURE" means acts of God; strikes; lockouts; labor troubles; inability
to procure materials; inclement weather; governmental laws or regulations;
casualty; orders or directives of any legislative, administrative, or judicial
body or any governmental department; inability to obtain any governmental
licenses, permissions or authorities (despite commercially reasonable pursuit of
such licenses, permissions or authorities); and other similar or dissimilar
causes beyond Landlord's reasonable control.
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<PAGE> 39
"GUARANTOR" means any person or entity at any time providing a guaranty of all
or any part of Tenant's obligations under this Lease.
"HAZARDOUS MATERIALS" means any of the following, in any amount: (a) any
petroleum or petroleum product, asbestos in any form, urea formaldehyde and
polychlorinated biphenyls; (b) any radioactive substance; (c) any toxic,
infectious, reactive, corrosive, ignitable or flammable chemical or chemical
compound; and (d) any chemicals, materials or substances, whether solid, liquid
or gas, defined as or included in the definitions of "hazardous substances,"
"hazardous wastes," "Hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," "solid
waste," or words of similar import in any federal, state or local statute, law,
ordinance or regulation now existing or existing on or after the Effective Date
as the same may be interpreted by government offices and agencies.
"HAZARDOUS MATERIALS LAWS" means any federal, state or local statutes, laws,
ordinances or regulations now existing or existing after the Effective Date that
control, classify, regulate, list or define Hazardous Materials.
"IMPROVEMENT ALLOWANCE" means the amount specified in the Basic Terms to be
applied to the costs of designing and installing Tenant's Improvements.
"IMPROVEMENTS" means, collectively, Landlord's Improvements and Tenant's
Improvements.
"LAND" means that certain real property legally described on the attached
EXHIBIT "B".
"LANDLORD" means only the owner or owners of the Property at the time in
question.
"LANDLORD PARTIES" means Landlord and Property Manager and their respective
officers, directors, partners, shareholders, members and employees.
"LANDLORD'S IMPROVEMENTS" means the base building improvements to the Premises
described on the attached EXHIBIT "F".
"LAWS" means any law, regulation, rule, order, statute or ordinance of any
governmental or private entity in effect on or after the Effective Date and
applicable to the Property or the use or occupancy of the Property, including,
without limitation, Hazardous Materials Laws, Building Rules and Permitted
Encumbrances.
"LEASE" means this Office Lease Agreement, as the same may be amended or
modified after the Effective Date.
"LEASE YEAR" means each consecutive 12 month period during the Term, commencing
on the Commencement Date, except that if the Commencement Date is not the first
day of a calendar month, then the first Lease Year is a period beginning on the
Commencement Date and ending on the last day of the calendar month in which the
Commencement Date occurs plus the following 12 consecutive calendar months.
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<PAGE> 40
"MAXIMUM RATE" means interest at a rate equal to the lesser of (a) 18% per
annum, or (b) the maximum interest rate permitted by law.
"MORTGAGE" means any mortgage, deed of trust, security interest or other
security document of like nature that at any time may encumber all or any part
of the Property and any replacements, renewals, amendments, modifications,
extensions or refinancings thereof, and each advance (including future advances)
made under any such instrument.
"NET RENT" means all rental Landlord actually receives from any reletting of all
or any part of the Premises, less any indebtedness from Tenant to Landlord other
than Rent (which indebtedness is paid first to Landlord) end less the Re-entry
Costs (which costs are paid second to Landlord).
"NOTICES" means all notices, demands or requests that may be or a% required to
be given, demanded or requested by either party to the other as provided in the
Lease.
"OPERATING EXPENSES" means all expenses Landlord incurs in connection with
maintaining, repairing and operating the Property, as determined by Landlord's
accountant In accordance with generally accepted accounting principles
consistently followed, including, but not limited to, the following: insurance
premiums and deductible amounts under any insurance policy; maintenance and
repair costs; steam, electricity, water, sewer, gas and other utility charges;
fuel; lighting; window washing; janitorial services; trash and rubbish removal;
property association fees and dues and all payments under any Permitted
Encumbrance (except Mortgages) affecting the Property; wages payable to persons
at the level of manager and below whose duties are connected with maintaining
and operating the Property (but only for the portion of such persons' time
allocable to the Property), together with all payroll taxes, unemployment
insurance, vacation allowances and disability, pension, profit sharing,
hospitalization, retirement and other so-called "fringe benefits" paid in
connection with such persons (allocated in a manner consistent with such
persons' wages); amounts paid to contractors or subcontractors for work or
services performed in connection with maintaining and operating the Property;
all costs of uniforms, supplies and materials used in connection with
maintaining, repairing and operating the Property; any expense imposed upon
landlord, its contractors or subcontractors pursuant to law or pursuant to any
collective bargaining agreement covering such employees; all services, supplies,
repairs, replacements or other expenses for maintaining and operating the
Property; costs of complying with Laws; reasonable management fees and the costs
(including rental) of maintaining a building or management office in the
Building; and such other expenses as may ordinarily be incurred in connection
with maintaining and operating an office complex similar to the Property. The
term "Operating Expenses" also includes expenses Landlord incurs in connection
with public sidewalks adjacent to the Property, any pedestrian walkway system
(either above or below ground) and any other public facility to which Landlord
or the Property is from time to time subject in connection with operating the
Property, The term Operating Expenses" does not include the cost of any capital
improvement to the Property other than replacements required for normal
maintenance and repair; the cost of repairs, restoration or other work
occasioned by fire, windstorm or other insured casualty other than the amount of
any deductible under any insurance policy (regardless whether the deductible is
payable by Landlord in connection with a capital
A-4
<PAGE> 41
expenditure); expenses landlord incurs in connection with leasing or procuring
tenants or renovating space for new or existing tenants; legal expenses incident
to Landlord's enforcement of any lease; interest or principal payments on any
mortgage or other indebtedness of Landlord; or allowance or expense for
depreciation or amortization. Notwithstanding the foregoing, if Landlord
installs equipment in, or makes improvements or alterations to, the Property to
reduce energy, maintenance or other costs, or to comply with any Laws, Landlord
may include in Operating Expenses reasonable charges for interest paid on the
investment and reasonable charges for depreciation of the investment so as to
amortize the investment over the reasonable life of the equipment, improvement
or alteration on a straight line basis.
"PERMITTED ENCUMBRANCES" means all Mortgages, liens, easements, declarations,
encumbrances, covenants, conditions, reservations, restrictions and other
manners now or after the Effective Date affecting title to the Property.
"PREMISES" means that certain space situated in the Building shown and
designated on the Floor Plan and described in the Basic Terms.
"PROPERTY" means, collectively, the Land, Building, and all other improvements
on the Land.
"PROPERTY MANAGER" means the property manager named in the Basic Terms or any
other agent Landlord may appoint from time to time to manage the Property.
"PROPERTY TAXES" means any general real property tax, improvement tax,
assessment, special assessment, nonassessment, in lieu tax, levy, charge,
penalty or similar imposition imposed by any authority having the direct or
indirect power to tax, including but not limited to, (a) any city, county, state
or federal entity, (b) any school, agricultural, lighting, drainage or other
improvement or special assessment district, (c) any governmental agency, or (d)
any private entity having the authority to assess the Property under any of the
Permitted Encumbrances. The term "Property Taxes" includes all charges or
burdens of every kind and nature Landlord incurs in connection with using,
occupying, owning, operating, leasing or possessing the Property, without
particularizing by any known name and whether any of the foregoing are general,
special, ordinary, extraordinary, foreseen or unforeseen; any tax or charge for
fire protection, street lighting, streets, sidewalks, road maintenance, refuse,
sewer, water or other services provided to the Property. The term "Property
Taxes" does not include Landlord's state or federal income, franchise, estate or
inheritance taxes. If Landlord is entitled to pay, and elects to pay, any of the
above listed assessments or charges in installments over a period of two or more
calendar years, then only such installments of the assessments or charges
(including interest thereon) as are actually paid in a calendar year will be
included within the term "Property Taxes- for such calendar year.
"PUNCH LIST" means a list of Tenant's Improvements Items which were either not
properly completed or are in need of repair, which list will be prepared and
agreed upon by Landlord and Tenant as provided in Section 17.1.
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<PAGE> 42
"RE-ENTRY COST" means all costs and expenses Landlord incurs re-entering or
reletting all or any part of the Premises, including, without limitation, all
costs and expenses Landlord incurs (a) maintaining or preserving the Premises
after an Event of Default; (b) recovering possession of the Premises, recovering
persons and property from the Premises and storing such property (including
court costs and reasonable attorneys' fees); (c) reletting, renovating or
altering the Premises; and (d) real estate commissions, advertising expenses and
similar expenses paid or payable in connection with reletting all or any part of
the Premises. "Re-entry Costs" also includes the value of free rent and other
concessions Landlord gives in connection with re-entering or reletting all or
any part of the Premises.
"RENT" means, collectively, Basic Rent and Additional Rent.
"RENT COMMENCEMENT DATE" means the earlier of (a) the Commencement Date; or (b)
the date Substantial Completion of Tenant's Improvements would have occurred but
for Tenant Delay,
"RENT TAX" means any tax or excise on rents or on other sums or charges required
to be paid by Tenant under this Lease, and gross receipts tax, transaction
privilege tax or other tax, however described, which is levied or assessed by
the United States of America, the state in which the Building is located or any
city, municipality or political subdivision thereof, against Landlord in respect
to the Basic Rent, Additional Rent or other charges payable under this Lease or
as a result of Landlord's receipt of such rents or other charges accruing under
this Lease.
"SECURITY DEPOSIT" means the security deposit to be provided to Landlord in the
amount set forth in the Basic Terms.
"STATE" means the State of Arizona.
"STRUCTURAL ALTERATIONS" means any Alterations involving the structural,
mechanical, electrical, plumbing, fire/life safety or heating, ventilating and
air conditioning systems of the Building.
"SUBSTANTIAL COMPLETION" means either (a) the date a Certificate of Occupancy is
issued for the Premises, or (b) if a Certificate of Occupancy is not required,
the date Tenant is reasonably able to take occupancy of the Premises; provided
that if either (a) or (b) is delayed or prevented because of work Tenant is
responsible for performing in the Premises, "Substantial Completion" means the
date that all of Landlord's work which is necessary for either (a) or (b) to
occur has been performed and Landlord has made the Premises available to Tenant
for the performance of Tenant's work.
"TAKING" means the exercise by a Condemning Authority of its power of eminent
domain on all or any part of the Property, either by accepting a deed in lieu of
condemnation or by any other manner.
"TENANT" means the tenant identified in the Lease and such tenant's permitted
successors and assigns. In any provision relating to the conduct, acts or
omissions of "Tenant," the term "Tenant" includes the tenant identified in the
Lease and such tenant's agents, employees,
A-6
<PAGE> 43
contractors, invitees, successors, assigns and others using the Premises or on
the Property with Tenant's expressed or implied permission.
"TENANT DELAY" means any delay caused or contributed to by Tenant, including,
without limitation, with respect to Tenant's Improvements, Tenant's failure to
timely prepare or approve a space plan for Tenant's Improvements, Tenant's
failure to timely prepare or approve the Construction Drawings and
Specifications, and any delay from any revisions Tenant proposes to approved
Construction Drawings and Specifications. A Tenant Delay excuses Landlord's
performance of any obligation related thereto for a period equal to (a) the
duration of the act, occurrence or omission which constitutes the Tenant Delay,
or (b) if longer, the period of delay actually caused by such Tenant Delay.
"TENANT'S IMPROVEMENTS" means the initial improvements to the Premises (other
than Landlord's Improvements) which are designed and installed as provided in
Section 17.1.
"TENANT'S SHARE OF EXCESS EXPENSES" means the product obtained by multiplying
the amount of Excess Expenses for the period in question by the Tenant's Share
of Excess Expenses Percentage.
"TENANT'S SHARE OF EXCESS EXPENSES PERCENTAGE" means the percentage specified in
the Basic Terms, as such percentage may be adjusted in accordance with the terms
and conditions of this Lease.
"TERM" means the initial term of this Lease specified in the Basic Terms and, if
applicable, any renewal term then in effect.
"TRANSFER" means an assignment, mortgage, pledge, transfer, sublease, license or
other encumbrance or conveyance (voluntarily, by operation of law or otherwise)
of this Lease or the Premises or any right, title or interest in or created by
this Lease or the Premises. The term "Transfer also includes any assignment,
mortgage, pledge, transfer or other encumbering or disposal (voluntarily, by
operation of law or otherwise) of any ownership Interest in Tenant or any
Guarantor that results or could result in a change of control of Tenant or any
Guarantor.
"UNRESERVED SPACES" mean vehicular parking spaces located in the parking
facilities provided for the Building which are not designated for the exclusive
use of a specific tenant or for use by visitors to the Property, as the same may
be relocated or redesignated from time to time by Landlord.
"WARRANTY TERMS" means, collectively, the punch list and construction warranty
provisions of Section 17.1 of the Lease.
A-7
<PAGE> 44
EXHIBIT "D"
COMMENCEMENT DATE MEMORANDUM
THIS MEMORANDUM is made and entered into as of [_______________, ____]
by and between OPUS WEST CORPORATION, a Minnesota corporation ("Landlord"), and
SALESLOGIX CORPORATION, a Delaware corporation ("Tenant").
RECITALS:
1. Landlord and Tenant are party to a certain Office Lease Agreement
dated as of [_______________, ____] ("Lease"), relating to certain premises
("Premises") located in the building commonly known as "Gainey Center l,"
located at [_____________________] ("Building").
2. Landlord and Tenant desire to confirm the Commencement Date and Rent
Commencement Date (as such terms are defined in the Lease) and the date the
[initial] Term of the Lease expires [and the notice date(s) and expiration
date(s) of any renewal Term(s) provided to Tenant under the Lease].
ACKNOWLEDGMENTS:
Pursuant to Section 1.2.3 of the Lease and in consideration of the
facts set forth in the Recitals, Landlord and Tenant acknowledge and agree as
follows;
1. All capitalized terms not otherwise defined in this Memorandum have
the meanings ascribed to them in the Lease.
2. The Commencement Date under the Lease is [________________________].
3. The Rent Commencement Date under the Lease is [___________________].
4. The initial Term of the Lease expires on [________________________],
unless the Lease is sooner terminated in accordance with the terms and
conditions of the Lease.
5. Tenant must exercise its right to the renewal Term, if at all, by
notifying Landlord no later than ________________________, subject to the
conditions and limitations set forth in the Lease.
6. The renewal Term expires on _______________________________________.
D-1
<PAGE> 45
Landlord and Tenant caused this Memorandum to be executed by their duly
authorized representatives as of the day and date first written above. This
Memorandum may be executed in counterparts, each of which is an original and all
of which constitute one instrument.
LANDLORD:
OPUS WEST CORPORATION, a Minnesota
corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
TENANT:
SALESLOGIX CORPORATION, a Delaware
corporation
By: ________________________________
Name: ______________________________
Its: _______________________________
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<PAGE> 46
EXHIBIT "E"
BUILDING RULES
1. Any sign, lettering, picture, notice or advertisement installed on
or in any part of the Premises and visible from the exterior of the Building, or
visible from the exterior of the Premises, shall be installed at Tenant's sole
cost and expense, and in such manner, character and style as Landlord may
approve in writing. In the event of a violation of the foregoing by Tenant,
Landlord may remove the same without any liability and may charge the expense
incurred by such removal to Tenant.
2. No awning or other projection shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens visible from the
exterior of the Building or visible from the exterior of the Premises shall be
attached to or hung in, or used in connection with, any window or door of the
Premises without the prior written consent of Landlord. Such curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner, approved by Landlord.
3. Tenant and its servants, employees, customers, invitees and guests
shall not obstruct side-walks, entrances, passages, corridors, vestibules,
halls, elevators or stairways in and about the Building which are used in common
with other tenants and their servants, employees, customers, guests and invitees
and which are not a part of the Premises of Tenant. Tenant shall not place
objects against glass partitions or doors or windows which would be unsightly
from the Building corridors or from the exterior of the Building and will
promptly remove any such objects upon notice from Landlord.
4. Tenant shall not make excessive noises, cause disturbances or
vibrations or use or operate any electrical or mechanical devises that emit
excessive sound or other waves or disturbances, and Tenant shall not create
obnoxious odors (including cigarette, cigar and pipe smoke), any of which may be
offensive to the other tenants and occupants of the Building, or that would
interfere with the operation of any device, equipment, radio, television
broadcasting or reception from or within the Building or elsewhere and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the Premises or on the Building.
5. Tenant shall not waste electricity, water or air conditioning and
shall cooperate fully with Landlord to insure the most effective operation of
the Building's heating and air conditioning systems and shall refrain from
attempting to adjust any controls other than unlocked room thermostats, if any,
installed for Tenant's use. Tenant shall keep corridor doors closed.
6. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured after normal business hours.
1
<PAGE> 47
7. No person or contractor not employed by Landlord shall be used to
perform janitorial work, window washing, cleaning, maintenance, repair or
similar work in the Premises without the written consent of Landlord.
8. In no event shall Tenant bring into the Building inflammables, such
as gasoline, kerosene, naphtha and benzine, or explosives or any other article
of intrinsically dangerous nature. If, by reason of the failure of Tenant to
comply with the provisions of this subparagraph, any insurance premium for all
or any part of the Building shall at any time be increased, Tenant shall make
immediate payment of the whole of the increased insurance premium, without
waiver of any of Landlord's other rights at law or in equity for Tenant's breach
of this Lease.
9. Tenant shell comply with all applicable federal, state and municipal
laws, ordinances and regulations and building rules and shall not directly or
indirectly make any use of the Premises which may be prohibited by any of the
foregoing or which may be dangerous to persons or property or may increase the
cost of insurance or require additional insurance coverage.
10. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Building or its desirability as an office complex for office use, and upon
written notice from Landlord, Tenant shall refrain from or discontinue such
advertising.
11. The Premises shall not be used for cooking, lodging, sleeping or
for any immoral or illegal purpose.
12. Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe faithfully and comply strictly with the Building Rules
and such other and further appropriate rules and regulations as Landlord or
Landlord's agent may from time to time adopt. Reasonable notice of any
additional rules and regulations shall be given in such manner as Landlord may
reasonably elect.
13. Unless expressly permitted by Landlord, no additional locks or
similar devices shall be attached to any door or window and no keys other than
those provided by Landlord shall be made for any door. If more than two keys for
one lock are desired by Tenant, Landlord may provide the same upon payment by
Tenant. Upon termination of this Lease or of Tenant's possession, Tenant shall
surrender all keys of the Premises and shall explain to Landlord all combination
locks on safes, cabinets and vaults.
14. Any carpeting cemented down by Tenant shall be installed with e
releasable adhesive. In the event of a violation of the foregoing by Tenant,
Landlord may charge the expense incurred by such removal to Tenant.
15. The water and wash closets, drinking fountains and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds or other substances
shall be thrown therein. All damages resulting from any misuse of the fixtures
shall be borne by the tenant who, or whose servants, employees,
2
<PAGE> 48
agents, visitors or licensees, shall have caused the same. No person shall waste
water by interfering or tampering with the faucets or otherwise.
16. No electrical circuit for any purpose shall be brought into the
Premises without Landlord's written permission specifying the manner in which
same may be done.
17. No bicycle or other vehicle, and no dog or other animal, shall be
allowed in offices, halls, corridors or elsewhere in the Building.
18. Tenant shall not throw anything out of the door or windows or down
any passageways or elevator shafts.
19. All loading, unloading, receiving or delivery of goods, supplies or
disposal of garbage or refuse shall be made only through entryways and freight
elevators provided for such purposes and indicated by Landlord. Tenant shall be
responsible for any damage to the Building or the property of its employees or
others and injuries sustained by any person whomsoever resulting from the use or
moving of such articles in or out of the Premises, and shall make all repairs
and improvements required by Landlord or governmental authorities in connection
with the use of such articles.
20. All safes, equipment or other heavy articles shall be carried in or
out of the Premises only at such time and in such manner as shall be prescribed
in writing by Landlord, and Landlord shall in all cases have the right to
specify the proper position of any such safe, equipment or other heavy article,
which shall only be used by Tenant in a manner which will not interfere with or
cause damage to the Premises or the Building or to the other tenants or
occupants of the Building. Tenant shall be responsible for any damage to the
Building or the property of its employees or others and injuries sustained by
any person whomsoever resulting from the use or moving of such articles in or
out of the Premises, and shall make all repairs and improvements required by
Landlord or governmental authorities in connection with the use or moving of
such articles.
21. Canvassing, soliciting and peddling in the Building is prohibited
and all tenants of the Building shall cooperate to prevent the same.
22. Vending machines shall not be installed without permission of
Landlord; provided, however, Landlord consents to the installation of vending
machines in the pantry or kitchen area of the Premises for the dispensing of
soda and other similar drinks to Tenant's employees and guests.
23. Wherever in these Building Rules the word "Tenant" occurs, it is
understood and agreed that it shall mean Tenant and Tenant's employees,
contractors, agents, servants and visitors. Wherever the word "Landlord" occurs,
it is understood and agreed that it shall mean Landlord and Landlord's assigns,
agents, servants and visitors.
24. Landlord shall have the right to enter upon the Premises at all
reasonable hours for the purpose of inspecting the same.
3
<PAGE> 49
25. Landlord shall have the right to enter the Premises at hours
convenient to Tenant for the purpose of exhibiting the same to prospective
tenants within the sixty (60) day period prior to the expiration of this Lease.
26. Tenant and its servants, employees, customers, invitees and guests
shall, when using the common parking facilities, if any, in and around the
Building, observe and obey all signs regarding fire lanes and no parking zones,
and when parking, shall always park between the designated lines. Landlord
reserves the right to tow away, at the expense of the owner, any vehicle which
is improperly parked or parked in a no parking zone. All vehicles shall be
parked at the sole risk of the owner, and Landlord assumes no responsibility for
any damage to or loss of vehicles. No vehicles shall be parked overnight.
27. At all times the Building shall be in charge of Landlord's employee
in charge and (a) persons may enter the Building only in accordance with
Landlord's regulations, (b) persons entering or departing from the Building may
be questioned as to their business in the Building, and the right is reserved to
require the use of an identification card or other access device and the
registering of such persons as to the hour of entry and departure, nature of
visit, and other information deemed necessary for the protection of the
Building, and (c) all entries into and departures from the Building will take
place through one or more entrances as Landlord shall from time to time
designate; provided, however, anything herein to the contrary notwithstanding,
Landlord shall not be liable for any lack of security in respect to the Building
whatsoever Landlord will normally not enforce clauses (a), (b) and (c) above
from 7:00 a.m. to 5:00 p.m., Monday through Friday, and from 7:00 a.m. to 1:00
p.m. on Saturdays, but it reserves the right to do so or not to do so at any
time at its sole discretion. In case of invasion, mob, riot, public excitement
or other commotion, Landlord reserves the right to prevent access to the
Building during the continuance of the same by closing the doors or otherwise,
for the safety of the tenants or the protection of the Building and the property
therein. landlord shall in no case be liable for damages for any error or other
action taken with regard to the admission to or exclusion from the Building of
any person..
28. All entrance doors to the Premises shall be locked when the
Premises are not in use. All corridor doors shall also be closed during times
when the air conditioning equipment in the Building is operating so as not to
dissipate the effectiveness of the system or place an overload thereon.
29. Smoking shall be permitted only in the smoking areas located
outside of the Building, as designated and redesignated from time to time by
Landlord, and Tenant and its servants, employees, customers, invitees and guests
shall not smoke anywhere at the Building (other than the smoking areas
designated by Landlord), including without limitation Tenant's Premises and the
sidewalks, entrances, passages, corridors, halls, elevators and stairways of the
Building.
30. Only vehicles designated by Tenant to Landlord may be parked or
stored in the Reserved Spaces and Unreserved Spaces; provided, however, the
Tenant may change its automobile designations upon written notice to Landlord.
4
<PAGE> 50
31. Tenant must, when using the parking areas of the Building, observe
and obey all signs regarding fire lanes and no parking zones, and when parking
must always park between designated lines. Landlord reserves the right to tow
away or otherwise impound, at the expense of the owner or operator, any
improperly parked vehicle.
32. In the event a key or other access device is supplied to Tenant for
accessing the parking areas of the Building, Tenant will surrender such key or
access device to Landlord upon termination of this Lease.
33. Landlord reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of these Building Rules when
it is deemed necessary, desirable or proper, in Landlord's judgment, for its
best interest or for the best interest of the tenants of the Building.
5
<PAGE> 51
EXHIBIT "F"
LANDLORD'S IMPROVEMENTS
1. 2' x 2' acoustical tile stockpiled on floor.
2. 2 x 4' parabolic fluorescent light fixtures stockpiled on the floor at
one (1) fixture per eighty (80) usable square feet.
3. Primary distribution of HVAC system.
4. Primary distribution of fire protection sprinkler system.
5. Mini-blinds stockpiled on the floor.
F-1
<PAGE> 52
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT
THIS FIRST AMENDMENT TO OFFICE LEASE AGREEMENT (the "First Amendment")
is made end entered into as of December _, 1999, by and between GAINEY ONE
TRUST, a Maryland real estate investment trust ("Landlord"), and SALESLOGIX
CORPORATION, a Delaware corporation ("Tenant").
WHEREAS, Opus West Corporation, a Minnesota corporation, as landlord,
and Tenant, as tenant, previously entered into that certain Office Lease
Agreement dated July 30, 1999 (the "Agreement");
WHEREAS, landlord has succeeded to all right, title and interest as the
"Landlord" under the Agreement; and
WHEREAS, the parties desire to increase the size of the Premises and to
amend the Agreement on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. All capitalized terms used in this First Amendment, unless otherwise
defined herein, shall have the same meanings given to them in the Agreement.
2. Tenant desires to expand the Premises to include that certain
additional space containing 17,502 rentable square feet and located on the first
and second floors of the Building as shown on the space plan attached hereto as
Exhibit "A" and incorporated herein by this reference (the "First Expansion
Space"). commencing on the date of Landlord's substantial completion of the
First Expansion Space (the "First Expansion Space Commencement Date"), and
continuing for the remainder of the Term, Tenant will lease from Landlord, in
addition to the space currently being leased by Tenant from Landlord, the First
Expansion Space. For purposes of this First Amendment, "substantial completion"
means either (a) the date a Certificate of Occupancy is issued for the First
Expansion Space, or (b) if a Certificate of Occupancy is not required, the date
Tenant is reasonably able to take occupancy of the First Expansion Space;
provided that if either (a) or (b) is delayed or prevented because of work
Tenant is responsible for performing in the First Expansion Space, "substantial
completion" will mean the date that all of Landlord's work which is necessary
(or either (a) or (b) to occur has been performed and Landlord has made the
First Expansion Space available to Tenant for the performance of Tenant's work.
3. The following provisions will be effective on the First Expansion
Space Commencement Date:
(a) The term "Premises", as defined in the Agreement, will be
deemed to Include, in addition to the space currently leased by Tenant
from Landlord, the First Expansion Space, and all of the terms and
provisions of the Agreement, as specifically
1
<PAGE> 53
amended hereby, shall be applicable to the entire Premises (including
the First Expansion Space).
(b) The first sentence of paragraph 1 of the Basic Terms is
hereby deleted and is replaced with the following:
Suite 200 and a suite on the first floor of the
Building, consisting of 34,430 rentable square feet
located on the first and second floors of the
Building.
(c) The reference to "$38,065.00" contained in paragraph 4 of
the Basic Terms (which amount constitutes the monthly installments of
Basic Rent) is hereby changed to $77,445.00".
(d) The reference to "12.02%" contained in paragraph 5 of the
Basic Terms (which amount constitutes Tenant's Share of Excess Expenses
Percentage) is hereby changed to "24.45%".
(e) The reference to "$190,327.50" contained in paragraph 8 of
the Basic Terms (which amount constitutes the Security Deposit) is
hereby changed to $229,707.00".
(f) The reference to "54" contained in Section 17.5 of the
Agreement (which amount constitutes Unreserved Spaces) is hereby
changed to "110".
4. Tenant will deliver the amount of $39,379.50 to Landlord on or
before the First Expansion Space Commencement Date, which amount will constitute
a portion of the Security Deposit.
5. The last sentence of Section 17.2 of the Agreement is hereby deleted
in its entirety and the following is substituted in its place:
If Tenant is not in default under this Lease on the
first day of the sixth, twelfth, and eighteenth full
calendar months of the Term, then on each of such
dates, a portion of the Security Deposit shall be
applied to pay the Basic Rent due for such. month;
provided, however, that the Security Deposit shall
not be reduced below an amount equal to one months'
Basic Rent as a result of any such application of the
Security Deposit.
6. Section 17.4 of the Agreement is hereby deleted in its entirety.
7. Tenant will pay all costs in connection with the design and
construction of Tenant's improvements for the First Expansion Space (the "First
Expansion Space Improvements"). Landlord will credit an amount, not to exceed
$21.47 per Usable Square Foot of the First Expansion Space (the "First Expansion
Space Improvement Allowance"), against
2
<PAGE> 54
Tenant's obligation to pay for the design and installation of the First
Expansion Space Improvements; provided, however, that the First Expansion Space
Improvement Allowance must be used by Tenant not later than 270 days after the
First Expansion Space Commencement Date Landlord is not obligated to pay or
incur any amounts that exceed the First Expansion Space Improvement Allowance.
If the cost of the First Expansion Space Improvements exceeds the First
Expansion Space Improvement Allowance, Tenant will pay the excess to Landlord in
cash as Additional Rent. On or before December 20, 1999, Tenant will provide
Landlord with a space plan for the First Expansion Space Improvements, which
space plan must meet the criteria set forth in Section 17.1.5 of the Agreement.
Tenant will also pay, as Additional Rent, all of Landlord's costs (including
lost rent) resulting from Tenant Delay. If Landlord reasonably estimates that
the cost of the First Expansion Space Improvements will exceed the First
Expansion Space Improvement Allowance, Landlord may require Tenant to deposit
with Landlord, within sixty (60) days of the date this First Amendment is
executed, an amount equal to one-half (1/2) of the amount by which the cost of
the First Expansion Space Improvements exceeds the First Expansion Space
Improvement Allowance. The remaining one-half (1/2) of the amount by which the
cost of the First Expansion Space Improvements exceeds the First Expansion Space
Improvement Allowance will be paid upon the First Expansion Space Commencement
Date.
8. Landlord will use commercially reasonable efforts to tender
possession of the First Expansion Space to Tenant on or before March 15, 2000,
subject to Force Majeure and Tenant Delay. If Landlord is unable to tender
possession of the First Expansion Space to Tenant on or before such date for any
reason, the Agreement (as amended hereby) remains in full force and effect and
Landlord is not liable to Tenant for any resulting loss or damage.
9. Except as otherwise expressly modified in this First Amendment, the
terms and conditions of the Agreement are and shall remain in full force and
effect. In the event of any conflict or inconsistency between the terms and
provisions of the Agreement and the terms and provisions of this First
Amendment, the terms and provisions of this First Amendment shall govern and
control.
10. This First Amendment may be executed in any number of counterparts,
all of which together shall be deemed to constitute one instrument, and each of
which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Office Lease Agreement as of the date first set forth above.
GAINEY ONE TRUST, a Maryland real estate
investment trust
By ______________________________________
SALESLOGIX CORPORATION, a Delaware
corporation
By ______________________________________
3
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. SalesLogix International, Inc., an Arizona corporation
2. Opis SupportExpress, Inc., an Arizona corporation
3. SalesLogix Europe Limited, incorporated with the Registrar of Companies
for England and Wales
4. Enact Incorporated, an Arizona corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the inclusion in this Annual Report (Form 10-K) of SalesLogix
Corporation of our report dated January 25, 2000 on the financial statements of
SalesLogix Corporation for the three years ended December 31, 1999.
Our audits also included the financial statement schedule of SalesLogix
Corporation listed in Item 14(a). 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.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-81247) pertaining to the SalesLogix Corporation 1996 Equity Incentive
Plan, SalesLogix Corporation 1999 Non-Employee Director Stock Option Plan and
SalesLogix Corporation 1999 Employee Stock Purchase Plan of our report dated
January 25, 2000, with respect to the consolidated financial statements of
SalesLogix Corporation and our report included in the preceding paragraph with
respect to the financial statement schedule included in the Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
-----------------------
Phoenix, Arizona
March 24, 2000
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