<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
REGISTRATION NO. 333- --
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEW ERA OF NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7371 84-1234845
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7400 EAST ORCHARD ROAD, SUITE 230
ENGLEWOOD, CO 80111
(303) 694-3933
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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GEORGE F. (RICK) ADAM, JR.
CHIEF EXECUTIVE OFFICER
NEW ERA OF NETWORKS, INC.
7400 EAST ORCHARD ROAD, SUITE 230
ENGLEWOOD, CO 80111
(303) 694-3933
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
MARK A. BERTELSEN, ESQ. JAMES H. CARROLL, ESQ.
HOWARD S. ZEPRUN, ESQ. MICHAEL L. PLATT, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION 2595 CANYON BOULEVARD, SUITE 250
650 PAGE MILL ROAD BOULDER, CO 80302
PALO ALTO, CALIFORNIA 94304 (303) 546-4000
(415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock....................... 3,795,000 shares $9.00 $34,155,000 $10,350
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</TABLE>
(1) Includes 495,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
Subject To Completion, Dated January 22, 1997
PROSPECTUS
3,300,000 SHARES
[NEON LOGO]
COMMON STOCK
-----------------------
All of the 3,300,000 shares of Common Stock offered hereby are being
sold by New Era of Networks, Inc. ("NEON" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "NEON."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS," BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share.......................... $ $ $
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Total (3).......................... $ $ $
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</TABLE>
1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of the offering payable by the Company, estimated
at $850,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 495,000 additional shares of
Common Stock on the same terms and conditions set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $ , the Underwriters' Discounts and
Commissions will be $ and the Proceeds to Company will be
$ . See "Underwriting."
-----------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and are subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
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UBS SECURITIES MONTGOMERY SECURITIES
, 1997
<PAGE> 3
DESCRIPTION OF ARTWORK
Inside Front cover - Top-half of the Front Cover
"The Application Integration Company" is the title to the Chart. The
sentence "Integrating applications, databases, platforms, networks, and
enterprises from Wall Street to Main Street" comes below this title.
The bottom half is titled "Why Application Integration?" Underneath
are two arrows pointing out to the left and the right. One arrow is
titled "Business Objectives"; the other is titled "Resulting Actions."
A circle in between the arrows reads "Drive to Integration." The left
arrow consists of five lines: Line 1 reads "Customer Intimacy," line 2
reads "Supply Chain Management," line 3 reads "Risk Management," line 4
reads "Enterprise Resource Planning," line 5 reads "Revenue Growth."
In the arrow on the right, the lines read as follows: line 1 reads
"Legacy Endures," line 2 reads "Client/Server Packages," line 3 reads
"Growth by Acquisition," line 4 reads "Geographic Expansion," and line
5 reads "Overlaying the Internet."
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
Left Gatefold - Top
A chart titled "Unintegrated Applications" demonstrating three distinct
application systems: legacy data-base, internet, and Client/Server
application.
Left Gatefold - Bottom
A chart titled "Interapplication Spaghetti" demonstrating a host of
different application systems with many arrows in between each one.
Right Gatefold - Top
A chart titled "NEOnet Network Transaction Manager" with a graphical
depiction of the NEOnet rules engine between disparate application systems.
Right Gatefold - Bottom
A series of bullet points under the title "NEOnet Business Benefits" that
read as follows: Speeds integration of packaged applications; Delivers
requested transactions to each user; Extends investment in legacy
applications; Enables client/server and network computing; Delivers
commerce over the Internet.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The discussion in this Prospectus contains forward-looking
statements which include risks and uncertainties. The Company's actual results
could differ materially from those discussed in this Prospectus. Factors that
could cause or contribute to such differences include those discussed in the
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Business," as well as those
discussed elsewhere in this Prospectus.
THE COMPANY
New Era of Networks, Inc. ("NEON" or the "Company") develops, markets and
supports application integration software and provides application integration
services. The Company's flagship software suite, NEONet, provides organizations
with a structured software platform for the integration of disparate systems and
applications across the enterprise, a process known as application integration.
NEONet facilitates the rapid and efficient deployment and ongoing maintenance of
application integration across the enterprise. NEONet supports a heterogeneous
environment of hardware, operating system, network and database platforms,
permits organizations to leverage existing legacy systems, and accommodates the
extension of the corporate information systems environment to new enterprise
applications and to new computing paradigms such as the Internet/Intranet.
Organizations are increasingly seeking to incorporate powerful new software
applications that operate across the enterprise and also serve as interfaces to
customers and suppliers. At the same time, organizations are seeking to better
leverage their existing information systems and take advantage of their prior
technology investments by integrating previously independent application systems
and databases. Effective application integration strategies are critical to an
organization's ability to respond to changing market demands, seize new market
opportunities, improve customer service, and realize planned improvements in
business processes. Organizations have historically addressed the need to
integrate applications through a number of narrow integration techniques,
typically implemented in an ad hoc manner, utilized to address specific
integration requirements as they arise over time. Accordingly, traditional
techniques generally require extensive manual custom software coding, provide
limited functionality, flexibility and scaleability, and require a costly and
burdensome ongoing maintenance process. According to Gartner Group, Inc., 35% to
40% of all programming effort in a typical organization is devoted to developing
and maintaining the extract and update programs whose only purpose is to
transfer information between different databases. The Gartner Group refers to
the complex morass of individual unstructured integration among disparate
applications as "interapplication spaghetti."
In January 1996, the Company introduced NEONet, an integrated solution that
addresses the interapplication spaghetti problem and provides a scaleable
infrastructure that supports rapid and efficient updates to integration
implementations. NEONet consists of three principal modules, Messaging and
Queuing, Formatter and Rules Engine, together with a suite of libraries and
tools. The Messaging and Queuing module provides guaranteed real-time delivery
of data transactions across heterogeneous applications. The Formatter module
provides dynamic formatting of data messages to meet the native format
requirements of different applications. The Rules Engine enables an organization
to define and fulfill the data requirements of different applications through a
sophisticated set of readily modifiable business rules. Since the initial
release of NEONet, the Company has introduced several products that increase the
functionality of the three core NEONet modules. These products include
NEONreplication, NEOCAS and NEONweb.
NEON's objective is to establish NEONet as the leading standard for
application integration across the enterprise. Key elements of the Company's
strategy include expanding vertical markets, maintaining the technological
leadership of NEONet, expanding global sales capabilities, and developing
cross-industry applications which have significant importance across different
vertical markets.
Through December 31, 1996, the Company has shipped NEONet to a total of
fifteen customers in the financial services, health care, retail, communications
and other industries. Representative customers of the Company include Merrill
Lynch, Deutsche Bank, Credit Suisse, ADP Financial Information Services, J.P.
3
<PAGE> 7
Morgan, Inc., Muhlenberg Hospital, KN Energy and Pacific Investment Mortgage
Company. The Company markets its software and related services primarily through
a direct sales organization, complemented by other indirect sales channels
including VARs and international distributors. As part of this strategy, the
Company has established reseller and joint marketing relationships with firms
such as Hewlett-Packard, Sun Microsystems, SunGard Financial Services, Andersen
Consulting and Ernst & Young.
The Company was incorporated in Illinois in June 1993, commenced operations
in January 1994, and was reincorporated in Delaware in December 1995. Unless the
context otherwise requires, references in this Prospectus to "NEON" or the
"Company" refer to New Era of Networks, Inc., a Delaware corporation and its
subsidiary. The Company's principal executive offices are located at 7400 East
Orchard Road, Suite 230, Englewood, Colorado 80111. Its telephone number is
(303) 694-3933.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................. 3,300,000 shares,
Common Stock Outstanding after the Offering......... 12,010,962 shares(1)
Use of proceeds..................................... For general corporate purposes, including
working capital, and repayment of
certain indebtedness and royalty
obligations.
Proposed Nasdaq National Market Symbol.............. NEON
Risk Factors........................................ The Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
</TABLE>
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(1) Based upon shares outstanding as of December 31, 1996. Excludes (i) an
aggregate of 2,087,027 shares of Common Stock issuable upon exercise of
options outstanding under the Company's Amended and Restated 1995 Stock
Option Plan as of December 31, 1996, at a weighted average exercise price of
$3.29 per share, as well as an additional 1,406,161 shares reserved at such
date for future grant under such plan (giving effect to an increase in the
number of shares authorized for issuance under such plan in January 1997),
(ii) 325,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan, and (iii) 150,000 shares of
Common Stock reserved for issuance under the Company's 1997 Director Stock
Option Plan.
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This Prospectus includes trademarks of the Company and other companies.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The summary consolidated financial data presented below have been derived
from the Company's consolidated financial statements and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DEC. 31, ------------------------------------------------
----------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1996 1996 1996 1996 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software licenses....... $ -- $ -- $ 3,383 $ 111 $ 411 $ 832 $ 2,029
Services and
maintenance........... 149 1,271 3,762 945 1,186 841 790
Total Revenues............ 149 1,271 7,145 1,056 1,597 1,673 2,819
Cost of revenues.......... 85 751 3,328 710 836 707 1,075
Gross profit.............. 64 520 3,817 346 761 966 1,744
Loss from operations...... (690) (1,490) (5,733) (757) (1,365) (2,120) (1,491)
Net loss.................. (719) (1,503) (5,672) (755) (1,358) (2,071) (1,488)
Pro forma net loss per
common share(1)......... $ (0.61) $ (0.09) $ (0.15) $ (0.22) $ (0.15)
Pro forma weighted average
shares of Common Stock
outstanding(1).......... 9,239,749 8,688,851 9,004,267 9,630,101 9,635,777
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
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ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $3,387 $ 23,699
Working capital............................................................... 2,586 25,009
Total assets.................................................................. 7,073 27,384
Stockholders' equity.......................................................... 3,515 26,370
</TABLE>
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(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the pro forma weighted average common shares outstanding used to compute
pro forma net loss per share.
(2) Reflects the sale of 3,300,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $8.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering costs payable by the Company, and the application of the net
proceeds therefrom. See "Capitalization" and "Use of Proceeds."
---------------------------
Unless otherwise indicated, the information in this Prospectus: (i) gives
effect to an amendment to the Company's Certificate of Incorporation to be
effected prior to the effectiveness of this Offering, which amendment shall
increase the authorized capital stock of the Company and effect a 1-for-3
reverse split of the Company's Common Stock, (ii) gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock at a 1-for-3
conversion rate upon the completion of the Offering, and (iii) assumes no
exercise of the Underwriters' over-allotment option.
5
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed below and in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Limited Operating History; History of Operating Losses; Accumulated
Deficit. The Company was formed in 1993, and installed NEONet at its first
customer site in January 1996. The Company commenced shipment of its principal
product, NEONet, in July 1996. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Prior to 1996, the Company recorded only nominal product revenue, and
the Company has never been profitable on a quarterly or annual basis. The
Company does not expect to be profitable for several quarters, and may never
achieve profitability unless revenues increase substantially. At December 31,
1996, the Company had an accumulated deficit of approximately $8.0 million. The
Company's limited operating history makes the prediction of future operating
results difficult or impossible. The Company's prospects must be evaluated in
light of the risks, uncertainties, expenses and difficulties frequently
encountered by companies in the early stage of their development. The new and
rapidly evolving markets in which the Company operates makes these risks,
uncertainties, expenses and difficulties particularly pronounced. In order to
address these risks and uncertainties the Company must, among other things,
successfully implement its sales and marketing strategy, expand its direct
distribution channels, develop its indirect distribution channels, respond to
competitive and other developments in the application integration software
market, attract and retain qualified personnel, continue to develop and upgrade
its products and technology more rapidly than competitors, and commercialize its
products and services that incorporate existing and future technologies. There
can be no assurance that the Company will be able to successfully implement any
of its strategies or successfully address these risks and uncertainties, or that
the Company will achieve or sustain profitability on a quarterly or annual basis
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Uncertainty of Future Operating Results; Lengthy Sales Cycle; Fluctuations
in Quarterly Results. Although the Company has experienced significant revenue
growth in recent periods, such growth rates will not be sustainable and are not
necessarily indicative of future operating results and operating margins. The
Company's quarterly operating results have fluctuated significantly in the past
and may vary significantly in the future. Future operating results will depend
on many factors, including, among others, the growth of the application
integration software market, the size and timing of software licenses, the delay
or deferral of customer implementations, the ability of the Company to maintain
or increase market demand for the Company's products, the timing of new product
announcements and releases by the Company, competition by existing and emerging
competitors in the application integration software market, the ability of the
Company to expand its direct sales force and develop indirect distribution
channels, the Company's success in developing and marketing new products and
controlling costs, budgeting cycles of customers, product life cycles, software
defects and other product quality problems, the mix of products and services
sold, international expansion, and general domestic and international economic
and political conditions. A significant portion of the Company's revenues has
been, and the Company believes will continue to be, derived from a small number
of relatively large customer contracts or arrangements, and the timing of
revenue recognition from such contracts and arrangements has caused and may
continue to cause material fluctuations in the Company's operating results,
particularly on a quarterly basis. See ("Customer Concentration.") Quarterly
revenue and operating results typically depend upon the volume and timing of
customer contracts received during a given quarter, and the percentage of each
such contract which the Company is able to recognize during each quarter, each
of which is difficult to forecast. In addition, as is common in the software
industry, a substantial portion of the Company's revenues in a given quarter
historically have been recorded in the third month of that quarter, with a
concentration of such revenues in the last two weeks of the third month. To the
extent this trend continues, any failure or delay in the closing of orders
during the last part of any given
6
<PAGE> 10
quarter will have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the timing of license revenue is difficult to predict because
of the length and variability of the Company's sales cycle. The purchase of the
Company's products by its customers typically involves a significant technical
evaluation and commitment of capital and other resources, with the attendant
delays frequently associated with customers' internal procedures to approve
large capital expenditures and to test, implement and accept new technologies
that affect key operations. This evaluation process frequently results in a
lengthy sales process of several months and subjects the sales cycle associated
with the purchase of the Company's products to a number of significant risks,
including customers' budgetary constraints and internal acceptance reviews. The
length of the Company's sales cycle may vary substantially from customer to
customer, particularly for customers within different vertical market segments.
See "Business -- Sales and Marketing." The Company's operating expense levels
are relatively fixed and are based in part on expectations as to future
revenues. Consequently, any delay in the recognition of revenue from quarter to
quarter could result in operating losses. To the extent that such operating
expenses precede, or are not subsequently followed by, increased revenues, the
Company's operating results would be materially adversely affected.
As a result of these and other factors, the Company believes that
period-to-period comparisons of its historical results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. It is possible that the Company's future quarterly operating
results from time to time may not meet the expectations of stock market analysts
or investors, which would likely have an adverse effect on the market price of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence Upon Emerging Market for Application Integration Software.
Substantially all of the Company's revenues to date have been attributable to
sales of application integration software products and services, and the Company
expects that substantially all revenues in the foreseeable future will be
derived from such products. The market for application integration is relatively
new and emerging. The Company's future financial performance will depend, to a
large extent, on continued growth in the number of organizations demanding
software and services for application integration and seeking outside vendors to
develop, manage and maintain the integration software used for their
mission-critical applications. Many potential customers for third-party
application integration software have made significant investments in internally
developed integration systems, and are highly dependent upon the continued use
of such internally developed systems. The dependence of organizations on such
internally developed systems coupled with the significant costs required to
shift to third-party products may substantially inhibit future demand for third-
party application integration software products, such as those offered by the
Company. There can be no assurance that the market for application integration
software products and services will continue to grow. If the application
integration market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results, and financial condition
would be materially adversely affected.
The Company intends to continue to devote considerable resources educating
potential customers about application integration software. Even if a sizable
market for third-party application integration continues to develop, there can
be no assurance that such expenditures or any other marketing efforts will
enable the Company's products to achieve or sustain any significant degree of
market acceptance. If the Company is unsuccessful in establishing broad market
acceptance for its current and future products, the Company's future growth,
financial condition and results of operations will be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Research and Development."
Product Concentration. A substantial portion of the Company's revenues have
been attributable to licenses of NEONet and related services. The Company
currently expects that revenues attributable to NEONet and related services will
continue to account for a substantial majority of the Company's revenues at
least through 1997. Accordingly, the Company's future operating results will be
dependent upon the level of market acceptance of, and demand for, NEONet. The
Company's future performance will, to a large extent, depend upon the successful
development, introduction and customer acceptance of new and enhanced releases
7
<PAGE> 11
of NEONet and other products. There can be no assurance that the Company's
products will achieve continued market acceptance or that the Company will be
successful in marketing any new or enhanced products. In the event that the
Company's current or future competitors release new products that have more
advanced features, offer better performance or are more price competitive than
NEONet, demand for the Company's products may decline. A decline in demand for
NEONet as a result of competition, technological change or other factors would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Products and Services" and
"Business -- Product Development."
Customer Concentration; Dependence Upon Financial Institutions Industry;
Risks of New Targeted Market Segments. A relatively small number of customers
account for a significant percentage of the Company's revenues. For the year
ended December 31, 1996, sales to Merrill Lynch & Co., ("Merrill Lynch"), ADP
Financial Information Services, J.P. Morgan & Co. and SunGard Financial Systems
accounted for 22%, 16%, 14% and 13% of total revenues, respectively. There can
be no assurance that these customers or other customers of the Company will
continue to purchase the Company's products in the future. The Company's failure
to add new customers that make significant purchases of the Company's products
and services will have a material adverse effect on the Company's business,
financial condition and result of operations.
To date, the Company's revenues have been derived primarily from sales to
large banks and financial institutions. During 1996, sales to banks and
financial institutions accounted for 81% of the Company's revenue. The Company's
marketing strategy calls for the Company to increase its penetration of the
financial institutions market segment and to focus other sales efforts on
additional vertical market segments, principally health care, telecommunications
and manufacturing. Accordingly, the Company expects that revenues attributable
to the financial institutions market segment will continue to account for a
substantial portion of the Company's revenues in the near future. Any factors
affecting the health of the banking and financial services industry, or other
targeted vertical market segments that contain a significant portion of the
Company's customer base, could affect the purchasing patterns of the Company's
customers within these industries, which would have a material adverse effect on
the Company's business, operating results and financial condition.
The Company has only limited experience in marketing its products to
customers outside of the financial institutions industry. The additional market
segments currently targeted by the Company are likely to have significantly
different market characteristics than the financial institutions segment, and
selling NEONet products in such other segments may require pricing structures,
sales methods, sales personnel, consulting services and customer support that
differ from those previously used by the Company. There can be no assurance that
the Company will be successful in achieving significant market acceptance or
penetration in the additional segments targeted by the Company. If the Company
is unsuccessful in penetrating additional vertical market segments, its future
growth, financial condition and results of operations will be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."
Management of Growth. The Company is currently experiencing a period of
rapid growth that has placed and is expected to continue to place a strain on
the Company's administrative, financial and operational resources. From January
1, 1996 to December 31, 1996, the size of the Company's staff increased from 35
to 121 full time equivalent employees. Further significant increases in the
number of employees are anticipated during 1997. Except for George F. (Rick)
Adam, Jr., the Company's Chief Executive Officer, and Harold A. Piskiel, the
Company's Senior Vice President, Chief Technical Officer, all of the Company's
senior management joined the Company in 1996. Most of the Company's senior
managers have worked together at the Company for only a brief period. In
addition, the Company expanded geographically in 1996 by adding sales personnel
in New York City, Chicago, Houston, San Francisco, Philadelphia, and London,
England. The Company may further expand into these regions or into others
through internal growth or through acquisitions of related companies and
technologies, although no such acquisitions are currently being negotiated,
which may strain management's ability to successfully integrate its operations
throughout these regions. The additional growth within a short time period may
divert management attention from day-to-day operations,
8
<PAGE> 12
which could have a material adverse effect on the Company's business, financial
condition, and operating results.
The Company's ability to manage its staff and facilities growth effectively
will require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to install new management
information and control systems and to expand, train, motivate and manage its
work force. There can be no assurance that the Company will install such
management information and control systems in an efficient and timely manner or
that the new systems will be adequate to support the Company's level of
operations. If the Company's management is unable to manage growth effectively
and new employees are unable to achieve targeted performance levels, the
Company's business, operating results and financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Integration of Potential Acquisitions and Joint Ventures. The Company may
from time to time engage in acquisitions of companies with complementary
products and services in the application integration or other related software
markets. Although no such acquisitions are currently being negotiated, any
future acquisitions would expose the Company to increased risks, including those
associated with the assimilation of new operations and personnel, the diversion
of financial and management resources from existing operations, and the
inability of management to integrate successfully acquired businesses, personnel
and technologies. Furthermore, there can be no assurance that the Company will
be able to generate sufficient revenues from any such acquisition to offset
associated acquisition costs, or that the Company will be able to maintain
uniform standards of quality and service, controls, procedures and policies,
which may result in the impairment of relationships with customers, employees,
and new management personnel. Certain acquisitions may also result in additional
stock issuances which could be dilutive to the Company's stockholders. The
Company may also evaluate, on a case-by-case basis, joint venture relationships
with certain complementary businesses. Any such joint venture investment would
involve many of the same risks posed by acquisitions, particularly those risks
associated with the diversion of resources, the inability to generate sufficient
revenues, the management of relationships with third parties, and potential
additional expenses, any of which could have a material adverse effect on the
Company's business, financial condition or operating results.
Competition. The market for the Company's products is intensely competitive
and is expected to become increasingly competitive as current competitors expand
their product offerings and new competitors enter the market. In this regard,
the Company believes that the application integration market is relatively new,
such that there is great likelihood that additional, significant competitors
will enter the market. The Company's current competitors include a large number
of companies offering one or more solutions to the application integration
problem, some of which are directly competitive with NEONet.
To date, the Company has faced competition and sales resistance from the
internal information technology departments of potential customers that have
developed or may develop in-house systems that may substitute for those offered
by the Company. The Company expects that internally developed application
integration systems will continue to be a principal source of competition for
the foreseeable future. In particular, the Company has had difficulties making
sales to organizations whose internal development groups have already progressed
significantly toward completion of systems that the Company's products might
replace, or where the underlying technologies used by such groups differ
fundamentally from the Company's.
The Company's competitors also include software vendors targeting the
enterprise-wide application integration market through various technological
solutions. For example, IBM, Microsoft, DEC and others provide messaging and
queuing solutions that compete with the NEONet Messaging and Queuing module. In
the future these vendors could elect to provide a more complete integration
solution that would also compete with NEONet's dynamic formatting and
rules-based engine modules. In addition, a large number of other companies
provide alternative solutions to integrating application integration utilizing
other technologies such as data synchronization and transaction monitoring, and
a limited number of companies such as TIBCO, INC. offer publish/subscribe
messaging systems designed to operate similarly to NEONet. The Company also
faces competition from relational database vendors such as IBM, Oracle,
Informix, Sybase and Microsoft, whose
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<PAGE> 13
products currently compete with NEONet to some extent and are likely to compete
more directly in the future.
The Company also faces competition from systems integrators and
professional service organizations, such as Andersen Consulting, Ernst & Young
and KPMG Peat Marwick, which design and develop custom systems and perform
custom integration. Certain of these firms may possess industry specific
expertise or reputations among potential customers for offering enterprise
solutions to application integration needs. These systems integration and
consulting firms can be resellers of the Company's products and may engage in
joint marketing and sales efforts with the Company. The Company relies upon such
firms for recommendations of NEONet products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integration and consulting firms may have similar, and often more
established, relationships with the Company's competitors, and there can be no
assurance that these firms will not market or recommend software products
competitive with the Company's products in the future.
Most of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition, and a larger installed base of customers
than the Company. In addition, many of the Company's competitors have
well-established relationships with current and potential customers of the
Company, have extensive knowledge of the application integration industry, and
are capable of offering a single-vendor solution. As a result, the Company's
competitors may be more able than the Company to devote significant resources
toward the development, promotion and sale of their products and to respond more
quickly to new or emerging technologies and changes in customer requirements. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. The Company also expects that the competition
will increase as a result of software industry consolidations. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, or that competitive pressure faced by the Company will
not materially adversely affect its business, operating results, and financial
condition. See "Business -- Competition."
Rapid Technological Change; Limited Platform Coverage; Dependence on New
Products. The market in which the Company competes is characterized by rapid
technological change, frequent new product introductions and enhancements,
changes in customer demands and evolving industry standards. The introduction of
products incorporating new technologies and the emergence of shifting customer
requirements, or changing industry standards, could render certain of the
Company's existing products obsolete. The technological life cycles of the
Company's products are difficult to estimate, and may vary across vertical
market segments. The Company's future success will depend upon its ability to
continue to enhance its current product line and to continue to develop and
introduce new products that keep pace with competitive and technological
developments. Such developments will require the Company to continue to make
substantial product development investments.
The Company currently serves, and intends to continue to serve, a customer
base with a wide variety of hardware, software, database, and networking
platforms. To gain broad market acceptance, the Company believes that in the
future it must support NEONet on a variety of platforms. The Company's product
currently does not support all major platforms, and there can be no assurance
that the Company will adequately expand its database and platform coverage to
service potential customers, or that such expansion will be sufficiently rapid
to meet or exceed platform and database coverage of competitors.
The success of the Company's products will depend on various factors,
including the ability to integrate the Company's products with customer
platforms as compared to competitive offerings, the portability of the Company's
products, particularly the number of hardware platforms, operating systems and
databases that the Company's products can source or target, the integration of
additional software modules under development with existing products, and the
Company's management of software development being performed by third
10
<PAGE> 14
party developers. There can be no assurance that the Company will be successful
in developing and marketing product enhancements or new products that respond to
these technological changes, shifting customer tastes, or evolving industry
standards, or that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and marketing of these
products. If the Company is unable to develop and introduce new products or
enhancements of existing products in a timely manner or if the Company
experiences delays in the commencement of commercial shipments of new products
and enhancements, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business -- Product
Development."
Risks Associated with Expanding Distribution; Indirect Distribution Channel
Risks. To date, the Company has sold its products primarily through direct sales
and has supported its customers with its technical and customer support staff.
The Company's commissioned sales force has increased from one person in January
1996 to 14 people as of December 31, 1996. The Company's ability to achieve
significant revenue growth in the future will depend in large part on its
success and continued recruitment and training of sufficient direct sales,
technical and customer personnel, particularly additional sales personnel
focusing on the new vertical market segments targeted by the Company's marketing
strategy. The Company has at times experienced and continues to experience
difficulty in recruiting qualified sales, technical and support personnel. Any
failure by the Company to rapidly and effectively expand its direct sales force
and its technical and support staff could materially adversely affect the
Company's business, financial condition and operating results.
The Company believes that future growth will depend upon its success in
developing and maintaining strategic relationships with distributors, resellers,
and systems integrators. While the Company's current strategy is to increase the
proportion of customers served through these indirect channels, indirect channel
sales have not accounted for significant revenue to date. The Company is
currently investing, and plans to continue to invest, significant resources to
develop the indirect channel, which could adversely affect the Company's
operating results if the Company's efforts do not generate license revenues
necessary to offset such investment. The Company's inability to recruit and
retain qualified third-party distributors, VARs and systems integrators could
adversely affect the Company's results of operations. The Company's success in
selling into this indirect distribution channel could also adversely affect the
Company's average selling prices and result in lower gross margins, since lower
unit prices are typically charged on sales through indirect channels. See
"Business -- Sales and Marketing."
Dependence on Key Personnel; Ability to Attract and Retain Personnel. The
Company's future success will depend in large part upon the continued service of
its key technical, sales and senior management personnel, none of whom is bound
by an employment agreement. The loss of any of the Company's senior management
or other key research, development, sales and marketing personnel, particularly
if lost to competitors, could have a material adverse effect on the Company's
business, financial condition and operating results. In particular, the services
of George (Rick) Adam, Jr., the Company's Chief Executive Officer, Harold
Piskiel, the Company's Senior Vice President, Chief Technical Officer, or Robert
Theis, the Company's Senior Vice President of Marketing, would be difficult to
replace. The Company's future success will depend in large part upon its ability
to attract, retain and motivate highly skilled employees. There is significant
competition for employees with the skills required to perform the services
offered by the Company and there can be no assurance that the Company will be
able to continue to attract and retain sufficient numbers of highly skilled
employees. Because of the complexity of the application integration software
market, the Company has in the past experienced, and expects in the future to
experience, a significant time lag between the date on which technical and sales
personnel are hired and the time at which persons become fully productive. If
the Company is unable to manage the post-sales process effectively, its ability
to attract repeat sales or establish strong account references could be
adversely affected, which may materially affect the Company's business,
operating results and financial condition. See "Management."
Risks Associated with International Operations. Although sales of the
Company's products outside of North America to date have represented an
insignificant portion of total revenues, the Company intends to expand its
operations in Europe and into Asia. These efforts will require significant
management attention and financial resources, as well as the development of
international versions of the Company's products. The
11
<PAGE> 15
Company has committed resources to the opening of international sales offices
and the expansion of international sales and support channels. There can be no
assurance that the Company's efforts to develop international sales and support
channels will be successful. International sales are subject to a number of
risks, including longer payment cycles, unexpected changes in regulatory
requirements, import and export restrictions and tariffs, difficulties in
staffing and managing foreign operations, the burden of complying with a variety
of foreign laws, greater difficulty in accounts receivable collection,
potentially adverse tax consequences, currency fluctuations, the imposition of
currency exchange or price controls, and political and economic instability
abroad. Additionally, intellectual property may be more difficult to protect
outside of the United States. If the Company increases its international sales,
its total revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower sales that typically occur during the summer
months in Europe and other parts of the world. In addition, the market for
application integration software outside of North America is not as developed
and there can be no assurance that it will grow at the same rate as in North
America or that, if it does develop rapidly, the Company will be successful in
such international markets.
Dependence on Relationships with Complementary Vendors. The Company
believes that, in order to provide competitive solutions for heterogeneous, open
computing environments, it will be necessary to develop, maintain and enhance
close relationships with database, data access, hardware and operating system
vendors. There can be no assurance that the Company will be able to maintain its
existing relationships or develop additional relationships with such vendors.
The Company's failure to do so could adversely affect the portability of the
Company's products to existing and new platforms and databases and the timing of
the release of new and enhanced products for the marketplace by the Company.
Protection of Intellectual Property; Risks of Infringement. The Company's
success and ability to compete is dependent in part upon its proprietary
technology. The Company relies on a combination of copyright, trademark and
trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect its proprietary rights. The Company
presently has no patents, but has three patent applications pending. Despite the
Company's efforts to protect its proprietary rights, existing copyright,
trademark and trade secret laws afford only limited protection. Moreover, the
laws of certain countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. In addition, attempts may be
made to copy or reverse engineer aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Accordingly, there
can be no assurance that the Company will be able to protect its proprietary
rights against unauthorized third-party copying or use, which could materially
adversely affect the Company's business, operating results or financial
condition. Moreover, there can be no assurance that others will not develop
products that infringe the Company's proprietary rights, or that are similar or
superior to those developed by the Company. Policing the unauthorized use of the
Company's products is difficult and litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition.
As is common in the software industry, the Company from time to time
receives notices from third parties claiming infringement by the Company's
products of third-party proprietary rights. On July 1, 1996, the Company was
notified that the Company's products may infringe proprietary rights of New
Paradigm Software Corp. ("New Paradigm"), an application integration software
company. New Paradigm alleged that NEONet's formatter will infringe certain
claims set forth in a patent application filed in the United States and Europe.
The Company does not believe such allegations have merit and, if pursued by New
Paradigm, the Company intends to vigorously defend such claim. There can be no
assurance, however, that other third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
application integration software developers will increasingly be subject to
infringement claims as the number of products in different industry segments
overlap. Any claims, including the specific claim by New Paradigm, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, financial condition and
operating results.
12
<PAGE> 16
The Company is also aware that a number of organizations are utilizing the names
Neon, New Era and Neonet as either a trademark or tradename or both. In
particular, the Company has received notices from NEON Systems, Inc. and Neon
Software, Inc. alleging the Company's use of NEON as a tradename and/or
trademark violates such respective companies' proprietary rights. Such claims or
any additional claims against the Company alleging trademark or tradename
infringement could be time-consuming and result in costly litigation. A
successful claim regarding the infringement of a trademark and/or tradename
could result in substantial monetary damages against the Company or an
injunction prohibiting the use by the Company of the particular trademark or
tradename. Any such injunction could materially adversely affect the Company's
corporate or product name recognition and marketing efforts. Accordingly, any
monetary damages or injunction could have a material adverse effect upon the
Company's business, financial condition and operating results. See
"Business -- Intellectual Property, Proprietary Rights and Licenses."
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain undetected errors or defects, especially when
first introduced or when new versions or enhancements are released. Testing of
the Company's products is particularly challenging because it is difficult to
simulate the wide variety of computer environments into which the Company's
application integration software is deployed. Despite product testing by the
Company and its customers, the Company has in the past shipped product releases
of NEONet with some defects and has discovered other software errors in its
products after their commercial shipment. There can be no assurance that,
despite testing by the Company and by current and potential customers, defects
and errors will not be found in new products or in new versions or enhancements
of existing products after commencement of commercial shipments. Although
defects have not materially and adversely affected the Company's operating
results to date, any defects discovered in the future could result in adverse
customer reaction, negative publicity regarding the Company, its products or
delay in or failure to achieve market acceptance, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business -- Research and Development."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the license and support of the Company's
software by the Company may entail the risk of such claims. A successful product
liability claim brought against the Company would have a material adverse effect
on the Company's business, operating results and financial condition.
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active public market for the Company's Common
Stock will develop or be sustained after the Offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriters and may not be indicative of the market price of the Common
Stock after the Offering. The trading price of the Company's Common Stock could
be subject to wide fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new products by the
Company or its competitors, developments with respect to patents or proprietary
rights, changes in financial estimates by securities analysts and other events
or factors. In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
Control by Existing Stockholders. Upon completion of this offering, the
directors, executive officers and principal stockholders of the Company and
their affiliates will, in the aggregate, beneficially own 72.5 % of the
Company's outstanding Common Stock (69.6% if the Underwriters' over-allotment
option is exercised in full). As a result, these stockholders, acting together,
will possess voting control over the Company, giving them the ability, among
other things, to elect at least a majority of the Company's Board of Directors
and to control the vote on significant corporate transactions. Such control
could delay, defer or prevent a change in control of the Company, impede a
merger, consolidation, takeover or other business combination involving the
13
<PAGE> 17
Company, or discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company. See "Management" and
"Principal Stockholders."
Effect of Certain Charter Provisions; Anti-Takeover Effects of Delaware
Law. Upon completion of this offering, the Company's Board of Directors will
have the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock. In
addition, the Company's Bylaws and indemnity agreements provide that the Company
will indemnify officers and directors against losses they may incur in legal
proceedings resulting from their service to the Company. Further, certain
provisions of the Company's charter documents and of Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are designed to reduce the
vulnerability of the Company to an unsolicited acquisition proposal. These
provisions are also intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a consequence,
they also may adversely affect the market price of the Company's Common Stock.
Such provisions also may have the effect of preventing changes in the management
of the Company. In addition, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined by such statute. The statute may have the effect of delaying, deferring
or preventing a change in control of the Company. See "Description of Capital
Stock."
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price for the Company's Common Stock. The 3,300,000 shares of Common
Stock offered hereby will be freely tradable without restriction in the public
market. The number of additional shares of Common Stock available for sale is
limited by restrictions under the Securities Act, as amended, as well as by
certain 180-day lock-up agreements entered into by stockholders and
optionholders of the Company. On the date of the Offering, all outstanding
shares of Common Stock are subject to these lock-up agreements and may not be
sold into the public market without the consent of UBS Securities LLC. Upon
expiration of the lock-up agreements 180 days following the date of this
Prospectus (or earlier, to the extent UBS Securities LLC may consent), a total
of 5,094,984 shares of Common Stock will be eligible for sale into the public
market under Rule 144, subject to certain volume and other limitations of Rule
144. In addition, the Company intends to register on a registration statement on
Form S-8, on the effective date of this Offering, a total of 3,500,000 shares of
Common Stock reserved for issuance under the Company's Amended and Restated 1995
Stock Option Plan, of which options to purchase 2,087,027 shares were
outstanding at December 31, 1996 (of these option shares, only 131,057 option
shares were vested and exercisable as of December 31, 1996), a total of 325,000
shares of Common Stock reserved for issuance under the Company's 1997 Employee
Stock Purchase Plan, and a total of 150,000 shares of Common Stock reserved for
issuance under the Company's 1997 Director Stock Option Plan. See "Shares
Eligible for Future Sale."
No Specific Plan for Significant Portion of Proceeds; Proceeds May Not Be
Invested to Yield Significant Returns. The Company currently has no specific
plans for a significant portion of the net proceeds of the Offering. As a
consequence, the Company's management will have the discretion to allocate this
portion of the net proceeds of this offering to uses that the stockholders may
not deem desirable, and there can be no assurance that these proceeds can or
will be invested to yield a significant return. Substantially all of the
proceeds of the Offering will be invested in short-term, interest-bearing,
investment grade securities for an indefinite period of time. See "Use of
Proceeds."
Dilution. Investors participating in the Offering will incur immediate,
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. To the extent that options or warrants to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
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<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,300,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $8.00 per share are estimated to be approximately $23,702,000 (approximately
$27,384,800 if the Underwriters' over-allotment option is exercised in full),
net of estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company. The principal purposes of the Offering are to
obtain additional working capital, establish a public market for the Company's
Common Stock, and facilitate future access to public markets.
The Company expects the net proceeds of the Offering to be used for general
corporate purposes, including working capital. A portion of the proceeds will
also be used to repay outstanding bank debt. As of December 31, 1996, the
Company had outstanding borrowings of approximately $1.0 million under a
$2,000,000 revolving credit facility used for working capital purposes and
$476,582 outstanding under a $1,000,000 equipment financing facility. The
Company's revolving credit facility and its equipment financing facility bear
interest at the bank's prime lending rate plus 1/2% and 1%, respectively. The
Company's revolving credit facility expires on September 5, 1997, while amounts
borrowed under the equipment financing facility would be due in monthly
installments from July 5, 1997 through June 5, 2000. In addition, up to
approximately $1.9 million of the proceeds will be used to pay certain royalty
obligations between the Company and Merrill Lynch. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." A portion of the
net proceeds may also be used to acquire or invest in complementary businesses
or products or to obtain the right to use complementary technologies. Although
from time to time the Company evaluates potential acquisitions of such
businesses, products or technologies, and anticipates continuing to make such
evaluations, the Company has no present understandings, commitments or
agreements with respect to any acquisition of other businesses, products or
technologies. Pending such uses, the proceeds will be invested in
interest-bearing securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. It is the
present policy of the Company to retain earnings to finance the growth and
development of the businesses and, therefore, the Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. In
addition, the Company's bank credit facilities contain certain covenants that
prohibit the Company from paying dividends without prior bank consent.
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<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1996 (after giving effect to the one-for-three
reverse stock split of Common Stock to be effective prior to the effectiveness
of this offering) (i) on an actual basis, (ii) on a pro forma basis to give
effect to the conversion of all outstanding Preferred Stock into Common Stock
upon the closing of the Offering and (iii) pro forma as adjusted to give effect
to the sale by the Company of 3,300,000 shares of Common Stock offered by the
Company hereby (after deducting underwriting discounts and commissions and
estimated offering expenses). This table should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................... $ 442 $ 442 $ --
Stockholders' equity(1)(2):
Convertible preferred stock, $.01 par value; authorized,
20,016,963 shares actual, issued and outstanding,
20,016,963 actual, none pro forma or pro forma as
adjusted................................................ 11,385 -- --
Preferred stock, undesignated, $.0001 par value;
authorized, 2,000,000 shares; issued and outstanding,
none.................................................... N/A -- --
Common stock, $.0001 par value; authorized, 45,000,000
shares; issued and outstanding, 2,038,641 shares actual,
8,710,962 pro forma and 12,010,962 pro forma as
adjusted................................................ 1 1 1
Additional paid-in-capital................................. 140 11,525 35,227
Accumulated deficit........................................ (8,011) (8,011) (8,011)
------- ------- -------
Total stockholders' equity......................... 3,515 3,515 27,217
------- ------- -------
Total capitalization............................... $ 3,957 $ 3,957 $27,217
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (i) 2,087,027 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's Amended and Restated 1995 Stock
Option Plan as of December 31, 1996 at a weighted average exercise price of
$3.29 per share, of which options to purchase 131,057 shares were
exercisable at December 31, 1996, as well as an additional 1,406,161 shares
of Common Stock reserved for future grant under such plan (after giving
effect to an increase in the number of shares reserved for issuance under
such plan in January 1997), (ii) 325,000 shares of Common Stock reserved for
future issuance under the Company's 1997 Employee Stock Purchase Plan
adopted in January 1997 and (iii) 150,000 shares of Common Stock reserved
for future issuance under the Company's 1997 Director Option Plan adopted in
January 1997. See Notes 5 and 9 of Notes to Consolidated Financial
Statements.
(2) All outstanding shares of Preferred Stock will automatically convert into
shares of Common Stock upon the closing of the Offering on a three-for-one
basis.
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<PAGE> 20
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$3,428,491 or $0.39 per share of Common Stock. Net tangible book value per share
is determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of shares of Common Stock
outstanding, after the assumed conversion of all outstanding Convertible
Preferred Stock upon closing of this Offering. After giving effect to the sale
by the Company of the 3,300,000 shares of Common Stock offered hereby (based
upon an assumed initial public offering price of $8.00 per share and after
deduction of estimated underwriting discounts and commissions and estimated
offering expenses), the Company's net tangible book value at December 31, 1996
would have been $27,130,491 or $2.26 per share. This represents an immediate
increase in net tangible book value to existing stockholders of $1.87 per share
and an immediate dilution to new investors of $5.74 per share.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $8.00
Net tangible book value per share as of December 31, 1996.......... $0.39
Increase in net tangible book value per share attributable to new
investors....................................................... 1.87
-----
Net tangible book value per share after offering..................... 2.26
-----
Dilution per share to new investors.................................. $5.74
=====
</TABLE>
The following table sets forth on a pro forma basis as of December 31,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid, and the average price per share paid
by the existing stockholders and by the new investors (based upon an assumed
initial public offering price of $8.00 per share before deduction of estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 8,710,962 72.5% $11,644,260 30.6% $1.34
New investors...................... 3,300,000 27.5 26,400,000 69.4 8.00
---------- ----- ----------- -----
Total............................ 12,010,962 100.0% $38,044,260 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options or warrants outstanding at December 31,
1996. As of December 31, 1996, there were options outstanding under the
Company's Amended and Restated 1995 Stock Option Plan to purchase a total of
2,087,027 shares of Common Stock at a weighted average exercise price of $3.29
per share, and (after giving effect to an increase in the number of shares
reserved for issuance under such plan in January 1997) an aggregate of 1,406,161
additional shares remained available for future grant. As of such date there
were also warrants outstanding to purchase 31,056 shares of Series C Preferred
Stock at an exercise price of $1.61 per share, which following the automatic
conversion of Series C Preferred Stock into Common Stock upon completion of the
Offering will be exercisable for 10,352 shares of Common Stock at an exercise
price of $4.83 per share. In addition, in January 1997 the Board of Directors
adopted a 1997 Employee Stock Purchase Plan and 1997 Director Option Plan and
reserved an aggregate of 325,000 and 150,000 shares, respectively, for issuance
thereunder. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors. See "Capitalization,"
"Management -- Employee Benefit Plans" and Notes 5 and 9 of Notes to
Consolidated Financial Statements.
17
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto, and with Management's Discussion and Analysis of Financial
Conditions and Results of Operations included elsewhere in this Prospectus. The
consolidated financial statement data for the years ended December 31, 1994,
1995 and 1996 are derived from the Company's audited consolidated financial
statements included elsewhere in this Prospectus. Historical results are not
necessarily indicative of results of operations to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
--------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses................................ $ -- $ -- $ 3,383
Services and maintenance......................... 149 1,271 3,762
----- --------- --------
Total revenues.............................. 149 1,271 7,145
Cost of Revenues:
Cost of software licenses........................ -- -- 1,022
Cost of services and maintenance................. 85 751 2,306
----- --------- --------
Total cost of revenues...................... 85 751 3,328
----- --------- --------
Gross profit..................................... 64 520 3,817
Operating Expenses:
Sales and marketing.............................. 178 549 4,425
Research and development......................... 423 1,116 3,658
General and administrative....................... 153 345 1,467
----- --------- --------
754 2,010 9,550
----- --------- --------
Loss from operations................................ (690) (1,490) (5,733)
Interest income (expense), net...................... (29) (13) 61
----- --------- --------
Net loss............................................ $(719) $ (1,503) $ (5,672)
===== ========= ========
Pro forma net loss per share........................ $ (0.61)
========
Pro forma weighted average shares of common stock
outstanding(1)................................... 9,239,749
=========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................ $127 $1,135 $3,387
Working capital (deficit)........................................ (55) 1,557 2,586
Total assets..................................................... 333 2,209 7,073
Long-term debt................................................... 780 318 442
Stockholders' equity (deficit)................................... (718) 1,591 3,515
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the weighted average shares of common stock outstanding used to compute
net loss per share.
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, that involve risks and
uncertainties. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors", as well as
other risks and uncertainties referenced in this Prospectus. In addition to the
other information in this Prospectus, the following factors should be considered
carefully in evaluating an investment in the Common Stock offered by this
Prospectus.
OVERVIEW
The Company began operations in January 1994 to develop, market and support
enterprise software for application integration. In 1994 and 1995, the Company
was in the development stage and was principally focused on product development
and the assembling of its management team and infrastructure. During these
years, the Company's strategy was to develop its application integration
software, demonstrate the Company's expertise, and finance a portion of product
development expenses through customer-funded services projects, principally one
large-scale application integration consulting and development project for
Merrill Lynch Group, Inc., a wholly-owned subsidiary of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). As a result of the Merrill Lynch
contract the Company recognized substantial revenues from professional services
in 1995 in connection with the development of NEONet and its installation at
Merrill Lynch. The Company completed and commercially introduced its initial
version of NEONet in January 1996 and completed the Merrill Lynch professional
services agreement in June 1996. In November 1996, the Company commenced
shipment to customers of Release 3.0 of NEONet, which provided additional
capabilities for effective enterprise-wide application integration.
As a result of the Company's focus on professional services activities in
its development stage, services and maintenance revenues increased from $149,000
in 1994 to $1.3 million in 1995 and to $3.8 million in 1996. As the Company has
transitioned to a focus on software licenses, software license revenues have
increased from no license revenue in 1994 and 1995 to $3.4 million in 1996, and
in each quarter of 1996 license revenues have increased as a percentage of total
revenue over the preceding quarter. The Company anticipates that professional
services will continue to be utilized to help gain penetration into new vertical
markets and will also continue to be an important adjunct to software license
sales. However, as the Company's business continues and the Company increasingly
focuses on software licenses, the Company believes that both license revenues
and associated maintenance revenues will increase, and professional services
revenues will continue to decline as a percentage of total net revenues.
Accordingly, the Company expects that future revenues will depend to a
significant degree on the successful market acceptance of the NEONet product.
Since the initial release of NEONet in January 1996, a substantial portion of
the Company's revenues have been attributable to licenses of NEONet and related
services. The Company currently expects that revenues attributable to NEONet and
related services will continue to account for a substantial majority of the
Company's revenues at least through 1997. Accordingly, the Company's future
operating results will be dependent upon the level of market acceptance of, and
demand for, NEONet. Any failure to continue to achieve market acceptance of
NEONet would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Product Concentration
and -- Uncertainty of Future Operating Results; Lengthy Sales Cycle;
Fluctuations in Quarterly Results."
The Company generates revenues from both professional service arrangements
and software license arrangements. Revenue from professional service
arrangements is recognized on either a time and materials or
progress-to-completion basis as the services are performed and amounts due from
customers are deemed collectible and contractually nonrefundable. The Company
recognizes license fee revenue when the licensed software has been delivered,
customer acceptance has occurred, all significant Company obligations have been
satisfied, payment is due within twelve months and the fee is fixed and
determinable and deemed collectible. Maintenance and support revenues related to
software licenses are recognized ratably over the term of each maintenance
arrangement. See Note 2 of Notes to Consolidated Financial Statements.
19
<PAGE> 23
In connection with the software development and license arrangement the
Company entered into with Merrill Lynch, the Company is obligated to pay
royalties to Merrill Lynch on software license revenues at a rate of 30% of net
revenues from licenses of NEONet, up to a total of $1.9 million in royalties.
Such royalty payments are accounted for as cost of software licenses. Through
December 31, 1996, a total of $1.0 million in such royalties have been accrued,
which shall be paid from the proceeds of this Offering.
The Company's operating expenses have increased steadily since inception as
the Company has sought to develop the infrastructure necessary to support a
growing business. Research and development expenses, relating principally to the
development of NEONet, increased from $423,000 in 1994 to $1.1 million in 1995
and $3.7 million in 1996. Sales and marketing expenses have also increased,
particularly in 1996, as the Company has expanded its commissioned sales force
from one person at December 31, 1995 to 14 as of December 31, 1996, increasing
from $179,000 in 1994 to $549,000 in 1995 and $4.4 million in 1996. Similarly,
the Company's general and administrative expenses have increased as the Company
has expanded its organization to support a growing business, from $153,000 as of
December 31, 1994 to $345,000 in 1995 and $1.5 million in 1996. The Company
believes that continued expansion of its operations is essential to achieving
its strategy and therefore intends to continue to increase expenditures in all
operational areas. Although the rate of these increases will depend upon a
number of factors, including the continued growth, if any, of the Company's
revenues, success in hiring the personnel sought by the Company to expand its
business and market acceptance of the Company's products, the planned
expenditures could result in the Company remaining unprofitable for at least
several quarters. The Company has not been profitable in any period to date, and
as of December 31, 1996 had an accumulated deficit of approximately $8.0
million. As a result of anticipated expenditure increases in the future, the
Company does not expect to be profitable for several quarters, and may never
achieve profitability unless revenues increase substantially. There can be no
assurance that the Company will achieve or sustain profitability on a quarterly
or annual basis in the future.
The Company's ability to manage its staff and facilities growth effectively
will require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to install new management
information and control systems and to expand, train, motivate and manage its
work force. There can be no assurance that the Company will install such
management information and control systems in an efficient and timely manner or
that the new systems will be adequate to support the Company's level of
operations. If the Company's management is unable to manage growth effectively
and new employees are unable to achieve targeted performance levels, the
Company's business, operating results and financial condition would be
materially adversely effected. See "Risk Factors -- Management of Growth."
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The Company's revenues increased from $149,000 for the year ended December
31, 1994 to $1.3 million in the year ended December 31, 1995, as the Company
grew customer-funded development and related services projects. Revenues for the
fiscal year ended December 31, 1996 increased to $7.1 million due to the
significant increase in software license revenues during 1996. As noted above,
the Company's operating expenses have increased steadily over these periods as
the Company has sought to develop the infrastructure necessary to support a
growing business. Research and development expenses, relating principally to the
development of NEONet, increased from $423,000 in 1994 to $1.1 million in 1995
and $3.7 million in 1996. Sales and marketing expenses have also increased,
particularly in 1996, as the Company has expanded its commissioned sales force
from one person at December 31, 1995 to 14 as of December 31, 1996, increasing
from $179,000 in 1994 to $549,000 in 1995 and $2.8 million in 1996. Similarly,
the Company's general and administrative expenses have increased as the Company
has expanded its organization to support a growing business, from $153,000 as of
December 31, 1994 to $345,000 in 1995 and $1.5 million in 1996.
QUARTERLY RESULTS OF OPERATIONS
Because of the significant increases in the level of operations of the
Company from year to year during its short operating history, the Company does
not believe year to year comparisons are particularly meaningful. Accordingly
the following discussion focuses on the Company's quarterly results for the five
quarters in the period ended December 31, 1996. However, even with respect to
quarterly results, in view of the Company's
20
<PAGE> 24
limited operating history, recent growth and other factors enumerated under
"Risk Factors" and elsewhere herein, the Company believes that
quarter-to-quarter comparisons of its financial results should not be relied
upon as an indication of future performance, and operating results may fluctuate
from quarter to quarter in the future. It is possible that the Company's future
quarterly operating results from time to time may not meet the expectations of
stock market analysts or investors, which would likely have an adverse effect on
the market price of the Company's Common Stock. See "Risk Factors -- Uncertainty
of Future Operating Results; Lengthy Sales Cycle; Fluctuations in Quarterly
Results."
Future operating results will depend on many factors, including, among
others, the growth of the application integration software market, the size and
timing of software licenses, the delay or deferral of customer implementations,
the ability of the Company to maintain or increase market demand for the
Company's products, the timing of new product announcements and releases by the
Company, competition by existing and emerging competitors in the application
integration software market, the ability of the Company to expand its direct
sales force and develop indirect distribution channels, the Company's success in
developing and marketing new products and controlling costs, budgeting cycles of
customers, product life cycles, software defects and other product quality
problems, the mix of products and services sold, international expansion, and
general domestic and international economic and political conditions. A
significant portion of the Company's revenue has been, and the Company believes
will continue to be, derived from a small number of relatively large customer
contracts or arrangements, and the timing of revenue recognition from such
contracts and arrangements has caused and may continue to cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. Quarterly revenue and operating results typically depend upon the volume
and timing of customer contracts received during a given quarter, and the amount
of revenues associated with each such contract which the Company is entitled to
recognize during such quarter, each of which is difficult to forecast. In
addition, as is common in the software industry, a substantial portion of the
Company's revenues in a given quarter historically have been recorded in the
third month of that quarter, with a concentration of such revenues in the last
two weeks of the third month. To the extent this trend continues, any failure or
delay in the closing of orders during the last part of any given quarter will
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, the timing of license revenue is difficult to predict because
of the length and variability of the Company's sales cycle. The purchase of the
Company's products by its customers typically involves a significant technical
evaluation and commitment of capital and other resources, with the attendant
delays frequently associated with customers' internal procedures to approve
large capital expenditures and to test, implement and accept new technologies
that affect key operations. This evaluation process frequently results in a
lengthy sales process of several months and subjects the sales cycle associated
with the purchase of the Company's products to a number of significant risks,
including customers' budgetary constraints and internal acceptance reviews. The
length of the Company's sales cycle may vary substantially from customer to
customer, particularly for customers within different vertical market segments.
See "Business -- Sales and Marketing." The Company's operating expense levels
are relatively fixed and are based in part on expectations as to future
revenues. Consequently, any delay in the recognition of revenue from quarter to
quarter could result in operating losses. To the extent that such operating
expenses precede, or are not subsequently followed by, increased revenues, the
Company's operating results would be materially adversely affected.
The following tables present unaudited quarterly consolidated statement of
operations data for the fourth quarter of 1995 and the four quarters of 1996, as
well as such data expressed as a percentage of the Company's revenues for the
periods indicated. This data has been derived from unaudited consolidated
financial statements that have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a fair
presentation of such information.
21
<PAGE> 25
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
DEC. 31, 1995 MARCH 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
------------- -------------- ------------- -------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software licenses........... $ -- $ 111 $ 411 $ 832 $ 2,029
Services and maintenance.... 629 945 1,186 841 790
------- -------- ------- -------- -------
Total revenues......... 629 1,056 1,597 1,673 2,819
------- -------- ------- -------- -------
Cost of revenues:
Cost of software licenses... -- 33 123 252 614
Cost of services and
maintenance............... 397 677 713 455 461
------- -------- ------- -------- -------
Total cost of
revenues............. 397 710 836 707 1,075
------- -------- ------- -------- -------
Gross profit................ 232 346 761 966 1,744
Operating expenses:
Sales and marketing......... 142 320 1,010 1,469 1,626
Research and development.... 416 608 736 1,142 1,172
General and
administrative............ 126 175 380 475 437
------- -------- ------- -------- -------
684 1,103 2,126 3,086 3,235
------- -------- ------- -------- -------
Loss from operations........ (452) (757) (1,365) (2,120) (1,491)
Other income, net........... 15 2 7 49 3
------- -------- ------- -------- -------
Net loss.................... $ (437) $ (755) $(1,358) $ (2,071) $(1,488)
======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
DEC. 31, 1995 MARCH 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues:
Software licenses.............. --% 11% 26% 50% 72%
Services and maintenance....... 100 89 74 50 28
----- ----- ----- ----- -----
Total revenues......... 100 100 100 100 100
----- ----- ----- ----- -----
Costs of revenues:
Cost of software licenses(1)... -- 30 30 30 30
Cost of services and
maintenance(2).............. 63 72 60 54 58
----- ----- ----- ----- -----
Total cost of
revenues............. 63 67 52 42 38
----- ----- ----- ----- -----
Gross profit................... 37 33 48 58 62
Operating expenses:
Sales and marketing............ 23 30 63 88 58
Research and development....... 66 58 46 68 42
General and administrative..... 20 17 24 29 15
----- ----- ----- ----- -----
Total costs and
expenses............. 109 105 133 185 115
----- ----- ----- ----- -----
Loss from operations........... (72) (72) (85) (127) (53)
Other income, net.............. 2 -- -- 3 --
----- ----- ----- ----- -----
Net loss............... (70)% (72)% (85)% (124)% (53)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) As a percentage of software license revenue.
(2) As a percentage of services and maintenance revenue.
22
<PAGE> 26
REVENUES
The Company's total revenues increased in each of the five quarters in the
period ended December 31, 1996. Software license revenues were not significant
until the initial introduction of the Company's NEONet software in January 1996
and, more significantly, the release of NEONet version 3.0 in November 1996.
From the quarter ended March 31, 1996 through the quarter ended December 31,
1996, software license revenues increased each quarter in 1996, reflecting
growing market awareness of the Company's products, the continuing development
of an installed base of customers to serve as references for additional
customers, the introduction of NEONet version 2.2 in June 1996, and emerging
market acceptance of the Company's software products, particularly in the
financial services industry. Services and maintenance revenues increased each
quarter through June 30, 1996, after which services and maintenance revenues
declined in the balance of the year, primarily due to the completion of the
professional services contract with Merrill Lynch in the quarter ended June 30,
1996. The Company expects that revenues derived from services will continue to
decline as a percentage of total revenue. However, the Company expects that
maintenance revenue will increase as the Company's installed base of software
licenses increases.
COST OF REVENUES
Cost of revenues consists of costs of software licenses and costs of
services and maintenance. Cost of software licenses consists primarily of
royalty payments. The Company has a royalty agreement to pay 30% of software
revenue license fees collected to Merrill Lynch until such royalties reach a
cumulative total $1.9 million. The Company plans to pay off the remainder of the
obligation with proceeds from this offering. Royalty payments are accounted for
as cost of software licenses. As a result, cost of software licenses has been
approximately 30% in the quarters in which the Company has had software license
revenues. At December 31, 1996, total royalties due to Merrill Lynch were
approximately $1.0 million.
Cost of services and maintenance consists primarily of personnel, facility
and system costs incurred in providing customer care (maintenance and support),
which include customer support, training, and consulting services. The reduction
in cost of service and maintenance in the quarters ending September 30, 1996 and
December 31, 1996 was a result of reassigning staff from service efforts to
research and development.
OPERATING EXPENSES
Research and Development Expenses
Research and development expenses have increased quarter to quarter in the
periods indicated, from $416,000 in the quarter ended December 31, 1995 to $1.2
million in the quarter ended December 31, 1996, as the Company has continued to
develop its software products and to hire engineering personnel. The Company
anticipates that research and development expenses will continue to increase as
the Company continues to develop new and enhanced software products. Such
expenses may fluctuate from quarter to quarter, both in total expenditures and
as a percentage of total revenue, depending upon the status of various
development projects and the rate of growth, if any, of the Company's sales.
Research and development expenses have been expensed as incurred. Under the
criteria set forth in Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," capitalization of software development costs begins upon the
establishment of technological feasibility of the product and ends when the
product is ready for general release. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware
technology. The Company believes that costs incurred through December 31, 1996,
which satisfy the above criteria were immaterial and, therefore, no software
development costs have been capitalized by the Company to date.
23
<PAGE> 27
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries, commissions and
promotional expenses and other related expenses of sales and marketing
personnel, and increased from $142,000 in the quarter ended December 31, 1995 to
$1.6 million in the quarter ended December 31, 1996. Sales and marketing
expenses have increased quarter to quarter as the Company has continued to
expand its overall sales and marketing resources and business infrastructure.
Such expenses increased in particular in the quarters ended June 30, 1996 and
September 30, 1996 as the Company placed sales personnel in Massachusetts,
California, Colorado, Illinois, Texas, Pennsylvania and the United Kingdom and
increased its sales force from five persons at March 31, 1996 to 14 at December
31, 1996. The Company expects to continue to expand its sales and marketing
resources, both by expansion of the Company's direct sales force and the
continued development of indirect distribution channels and other promotional
activity. Accordingly, the Company anticipates that sales and marketing expenses
will continue to increase in absolute dollars, although such expenditures may
vary as a percentage of total revenues depending upon the rate of growth in the
Company's revenue, if any.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related expenses of administrative, executive and financial personnel and other
outside professional fees, and increased from $126,000 in the quarter ended
December 31, 1995 to $437,000 in the quarter ended December 31, 1996. General
and administrative expenses have increased quarter to quarter as the Company has
continued to build the infrastructure to support its business, including the
implementation of financial and, human resource systems and the establishment of
a legal department. These expenses are expected to increase in absolute dollars
in the future as the Company expands its administrative staff, including in
particular its finance organization, implements additional management
information systems, and undertakes various accounting and legal activities
required in connection with becoming a public company.
OPERATING LOSSES
The Company incurred an operating loss in each of the five quarters in the
period ended December 31, 1996. These losses resulted from the Company's
continued investment in infrastructure to support expanding operations, as
discussed above. As a result, the Company had an accumulated deficit of $8.0
million as of December 31, 1996.
OTHER INCOME, NET
Other income, net, consists primarily of interest expense on the Company's
note payable to a certain stockholder and interest income earned on its cash and
cash equivalents in 1995. The 1996 amount consists of interest earned on cash
and short-term investments, offset by interest expense on short-term borrowings.
See "Certain Transactions" and Note 3 of Notes to Consolidated Financial
Statements.
PROVISION FOR INCOME TAXES
From inception through May 1995, the Company was an S corporation for
income tax purposes and its taxable loss and tax credits were included in the
personal tax return of its stockholders. For the remainder of 1995 and
prospectively, items of taxable income and expense are reported in the corporate
income tax returns of the Company. The Company had a net loss for the period
ended December 31, 1995 which resulted in a net operating loss for federal and
state income tax purposes of approximately $6.4 million, which expires beginning
in 2010. The Company's utilization of its net operating losses may be limited in
the event of any future ownership change within the meaning of the Tax Reform
Act of 1986 and similar state provisions.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." See Note
4 of Notes to Consolidated Financial Statements.
24
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations, research and
development and capital expenditures primarily through private placements of a
total of $11.4 million of convertible preferred stock as well as debt financing.
During 1995 and 1996, operating activities utilized $1.6 million and $5.4
million in cash, respectively. This cash utilization was primarily a result of
net operating losses, as well as increased working capital associated with
growing operations, particularly increases in accounts receivable. Cash
generated by financing activities was $3.0 million in 1995 and $8.7 million in
1996, respectively, primarily due to issuances of preferred stock. Capital
expenditures totaled $301,000 in 1995 and $1.1 million in 1996, primarily for
computer equipment, software and telecommunications equipment. The Company
expects that its capital expenditures and office space requirements will
increase as the Company's employee base grows. The Company's principal current
commitments consist primarily of leases on its office facilities. See Note 7 of
Notes to Consolidated Financial Statements.
At December 31, 1996, the Company had $3.4 million in cash and cash
equivalents and $2.6 million in working capital. The Company has a $2.0 million
revolving credit facility and $1.0 million equipment financing facility with a
bank, which expire on September 5, 1997 and June 5, 2000, respectively. These
credit facilities are secured by all assets of the Company with the exception of
certain intangibles. Borrowings on the revolving credit facility are limited to
75% of the Company's eligible accounts receivable. Eligible accounts receivable
include accounts receivable that have been outstanding less than 90 days from
the date of the invoice (excluding accounts in which more than 50% of the
account is outstanding more than 90 days from the invoice date and certain other
accounts). At December 31, 1996, borrowings on the line of credit totaled
$1,006,438, and borrowings on the equipment financing facility totalled
$476,582. The Company's credit facilities contain certain financial covenants
and restrictions as to various matters including the Company's ability to pay
cash dividends and effect mergers or acquisitions without the bank's prior
approval. The Company is currently in compliance with such financial covenants
and restrictions. See Note 3 of Notes to Consolidated Financial Statements.
The Company anticipates that the net proceeds of this Offering, together
with the Company's existing balances of cash and cash equivalents and borrowings
available under the Company's credit facilities, will be sufficient to meet the
Company's working capital and capital expenditure needs for at least the next 12
months. Thereafter, the Company may require additional sources of funds in order
to continue to support its business. There can be no assurance that such
capital, if needed, will be available or will be available on terms acceptable
to the Company. If the expected closing of the initial public offering is
significantly delayed or suspended, the Company believes that funding sufficient
to continue operations at least for the remainder of 1997 can be obtained
through other sources.
25
<PAGE> 29
BUSINESS
NEON develops, markets and supports application integration software and
provides application integration services. The Company's flagship software
suite, NEONet, provides organizations with a structured software platform for
the integration of disparate systems and applications across the enterprise, a
process known as application integration. NEONet facilitates the rapid and
efficient deployment and ongoing maintenance of application integration across
the enterprise. NEONet supports a heterogeneous environment of hardware,
operating system, network and database platforms, permits organizations to
leverage existing legacy systems, and accommodates the extension of the
corporate information systems environment to new enterprise applications and to
new computing paradigms such as the Internet/Intranet.
The Company shipped NEONet to a total of fourteen customers in the
financial services, health care, retail, communications, and other industries.
Representative customers of the Company include Merrill Lynch, Chase Manhattan
Bank, Credit Suisse, ADP Financial Information Services, Ernst & Young, Jackson
Memorial Hospital, KN Energy and Pacific Investment Mortgage Company. The
Company markets its software and related services primarily through a direct
sales organization, complemented by other indirect sales channels including VARs
and international distributors. As part of this strategy, the Company has
established reseller and joint marketing relationships with firms such as
Hewlett-Packard, Sun Microsystems, SunGard Financial Systems, Andersen
Consulting and Ernst & Young.
INDUSTRY BACKGROUND
Organizations today are under increasing pressure to respond to a number of
powerful market forces to remain competitive. Forces such as globalization and
deregulation have led to industry consolidation and a focus on cost, quality,
and customer service. In response to the increasingly competitive environment,
companies have acquired other businesses, diversified operations geographically,
engaged in business process reengineering, and sought to tighten relationships
with key suppliers, distributors, and customers. The implementation of IT based
solutions, increasingly seen as strategic competitive assets, has been and will
continue to be a critical part of these efforts. Information systems are used to
disseminate critical corporate information across the enterprise, to streamline
operations, and to improve organizational flexibility and responsiveness.
The Complexity of Today's Enterprise Application Environment
The range of computing environments and software applications utilized
across the typical business organization is vast and growing, involving both
mainframe and minicomputer-based legacy systems and more recently introduced
client/server environments. Organizations are incorporating powerful, new
software applications that operate on an enterprise-wide basis and also serve as
interfaces to customers and suppliers. At the same time, organizations are
seeking to better exploit their existing information systems and take advantage
of their prior technology investments by integrating previously independent
legacy and other applications and databases.
Critical software applications historically were developed for large
mainframe-based computing environments and, later, minicomputer-based systems.
Many organizations still rely on these legacy systems for high-volume
transaction processing and maintenance of critical data. These legacy
applications were typically designed for the specific business functions of a
single department, such as inventory control or payroll, and did not interface
with other applications across the enterprise. Moreover, legacy systems operated
on one central computer with one operating system and one database system. As
the need to automate additional critical business functions throughout the
enterprise increased, additional specialized applications were written, again
typically without regard for interoperation with other applications.
Additionally, the recent growth of the Internet and the use of Intranets have
led to the emergence of another class of enterprise applications, adding another
dimension of complexity to the problem of integrating business applications
across the enterprise.
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Business Drivers of Application Integration
Organizations are increasingly demanding greater information sharing among
their application systems in order to help the organization accomplish key
strategic objectives. These organizational objectives include the following:
Enhancement of Customer Service and Customer Care. As organizations
attempt to better understand and meet the needs of their customers, they
are recognizing that much of the information necessary to obtain a unified
view of the customer is widely dispersed across numerous incompatible
application systems. For example, an organization that wants to better
understand a customer's purchasing history may need to integrate data
stored in separate systems in marketing, sales and other departments.
Similarly, a company seeking to improve customer service through a call
center application must be able to share information with order-tracking
software, which in turn must be accessible by salespeople in the field.
Efficient Management of Internal Resources and the Supply Chain. Many
companies are seeking to achieve greater productivity and efficiency across
functional areas, such as integration of sales forecasts and manufacturing
planning in order to improve inventory management. In addition, many
companies are tightening their relationships with key suppliers and
distributors to improve responsiveness to new market conditions. For
example, more companies are using "just-in-time" manufacturing techniques
that require better sharing of information between a company and its
suppliers.
Improved Risk Management. Rapidly changing markets and economic
conditions have driven businesses to seek a more integrated view of their
risk profile. For example, organizations need to manage cash, accounts
receivable, and aggregate customer exposure in more timely and
comprehensive ways. As another example, financial institutions need to
analyze and manage their financial exposure on a real-time basis across
different securities, trading markets and currencies. Providing a
consolidated, enterprise-wide view of risk requires the timely integration
of data residing on different systems and in different departments.
Pursuit of New Growth Opportunities. Many organizations have in recent
years extended their operations overseas as globalization and deregulation
have opened new markets. In addition, organizations have sought to pursue
additional market opportunities through mergers and acquisitions. As
organizations have extended operations overseas, they have adopted
applications that address the specific needs of each local market. As they
have acquired new businesses, they have inherited additional systems and
applications. All of these systems must be integrated with a company's
existing applications in order to manage and expand the enterprise
efficiently.
Implementation of Tactical Initiatives. Application integration is
essential to many tactical corporate initiatives, including business
process reengineering, implementation of best of breed enterprise
applications, data warehousing and database replication, electronic
commerce, and the incorporation of Internet/Intranet technologies.
Effective application integration strategies are critical to an
organization's ability to respond to changing market demands, seizing new market
opportunities, improve customer service, and realize planned business process
improvements. However, organizations today face major challenges in attempting
to integrate their disparate and distributed application systems.
Challenges in Achieving Application Integration
Organizations have historically addressed the need to integrate
applications by means of a number of narrow integration techniques, including
data extract programs, screen scraping, file transfers and update programs as
well as data sharing and data synchronization. These techniques have typically
been implemented in an ad hoc manner to address specific integration
requirements as they have arisen over time. Accordingly, they have generally
required extensive manual custom software coding and provided limited
functionality, flexibility and scaleability, and require a costly and burdensome
ongoing maintenance process. As a result of
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the limitations of these techniques, additions of new applications and changes
in the business processes addressed by different applications have required
continual and extensive rewrites of existing applications with attendant costs,
delays and errors. According to Gartner Group, Inc., in a typical computing
environment, 35% to 40% of all programming effort is devoted to developing and
maintaining the extract and update programs whose only purpose is to transfer
information between different databases.
Gartner Group refers to the complex market of individual, unstructured
integration among disparate applications as "interapplication spaghetti."
A chart titled "Interapplication Spaghetti" demonstrating a host of
different application systems with many arrows in between each one.
The Application Integration Market Opportunity
The need to utilize information and information technology as strategic
assets, together with the proliferation of disparate applications across
enterprises and the limitations inherent in historical application integration
methodologies, have created a need for packaged application integration software
solutions. Organizations require an integrated solution that can untangle the
existing interapplication spaghetti and provide a scaleable infrastructure that
supports rapid and efficient updates to integration implementations as
additional applications are added and business rules change. This solution must
support a heterogeneous environment of hardware, operating system, networking
and RDBMS platforms, permit an organization to leverage its existing legacy
systems and accommodate the extension of the corporate information systems
environment to new enterprise applications and to new computing paradigms such
as the Internet/Intranet.
SOLUTION
NEON has become a leading provider of application integration software
through its unique integrated approach to addressing the challenges of
application integration. The Company's flagship software suite, NEONet, provides
organizations with a structured software platform for application integration,
facilitating the rapid and efficient deployment and ongoing management of
application integration among disparate applications across the enterprise.
NEONet addresses the limitations of earlier application integration paradigms by
providing in a packaged integrated software solution the various elements
required to address the application integration challenge in a scaleable and
flexible manner. NEONet consists of three interoperable modules, which may be
purchased as a unit or separately, Messaging and Queuing, Formatter and Rules
Engine, together with a suite of libraries and tools. The Messaging and Queuing
module provides guaranteed
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real-time delivery of data transactions across heterogeneous applications. The
Formatter module provides dynamic formatting of data messages to meet the native
format requirements of different applications. The Rules Engine module enables
an organization to define and fulfill the data requirements of different
applications through sophisticated and easily modifiable business rules.
This packaged application solution offers the following key benefits:
Enhances IT Productivity. NEONet enhances IT productivity by freeing
programmers from the complex, time-consuming and error-prone process of
manually writing custom integration code in a piecemeal manner each time an
application is added or modified or a business process changes. By
providing a structured platform for managing application integration,
NEONet reduces application development time and the ongoing burden and
expense of maintenance associated with writing custom code. This enables
organizations to manage application integration more easily as business
needs evolve. Accordingly, NEONet enables organizations to address the
growing backlog of integration requirements.
Provides Flexible, Long-Term Platform for Application Integration. As
a structured platform for application integration, NEONet accommodates
changes ranging from the addition of new applications to the incorporation
of new technologies. NEONet's architecture also enables IT organizations to
quickly disseminate these changes throughout the entire enterprise.
Preserves Existing IT Investment. By permitting the integration of new
computing platforms and applications with legacy systems, NEONet helps to
preserve the investment that organizations have made in existing mainframe
and minicomputer-based systems, while serving as a bridge to client/server
and Internet/Intranet based applications. NEONet is also particularly
useful in data warehousing and data mining efforts, in which valuable
corporate data residing in legacy systems is retrieved and reformatted for
new applications.
Improves Efficiency of Enterprise IT Environment. While historical
approaches to application integration have typically permitted only batch
processing, NEONet's high throughput capability enables organizations to
provide real-time data delivery of information across a broad variety of
systems. NEONet also improves the reliability of the IT environment by
guaranteeing delivery of the data messages sent and received by
applications exactly once and in the precise order in which they were sent.
By removing the bottlenecks to data integration, NEONet enables a broad
variety of critical, emerging business applications such as data
replication, data warehousing, and transaction-oriented applications.
STRATEGY
The Company's objective is to establish NEONet as the leading standard for
application integration across the enterprise. Key elements of the Company's
strategy include:
Expand Vertical Markets. The Company plans to increase the number of
vertical market segments it serves using a strategy established by the
Company in the technically demanding financial services market for which
the Company initially developed NEONet. The Company penetrated the
financial services market by leveraging the industry experience of the
Company's founders and other key personnel and by collaborating with a
number of strategic customers. The Company's strategy is to penetrate
additional vertical markets, including health care, telecommunications and
manufacturing, by establishing development relationships with strategic
customers and by leveraging an understanding of customer needs in these
specific markets.
Maintain Technological Leadership. The Company is an early entrant in
the emerging application integration market, and seeks to maintain a
leadership position by continuing to provide innovative application
integration solutions. NEON was the first company to offer a single
integrated solution combining messaging and queuing, dynamic formatting and
rules-based processing. NEON was also the first to offer a scaleable rules
engine that can process high volumes of messages in real-time using large
numbers of complex processing rules. The Company continues to focus on the
support of additional current and emerging computing platforms. The Company
released NEONweb in December 1996, extending the NEONet solution to
Internet/Intranet applications, providing assured communications
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from HTML, Java and CGI applications to web-based servers, and legacy and
client/server based information systems.
Expand Sales Capability Worldwide. The Company's strategy is to expand
its sales and marketing capabilities in order to address the worldwide
market for its products. In 1996, the Company increased its direct sales
capabilities from one commissioned sales person at January 31, 1996 to 14
at September 30, 1996. The Company intends to continue to expand its global
sales coverage through additional international direct sales offices and
the expansion of indirect channels. In this regard, the Company has
established reseller and joint marketing relationships with OEMs,
independent software vendors, VARs and systems integration firms such
Hewlett-Packard, Sun Microsystems, SunGard Financial Systems, Andersen
Consulting and Ernst & Young.
Develop Cross-Industry Applications. In addition to its focus on
strategic vertical markets, the Company has targeted the development and
marketing of NEONet to specific applications which have significant
importance across different vertical segments. The Company has focused on
data replication and warehousing applications, in which NEONet permits an
organization to extract data from multiple historical databases and
reformat that data for ready access via data warehouses. The Company has
also targeted electronic commerce, including electronic data interchange
(EDI) and Internet/Intranet integration, as well as customer service call
centers, in which organizations are seeking to connect to legacy
applications in order to enhance customer service.
PRODUCTS AND SERVICES
NEONet Software
The Company's NEONet software provides organizations with a structured
software platform for the rapid and efficient development and ongoing management
of application integration among disparate applications across the enterprise.
The principal modules of NEONet and associated libraries and tools are as
follows:
<TABLE>
<CAPTION>
FIRST
PRODUCT NAME RELEASE FUNCTION BENEFIT
- ------------------------- -------- -------------------------------------- --------------------------------------
<S> <C> <C> <C>
NEONet................... Jan. 96 Processes high volumes of data Provides application integration
transactions between heterogenous across heterogeneous environments.
systems to enable application
integration across the enterprise.
Message and Queuing.... High performance, asynchronous data Provides guaranteed delivery of
message and queuing transport transactions once and only once and
mechanisms. maintains transaction integrity.
Formatter.............. Dynamic real-time translator of Enables heterogeneous applications to
messages to multiple required formats. communicate seamlessly.
Rules Engine........... Publish/subscribe, propagation and Allows real-time routing of data
synchronization tool with intelligent transactions across the enterprise,
routing. based on readily modifiable business
rules and the data content of each
message.
NEONweb.................. Dec. 96 Guaranteed delivery of data Provides transaction integrity for
transactions from web clients to web electronic commerce applications.
servers and to legacy systems.
NEOCAS................... Oct. 96 Interface module to Society of Reduces the time and effort required
Worldwide Interbank Financial to accept and reformat messages to a
Telecommunication (SWIFT) protocol customer's own applications.
used by financial institutions
worldwide.
NEONreplication.......... Jun. 96 Data replication module to update and Allows timely updates of dispersed
synchronize multiple heterogeneous critical databases without the need
databases. for extensive custom coding.
</TABLE>
Messaging and Queuing. The foundation of the NEONet architecture is the
NEONet Messaging and Queuing module, which provides the Company's basic
asynchronous transport vehicle. The Messaging and
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Queuing module sends transactions from one application to another, consisting of
instructions or data between applications and databases, and provides for
guaranteed delivery of each message once and only once and in the same order the
messages are sent. The system uses a message queue for the sending system to
ensure that the sending system can distribute a high volume of messages in real
time without the need to wait for confirmation of receipt, as well as a message
queue for the recipient system to ensure that the recipient system can download
messages when available. The NEONet Messaging and Queuing module is offered at
list prices ranging from $18,000 to $85,000 per server, depending upon the class
of server on which the product is operated.
Formatter. The NEONet Formatter module can be added to the Messaging and
Queuing module to provide for dynamic reformatting of data messages in real time
so they may be accepted and read by multiple receiving applications in
heterogeneous environments. The NEONet Formatter parses and reformats messages
by translating messages among different protocols, programming languages,
applications, and hardware platforms. The sending application can issue a
message in a single format, and the dynamic formatter reformats the message into
the new format required by each receiving application, a function that is
critical to supporting database replication and application integration. The
Formatter module is sold at list prices ranging from $25,000 to $150,000 per
server, depending upon the class of server on which the product is operated.
Rules Engine. The NEONet Rules Engine module provides for the publishing of
a sending application's single message to multiple recipient applications and
databases, in each case in the proper format for the designated recipient, based
upon a set of user-defined business rules. Each receiving application registers
or subscribes to the data generated by multiple applications which, by
specifying the values of data in the transactions that are of interest, enables
each subscribing application to receive only the data it requires. The Rules
Engine module is based on a proprietary, high-speed, scaleable architecture that
can support high numbers of business rules while continuing to provide real-time
data access and distribution. This enables an organization to prescribe
sophisticated rules that determine which data needs delivery to specific
applications and databases and under which circumstances. These rules can be
readily modified or updated as business requirements change. The Rules Engine
module is offered at list prices ranging from $25,000 to $150,000 per server,
depending upon the class of server on which the product is operated.
NEONweb. NEONweb is a complementary module to the NEONet platform that
facilitates the integration of Internet/Intranet environments with legacy and
client/server-based systems. NEONweb extends to the Internet/Intranet the
security of NEONet's guaranteed message delivery and receipt. This functionality
is essential for electronic commerce on the Internet, including both electronic
data interchange and consumer commerce. NEONweb is offered at a list price of
$25,000 per server and requires a license of the NEONet Messaging and Queuing
module.
NEOCAS. The Company's NEOCAS module facilitates application integration
using the SWIFT interface standard commonly used for financial processing among
financial institutions worldwide. This module requires a license of the NEONet
Messaging and Queuing and Formatting modules and is offered at a list price of
$35,000 per server.
NEONreplication. The NEONreplication module is a set of libraries that
facilitates the automatic update and synchronization of multiple databases for
the purpose of database replication. Database replication is essential for
sophisticated, real-time applications in the financial services and other
industries, as it permits the maintenance in real time of multiple databases.
The NEONreplication module is offered at list prices ranging from $15,000 to
$75,000 per server, depending upon the class of server on which it is operated.
Customer Services
As part of its commitment to provide a total solution to customer needs,
the Company offers the following customer services:
Customer Care. In conjunction with its software license products, NEON
offers an array of service and support services that focus on providing
product education to both external and internal customers, as
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well as specialized work request reporting and tracking services. The
Company's customer care service offerings include both a basic five day a
week, twelve hour a day customer hotline and an extended seven day a week,
twenty-four hours a day support hotline. The Company's standard term for
customer care agreements is twelve months.
Professional Services. The Company provides for NEONet software
installation and consulting services as well as generalized consulting on
the design and development of enterprise-wide application integration
utilizing the Company's expertise in client/server, Internet/Intranet and
database management technologies. The Company's initial relationships with
customers historically have involved a one-time limited engagement
involving professional services, particularly as the Company has sought to
address a new vertical market segment. This has often expanded into
licenses of the Company's application integration software products. NEON
offers professional services in conjunction with other professional service
organizations and system integrations.
Fee-based Training Services. The Company offers its customers, for an
additional fee, comprehensive training in NEON software products. These
courses are conducted at both NEON's corporate facilities in Denver and New
York City as well as at several customer locations.
CUSTOMERS AND CUSTOMER APPLICATIONS
Customers
From initial shipment of the NEONet software in January 1996 through
December 31, 1996, the Company shipped NEONet to a total of fourteen customers
in the financial services, health care, retail, telecommunications and utilities
industries. Five customers of the Company together accounted for more than 72%
of the Company's total revenues in 1996. One customer, Merrill Lynch, accounted
for 69% of net revenues in 1995 and 22% in 1996, respectively. Representative
customers of the Company's products and services include the following:
<TABLE>
<S> <C>
ADP Financial Information Services J.P. Morgan & Co.
Chase Manhattan Bank CIGNA
Credit Suisse KN Energy
Deutsche Morgan Grenfell Merrill Lynch
The DMW Group Muhlenberg Hospital
Ernst & Young Pioneering Management Corporation
Fidelity Asset Services Group SunGard Financial Systems
Informatics Corporation Thomson Financial Services
Ingalls Hospital and Medical Center Total Petroleum
Jackson Memorial Hospital
</TABLE>
Customer Applications
The following customer case studies illustrate the application integration
challenges facing typical customers of the Company and the means by which NEONet
has facilitated achievement of the customers' goals.
Extending Database Access to Customers. A leading provider of data
processing services processes and stores three million customer transactions a
day on its mainframe-based system. The service provider's end user customers
increasingly demanded that the service provider enable end users to access their
individual data through a client/server architecture and server-based relational
database. Accordingly, NEON's customer needed to establish real-time database
replication between the customer's mainframe-based system and a client/server
environment accessible by customers. Data replication requires coordinating,
updating and reconciling constantly changing databases.
The financial services firm sought to acquire an integrated package
solution that would be sufficiently flexible to implement data replication
across the various databases and to integrate the required data flows. The
packaged solution had to support a threshold of functionality superior to
point-to-point communication
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and had to be both fast enough to manage very large numbers of network
transactions and scaleable to support a fast-growing network computing
environment. The customer selected NEONet, including the NEONreplication module,
to provide the requisite platform for data replication and data flow management.
NEONet Messaging and Queuing delivers data from the mainframe database to a
Sybase database on the Sun SPARC Server in real time, and guarantees delivery of
the data, once and only once. NEONet's flexibility simplifies data flows across
the heterogeneous environments, and permits completion and tracking of a high
volume of messages. The Company's proprietary publish/subscribe architecture
greatly simplifies network transaction management by enabling each subscriber to
receive only the information he wants. Users now access timely client/server
databases (e.g., Sybase running on Sun servers) even though core processing is
still done on the mainframe.
Integrating Acquired Businesses. A NEON customer achieved significant
growth in recent years through acquisitions. The acquired businesses were of
varying size and geographic location and used a broad range of applications
running on a variety of hardware, operating systems, and databases. Routing data
among the disparate systems was becoming increasingly costly and time-consuming.
The company was devoting significant in-house resources to continually write and
update extract programs in C programming language and to transport the data via
File Transport Programs (FTP), a batch mechanism which did not guarantee
delivery. The company was forced to add staff just to monitor the FTP process.
In addition, because continued acquisitions added different platforms and
applications to the enterprise network, additional employees were hired to write
and maintain that code. The customer chose to implement NEONet across this
environment, integrating applications, hardware, operating systems and
databases, and allowing systems to exchange data with minimal effort. With
NEONet guaranteed delivery, fewer personnel were required to monitor the data
transfer and routing. As the company continues to acquire other companies, those
applications can be integrated seamlessly into the network. Using NEONet, the
company has saved time and money, required fewer staff and less maintenance
programming, allowing the Company's programmers to concentrate on new
development.
Enabling Global Database Replication. Another NEONet customer is a
multinational bank with worldwide operations. In a typical 24-hour period, the
customer handles thousands of trading transactions. Prior to implementing a
NEONet-enabled solution, the customer processes these transactions through one
central database, resulting in slow response times and frequent interruptions
due to network outages. The customer addressed these bottlenecks by implementing
global data replication, in which multiple, identical databases are maintained
across the globe. This provides remote sites with fast and efficient access to
essential information while limiting the impact on network performance. A
critical requirement of such a system is real-time distribution of data updates
across the system, with guaranteed delivery of data and no duplication.
This customer implemented global data replication across North America,
Europe and Asia using NEONet to ensure reliable communications between the
servers and the central database providing continual access to current data at
remote sites even during network outages. NEONet's Messaging and Queuing module,
together with the Rules Engine module evaluates the content of each data message
according to rules defined by the customer so that only appropriately selected
transactions are to be replicated. The replicated transactions are converted by
the Formatter into SQL update statements, distributed to each remote database,
and executed at the local databases by NEONet's SQL Apply functionality through
the NEONreplication product. The customer benefited through timely, consistent
databases available on three continents.
SALES AND MARKETING
The Company currently markets its software and services primarily through a
direct sales organization, complemented by other sales channels including VARs
and international distributors. As of December 31, 1996, the Company's direct
sales force included 14 commissioned sales representatives located in seven U.S.
cities and London. In addition, the Company has initiated the implementation of
a multi-tiered channel program to recruit, support, and jointly market
comprehensive product solutions. As part of this strategy, the Company has
established distribution relationships with certain strategic hardware vendors,
database providers, software and toolset developers, systems integrators and
implementation consultants, including companies
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designing software, database packages, and hardware integration and consulting
services. The Company has also sought to develop alliances with key solutions
producers to targeted vertical industry sectors, including financial services,
health care, telecommunications, and manufacturing. The Company plans to further
identify and develop relationships with additional partners who can complement
existing NEON products and supplement existing NEON product solutions. The
Company also utilizes advertising, direct mail and public relations programs,
participates in industry trade shows and organizes customer information seminars
to promote the adoption and implementation of its application integration
technologies.
The Company believes that future growth will depend upon its success in
developing and maintaining strategic relationships with distributors, resellers,
and systems integrators. While the Company's current strategy is to increase the
proportion of customers served through these indirect channels, indirect channel
sales have accounted for no revenue to date. The Company is currently investing,
and plans to continue to invest, significant resources for developing the
indirect channels, which could adversely affect the Company's operating results
if the Company's efforts do not generate license revenues necessary to offset
such investment. The Company's inability to recruit and retain qualified
third-party distributors, VARs and systems integrators could adversely affect
the Company's results of operations. The Company's success in selling into this
indirect distribution channel could also adversely affect the Company's average
selling prices and result in lower gross margins, since lower unit prices are
typically charged on sales through indirect channels.
TECHNOLOGY
NEONet and its extension products and services are primarily targeted at
enabling and facilitating the cooperation and interoperation of multiple
applications of widely differing design and developmental generations. NEONet
operates on a heterogenous mix of hardware and underlying software platforms,
utilizing existing transaction management capabilities found in the underlying
operating environments.
NEONet's core technologies have been integrated into an enterprise level
information broker architecture that leverages the benefits of individual
modules to deliver the following additional benefits:
- Employs fully anonymous content-based publish-subscribe capabilities,
with dynamic formatting and exactly once guaranteed delivery to abstract
the translation and delivery of information across applications.
- Simplifies the intrusion into new or legacy programs needed for such
programs to interoperate.
- Uses a non-programmatic and declarative rather than procedural definition
toolset, allowing configuration and maintenance workloads to scale
comfortably by describing formats for input and output as the number of
interfaces increases.
- Maintains transaction level reliability and state matching for the
transmission of critical data.
- Provides independent scaleability across all modules to service
information-intensive enterprises.
- Combines implicitly asynchronous architecture and high reliability to
permit all nodes of a network to operate at enhanced efficiency.
- Operates transparently over the wide range of computing hardware,
network, and operating software often found in today's information
technology environments.
Proprietary Technologies
Rules Engine. The Rules Engine combines the ability to support the high
degree of expressiveness and flexibility of a Boolean logic model with
predictable performance, previously available only in significantly less
functional single field evaluation models. In addition, the Rules Engine is
capable of supporting a high number of rules without suffering performance
degradation. The Rules Engine examines the value of any field, or group of
fields found in or derivable from the message using Boolean operators to
determine subsequent actions. Using either the NEON GUI panels, or APIs provided
by the Rules Engine for programmatic rules
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updates, subscribers can assert rules that will cause the Rules Engine to select
only those instances of messages that meet their particular needs and specify
their format and delivery instructions.
Formatter. Applications exchanging data rarely use the same format even
though the data may have consistent semantic meaning. Existing commercial
reformatter tools, whether script or GUI-based, are typically procedural in
nature, requiring that each conversion from one format to another be
individually coded into the tool. This is particularly true when such
applications are a mix of legacy, purchased, and newly developed applications.
Accomplishing reformatting in the delivery layer frees programmers from having
to manually code all of the transformations. The Formatter uses a declarative
architecture, meaning that format structures and rules themselves are described
during configuration and stored in a format repository. Conversion of one format
to another is derived at execution time by the Formatter. The Formatter can
interpret and build a wide range of fixed, variable, and recursive formats
including proprietary and standard, and can derive as well as transform data
using calculations, tables and exits.
Messaging and Queuing. The Messaging and Queuing module provides a fast,
simple and portable cross-platform guaranteed delivery messaging and queuing
mechanism without the need to poll queues. A program sends a message to another
by simply naming the target and sending it to NEONet. The sending program no
longer needs to be concerned about the recipient's characteristics or even if it
is currently available. The message is queued locally and is a recoverable
component of the sender's transaction, which is then able to continue
processing. A receiving program obtains one or more messages from NEONet as the
messages become available or when the receiving program becomes available. The
receipt of the message then becomes a recoverable component of the receiver's
transaction, and the delivery of messages is guaranteed as to uniqueness and
order.
RESEARCH AND DEVELOPMENT
The Company has made substantial investments since inception in research
and development. The Company first introduced NEONet in January 1996, and
introduced next version releases in June, August and December 1996. Each new
version of NEONet consisted of substantially rewritten code providing greater
scaleability, higher performance, and greater integration capabilities.
The Company's research and development efforts are focused primarily on the
extension of NEONet's capabilities, additional hardware, operating system and
network platform support, the development of additional functionality and
libraries for targeted vertical markets, and quality assurance and testing. The
Company's research and development staff is also engaged in advanced development
efforts to exploit the Company's core technology and expand the markets for the
Company's products. These areas include, for example, development of rules-based
programming tools to replace conventional application logic, dynamic generation
of interfaces between existing technology layers, and event-driven workflow
dispatching and routing. The Company has adopted a policy of continual new
product releases every three months. This provides a means to disseminate
additional functionalities requested by customers as the Company continues to
address specific targeted markets. In addition, the Company believes that this
discipline spurs continual innovation and quality control throughout the
development and quality assurance organizations. As of December 31, 1996, the
Company's research and development staff consisted of 38 persons. The Company's
research and development expenditures in 1995 and 1996 were $1.1 million and
$3.7 million, respectively, and represented 88% and 51% of total revenues,
respectively, during such periods.
Extension Products
Foreign Transport Interface. Building interfaces to other Transport and
Messaging systems (such as IBM's MQSeries), NEON is extending the power of the
anonymous publish-subscribe architecture to users of those systems, and to
additional systems for NEONet users.
NEOCAS/MF Interface and SWIFT Libraries. NEON is developing an interactive
interface to the SWIFT banking and brokerage network using the SWIFT ALLIANCE
gateway, proprietary NEON queuing and message management algorithms and a
library of SWIFT formats pre-packaged in the Company's
35
<PAGE> 39
Formatter. This significantly reduces implementation time for NEON customers
initially implementing or maintaining SWIFT applications.
NEONworkflow. Using its high performance, scaleable Rules Engine, the
Company is building a complex, event-driven workflow dispatching and routing
system.
NEONremote. Implements NEONet server capability (publish-subscribe and
recoverable queuing), along with Internet (HTTP) message transport capability,
for Microsoft Windows 95 will facilitate/download queues on a LAN/WAN or over
the Internet/Intranet.
The markets for the Company's products are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. As its product families mature, the
Company expects that their gross margins may decline. The Company's future
success will depend to a substantial degree upon its ability to enhance its
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and features that meet changing customer requirements and
emerging and evolving industry standards. The Company budgets for research and
development based on planned product introductions and enhancements; however,
actual expenditures may significantly differ from budgeted expenditures.
Inherent in the product development process are a number of risks. The
development of new, technologically advanced software products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. The introduction of new or
enhanced products also requires the Company to manage the transition from older
products in order to minimize disruption in customer ordering patterns, avoid
excessive levels of older product inventories and ensure that adequate supplies
of new products can be delivered to meet customer demand. There can be no
assurance that the Company will successfully develop, introduce or manage the
transition to new products. The Company has in the past, and may in the future,
experienced delays in the introduction of its products, due to factors internal
and external to the Company. Any future delays in the introduction or shipment
of new or enhanced products, the inability of such products to gain market
acceptance or problems associated with new product transitions could adversely
affect the Company's operating results, particularly on a quarterly basis. See
"Risk Factors -- Rapid Technological Change; Limited Platform Coverage;
Dependence on New Products."
COMPETITION
The market for the Company's products is intensely competitive and is
expected to become increasingly competitive as current competitors expand their
product offerings and new competitors enter the market. In this regard, the
Company believes that the application integration market is relatively new, such
that there is great likelihood that additional, significant competitors will
enter the market. The Company's current competitors include a large number of
companies offering one or more solutions to the application integration problem,
some of which are directly competitive with NEONet.
To date, the Company has faced competition and sales resistance from the
internal information technology departments of potential customers that have
developed or may develop in-house systems that may substitute for those offered
by the Company. The Company expects that internally developed application
integration systems will continue to be a principal source of competition for
the foreseeable future. In particular, the Company has had difficulties making
sales to organizations whose internal development groups have already progressed
significantly toward completion of systems that the Company's products might
replace, or where the underlying technologies used by such groups differ
fundamentally from the Company's.
The Company's competitors also include software vendors targeting the
enterprise-wide application integration market through various technological
solutions. For example, IBM, Microsoft, DEC and others provide messaging and
queuing solutions that compete with the NEONet Messaging and Queuing module. In
the future these vendors could elect to provide a more complete integration
solution that would also compete with NEONet's dynamic formatting and
rules-based engine modules. In addition, a large number of other companies
provide alternative solutions to integrating application integration utilizing
other technologies such as data sychronization and transaction monitoring, and a
limited number of companies such as TIBCO offer publish-subscribe messaging
systems designed to operate similarly to NEONet. The Company also faces
36
<PAGE> 40
competition from relational database vendors such as IBM, Oracle, Informix,
Sybase and Microsoft, whose products currently and may in the future compete
with NEONet.
The Company also faces competition from systems integrators and
professional service organizations, such as Andersen Consulting, Ernst & Young
and KPMG Peat Marwick, which design and develop custom systems and perform
custom integration. Certain of these firms may possess industry specific
expertise or reputations among potential customers for offering enterprise
solutions to application integration needs. These systems integration and
consulting firms can be resellers of the Company's products and may engage in
joint marketing and sales efforts with the Company. The Company relies upon such
firms for recommendations of NEONet products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integration and consulting firms may have similar, and often more
established, relationships with the Company's competitors, and there can be no
assurance that these firms will not market or recommend software products
competitive with the Company's products in the future.
Most of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition, and a larger installed base of customers
than the Company. In addition, many of the Company's competitors have
well-established relationships with current and potential customers of the
Company, have extensive knowledge of the application integration industry, and
are capable of offering a single-vendor solution. As a result, the Company's
competitors may be more able than the Company to devote significant resources
toward the development, promotion and sale of their products and to respond more
quickly to new or emerging technologies and changes in customer requirements. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. The Company also expects that the competition
will increase as a result of software industry consolidations. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, or that competitive pressure faced by the Company will
not materially adversely affect its business, operating results, and financial
condition.
The Company believes that the principal competitive factors affecting its
market include product features such as heterogeneous computing platforms,
responsiveness to customer needs, scaleability, adaptability, support of a broad
range of functionality, performance, ease of use, quality, price, quality and
availability of professional services for product implementation, customer
service and support, effectiveness of sales and marketing efforts, and company
and product reputation. Although the Company believes that it currently competes
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors, especially those with greater financial, marketing, service,
support, technical, and other resources than the Company.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect its proprietary rights. The Company presently has no
patents, but has three patent applications pending.
Despite the Company's efforts to protect its proprietary rights, existing
copyright, trademark and trade secret laws afford only limited protection.
Moreover, the laws of certain countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. In addition,
attempts may be made to copy or reverse engineer aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Accordingly, there can be no assurance that the Company will be
able to protect its proprietary rights against unauthorized third party copying
or use, which could materially adversely affect the Company's business,
operating results or financial condition. Moreover, there can be no assurance
that others will not develop products that infringe the Company's proprietary
rights, or that are
37
<PAGE> 41
similar or superior to those developed by the Company. Policing the unauthorized
use of the Company's products is difficult. Litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results or financial condition.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain any of these technology licenses could
result in delays or reductions in product shipments until equivalent technology
could be identified, licensed and integrated. Any such delays or reductions in
product shipments would materially adversely affect the company's business,
operating results and financial condition.
As is common in the software industry, the Company from time to time
receives notices from third parties claiming infringement by the Company's
products of third party proprietary rights. On July 1, 1996, the Company was
notified that the Company's products may infringe the proprietary rights of New
Paradigm, an application integration software company. New Paradigm alleged that
NeoNet's Formatter module will infringe certain claims set forth in a patent
application filed in the United States and Europe. The Company does not believe
such allegations have merit and, if pursued by New Paradigm, the Company intends
to vigorously defend such claim. There can be no assurance, however, that other
third parties will not claim infringement by the Company with respect to current
or future products. The Company expects that application integration software
developers will increasingly be subject to infringement claims as the number of
products in different industry segments overlap. Any claims, including the
specific claim by New Paradigm, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the Company
or at all, which could have a material adverse effect upon the Company's
business, financial condition and operating results. The Company is also aware
that a number of organizations are utilizing the names Neon, New Era and NEONet
as either a trademark or tradename or both. In particular, the Company has
received notices from NEON Systems, Inc. and Neon Software, Inc. alleging that
the Company's use of NEON as a tradename and/or trademark violates such
respective companies' proprietary rights. Such claims or any additional claims
against the Company alleging trademark or tradename infringement could be time
consuming and result in costly litigation. A successful claim regarding the
infringement of a trademark and/or tradename could result in substantial
monetary damages against the Company or an injunction prohibiting the use by the
Company of the particular trademark or tradename. Any such injunction could
materially adversely affect the Company's corporate or product name recognition
and marketing efforts. Accordingly, any monetary damages or injunction could
have a material adverse effect upon the Company's business, financial condition,
and results of operations.
EMPLOYEES
As of December 31, 1996, the Company employed 121 persons, including 53 in
sales, marketing and field operations, 38 in research and development, 14 in
finance and administration and 16 in client services. Of these, one is located
in the United Kingdom, and the remainder are located in the United States. None
of the Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes its relationship with its employees
is good. Competition for qualified personnel in the Company's industry is
intense.
The Company's future success will depend in large part upon the continued
service of its key technical, sales and senior management personnel, none of
whom is bound by an employment agreement. The loss of any of the Company's
senior management or other key research, development, sales and marketing
personnel, particularly if lost to competitors, could have a material adverse
effect on the Company's business, operating results and financial condition. In
particular, the services of George F. (Rick) Adam, Jr., Chief Executive Officer,
Harold Piskiel, Senior Vice President, Chief Technical Officer, or Robert Theis,
Senior Vice President of Marketing, would be difficult to replace. The Company's
future success will depend in large part upon its
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<PAGE> 42
ability to attract, retain and motivate highly skilled employees. There is
significant competition for employees with the skills required to perform the
services offered by the Company and there can be no assurance that the Company
will be able to continue to attract and retain sufficient numbers of highly
skilled employees. Because of the complexity of the application integration
software market, the Company has in the past experienced, and expects in the
future to experience a significant time lag between the date on which technical
and sales personnel are hired and the time at which persons become fully
productive. If the Company is unable to manage the post-sales process
effectively, its ability to attract repeat sales or establish strong account
references could be adversely affected, which may materially affect the
Company's business, operating results and financial condition. See "Management."
FACILITIES
The Company's principal administrative, engineering, manufacturing,
marketing and sales facilities total approximately 21,259 square feet, and are
located in two buildings in Englewood, Colorado under subleases which begin to
expire in December 1999. In addition, the Company leases offices in the
metropolitan area of New York. Management believes that its current facilities
are adequate to meet its needs through the next twelve months, and that, if
required, suitable additional space will be available to accommodate expansion
of the Company's operations on commercially reasonable terms.
LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation against the Company.
From time to time, the Company is a party to litigation and claims incident to
the ordinary course of business. While the results of litigation and claims
cannot be predicted with certainty, the Company believes that the final outcome
of such matters will not have a material adverse effect on the Company's
business, financial condition and operating results.
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<PAGE> 43
MANAGEMENT
The executive officers and directors of the Company and certain information
about them are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
George F. (Rick) Adam, Jr.(1)...... 50 Chairman of the Board, Chief Executive
Officer, President and Director
Harold A. Piskiel(2)............... 49 Senior Vice President, Chief Technical
Officer and Director
Stephen E. Webb.................... 48 Senior Vice President and Chief Financial
Officer
Robert I. Theis.................... 35 Senior Vice President of Marketing
Frederick T. Horn.................. 43 Senior Vice President of Product
Development and Client Services
Leonard M. Goldstein............... 49 Senior Vice President, Senior Counsel and
Secretary
Kevin Scully....................... 43 Senior Vice President of Sales and Field
Operations, Financial Services
Frank A. Russo, Jr................. 52 Senior Vice President of Sales and Field
Operations, Eastern Region
Evan G. Westenskow................. 49 Senior Vice President of Sales and Field
Operations, Western Region
Michael E. Jaroch.................. 52 Senior Vice President of Human Resources
James C. Parks..................... 53 Vice President of Finance and Controller
Steve Lazarus(a)(b)(1)............. 65 Director
Mark L. Gordon(a)(3)............... 45 Director
James Reep(b)(2)................... 45 Director
</TABLE>
- ---------------
(a) Member of Compensation Committee.
(b) Member of Audit Committee.
(1) Mr. Adam and Mr. Lazarus are Class I Directors and will stand for
re-election at the third annual meeting of the stockholders held after the
Offering.
(2) Mr. Piskiel and Mr. Reep are Class II Directors and will stand for
re-election at the second annual meeting of the stockholders held after the
Offering.
(3) Mr. Gordon is a Class III Director and will stand for re-election at the
first annual meeting of the stockholders held after the Offering.
Mr. Adam has served as Chairman of the Board, Chief Executive Officer,
President and a Director of the Company since founding the Company in June 1993.
From 1987 to 1993, Mr. Adam was General Partner of Goldman, Sachs & Co. and
served as the Chief Information Technology Officer. From 1980 to 1987, Mr. Adam
was Chief Information Officer and Vice President of Personnel for Baxter Health
Care Corporation. Mr. Adam received a B.S. degree from the U.S. Military
Academy, West Point, New York and also holds an M.B.A from the University of
Florida.
Mr. Piskiel has served as Senior Vice President, Chief Technical Officer
and a Director of the Company since joining the Company in March 1995. From 1993
to 1995, Mr. Piskiel served as the Chief Architect and Project Manager for the
Information Technology Division of Merrill Lynch & Co. From 1984 to 1993, Mr.
Piskiel served as Vice President of Data Administration and Distribution
Architecture at Goldman, Sachs and Co. Mr. Piskiel holds a B.A. degree from Long
Island University.
40
<PAGE> 44
Mr. Webb has served as Senior Vice President and Chief Financial Officer of
the Company since joining the Company in December 1996. Prior to December 1996,
Mr. Webb served as the Executive Vice President and Chief Financial Officer of
Telectronics Pacing Systems, Inc., an international manufacturer and distributor
of implantable electronic cardiac devices, from April 1994 to December 1996.
Prior to working at Telectronics Pacing Systems, Inc., Mr. Webb spent seventeen
years with Hewlett-Packard Company, most recently as controller of the HP
Software Business Unit. Mr. Webb holds a B.A. from Stanford University and an
M.B.A. degree from the Harvard Graduate School of Business.
Mr. Theis has served as Senior Vice President of Marketing since joining
the Company in October 1996. Prior to joining the Company, Mr. Theis served as
Managing Director of the Worldwide Financial Services Industry Group of Sun
Microsystems, Inc. from April 1986 to October 1996. Prior to joining Sun
Microsystems, Mr. Theis served as the workstation program manager for Silicon
Graphics. Mr. Theis received a B.S. degree from the University of Pittsburgh,
Pennsylvania.
Mr. Horn has served as Senior Vice President of Product Development and
Client Services since joining the Company in July 1996. Prior to joining the
Company, Mr. Horn was a partner with Ernst & Young, LLP in the Management
Consulting Group, where Mr. Horn specialized in financial industry consulting.
Prior to joining Ernst & Young, LLP, Mr. Horn served as a Vice President of
Goldman, Sachs & Co. and a Managing Director for SHL Systemhouse, Inc., a
software services firm. Mr. Horn received his B.A. degree from Northwestern
University.
Mr. Goldstein has served as Senior Vice President, Senior Counsel and
Secretary since joining the Company in July 1996. From 1976 to July 1996, Mr.
Goldstein practiced law privately with the firm of Feder, Morris, Tamblyn and
Goldstein, for which firm he served as Managing Partner and President. Mr.
Goldstein holds a B.A. degree from American University and a J.D. degree from
the State University of New York at Buffalo School of Law.
Mr. Scully joined the Company in January 1996 as Senior Vice President of
Sales and Field Operations, Financial Services. From February 1994 to January
1996, Mr. Scully managed the trading desk and D&O trading desk technology for
all of the trading groups of J.P. Morgan & Co. Prior to J.P. Morgan & Co., Mr.
Scully held various general management roles within CFF/Quotient and Logica,
both private financial software companies. Mr. Scully holds a B.S. degree from
Marietta College.
Mr. Russo has served as Senior Vice President of Sales and Field
Operations, Eastern Region since joining the Company in March 1996. Prior to
March 1996, Mr. Russo served as the President and Chief Executive Officer of
Strategic Marketing Information, Inc. From 1989 to 1991, Mr. Russo served as
President of Spectrum Healthcare Solutions. From 1987 through 1989, Mr. Russo
served as President of Baxter-Travenol's Systems Division. Mr. Russo holds
B.B.A. and M.B.A. degrees from Adelphi University.
Mr. Westenskow has served as Senior Vice President of Sales and Field
Operations, Western Region since joining the Company in March 1996. From
September 1994 to March 1996, Mr. Westenskow served as Vice President of Sales
for MIACO, a consulting and training company specializing in relational
databases. From May 1991 to May 1994, Mr. Westenskow served as the Vice
President of Field Operations at ASK Group, a database and manufacturing
software company. Prior to joining ASK Group, Mr. Westenskow held a variety of
sales management positions at Hewlett-Packard Company, most recently as area
sales manager. Mr. Westenskow holds a B.S. degree from University of Utah.
Mr. Jaroch has served as Senior Vice President of Human Resources since he
joined the Company in April 1996. From 1995 to 1996, Mr. Jaroch served as Senior
Consultant to Intersource Executive Search, an executive recruiting firm. From
1990 to 1995, Mr. Jaroch served as the Senior Human Resources Administrator for
Lockheed Aeronautical Systems Company. Mr. Jaroch received a B.S. degree from
Northern Illinois University and an M.B.A. degree from the Lake Forest Graduate
School of Business.
Mr. Parks has served as Vice President of Finance and Controller of the
Company since joining the Company in January 1996. From 1984 through January
1996, Mr. Parks consulted for various start-up technology companies in the roles
of Chief Financial Officer and Controller. Prior to 1984, Mr. Parks served as
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<PAGE> 45
a Manager of Arthur Andersen in Denver, Colorado. Mr. Parks holds a B.A. degree
from University of Northern Colorado and an M.B.A. degree from the University of
Denver, Colorado.
Mr. Lazarus has served as a Director of the Company since April 1995. Since
1986, Mr. Lazarus has served as a senior principal of various venture capital
funds associated with ARCH Venture, including President and Chief Executive
Officer of ARCH Development Corporation and Managing Director of ARCH Venture
Partners. From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the
Graduate School of Business of the University of Chicago. He currently serves as
a director of Amgen, Primark and Illinois Superconductor. Mr. Lazarus holds a
B.A. degree from Dartmouth College and an M.B.A. degree from the Harvard
Graduate School of Business.
Mr. Gordon has served as a Director of the Company since the Company's
inception. Since 1980, Mr. Gordon has been a partner in the law firm of Gordon &
Glickson PC, directing the firm's information communications and computer
technology practice. Mr. Gordon holds a B.A. degree from the University of
Michigan and a J.D. degree from the Northwestern University School of Law.
Mr. Reep has served as a Director of the Company since March 1996. Since
1980, Mr. Reep has served as Chairman and Director of First Consulting Group, an
information consulting firm specializing in health care systems that he
co-founded. Mr. Reep holds a B.S. degree from California State University at
Long Beach and an M.B.A. degree from the University of Chicago.
The Company's Amended and Restated Bylaws (the "Bylaws"), as amended,
effective upon the completion of the Offering, provide for five directors
divided into three classes. The initial term of Class III directors is through
the first annual meeting of stockholders following the Offering, the initial
term of Class II directors is through the second annual meeting of stockholders
following the Offering, and the initial term of Class I directors is through the
third annual meeting of stockholders following the Offering, and the subsequent
terms for directors of each class is three years, in each case until their
successors have been elected and qualified. Officers serve at the discretion of
the Board. There are no familial relationships among any of the directors or
officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees and
administers the Company's incentive plans. The Audit Committee reviews the
results and scope of the audit and other accounting related services and reviews
and evaluates the Company's internal audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Lazarus and Gordon, neither of whom is an officer or employee of the
Company. No member of the Compensation Committee or executive officer of the
Company has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity.
DIRECTOR COMPENSATION
With the exception of Mr. Gordon, directors receive no cash remuneration
for serving on the Board. Non-employee directors are entitled to participate in
the Company's 1997 Director Option Plan. See "Management -- Employee Benefit
Plans -- 1997 Director Stock Option Plan." Mr. Gordon is currently paid a yearly
stipend of $10,000 for serving as a director.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
the fiscal year ended December 31, 1996 to the Company's Chief Executive Officer
and each of the Company's four other most highly compensated executive officers
who were serving as executive officers at the end of the 1996 fiscal year
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION(1) -------------------
FISCAL -------------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) UNDERLYING OPTIONS
-------------------------------------- ------ -------- -------- -------------------
<S> <C> <C> <C> <C>
George F. (Rick) Adam, Jr............. 1996 $140,000 $40,000 --
Chairman of the Board, Chief
Executive Officer, President and
Director
Harold A. Piskiel..................... 1996 140,000 -- 40,000
Senior Vice President, Chief
Technical Officer and Director
Kevin Scully.......................... 1996 182,290 -- 85,599
Senior Vice President of Sales and
Field Operations, Financial Services
Frank A. Russo, Jr.................... 1996 118,921 -- 70,400
Senior Vice President of Sales and
Field Operations, Eastern Region
Evan G. Westenskow.................... 1996 105,912 -- 72,799
Senior Vice President of Sales and
Field Operations, Western Region
</TABLE>
- ---------------
(1) These amounts reflect salary and bonus paid for the full fiscal year 1996.
Excludes certain perquisites and other personal benefits, such as life
insurance premiums paid by the Company. In the case of Kevin Scully, Frank
A. Russo, Jr., and Evan G. Westenskow, salary includes commissions earned in
1996.
(2) Includes bonus amounts earned in the first fiscal year indicated even though
such bonus amounts may be paid in a subsequent fiscal year.
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<PAGE> 47
Option Grants and Exercises in Last Fiscal Year
The following tables set forth information regarding stock options granted
to and exercised by the Named Executive Officers during the last fiscal year, as
well as options held by such officers as of December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS(1) REALIZABLE VALUE
------------------------------------------------------------ AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(2)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION -----------------
NAME OPTION GRANTED(#) FISCAL YEAR ($/SECURITY) DATE 5% 10%
- --------------------------- ----------------- ------------ ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
George F. (Rick) Adam, Jr.. -- -- -- -- -- --
Harold A. Piskiel.......... 30,000 2.2% $ 1.50 3/15/01 73,300 116,718
10,000 -- $ 6.00 12/20/01 97,734 155,625
Kevin Scully(3)............ 70,000 4.4% $ 1.50 1/08/01 171,034 272,343
3,129 -- $ 1.50 5/31/01 7,645 12,172
1,451 -- $ 4.83 7/31/01 11,415 18,178
1,864 -- $ 4.83 8/31/01 14,670 23,352
2,355 -- $ 4.83 9/30/01 18,534 29,508
2,400 -- $ 4.83 10/31/01 18,882 30,067
800 -- $ 4.83 11/30/01 6,294 10,022
3,600 -- $ 6.00 12/31/01 35,182 56,024
Frank A. Russo, Jr.(3)..... 70,000 3.8% $ 1.50 3/01/01 171,034 272,343
400 -- $ 4.83 9/30/01 3,148 5,012
Evan G. Westenskow(3)...... 70,000 3.9% $ 1.50 3/25/01 171,034 272,343
683 -- $ 4.83 8/31/01 5,375 8,558
116 -- $ 4.83 9/30/01 913 1,453
800 -- $ 4.83 11/30/01 6,294 10,022
1,200 -- $ 6.00 12/31/01 11,728 18,675
</TABLE>
- ---------------
(1) Each of these options was granted pursuant to the Company's 1995 Stock
Option Plan and is subject to the terms of such plan as described herein.
(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the hypothetical gains or "options spreads" that
would exist for the respective options. These gains are based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the
date the option was granted over the full option term. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Commission
and do not represent the Company's estimate or projection of future
increases in the price of its Common Stock.
(3) Includes 15,599 options for Kevin Scully, 400 options for Frank A. Russo,
Jr., and 2,799 options for Evan G. Westenskow, all of which options were
fully vested upon the date of grant.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES END: AT FISCAL YEAR-END(1):
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George F. (Rick) Adam, Jr..... -- -- -- -- -- --
Harold A. Piskiel............. -- -- 11,666 98,334 $52,497 $ 397,503
Kevin Scully.................. -- -- 15,599 70,000 24,459 315,000
Frank A. Russo, Jr............ -- -- 400 70,000 468 315,000
Evan G. Westenskow............ -- -- 2,799 70,000 1,871 315,000
</TABLE>
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<PAGE> 48
- ---------------
(1) Based upon the estimated fair market value of Common Stock as of December
31, 1996 ($6.00), minus the per share exercise price, multiplied by the
number of shares underlying the option. Except as referred below, options
granted pursuant to the Company's 1995 Stock Option Plan vest according to
the following schedule: one-sixth upon the expiration of one year from the
date of grant; one-third upon the expiration of the second year from the
date of grant; one-half upon the expiration of the third year from the date
of grant. Certain options granted upon the attainment of certain sales
targets are fully vested upon the date of grant.
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan.
The Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock
Option Plan") was adopted in 1995, amended in 1996 and amended and restated in
January 1997. The 1995 Stock Option Plan provides for the grant to employees of
the Company (including officers and employee directors) of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the grant of nonstatutory stock options to
employees and consultants of the Company. The 1995 Stock Option Plan is
administered by the Board of Directors or a committee designated by the Board of
Directors (the "Administrator"), which selects the optionees, determines the
number of shares to be subject to each option and determines the exercise price
of each option. An aggregate of 3,500,000 shares of Common Stock are reserved
for issuance under the 1995 Stock Option Plan, of which, as of December 31,
1996, options to purchase an aggregate of 2,087,027 shares were outstanding and
(giving effect to the plan amendment approved in January 1995) an aggregate of
1,406,161 shares remained available for future grants. The exercise price of all
incentive stock options granted under the 1995 Stock Option Plan must be at
least equal to the fair market value of the Common Stock on the date of grant.
The exercise price of all nonstatutory stock options granted under the 1995
Stock Option Plan shall be determined by the Administrator. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the maximum term of the option must not exceed five years. The term of
all other options granted under the 1995 Stock Option Plan may not exceed ten
years.
In the event of a Change in Control of the Company, as defined in the 1995
Stock Option Plan, all outstanding options granted under the plan prior to
December 31, 1996 shall become vested and exercisable in full and shall be
assumed or an equivalent option substituted by the successor corporation; if the
successor corporation refuses to assume or substitute for such options, then
such options shall be exercisable in full for a period of fifteen days after
notice from the Administrator, and shall thereafter terminate. With respect to
options granted on or after January 1, 1997, upon any Change in Control each
such option shall be assumed or an equivalent option substituted by the
successor corporation or, if the successor corporation refuses to assume or
substitute for the outstanding options, such options will become fully vested
and exercisable for a period of fifteen days after notice from the
Administrator, and shall thereafter terminate; in addition, each holder of an
option granted under the plan on or after January 1, 1997 and assumed or
substituted upon a change in control shall be entitled to an additional twelve
months of vesting following any involuntary termination of the optionee's
employment with the successor corporation within twelve months following the
Change in Control. Unless terminated sooner, the 1995 Stock Option Plan will
terminate ten years from its effective date. The Board has authority to amend or
terminate the 1995 Stock Option Plan, provided that no such action may impair
the rights of the holder of any outstanding options without the written consent
of such holder.
The 1995 Stock Option Plan may be administered by the Board of Directors or
a committee designated by the Board (the "Administrator"). Options and SPRs
granted under the 1995 Plan are not generally transferable by the optionee
except by will or by the laws of descent and distribution, and are exercisable
during the lifetime of the optionee only by such optionee. Generally, options
granted under the 1995 Plan must be exercised within thirty days of the end of
an optionee's status as an employee or consultant of the Company, or within
twelve months after such optionee's termination by death or disability, but in
no event later than the expiration of the option term. The exercise price of all
incentive and nonstatutory stock options granted under the 1995 Plan will be
determined by the Administrator. With respect to any owner of 10% or more of the
Company's outstanding capital stock (a "10% Stockholder"), the exercise price of
any incentive stock option
45
<PAGE> 49
granted must equal at least 110% of the fair market value on the grant date. The
exercise price of incentive stock options for all other employees must be no
less than 100% of the fair market value per share on the grant date. The maximum
term of an option granted under the 1995 Plan may not exceed ten years from the
date of grant (five years in the case of an incentive stock option granted to a
10% Stockholder). In the case of SPRs, unless the Administrator determines
otherwise, the Company will have a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). Such repurchase option
lapses at a rate determined by the Administrator. The purchase price for shares
repurchased by the Company will be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to the Company.
1997 Employee Stock Purchase Plan.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in January 1997 and will become effective upon the closing of the
Offering. A total of 325,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan. The Purchase Plan is intended to qualify under
Section 423 of the Code. Offering periods may be up to 24 months in duration and
may include several purchase periods as determined by the Board. The initial
offering period will commence on the date of the Offering and end on the last
business day on or prior to August 15, 1997, and subsequent offering periods are
initially expected to end on February 15 and August 15 of each year. Employees
are eligible to participate if they are regularly employed by the Company for at
least twenty hours per week and more than five months in any calendar year.
The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's eligible
compensation (20% in the first offering period), including base salary,
commissions, bonuses, overtime and other cash compensation, at a price equal to
85% of the fair market value of the Common Stock at the beginning of each
offering period or the purchase date, whichever is lower. In the event of
certain changes in control of the Company, the Purchase Plan provides that the
Board of Directors will shorten the offering period by setting a new purchase
date to occur before the change in control event. Unless terminated sooner, the
Purchase Plan will terminate ten years after its effective date. The Board of
Directors has the authority to amend or terminate the Purchase Plan provided
that no such action adversely affects the rights of any participant.
1997 Director Option Plan
The Board of Directors adopted the 1997 Director Option Plan (the "Director
Plan") in January 1997 to provide for the automatic grant to non-employee
directors of the Company of options to purchase shares of Common Stock. The
Director Plan is administered by the Board, unless the Board delegates
administration to a committee. An aggregate of 150,000 shares of Common Stock
has been reserved for issuance under the Director Plan, subject to adjustment in
the event of certain capital changes. Each non-employee director who first
becomes a director after the effective date of the Offering shall automatically
be granted an option to purchase 25,000 shares on the date on which such person
first becomes a non-employee director. In addition each non-employee director
shall be automatically granted an option to purchase 7,500 shares each year
commencing on the day after the annual stockholder meeting. Options granted
under the Director Plan expire ten years after the date of grant and have an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. Initial options granted under the Director Plan shall become
exercisable cumulatively after three years as to one-third of the shares subject
to the option on each anniversary of the grant date, provided the optionee
continues to serve as a director. Each annual grant under the Director Plan
shall become exercisable in full on the third anniversary of the grant date,
provided the optionee continues to serve as a director. In the event of any
Change in Control of the Company, as defined in the Director Plan, outstanding
options under the Director Plan must be assumed (or an equivalent option
substituted) by the successor corporation, or the options shall become
exercisable in full for at least 15 days after notice by the Company. In
addition, if within one year following such a Change in Control a director shall
involuntarily cease to be a director, the director shall be entitled to option
vesting through the date of termination as a director plus one additional year
thereafter.
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<PAGE> 50
Prior to the adoption of the Director Plan, the directors of the Company
received the following grants under the 1995 Stock Option Plan; Mark Gordon was
granted options to purchase an aggregate of 20,000 shares of Common Stock at an
exercise price of $1.50 per share, of which 3,333 shares were vested at December
31, 1996; and James Reep was granted options to purchase an aggregate of 20,000
shares of Common Stock of at an exercise price of $1.50 per share, none of which
were vested at December 31, 1996.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company shall indemnify its officers
and directors, and may indemnify its employees and other agents to the fullest
extent provided by Delaware law. The Company has obtained director and officer
liability insurance with respect to certain matters, including matters arising
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. At present,
there is no pending litigation or proceeding involving any director or officer,
employee or agent of the Company in which indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
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<PAGE> 51
CERTAIN TRANSACTIONS
Since the Company's inception in June 1993, the Company has issued, in
private placement transactions, shares of its Preferred Stock as follows: an
aggregate of 9,169,028 shares of Series A Preferred Stock (3,056,315 shares of
Common Stock issuable upon conversion thereof) for aggregate consideration of
$2,000,000 in May 1995; 6,183,339 shares of Series B Preferred Stock (2,061,111
shares of Common Stock issuable upon conversion thereof) for aggregate
consideration of $1,875,000 in September 1995; and 4,664,596 shares of Series C
Preferred Stock (1,554,864 shares of Common Stock issuable upon conversion
thereof) for aggregate consideration of $7,510,000 in June 1996. All such
Preferred Stock will convert into an aggregate of 6,672,290 shares of Common
Stock upon the completion of this Offering. The following table summarizes the
shares of Preferred Stock purchased by executive officers, directors and five
percent stockholders of the Company and persons associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C TOTAL SHARES
INVESTOR PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK AS CONVERTED(1)
-------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Arch Venture Fund II, L.P.(2)... 2,292,257 1,236,668 745,342 1,424,754
George F. (Rick) Adam, Jr....... 6,876,771 -- -- 2,292,257
Venrock Associates(3)........... -- 4,478,386 1,204,969 1,894,450
Terence J. Garnett.............. -- 468,285 37,267 168,517
Merrill Lynch Group, Inc........ -- -- 1,863,354 621,118
The Hamilton Companies,
LLC(5)........................ -- -- 813,664 271,221
</TABLE>
- ---------------
(1) Upon the closing of the Offering, each share of the Company's Series A
Preferred, Series B Preferred, and Series C Preferred Stock will be
converted into shares of Common Stock at a one-for-three conversion ratio.
(2) Arch Venture Fund II, L.P. is a limited partnership managed by Arch
Management Partners II, L.P. Arch Venture Partners, L.P. is the general
partner of Arch Management Partners II, L.P. Steve Lazarus, a director of
the Company, is a general partner of Arch Venture Partners, L.P. and
exercises voting control over the shares beneficially owned by Arch Venture
Fund II, L.P.
(3) Includes 3,080,714 shares of Series B Preferred Stock and 747,081 of Series
C Preferred Stock held by Venrock Associates, are 1,397,672 shares of
Series B Preferred Stock and 457,888 shares of Series C Preferred Stock
held by Venrock Associates II, L.P.
The shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
In March 1995, the Company issued 200,000 shares of Common Stock to Mr.
Piskiel in exchange for an aggregate consideration of $18,000.
Mr. Adam is the owner of Air America LLC, a private air charter company
that has provided service to the Company. Total expenses for services rendered
by Air America LLC to the Company were $84,506 in 1995. No services in excess of
$60,000 were provided by Air America LLC to the Company in 1996.
In January 1994, the Company entered into a revolving credit line with Mr.
Adam providing for borrowings by the Company of up to $1,000,000. The
outstanding indebtedness of $1,000,000 under this credit line was repaid in May
1995 in connection with the Company's Series A Preferred Stock financing; Mr.
Adam purchased a total of 6,876,771 shares of Series A Preferred Stock in
exchange for cancellation of the $1,000,000 of indebtedness, payment by Mr. Adam
of $500,000 in cash and surrender by Mr. Adam of a total of 1,528,171 shares of
Common Stock.
The Company is party to a royalty agreement with Merrill Lynch under which
the Company is obligated to pay royalties to Merrill Lynch in an amount equal to
30% of software revenue license fees collected, up to an aggregate of $1.86
million. Merrill Lynch is a stockholder of the Company. The Company anticipates
48
<PAGE> 52
paying all remaining royalty obligations with a portion of the proceeds from the
Offering. See "Use of Proceeds." In addition, Merrill Lynch is a licensee of the
Company's NEONet products.
The Company has granted options to certain of its directors and executive
officers. See "Management -- Option Grants in Last Fiscal Year," "-- Employee
Benefit Plans -- 1997 Director Option Plan" and "Principal Stockholders."
The Company intends to enter into indemnification agreements with each of
its officers and directors upon the effectiveness of this Offering. See
"Management -- Limitation of Liability and Indemnification Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
affiliated third parties. All future transactions, including loans, between the
Company and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested directors, and will continue to be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
49
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1996, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL (1)(2)
-----------------------
DIRECTORS, NAMED EXECUTIVE OFFICERS NUMBER OF SHARES BEFORE AFTER
AND 5% STOCKHOLDERS BENEFICIALLY OWNED (1) OFFERING OFFERING
- --------------------------------------------------- ---------------------- -------- --------
<S> <C> <C> <C>
George F. (Rick) Adam, Jr. (2)..................... 4,124,086 47.3% 34.3%
c/o NEON, Inc.
7400 East Orchard Road, Suite 230
Englewood, CO 80111
Harold A. Piskiel (3).............................. 211,666 2.4 1.8
Venrock Associates(4).............................. 1,275,931 14.6 10.6
Venrock Associates II, LP (4)...................... 618,519 7.1 5.1
c/o 30 Rockefeller Plaza
Room 5508
New York, NY 10112
ARCH Venture Fund II, L.P. (5)..................... 1,424,754 16.4 11.9
c/o 135 S. LaSalle Street, Suite 3702
Chicago, IL 60603
The Hamilton Companies, LLC........................ 271,221 3.1 2.3
Merrill Lynch Group, Inc. (6)...................... 621,118 7.1 5.2
c/o Merrill Lynch Group, Inc.
World Financial Center, North Tower
New York, NY 10281
Kevin Scully (7)................................... 27,265 * *
Frank A. Russo, Jr. (8)............................ 12,066 * *
Evan G. Westenskow (9)............................. 2,799 * *
Steve Lazarus (10)................................. 1,424,754 16.4 11.9
Mark L. Gordon (11)................................ 3,333 * *
James Reep......................................... -- -- --
All directors and executive officers
as a group (14 people)........................... 5,822,635 66.8% 48.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares of Common
Stock subject to options held by that person that are currently exercisable
or exercisable within 60 days of December 31, 1996 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name. Percentage of ownership is based on 8,710,962
shares of Common Stock outstanding on December 31, 1996 and 12,010,962
shares of Common Stock outstanding after completion of the
50
<PAGE> 54
Offering. Share ownership gives effect to the automatic conversion of all
outstanding shares of Preferred Stock into Common Stock upon completion of
the Offering.
(2) Includes 150,000 shares of Common Stock held in the name of Adam's
Investment I, LLP, George F. Adam, III; 150,000 shares of Common Stock held
in the name of Adam's Investment II, LLP, John C. Adam; 56,000 shares held
in the name of Adam's Investment III, LLP, George F. Adam, Jr., Trustee for
Gregory S. Adam; and 56,000 shares of Common Stock held in the name of
Adams Investment IV, LLP, George F. Adams, Jr., Trustee for Rebecca Adam.
(3) Includes 11,666 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of the Offering.
(4) Includes 3,827,795 shares of Preferred Stock held by Venrock Associates,
L.P. and 1,855,530 shares of Preferred Stock held by Venrock Associates II,
L.P.
(5) Includes Common Stock issuable upon conversion of 4,274,267 shares of
Preferred Stock held by Arch Venture Fund II, L.P., of which Steven Lazarus
exercises voting control.
(6) Includes Common Stock issuable upon conversion of 1,863,354 shares of
Preferred Stock held by Merrill Lynch Group, Inc., a wholly owned
subsidiary of Merrill Lynch & Co. Incorporated.
(7) Consists of 27,265 shares of Common Stock issuable upon the exercise of
stock options exercisable within 60 days of the Offering.
(8) Consists of 400 shares issuable upon the exercise of stock options
exercisable within 60 days of the Offering.
(9) Consists of 2,799 shares of Common Stock issuable upon the exercise of
stock options exercisable within 60 days of the Offering.
(10) Consists of 1,424,754 shares held by Arch Venture Fund II, L.P., as to
which Mr. Lazarus disclaims beneficial ownership, except to the extent of
his pecuniary interest therein.
(11) Consists of 3,333 shares of Common Stock issuable upon the exercise of
stock options exercisable within 60 days of the Offering.
51
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Effective upon completion of the Offering, the authorized capital stock of
the Company shall consist of 45,000,000 shares of Common Stock, $0.0001 par
value per share, and 2,000,000 shares of Preferred Stock, $0.0001 par value per
share.
COMMON STOCK
As of December 31, 1996, there were 8,710,962 shares of Common Stock
outstanding held of record by 12 stockholders (assuming the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of this
Offering). The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be outstanding upon completion of this Offering will be fully paid and
non-assessable.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated preferred stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
WARRANT
In connection with the loan and security agreement entered into in April
1996 with Silicon Valley Bank, the Company issued a warrant (the "Warrant") to
purchase 31,056 shares of Series C Preferred Stock at an exercise price of $1.61
per share, which, following the automatic conversion of Series C Preferred Stock
into Common Stock upon completion of this Offering, will be exercisable for
10,352 shares of Common Stock at an exercise price of $4.83 per share. Upon
exercise, the holder of such warrant is entitled to the registration rights set
forth in the Rights Agreement. See "Description of Capital Stock -- Registration
Rights.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement dated as of May 9, 1995, as
amended September 20, 1995 and June 3, 1996, among the Company and certain
holders of its securities (the "Rights Agreement"), the holders of approximately
6,700,000 shares of Common Stock (the "Registrable Securities") after this
Offering will be entitled to certain rights with respect to the registration of
the Registrable Securities under the Securities Act. Under the Rights Agreement,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or the account of other stockholders, the
holders of Registrable Securities are entitled to notice of such registration
and are entitled to include their Registrable Securities therein. Further,
holders of Registrable Securities may require the Company to register all or a
portion of their Registrable Securities on Form S-3, when such form becomes
available for use by the Company, subject to certain conditions and limitations.
The holders' rights with respect to all such registrations are subject to
certain conditions, including the right of the underwriters to limit the number
of shares included in any such
52
<PAGE> 56
registration. With respect to all registrations, other than those on Form S-3,
the Company has agreed to pay all expenses related thereto, except for
underwriting discounts and commissions and stock transfer taxes.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time during the prior three years has
owned) 15% or more of the corporation's voting stock.
The Company's Bylaws require that special meetings of the stockholders of
the Company may be called only by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or by holders of at least 20% of the voting
power of all then-outstanding shares of voting stock. The Company's Certificate
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. In addition, the Board of
Directors is divided into three classes. The initial term of Class III directors
is through the first annual meeting of stockholders following the Offering, the
initial term of the Class II directors is through the second annual meeting of
stockholders following the Offering, and the initial term of the Class I
directors is through the third annual meeting of stockholders following the
Offering, and the subsequent terms for directors of each class is three years,
in each case until their successors have been elected and qualified. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First National
Bank of Boston.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the symbol NEON. The Company has not applied to list its Common
Stock on any other exchange or quotation system.
53
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have outstanding
an aggregate of 12,010,962 shares of Common Stock (12,505,962 if the
Underwriters' over-allotment option is exercised in full). Of the total
outstanding shares of Common Stock, the 3,300,000 shares of Common Stock sold in
this Offering will be freely tradable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act (in which
case resales by the affiliates would be subject to certain volume limitations
and other restrictions described below).
The remaining 8,710,962 shares of Common Stock held by existing
stockholders upon consummation of this Offering are "restricted securities" as
that term is defined in Rule 144 under the Securities Act (the "Restricted
Stock"). In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years (including, if the shares are transferred, the
holding period of any prior owner except an affiliate) is entitled to sell in
"broker's transactions" or to "market makers", within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of such
class of the Common Stock (approximately 120,000 shares immediately after this
Offering) or (ii) generally, the average weekly trading volume in such class of
the Common Stock during the four calendar weeks preceding the filing of Form 144
with respect to such sale, and subject to certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years,
would be entitled to sell such shares under Rule 144(k) without regard to the
volume and other requirements described above. Shares of Common Stock that would
otherwise be deemed "restricted securities" could be sold at any time through an
effective registration statement relating to such shares of Common Stock.
The Company and each of its stockholders and optionholders have agreed,
subject to certain exceptions, not to offer, sell, contract to sell or otherwise
dispose of any Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of UBS Securities LLC (the "Lock Up
Agreements").
Due to the resale restrictions under Rule 144 and the Lock Up Agreements,
no shares of Restricted Stock will be eligible for resale into the public market
on the date of this Offering, except as UBS Securities LLC may consent.
Beginning 180 days following the date of this Prospectus (or such earlier date
on which UBS Securities LLC may elect to release the Lock Up Agreements), an
aggregate of 5,094,984 shares of Restricted Stock will first become eligible for
sale in the public market pursuant to Rule 144 and the expiration of the Lock Up
Agreements, subject to certain volume limitations and other resale restrictions
pursuant to Rule 144. In addition, the Company intends to file a Registration
Statement on Form S-8 after the effective date of this Offering to register an
aggregate of 3,500,000 shares of Common Stock issuable pursuant to the Company's
Amended and Restated 1995 Stock Option Plan (of which options to purchase an
aggregate of 2,087,027 shares were outstanding as of December 31, 1996,
including an aggregate of 131,057 option shares which were vested and
exercisable as of such date), an aggregate of 325,000 shares issuable pursuant
to the Company's 1997 Employee Stock Purchase Plan and an aggregate of 150,000
shares of Common Stock issuable pursuant to the Company's 1997 Director Option
Plan; due to the Lock Up Agreements, shares issuable pursuant to such plans will
not be eligible for resale into the public market until 180 days following the
date of this Prospectus (or such earlier date on which UBS Securities LLC may
elect to release the Lock Up Agreements). See "Management -- Employee Benefit
Plans."
Holders of an aggregate of approximately 6,700,000 shares of Common Stock
have the right to require the Company to register their shares of Common Stock
under certain circumstances.
Prior to this Offering, there has not been any public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Sales of substantial additional amounts of Common
Stock in the public market, or the perception that such sales may occur, could
materially adversely affect the prevailing market price of the Common Stock.
54
<PAGE> 58
UNDERWRITING
Subject to the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below (the
"Underwriters"), for whom UBS Securities LLC and Montgomery Securities are
serving as Representatives (the "Representatives"), have agreed to purchase, and
the Company the following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
UBS Securities LLC.......................................
Montgomery Securities....................................
---------
Total.......................................... 3,300,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel,
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Underwriters propose to offer part of the shares of Common Stock
offered hereby directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 495,000 additional
shares of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common Stock
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
All officers, directors, stockholders and option holders of the Company
have agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the Common Stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of UBS Securities LLC, subject to certain
limited exceptions. See "Shares Eligible for Future Sale."
In connection with the offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers on Nasdaq may
engage in passive market making transactions in the Common Stock of the Company
on the Nasdaq National Market in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934, as amended, during the two business day period
before commencement of sales in the offering. The passive marketing making
transactions must comply with applicable price and volume limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the securities. If all
independent bids are lowered below the passive market maker's bid, however, such
bid of the passive market maker must then be lowered when certain purchase
limits are exceeded. Net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during
55
<PAGE> 59
a price period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with the offering will be
passed upon for the Underwriters by Cooley Godward LLP, Boulder, Colorado.
EXPERTS
The financial statements of New Era of Networks, Inc. as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company intends to furnish to its stockholders annual reports
containing audited financial statements with an opinion thereon expressed by an
independent certified public accounting firm, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
The Company has filed with the Securities and Exchange Commission a
Registration Statement (including any amendments thereto) on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 and the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago Illinois 60661. Copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission. Such reports and other information may also be inspected without
charge at a Web site maintained by the Commission. The address of this site is
http://www.sec.gov.
56
<PAGE> 60
NEW ERA OF NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New Era of Networks, Inc.:
We have audited the accompanying consolidated balance sheets of NEW ERA OF
NETWORKS, INC. (a Delaware corporation) as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
New Era of Networks, Inc., as of December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 17, 1997.
F-2
<PAGE> 62
NEW ERA OF NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................. $ 1,135,027 $ 3,387,466
Short-term investments.................................................... 102,532 --
Accounts receivable, net of an allowance for uncollectible accounts of
$30,000 in 1995 and $150,000 in 1996.................................... 590,332 2,229,417
Prepaid expenses and other................................................ 29,465 83,984
----------- -----------
Total current assets............................................... 1,857,356 5,700,867
----------- -----------
Property and Equipment:
Computer equipment and software........................................... 337,993 1,132,049
Furniture, fixtures and equipment......................................... 90,568 363,720
Leasehold improvements.................................................... 3,151 33,050
----------- -----------
431,712 1,528,819
Less -- accumulated depreciation.......................................... (98,445) (401,364)
----------- -----------
Property and equipment, net............................................... 333,267 1,127,455
----------- -----------
Other Assets................................................................ 18,590 244,416
----------- -----------
Total assets....................................................... $ 2,209,213 $ 7,072,738
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................... $ 159,770 $ 469,640
Accrued liabilities....................................................... 116,814 1,369,634
Notes payable to banks (Note 3)........................................... -- 1,100,553
Deferred revenue.......................................................... 23,500 175,300
----------- -----------
Total current liabilities.......................................... 300,084 3,115,127
Notes payable to banks (Note 3)............................................. -- 442,277
Note payable to stockholder (Note 3)........................................ 318,158 --
----------- -----------
Total liabilities.................................................. 618,242 3,557,404
----------- -----------
Commitments (Note 7)
Stockholders' Equity (Note 5):
Preferred stock --
Series A, $.01 par value, convertible preferred stock, 9,169,028 shares
authorized, issued and outstanding, entitled to a preference in
liquidation of $2,000,000.............................................. 2,000,000 2,000,000
Series B, $.01 par value, convertible preferred stock, 6,183,339 shares
authorized, issued and outstanding, entitled to a preference in
liquidation of $1,875,000.............................................. 1,875,000 1,875,000
Series C, $.01 par value, convertible preferred stock, 4,664,596 shares
authorized, issued and outstanding, entitled to a preference in
liquidation of $7,510,000.............................................. -- 7,510,000
----------- -----------
Total preferred stock.............................................. 3,875,000 11,385,000
Common stock, $.0001 par value, 45,000,000 shares authorized, 2,005,162
and 2,038,641 shares issued and outstanding as of December 31, 1995 and
1996, respectively...................................................... 200 204
Additional paid-in capital................................................ 18,342 141,475
Accumulated deficit....................................................... (2,302,571) (8,011,345)
----------- -----------
Total stockholders' equity......................................... 1,590,971 3,515,334
----------- -----------
Total liabilities and stockholders' equity......................... $ 2,209,213 $ 7,072,738
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 63
NEW ERA OF NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Revenues (Notes 2 and 8):
Software licenses..................................... $ -- $ -- $ 3,382,464
Services and maintenance.............................. 149,400 1,270,600 3,762,223
--------- ----------- -----------
Total revenues................................ 149,400 1,270,600 7,144,687
--------- ----------- -----------
Cost of revenues:
Cost of software licenses (Note 7).................... -- -- 1,021,849
Cost of services and maintenance...................... 84,982 750,718 2,306,370
--------- ----------- -----------
Total cost of revenues........................ 84,982 750,718 3,328,219
--------- ----------- -----------
Gross profit............................................ 64,418 519,882 3,816,468
Operating expenses:
Sales and marketing................................... 178,505 548,912 4,424,554
Research and development.............................. 422,678 1,115,742 3,658,493
General and administrative............................ 153,127 345,389 1,466,594
--------- ----------- -----------
Total operating expenses...................... 754,310 2,010,043 9,549,641
--------- ----------- -----------
Loss from operations.................................... (689,892) (1,490,161) (5,733,173)
Other income (expense), net............................. (29,302) (12,549) 60,855
--------- ----------- -----------
Loss before provision for
income taxes.......................................... (719,194) (1,502,710) (5,672,318)
Provision for income taxes.............................. -- -- --
--------- ----------- -----------
Net loss................................................ $(719,194) $(1,502,710) $(5,672,318)
========= =========== ===========
Pro forma net loss per common share..................... $ (0.61)
===========
Pro forma weighted average shares
of Common Stock outstanding (Note 2).................. 9,239,749
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 64
NEW ERA OF NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
SERIES A, SERIES B AND
SERIES C CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ----------- ---------- ----- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1993
(inception)..................... -- $ -- -- $ -- $ -- $ -- $ --
Common stock issued upon
formation..................... -- -- 3,333,333 333 667 -- 1,000
---------- ----------- ---------- ----- -------- ----------- -----------
Balances, December 31, 1993....... -- -- 3,333,333 333 667 -- 1,000
Net loss........................ -- -- -- -- -- (719,194) (719,194)
---------- ----------- ---------- ----- -------- ----------- -----------
Balances, December 31, 1994....... -- -- 3,333,333 333 667 (719,194) (718,194)
Issuance of common stock to an
employee in exchange for
services...................... -- -- 200,000 20 17,980 -- 18,000
Issuance of Series A convertible
preferred stock ($0.218 per
share) in May for cash of
$1,000,000, cancellation of
liabilities of $1,000,000 and
the surrender of 1,528,171
shares of common stock, net of
issuance costs of $41,952..... 9,169,028 2,000,000 (1,528,171) (153) (305) (41,494) 1,958,048
Issuance of Series B convertible
preferred stock ($0.303 per
share) in September for cash
of $1,875,000, net of issuance
costs of $39,173.............. 6,183,339 1,875,000 -- -- -- (39,173) 1,835,827
Net loss........................ -- -- -- -- -- (1,502,710) (1,502,710)
---------- ----------- ---------- ----- -------- ----------- -----------
Balances, December 31, 1995....... 15,352,367 3,875,000 2,005,162 200 18,342 (2,302,571) 1,590,971
Issuance of Series C convertible
preferred stock ($1.61 per
share) in June for cash of
$7,510,000, net of issuance cost
of $36,456...................... 4,664,596 7,510,000 -- -- -- (36,456) 7,473,544
Issuance of common stock to an
employee in exchange for
services........................ -- -- 26,667 3 39,997 -- 40,000
Issuance of common stock upon
exercise of stock options....... -- -- 6,812 1 10,219 -- 10,220
Issuance of common stock options
and warrants in exchange for
services........................ -- -- -- -- 72,917 -- 72,917
Net loss.......................... -- -- -- -- -- (5,672,318) (5,672,318)
---------- ----------- ---------- ----- -------- ----------- -----------
Balances, December 31, 1996....... 20,016,963 $11,385,000 2,038,641 $ 204 $141,475 $(8,011,345) $ 3,515,334
========== =========== ========== ===== ======== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 65
NEW ERA OF NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(719,194) $(1,502,710) $(5,672,318)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization....................... 19,377 80,344 324,182
Issuance of common stock and common stock options
for services...................................... -- 4,500 126,417
Loss on sale of property and equipment.............. -- -- 16,943
Changes in assets and liabilities --
Accounts receivable............................... (43,291) (547,041) (1,639,085)
Prepaid expenses and other........................ (50,202) 15,647 (303,759)
Accounts payable.................................. 61,811 97,959 309,870
Accrued liabilities............................... 209,468 206,530 1,252,820
Deferred revenue.................................. -- 23,500 151,800
--------- ----------- -----------
Net cash used in operating activities.......... (522,031) (1,621,271) (5,433,130)
--------- ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments..................... -- (102,532) --
Proceeds from sale of short-term investments........... -- -- 102,532
Proceeds from sale of property and equipment........... -- -- 5,654
Purchases of property and equipment.................... (131,576) (301,412) (1,131,053)
--------- ----------- -----------
Net cash used in investing activities.......... (131,576) (403,944) (1,022,867)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock................. 1,000 -- 10,220
Proceeds from issuance of preferred stock.............. -- 2,875,000 7,510,000
Preferred stock issuance costs......................... -- (81,125) (36,456)
Proceeds from note payable to stockholder.............. 791,413 250,200 104,709
Payments on note payable to stockholder................ (11,760) (10,879) (422,867)
Proceeds from notes payable to banks................... -- 415,000 2,545,116
Principal payments on notes payable to banks........... -- (415,000) (1,002,286)
--------- ----------- -----------
Net cash provided by financing activities...... 780,653 3,033,196 8,708,436
--------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 66
NEW ERA OF NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Net increase in cash and cash equivalents................. $127,046 $1,007,981 $2,252,439
Cash and cash equivalents, beginning of period............ -- 127,046 1,135,027
-------- ---------- ----------
Cash and cash equivalents, end of period.................. $127,046 $1,135,027 $3,387,466
======== ========== ==========
Supplemental disclosures of cash flow information:
Issuance of common stock to employees in exchange for
services............................................. $ -- $ 18,000 $ 40,000
======== ========== ==========
Issuance of common stock options and warrants in
exchange for services................................ $ -- $ -- $ 72,917
======== ========== ==========
Issuance of preferred stock in exchange for common stock
and cancellation of liabilities to stockholder....... $ -- $1,000,458 $ --
======== ========== ==========
Conversion of accrued liabilities to debt............... $ -- $ 299,184 $ --
======== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-7
<PAGE> 67
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(1) DESCRIPTION OF BUSINESS
New Era of Networks, Inc. (the "Company") develops, licenses, sells,
installs and supports computer software for the financial services, healthcare,
and other industries. The Company's products enable the integration of existing
business software applications for complex networks that employ a variety of
hardware platforms, database management systems, other data management
environments, and network protocols. The Company markets and sells its products
through its direct sales force and indirect sales channels including independent
software vendors, value added resellers, systems integrators, OEM hardware
manufacturers, and other business partners.
Effective June 4, 1996, the Company formed a wholly owned foreign
subsidiary, New Era of Networks Limited ("Limited"), incorporated in the United
Kingdom.
Liquidity and Capital Resources
Since inception, the Company's capital requirements have been funded
primarily through stockholder loans, private placements of convertible preferred
stock and bank loans. Cumulative operating losses from inception through
December 31, 1996, have been approximately $7.9 million, including approximately
$5.7 million for the year ended December 31, 1996. The Company's existing
balances of cash and cash equivalents and borrowings available under existing
debt facilities are not expected to be sufficient to meet the Company's working
capital and capital expenditure needs during 1997 and additional funding will be
required. The Company expects to file a registration statement in January 1997
for an initial public offering of its common stock. If the expected closing of
the initial public offering is significantly delayed or suspended, the Company
believes that funding sufficient to continue operations at least for the
remainder of 1997 can be obtained from other sources. However, the Company
currently has no written commitments for such additional financing and has no
assurance that it will be available, or if available, on terms acceptable to the
Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and Limited. All significant intercompany accounts and transactions
have been eliminated in consolidation.
1994 Financial Statements
The Company was incorporated June 30, 1993, but operations did not commence
until January 1994. Accordingly, the statement of operations and statement of
cash flows for 1994 represent results from inception to December 31, 1994.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency. Translation of the December 31, 1996 balance sheet amounts to U.S.
dollars is based on the applicable exchange rate as of that date. Statement of
operations and statement of cash flows amounts are translated at the average
exchange rates for the period. The cumulative currency translation adjustment at
December 31, 1996 was insignificant. In future periods, the cumulative
translation adjustment will be presented as a separate component of
stockholders' equity, if significant.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period end translation) or realized
(upon settlement of the transactions). Unrealized translation gains and losses
applicable to long-term intercompany
F-8
<PAGE> 68
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investments by the Company in its foreign subsidiary are included in the
cumulative currency translation adjustments, and unrealized translation gains or
losses applicable to short-term intercompany receivable from or payable to the
Company and its foreign subsidiary are included in income.
Revenue Recognition
The Company generates revenues from both professional service arrangements
and software license arrangements. Revenue from professional service
arrangements is recognized on either a time and materials or
progress-to-completion basis as the services are performed and amounts due from
customers are deemed collectible and contractually nonrefundable. The Company
recognizes license fee revenue when the licensed software has been delivered,
customer acceptance has occurred, all significant Company obligations have been
satisfied, payment is due within twelve months and the fee is fixed and
determinable and deemed collectible. Maintenance and support revenues related to
software licenses are recognized ratably over the term of each maintenance
arrangement.
Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue in the accompanying
balance sheets. As of December 31, 1995 and 1996, deferred revenue was $23,500
and $175,300, respectively.
Cost of Services and Maintenance
Cost of services related to professional service arrangements and
maintenance include the direct labor costs incurred plus a related overhead
allocation.
Research and Development
Research and development costs are expensed as incurred and include
salaries, supplies and other direct costs.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Property and Equipment
Depreciation of property and equipment is computed on a straight-line basis
over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and software................................... 3 years
Furniture, fixtures and equipment................................. 5-7 years
Leasehold improvements............................................ 2 years
</TABLE>
Maintenance and repairs are expensed as incurred, and improvements are
capitalized.
Software Development Costs
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," capitalization of software development costs begins upon
the establishment of technological feasibility of the product and ends when the
product is ready for general release. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware
technology. The Company believes that costs incurred through
F-9
<PAGE> 69
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 which satisfy the above criteria were immaterial, and
therefore no software development costs have been capitalized by the Company to
date.
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the basis of assets and liabilities and
amounts reported in the combined balance sheets. Deferred tax assets are also
recognized for net operating loss and tax credit carryovers. The overall change
in deferred tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in enacted tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the period
of enactment. The measurement of deferred tax assets may be reduced by a
valuation allowance based on judgmental assessment of available evidence if
deemed more likely than not that some or all of the deferred tax assets will not
be realized.
Pro Forma Net Loss Per Common Share
Historical net loss per common share is not considered relevant as it would
differ materially from pro forma net loss per common share given the
contemplated changes in the capital structure of the Company. Pro forma net loss
per common share is computed using the sum of the weighted average number of
outstanding shares of Common Stock (assuming conversion of the Preferred Stock
occurred on the date of its issuance) and Common Stock equivalent shares from
Common Stock options and warrants. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, Common Stock and Common Stock
equivalent shares issued by the Company at prices significantly below the
assumed public offering price during the twelve month period prior to the
proposed offering date (using the treasury stock method and an assumed offering
price of $8.00 per share) have been included in the calculation as if they were
outstanding since January 1, 1996 regardless of whether they are antidilutive.
Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, receivables, other
current assets, and accounts payable and accrued expenses approximate fair value
due to the short-term nature of these financial instruments.
Concentration of Credit Risk
The Company's accounts receivable as of December 31, 1996 are concentrated
with certain customers in the financial services industry. During the years
ended December 31, 1995 and 1996 the Company recognized approximately 69% and
81%, respectively, of its revenue from financial services industry clients (see
Note 8).
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers. The
Company has a cash investment policy which restricts investments to ensure
preservation of principal and maintenance of liquidity.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-10
<PAGE> 70
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(3) NOTES PAYABLE
Note Payable to Stockholder
From January 1994 to May 1995, the Company's operations were funded by
revolving credit borrowings from its majority stockholder. During this period,
the note payable allowed for maximum borrowing of $1,000,000 at a 9% interest
rate per annum. In May 1995, the Company completed its first preferred stock
financing which included the issuance of Series A preferred stock to the
Company's principal stockholder in satisfaction of $1,000,000 of borrowings
outstanding at that time (see Note 5). The note agreement was then amended to
provide for maximum available borrowings of $500,000 from the stockholder. All
principal and interest is due on or before December 31, 1997. The amount of
borrowings outstanding at December 31, 1995 and 1996 were $318,158 and $0,
respectively.
Notes Payable to Banks
From inception to September 1995, the Company has had two revolving bank
credit agreements. The first agreement commenced in November 1994 and matured in
November 1995. Borrowings under this agreement had a maximum of $100,000,
accrued interest at the bank's base floating rate and were unsecured. The second
agreement commenced in June 1995 and matured in September 1995. This agreement
had maximum borrowings of $50,000, accrued interest at the bank's floating rate
and was secured by the Company's certificate of deposit maintained at the bank.
On March 15, 1996, the Company signed a promissory note payable to a bank.
The note bears interest at a fixed rate of 8.75%, matures on March 15, 1999 and
is payable in monthly installments. As of December 31, 1996, $59,810 is
outstanding under this note payable of which $24,005 is a current liability. The
note is secured by certain equipment owned by the Company.
In April 1996, the Company entered into a loan and security agreement with
a bank. The agreement, as amended and restated in September 1996 consists of two
separate borrowing facilities: (i) a revolving facility and (ii) an equipment
facility. Borrowings on the revolving facility are restricted to the lesser of
an amount based on certain asset levels (approximately $1,125,000 as of December
31, 1996) or the committed borrowing limit of $2,000,000. The revolving facility
bears interest at the bank's prime borrowing rate plus 1/2% (8.75% at December
31, 1996) and matures on September 5, 1997. In addition to the revolving
facility, the Company may borrow up to $1,000,000 under the equipment facility
for the purchase or refinancing of qualified equipment. Any borrowings on the
equipment facility must be made by June 6, 1997. The equipment facility bears
interest at the bank's prime borrowing rate plus 1% (9.25% at December 31, 1996)
and matures on June 5, 2000. Amounts outstanding under the equipment facility at
June 6, 1997 are payable in equal monthly installments beginning July 5, 1997
through the maturity date. The debt under both facilities is secured by all
assets of the Company with the exception of certain intangibles. The agreement
requires that the Company maintain compliance with certain covenants related to
tangible net worth, debt service coverage and current ratios. As of December 31,
1996 there were borrowings of $1,006,438 outstanding under the revolving
facility and $476,582 outstanding under the equipment facility.
F-11
<PAGE> 71
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate Maturities for notes payable outstanding are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
1997........................................................ $1,100,553
1998........................................................ 176,589
1999........................................................ 176,314
2000........................................................ 89,374
----------
$1,542,830
==========
</TABLE>
In connection with the loan and security agreement discussed above, the
Company issued to the bank warrants to purchase 31,056 shares of the Company's
Series C preferred stock at an exercise price of $1.61 per share (convertible on
a three-for-one basis into common stock). The warrants are exercisable through
April 11, 2001.
(4) INCOME TAXES
The Company was an S corporation for income tax purposes from inception
through May 1995, and its taxable income or loss and tax credits for such period
were included in the personal tax return of its stockholder. Items of taxable
income and expense for subsequent periods are being reported in the corporate
income tax returns of the Company. On a pro forma basis for the periods the
Company was an S corporation, the Company had no income taxes payable, due to
net losses incurred. At the date of termination of subchapter S status, the
Company provided an allowance for the full amount of its net deferred tax
assets. Therefore, the change in tax status had no effect on the financial
statements of the Company at that date.
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts.................................. $ 11,400 $ 57,800
Nonstatutory stock options............................... -- 27,700
Organization costs....................................... 4,500 1,800
Accrued interest......................................... 7,200 --
Accrued compensation..................................... 115,000 --
Trademark costs.......................................... -- 11,100
Accrued vacation......................................... -- 31,600
Capital loss carryforward................................ -- 4,700
Tax credits carryforward................................. -- 148,600
Net operating loss carryforward.......................... 353,000 2,458,000
--------- -----------
Total deferred tax assets........................ 491,100 2,741,300
--------- -----------
Deferred tax liabilities:
Deferred compensation.................................... (5,200) --
Depreciation............................................. (8,000) (9,400)
--------- -----------
Total deferred tax liabilities................... (13,200) (9,400)
--------- -----------
Total net deferred tax assets.................... 477,900 2,731,900
--------- -----------
Valuation allowance...................................... (477,900) (2,731,900)
--------- -----------
Net deferred taxes....................................... $ -- $ --
========= ===========
</TABLE>
F-12
<PAGE> 72
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The criteria for realization of net deferred tax assets are not currently
satisfied because of the losses incurred by the Company from inception. Further,
the Internal Revenue Code contains provisions which may limit the net operating
loss carryforwards available for use in any given year upon the occurrence of
certain events, including significant changes in ownership. Therefore, a
valuation allowance for the entire net deferred tax asset has been established.
As of December 31, 1996, the Company had net operating loss carryforwards
available totaling approximately $6,384,000. These carryforwards expire
beginning in 2010. The Company also has research and development tax credit
carryforwards of approximately $148,600 expiring beginning in 2010.
The income tax provision (benefit) calculated using the federal statutory
rate is different than the income tax provision (benefit) for financial
reporting purpose as follows:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Income tax provision (benefit) at the federal statutory
rate..................................................... $(510,900) $(1,928,600)
Tax effect of loss for the period from January 1, 1995
through May 1995 reported by the S Corporation........... 186,100 --
Net deferred tax assets recognized upon termination of S
Corporation status....................................... (117,700) --
Deferred state income tax assets, net of federal tax
effect................................................... (42,100) (246,400)
Nondeductible expenses..................................... 6,700 69,600
Increase in tax credit carryforwards....................... -- (148,600)
Change in valuation allowance.............................. 477,900 2,254,000
--------- -----------
Net provision (benefit) for income taxes................... $ -- $ --
========= ===========
</TABLE>
(5) STOCKHOLDERS' EQUITY
Reverse Stock Split and Change in Authorized Shares
On January 3, 1997, the Company's Board of Directors approved the amendment
and restatement of the Company's certificate of incorporation to effect (i) a
one-for-three reverse split of the Company's common stock, (ii) an increase in
the number of authorized shares of common stock to 45,000,000, (iii) the
authorization of 2,000,000 shares of preferred stock undesignated as to series,
and (iv) the establishment of a classified board of directors, effective upon
the Company's initial public offering, pursuant to which the Board of Directors
shall be divided into three classes having initial terms of one, two and three
years, respectively, and subsequent terms of three years. The accompanying
consolidated financial statements have been retroactively adjusted with respect
to common stock to reflect the reverse stock split. Upon the closing of an
initial public offering the Series A, Series B, and Series C convertible
preferred stock described below will convert into shares of common stock on the
basis of three preferred shares for one common share.
Stock Options
The Company's 1995 Stock Option Plan (the "1995 Plan"), as amended,
provides for the grant of options to purchase up to an aggregate of 3,500,000
shares of common stock to employees and nonemployees; 200,000 shares are
available for grants to nonemployees and consultants. Incentive stock options
granted to employees have an exercise price equal to the fair market value of
the underlying shares at the date of grant. The exercise price of nonstatutory
options granted to employees and consultants is determined by the Board of
Directors. The term of all options granted may not exceed 10 years; options
granted through 1996 have a term of five years. Options vest as determined by
the Board, but generally vesting occurs as to one-sixth of the shares after one
year, an additional one-third after two years and the remainder after three
years from date of grant. If employment is terminated for any reason, vested
options must be exercised within 30 days of termination or they are
automatically cancelled.
F-13
<PAGE> 73
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of compensation
cost for such plans using the intrinsic value based method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), provided
that pro forma disclosures are made of net income or loss and net income or loss
per share, assuming the fair value based method of SFAS 123 had been applied.
The Company has elected to account for its stock-based compensation plans under
APB 25; accordingly, for purposes of the pro forma disclosures presented below,
the Company has computed the fair values of all options granted during 1995 and
1996, using the Black-Scholes pricing model and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Risk-free interest rate............................. 6.3% 6.0%
Expected lives...................................... 3.0 years 3.0 years
Expected volatility................................. 84.0% 84.0%
Expected dividend yield............................. 0% 0%
</TABLE>
To estimate expected lives of options for this valuation, it was assumed
options will be exercised upon becoming fully vested at the end of three years.
All options are initially assumed to vest. Cumulative compensation cost
recognized in pro forma net income or loss with respect to options that are
forfeited prior to vesting is adjusted as a reduction of pro forma compensation
expense in the period of forfeiture. Because the Company's common stock is not
yet publicly traded, the expected market volatility was based on an average of
five other companies deemed to have characteristics similar to the Company for
periods subsequent to their IPO's. Actual volatility of the Company's common
stock may vary. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.
The total fair value of options granted was computed to be approximately
$125,500 and $3,193,000 for the years ended December 31, 1995 and 1996,
respectively. These amounts are amortized ratably over the vesting periods of
the options. Pro forma stock-based compensation, net of the effect of
forfeitures, was $10,986 and $446,528 for 1995 and 1996, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and pro forma net loss per
common share would have been reported as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net Loss --
As reported................................... $(1,502,710) $(5,672,318)
Pro forma..................................... $(1,513,696) $(6,118,846)
Pro Forma Net Loss Per Common Share --
As reported................................... $ (0.61)
Pro forma..................................... $ (0.68)
</TABLE>
Weighted average shares used to calculate pro forma net loss per share were
determined as described in Note 2, except in applying the treasury stock method
to outstanding options, net proceeds assumed received upon exercise were
increased by the amount of compensation cost attributable to future service
periods and not yet recognized as pro forma expense.
F-14
<PAGE> 74
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the 1995 Plan for the years ended December 31, 1995 and 1996
is as follows:
EMPLOYEE OPTIONS
<TABLE>
<CAPTION>
1995 1996
------------------ --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........................ -- $ -- 372,343 $ 1.37
Granted................................................. 391,943 1.37 1,857,057 3.56
Canceled................................................ (19,600) 1.50 (161,929) 2.07
Exercised............................................... -- -- (1,812) 1.50
------- ---------
Outstanding at end of year.............................. 372,343 1.37 2,065,659 3.28
======= =========
Exercisable at end of year.............................. 1,601 109,689
======= =========
</TABLE>
The weighted average exercise prices and weighted average fair values of
options granted during 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
NUMBER OF FAIR EXERCISE NUMBER OF FAIR EXERCISE
OPTIONS VALUE PRICE OPTIONS VALUE PRICE
--------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to market price........ 82,444 $0.52 $ 0.90 699,907 $2.78 $ 4.83
Exercise price greater than market price.... 309,499 0.29 1.50 1,157,150 1.01 2.78
------- ---------
391,943 1,857,057
======= =========
</TABLE>
The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
NUMBER OF WEIGHTED ---------------------------
OPTIONS AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE IN YEARS PRICE 1996 PRICE
- -------- -------------- ------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.90 82,444 3.72 $ 0.90 27,482 $ 0.90
1.50 980,875 4.05 1.50 50,163 1.50
4.83 672,007 4.63 4.83 26,044 4.83
6.00 330,333 4.98 6.00 6,000 6.00
--------- -------
2,065,659 109,689
========= =======
</TABLE>
NONEMPLOYEE OPTIONS
The Company has granted stock options to nonemployees for 26,368 shares at
a weighted average exercise price of $2.90 per share (range of $1.50 to $9.75)
and has recognized cost of $72,917 related to these options based on the value
of the services received. During 1996, 5,000 options to purchase Common Stock
were exercised at $1.50 per share. At December 31, 1996, 21,368 options remained
outstanding and exercisable at a weighted average exercise price of $4.61 per
share. The accounting for these options is the same under APB 25 and SFAS 123.
F-15
<PAGE> 75
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent Events
On January 3, 1997, the Company's Board of Directors adopted, effective as
of the Company's initial underwritten public offering, the 1997 Director Option
Plan ("Director Plan") and the 1997 Employee Stock Purchase Plan ("Purchase
Plan"). Each of these actions require stockholder approval.
The Director Plan provides for the automatic grant to each non-employee
director, on September 1 of each year, of an option to purchase 7,500 shares of
the Company's common stock at an exercise price equal to the fair market value
of the common stock on the date of grant. In addition, each new non-employee
director joining the Board of Directors after the Company's initial public
offering will automatically be granted an option to purchase 25,000 shares of
the Company's common stock at an exercise price equal to the fair market value
at date of grant. The Board of Directors has reserved an aggregate of 150,000
shares for issuance under the Director Plan.
The Purchase Plan will permit eligible employees to purchase common stock
through payroll deductions, which may not exceed 10% of an employee's eligible
compensation (or, for the initial plan period, 20% of eligible compensation) at
a price equal to 85% of the lower of the fair market value of the common stock
on the first or last day of the plan period. The Purchase Plan will terminate in
ten years. The Board of Directors has reserved an aggregate of 325,000 shares of
common stock for issuance under the Purchase Plan.
Preferred Stock
In May 1995, the Company issued 9,169,028 shares of $.01 par value Series A
Convertible Preferred Stock ("Series A"). One of the purchasers, the Company's
previous sole stockholder and the holder of the Company's $1,000,000 note
payable, paid $500,000 cash, canceled the $1,000,000 outstanding as of May 9,
1995 under the note payable (Note 3), and surrendered 1,528,171 shares of
Company common stock in exchange for 6,876,771 shares of Series A. The remaining
2,292,257 shares of Series A were purchased for $500,000 cash by an unrelated
entity.
In September 1995, the Company issued 6,183,339 shares of $.01 par value
Series B Convertible Preferred Stock ("Series B") for $1,875,000 cash in a
private placement transaction.
In June 1996, the Company issued 4,664,596 shares of $.01 par value Series
C Convertible Preferred Stock ("Series C") for $7,510,000 cash in another
private placement transaction.
The holders of the Series A, Series B and Series C are entitled to a number
of votes per share equal to the number of shares into which each share of
preferred stock is then convertible.
The holders of the Series A, Series B and Series C are entitled to receive
dividends at the same rate dividends are paid to holders of common stock.
Dividends to be paid will be determined based on the number of common shares
into which each preferred share is convertible at the time the dividend is
declared.
Under the terms of the Series A, Series B and Series C agreements, each
stockholder, in certain circumstances, has the preemptive right to retain the
same percentage ownership in the Company upon the sale of additional stock.
Holders of Series A, in the event of liquidation, have preference over the
distributions of funds made to holders of common stock. The liquidation
preference will be determined as the greater of (1) $0.218 per share plus any
dividends declared but unpaid, or (2) an amount per share as would have been
payable had each Series A share been converted to common stock (see above)
immediately prior to such liquidation.
Holders of Series B and Series C, in the event of liquidation, or
consolidation or merger involving an exchange of stock whereon the current
stockholders retain less than 50% of the surviving entity's voting shares, have
preference over distributions of funds made to holders of Series A and common
stock. The liquidation preference will be determined as the greater of (1) $.303
per share in the case of Series B and $1.61 in the
F-16
<PAGE> 76
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
case of Series C plus any dividends declared but unpaid or (2) an amount per
share as would have been payable had each share been converted to common stock
(see above) immediately prior to liquidation.
(6) RELATED PARTY TRANSACTIONS
A company related by common ownership provides air transportation service
for the Company. Total expenses incurred during the years 1994, 1995 and 1996
for services rendered by this related party was $39,020, $84,506 and $0,
respectively.
Accrued liabilities at December 31, 1994 included $180,000 (representing
his entire annual salary) payable to the Company's president/majority
stockholder. This amount, along with an additional $60,000 for 1995 activity and
accrued interest of $59,184, was converted to preferred stock in May 1995.
Note Receivable from Employee
On August 1, 1996, the Company entered into an employment agreement whereby
the Company issued a revolving line of credit to an employee. Under this
agreement, the employee may borrow up to $170,000, interest accrues at the prime
interest rate, and borrowings are secured by the employee's stock options in the
Company. The agreement matures on January 1, 2008, and interest is payable on a
quarterly basis. Amounts outstanding under this agreement at January 1, 1998
will be payable in equal monthly installments through the maturity date. The
amount outstanding under this agreement at December 31, 1996 was $50,000.
(7) COMMITMENTS
Cost of Software Licenses
Cost of software licenses represents royalties payable to a customer under
the terms of a software development agreement. The customer is also a holder of
the Company's Series C preferred stock. The agreement grants the commercial
rights to the developed software to the Company. The Company is to pay the
customer a royalty of 30% of all license, maintenance, support and upgrade fees
derived from the software on a quarterly basis, subject to a cumulative maximum
of $1,858,500. Royalties for the year ended December 31, 1996 were approximately
$1,022,000 including approximately $1,011,000 reflected in accrued liabilities
at that date.
Operating Leases
The Company leases its administrative offices, research facilities and
certain equipment under noncancelable operating lease agreements. Rent expense
under these leases for 1994, 1995 and 1996 was $15,680, $81,680 and $301,755,
respectively. The following is a schedule of future minimum lease payments for
the years ending December 31:
<TABLE>
<S> <C>
1997.............................................. $ 404,614
1998.............................................. 385,734
1999.............................................. 228,585
2000.............................................. 82,411
----------
$1,101,344
==========
</TABLE>
F-17
<PAGE> 77
NEW ERA OF NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) MAJOR CUSTOMERS
Various customers accounted for more than 10% of total revenue for the
years ended December 31, 1994, 1995 and 1996, as follows:
<TABLE>
<CAPTION>
CUSTOMER 1994 1995 1996
-------- ---- ---- ----
<S> <C> <C> <C>
Merrill Lynch................................................ N/A 69% 22%
ADP Financial Information.................................... N/A N/A 16%
JP Morgan Bank............................................... N/A N/A 14%
SunGard Financial Systems.................................... N/A N/A 13%
Ingalls Health System........................................ 20% 13% N/A
United Western Medical Center................................ 70% N/A N/A
</TABLE>
F-18
<PAGE> 78
Back Cover
A chart with NEON's logo on the top, followed by the words "Bringing order
to the increasingly disordered IT universe..."
<PAGE> 79
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
---------------------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.........................
Risk Factors...............................
Use of Proceeds............................
Dividend Policy............................
Capitalization.............................
Dilution...................................
Selected Financial Data....................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................
Business...................................
Management.................................
Certain Transactions.......................
Principal Stockholders.....................
Description of Capital Stock...............
Shares Eligible for Future Sale............
Underwriting...............................
Legal Matters..............................
Experts....................................
Additional Information.....................
Index to Financial Statements..............
</TABLE>
---------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
3,300,000 SHARES
[NEON LOGO]
COMMON STOCK
-----------------------------
PROSPECTUS
, 1997
-----------------------------
UBS SECURITIES
MONTGOMERY SECURITIES
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
REGISTRANT
------------
<S> <C>
SEC Registration Fee................................................... $ 10,350
NASD Filing Fee........................................................ 4,295
Nasdaq National Market Application Fee................................. 50,000
Printing............................................................... 150,000
Legal Fees and Expenses................................................ 300,000
Accounting Fees and Expenses........................................... 125,000
Director and Officer Liability Insurance............................... 100,000
Blue Sky Fees and Expenses............................................. 10,000
Transfer Agent and Registrar Fees...................................... 5,000
Miscellaneous.......................................................... 95,355
--------
Total........................................................ $850,000
========
</TABLE>
The Registrant intends to pay all expenses of registration, issuance and
distribution.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law Code authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article of the Registrant's Certificate of Incorporation (Exhibits 3.1
and 3.2 hereto) and Article of the Registrant's Bylaws (Exhibit 3.3 hereto)
provide for mandatory indemnifications of its directors and officers and
permissible indemnifications of employees and offer agents to the maximum extent
permitted by the Delaware General Corporation Law. In addition, the Registrant
has entered into Indemnification Agreements (Exhibit 10.1 hereto) with its
officers and directors. Reference is also made to Section 9 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, which provides for the
indemnification of officers, directors and controlling persons of the Registrant
against certain liabilities and Section 11 of the Amended and Restated Rights
Agreement (Exhibit 10.5 hereto), which provides for the cross indemnification of
certain of the Company stockholders and the Company, its officers and directors
against certain liabilities under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years prior to the effective date of this Registration
Statement, the Registrant has issued and sold the following unregistered
securities:
(1) Common Stock:
On June 30, 1993, the Company issued 10,000,000 shares of Common Stock to
George F. (Rick) Adam, Jr. at an aggregate purchase price of $1,000. On May 9,
1995, in conjunction with the Closing of the Series A Preferred Stock financing,
Mr. Adam exchanged 4,584,514 shares of Common Stock, the issuance of a note for
$1.0 million payable by the Company to Mr. Adam, and $500,000 cash in exchange
for 6,876,771 shares of Series A Preferred Stock.
II-1
<PAGE> 81
On March 6, 1995 the Company issued 600,000 shares of Common Stock to
Harold A. Piskiel in exchange for an aggregate purchase price of $18,000.
(2) Series A Preferred Stock:
In May 1995, the Company issued 9,169,028 shares of Series A Convertible
Preferred Stock, $0.01 par value, in exchange for $1,000,000 cash, the
cancellation of $1,000,000 of indebtedness, and the surrender of 1,528,171
shares of Common Stock.
(3) Series B Preferred Stock:
In September 1995, the Company issued 6,183,339 shares of Series B
Convertible Preferred Stock, $0.01 par value, an aggregate offering price of
$1,875,00.
(4) Series C Preferred Stock:
In June 1996, the Company issued 4,664,596 shares of Series C Convertible
Preferred Stock, $0.01 par value, an aggregate offering price of $7,570,000.
(5) Warrant:
In April 1996, the Company issued a warrant to purchase 31,056 shares of
Series C Preferred Stock at an exercise price of $1.61 per share.
(6) Common Stock Issued Upon Exercise of Options:
In October 1996, the Company issued 6,812 shares of Common Stock, $0.0001
par value, pursuant to the exercise of stock options at an exercise price of
$1.50 per share in the aggregate amount of $10,218.
The sales and issuance of securities in the transactions described in
paragraphs (1) through (6) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, Certificate of Ownership
and Merger merging Neon Software, Inc., an Illinois corporation with
and into the Registrant, and Certificates of Amendment to the
Certificate of Incorporation of the Registrant dated April 12, 1996
and June 3, 1996.
3.2 Form of Amended and Restated Certificate of Incorporation to be filed
upon the consummation of the Offering.
3.3 Amended and Restated ByLaws of the Registrant to be effective upon the
effectiveness of the Offering.
4.1 Specimen Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
regarding legality of securities being registered.
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.1 Form of Indemnification Agreement between the Registrant and its
directors and executive officers.
10.2 Registrant's 1995 Stock Option Plan (Amended and Restated as of January
3, 1997)
10.3 Registrant's 1997 Director Stock Option Plan.
10.4 Registrant's 1997 Employee Stock Purchase Plan.
10.5 Warrant to Purchase Stock issued to Silicon Valley Bank dated April 12,
1996.
10.6 Series A Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated May 9, 1995.
10.7 Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated September 20, 1995.
10.8 Series C Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated June 3, 1996.
10.9 Registration Rights Agreement between the Registrant and certain parties
named therein dated May 9, 1995.
10.10 Amendment No. 1 to Registration Rights Agreement between the Registrant
and certain parties named therein dated September 20, 1995.
10.11 Amendment No. 2 to Registration Rights Agreement between the Registrant
and certain parties named therein dated June 3, 1996.
10.12 Lease Agreement between the Registrant and State of California Public
Employees' Retirement System for the property at 7400 East Orchard
Road, Suite 230, Englewood, CO dated October 12, 1994 and
Commencement Date Agreement dated January 23, 1995 in connection
therewith.
10.13 Master Agreement for Professional Services between the Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated March 1,
1995 and related agreements.
11.1 Statement regarding computation of pro forma net loss per common share.
21.1 Subsidiary of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment
(b) Financial Statement Schedules -- NONE
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of this prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or
II-3
<PAGE> 83
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 24
of this Registration Statement or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE> 84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON JANUARY 8, 1997. THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE
GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1.
New Era of Networks, Inc.
By: /s/ LEONARD M. GOLDSTEIN
------------------------------------
Leonard M. Goldstein
Senior Vice President, Senior
Counsel and Secretary
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints George F. Adam, Jr. and Leonard M.
Goldstein, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments (including post-effective amendments) to this registration statement
together with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment or any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and (iv) take any and all actions
which may be necessary or appropriate to be done, as fully for all intents and
purposes as he or she might or could do in person, hereby approving, ratifying
and confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ GEORGE F. ADAM, JR. Chairman of the Board, Chief January 21, 1997
- --------------------------------------------- Executive Officer, President
George F. Adam, Jr. and Director
/s/ LEONARD M. GOLDSTEIN Senior Vice President, Senior January 21, 1997
- --------------------------------------------- Counsel and Secretary
Leonard M. Goldstein
/s/ STEPHEN E. WEBB Senior Vice President and January 21, 1997
- --------------------------------------------- Chief Financial Officer
Stephen E. Webb
/s/ JAMES C. PARKS Vice President of Finance and January 21, 1997
- --------------------------------------------- Controller (Principal
James C. Parks Accounting Officer)
/s/ HAROLD A. PISKIEL Senior Vice President, Chief January 21, 1997
- --------------------------------------------- Technical Officer and
Harold A. Piskiel Director
/s/ STEVE LAZARUS Director January 21, 1997
- ---------------------------------------------
Steven Lazarus
/s/ MARK L. GORDON Director January 21, 1997
- ---------------------------------------------
Mark L. Gordon
/s/ JAMES REEP Director January 21, 1997
- ---------------------------------------------
James Reep
</TABLE>
II-5
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- -------------------- ------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant. Certificate of
Ownership and Merger merging Neon Software, Inc., an Illinois
corporation with and into the Registrant and Certificates of
Amendment to the Certificate of Incorporation of the Registrant
dated April 12, 1996 and June 3, 1996.
3.2 Form of Amended and Restated Certificate of Incorporation to be
filed upon the consummation of the Offering.
3.3 Amended and Restated By Laws of the Registrant to be effective upon
the effectiveness of the Offering.
4.1 Specimen Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation regarding legality of securities being registered.
10.1 Form of Indemnification Agreement between the Registrant and its
directors and executive officers.
10.2 Registrant's 1995 Stock Option Plan (Amended and Restated as of
January 3, 1997)
10.3 Registrant's 1997 Director Stock Option Plan.
10.4 Registrant's 1997 Employee Stock Purchase Plan.
10.5 Warrant to Purchase Stock issued to Silicon Valley Bank dated April
12, 1996.
10.6 Series A Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated May 9, 1995.
10.7 Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated September 20,
1995.
10.8 Series C Convertible Preferred Stock Purchase Agreement between the
Registrant and the purchasers named therein dated June 3, 1996.
10.9 Registration Rights Agreement between the Registrant and certain
parties named therein dated May 9, 1995.
10.10 Amendment No. 1 to Registration Rights Agreement between the
Registrant and certain parties named therein dated September 20,
1995.
10.11 Amendment No. 2 to Registration Rights Agreement between the
Registrant and certain parties named therein dated June 3, 1996.
10.12 Lease Agreement between the Registrant and State of California
Public Employees' Retirement System for the property at 7400
East Orchard Road, Suite 230, Englewood, CO dated October 12,
1994 and Commencement Date Agreement dated January 23, 1995 in
connection therewith.
10.13 Master Agreement for Professional Services between the Registrant
and Merrill Lynch, Pierce, Fenner & Smith Incorporated dated
March 1, 1995 and related agreements.
11.1 Statement regarding computation of pro forma net loss per common
share.
21.1 Subsidiary of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
Shares
-------
NEW ERA OF NETWORKS, INC.
Common Stock
UNDERWRITING AGREEMENT
, 1996
-------------
UBS Securities LLC
Montgomery Securities
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
New Era of Networks, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell _______ shares (the "Firm Shares") of its authorized
but unissued Common Stock, $.001 par value per share (the "Common Stock"), to
the several underwriters listed on Schedule A to this Agreement (collectively,
the "Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to ______ additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement on Form S-1
(File No. 333- ___ including a prospectus relating to the Shares and each
amendment thereto has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each
of the Underwriters. If such registration statement has not become effective,
a further amendment to such registration statement, including a form of final
prospectus, necessary to
1
<PAGE> 2
permit such registration statement to become effective will be filed promptly
by the Company with the Commission. If such registration statement has become
effective, a final prospectus containing all Rule 430A information (as
hereinafter defined) will be filed by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations on or before the
second business day after the date hereof (or such earlier time as may be
required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement (including all exhibits and financial statements
[AND ALL DOCUMENTS INCORPORATED BY REFERENCE THEREIN)] at the time such
registration statement becomes or became effective and, in the event any
post-effective amendment thereto becomes effective prior to the Closing Date
(as hereinafter defined), shall also mean such registration statement as so
amended; provided, however, that such term shall include all Rule 430A
information deemed to be included in such registration statement at the time
such registration statement becomes effective as provided by Rule 430A of the
Rules and Regulations and shall also mean any registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A information. The term "Prospectus" as used in
this Agreement shall mean the prospectus relating to the Shares in the form in
which it is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus included in
the Registration Statement at the time such registration statement becomes
effective. The term "Rule 430A Information" means information with respect to
the Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A of the
Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants as follows:
(a) The Company has not received, and has no notice of,
any order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituted proceedings for that purpose, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects
to the requirements of the Act and the Rules and Regulations. When the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as hereinafter defined), any later date on which Option Shares are to be
purchased (the "Option Closing Date") and when any post-effective amendment to
the Registration Statement becomes effective or any amendment or supplement to
the Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The foregoing representations and
warranties in this Section 2(a) do not apply to any statements or omissions
made in reliance on and in conformity
2
<PAGE> 3
with the information contained in the section of the Prospectus entitled
"Underwriting" (except for the _____ paragraph thereof) and the information in
the last paragraph on the front cover page of the Prospectus. The Company has
not distributed any offering material in connection with the offering or sale
of the Shares other than the Registration Statement, the Preliminary
Prospectus, the Prospectus or any other materials, if any, permitted by the
Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and
Subsidiary (as hereinafter defined) taken as a whole (a "Material Adverse
Effect"). The Company has no subsidiaries (as defined in the Rules and
Regulations) other than NEON Limited (the "Subsidiary"). The Company owns one
hundred percent (100%) of the outstanding common stock of Subsidiary. Other
than Subsidiary, the Company does not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association
or other entity. Complete and correct copies of the certificates of
incorporation and of the bylaws of the Company and Subsidiary and all
amendments thereto have been delivered to the Representatives, and except as
set forth in the exhibits to the Registration Statement no changes therein will
be made subsequent to the date hereof and prior to the Closing Date or, if
later, the Option Closing Date. Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement. Subsidiary is duly qualified to do business as
a foreign corporation in good standing in each jurisdiction where the ownership
or leasing of the properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect. All of the outstanding shares of capital stock of Subsidiary
have been duly authorized and validly issued, are fully paid and non-assessable
and (except as otherwise described in this Section 1(b)) are owned by the
Company subject to no security interest, other encumbrance or adverse claims.
No options, warrants or other rights to purchase, agreements or other
obligation to issue or other rights to convert any obligation into shares of
capital stock or ownership interests in the Subsidiary are outstanding.
(c) The Company has full power and authority (corporate
and otherwise) to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable laws or equitable principles and except as enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. The performance of this Agreement by the Company and the
consummation by the Company of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any indenture,
3
<PAGE> 4
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any lease, contract or other agreement or
instrument to which the Company or any Subsidiary is a party or by which its
properties are bound, or (ii) the certificate of incorporation, as amended, or
bylaws of the Company or Subsidiary or (iii) any law, order, rule, regulation,
writ, injunction or decree of any court or governmental agency or body to which
the Company or any Subsidiary is subject. The Company is not required to
obtain or make (as the case may be) any consent, approval, authorization,
order, designation or filing by or with any court or regulatory, administrative
or other governmental agency or body as a requirement for the consummation by
the Company of the transactions herein contemplated, except such as may be
required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or under state securities or blue sky ("Blue Sky") laws or
under the rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD").
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or Subsidiary or any of their respective officers or any of their
respective properties, assets or rights before any court or governmental agency
or body or otherwise which might result in a Material Adverse Effect or have a
material adverse effect on the Company's properties, assets or rights, or
prevent consummation of the transactions contemplated hereby. There are no
statutes, rules, regulations, agreements, contracts, leases or documents that
are required to be described in the Prospectus, or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations that have
not been accurately described in all material respects in the Prospectus or
filed as exhibits to the Registration Statement.
(e) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms in all material respects to the
description thereof contained in the Registration Statement and the Prospectus
(and such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable. Except as set forth in the
Prospectus, no preemptive right, co-sale right, right of first refusal or other
similar rights of securityholders exists with respect to any of the Shares or
the issue and sale thereof other than those that have been expressly waived
prior to the date hereof. No holder of securities of the Company has the right
to cause the Company to include such holder's securities in the Registration
Statement. No further approval or authorization of any security holder, the
Board of Directors or any duly appointed committee thereof or others is
required for the issuance and sale or transfer of the Shares, except as may be
required under the Act, the Exchange Act or under state securities or Blue Sky
laws. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus the Company does not have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
4
<PAGE> 5
rights, convertible securities or obligations. The description of the
Company's stock option and other plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents, in all material respects, the information
required to be shown with respect to such plans, arrangements, options and
rights.
(f) Arthur Andersen LLP (the "Accountants") who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. All
financial statements, together with the related schedules and notes, filed with
the Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as
may be otherwise stated in the Registration Statement. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No other financial
statements or schedules are required by the Act or the Rules and Regulations to
be included in the Registration Statement.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
has not been (i) any material adverse change, or any development which, in the
Company's reasonable judgment, is likely to cause a material adverse change, in
the business, properties or assets described or referred to in the Registration
Statement, or the results of operations, condition (financial or otherwise),
business or operations of the Company and Subsidiary taken as a whole, (ii) any
transaction which is material to the Company or Subsidiary, except transactions
in the ordinary course of business, (iii) any obligation, direct or contingent,
which is material to the Company and its Subsidiary taken as a whole, incurred
by the Company or Subsidiary, except obligations incurred in the ordinary
course of business, (iv) any change in the capital stock or outstanding
indebtedness of the Company or Subsidiary or (v) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company.
Neither the Company nor its Subsidiary has any material contingent obligation
which is not disclosed in the Registration Statement.
(h) Except as set forth in the Prospectus, (i) the
Company and Subsidiary have good and marketable title to all material
properties and assets described in the Prospectus as owned by them, free and
clear of any pledge, lien, security interest, charge, encumbrance, claim,
equitable interest, or restriction, (ii) the agreements to which the Company or
the Subsidiary is a party described in the Prospectus are valid agreements,
enforceable against the Company or Subsidiary in accordance with their terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and, to the
Company's knowledge, the other contracting party or parties thereto are not in
material breach or default under any of such agreements and (iii) the Company
and Subsidiary have valid and enforceable leases for the
5
<PAGE> 6
properties described in the Prospectus as leased by it, and such leases conform
in all material respects to the description thereof, if any, set forth in the
Registration Statement.
(i) The Company and Subsidiary now hold and at the
Closing Date and any later Option Closing Date, as the case may be, will hold,
all licenses, certificates, approvals and permits from all state, United
States, foreign and other regulatory authorities, including but not limited to
the United States Food and Drug Administration (the "FDA") and any foreign
regulatory authorities performing functions similar to those performed by the
FDA, that are material to the conduct of the business of the Company (as such
business is currently conducted), except for such licenses, certificates,
approvals and permits the failure of which to hold would not have a Material
Adverse Effect), all of which are valid and in full force and effect (and there
is no proceeding pending or, to the knowledge of the Company, threatened which
may cause any such license, certificate, approval or permit to be withdrawn,
canceled, suspended or not renewed). Neither the Company nor Subsidiary is in
violation of its certificate of incorporation or bylaws, or, except for
defaults or violations which would not have a Material Adverse Effect, in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a party or by which it
or any of its properties are bound, or in violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body, including, but not limited to, the FDA. All of the descriptions in the
Registration Statement and Prospectus of the legal and governmental proceedings
by or before the FDA or any foreign, state or local government body exercising
comparable authority are true, complete and accurate in all material respects.
(j) The Company and Subsidiary have filed on a timely
basis all necessary federal, state and foreign income, franchise and other tax
returns and has paid all taxes shown thereon as due, and the Company has no
knowledge of any tax deficiency which has been or might be asserted against the
Company or Subsidiary which might have a Material Adverse Effect. All material
tax liabilities are adequately provided for within the financial statements of
the Company.
(k) The Company and Subsidiary maintain insurance of the
types and in the amounts adequate for their business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering clinical trial liability,
product liability and real and personal property owned or leased against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
(l) Neither the Company nor Subsidiary is involved in any
labor dispute or disturbance nor, to the knowledge of the Company, is any such
dispute or disturbance threatened.
(m) Except as described in the Prospectus, the Company
and Subsidiary own or possess adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, tradenames, copyrights, manufacturing
processes, formulae, trade secrets, know-how, franchises, and other material
intangible property and assets (collectively, "Intellectual Property")
necessary to the conduct of
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their businesses as conducted and as proposed to be conducted as described in
the Prospectus. The Company has no knowledge of any facts which would preclude
it from having rights to its patent applications referenced in the Prospectus.
The Company has no knowledge that it or Subsidiary lacks or will be unable to
obtain any rights or licenses to use any of the Intellectual Property necessary
to conduct the business now conducted or proposed to be conducted by it as
described in the Prospectus, except as described in the Prospectus. The
Prospectus fairly and accurately describe the Company's rights with respect to
the Intellectual Property. The Company has not received any notice of
infringement or of conflict with rights or claims of others with respect to any
Intellectual Property. The Company is not aware of any patents of others which
are infringed upon by potential products or processes referred to in the
Prospectus in such a manner as to materially and adversely affect the Company
and Subsidiary taken as a whole, except as described in the Prospectus.
(n) The Company and Subsidiary are conducting their
businesses in compliance with all of the laws, rules and regulations of the
jurisdictions in which it is conducting business, including, but not limited
to, the laws, rules and regulations administered or promulgated by the FDA
(o) The Company is not an "investment company," or a
"promoter" or "principal underwriter" for a registered investment company, as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) Neither the Company nor Subsidiary has incurred any
liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(q) Each of the Company and Subsidiary is (i) in
compliance with any and all applicable United States, state and local
environmental laws, rules, regulations, treaties, statutes and codes
promulgated by any and all governmental authorities relating to the protection
of human health and safety, the environment or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) has received all
permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business as currently conducted, and (iii) is
in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permit licenses or other approvals would not, individually or
in the aggregate, have a Material Adverse Effect. No action, proceeding,
revocation proceeding, writ, injunction or claim is pending or threatened
relating to the Environmental Laws or to the Company's or its Subsidiaries'
activities involving Hazardous Materials. "Hazardous Materials" means any
material or substance (i) that is prohibited or regulated by any environmental
law, rule, regulation, order, treaty, statute or code promulgated by any
governmental authority, or any amendment or modification thereto, or (ii) that
has been designated or regulated by any governmental authority as radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
(r) Neither the Company nor Subsidiary has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or
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<PAGE> 8
its Subsidiary's properties or former properties, except where such use,
manufacture, transportation or storage is in compliance with Environmental
Laws. No Hazardous Materials have been treated or disposed of on any of the
Company's or Subsidiary's properties or on properties formerly owned or leased
by the Company or any Subsidiary during the time of such ownership or lease,
except in compliance with Environmental Laws. No spills, discharges, releases,
deposits, emplacements, leaks or disposal of any Hazardous Materials have
occurred on or under or have emanated from any of the Company's or Subsidiary's
properties or former properties.
(s) Neither the Company nor Subsidiary has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any foreign, United States or state
governmental officer or official, or other person charged with similar public
of quasi-public duties, other than payments required or permitted by the laws
of the United States.
(t) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act. The Shares have been duly authorized for quotation
on the National Association of Securities Dealers, Inc. Automated Quotation
System National Market System ("Nasdaq National Market"). The Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of
its officers, directors or affiliates will have taken, directly or indirectly,
any action which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of sale or resale of
the Shares.
(v) The Company has timely and properly filed with the
Commission all reports and other documents required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True
and complete copies of all such reports and other documents have been delivered
to you.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate
number of Firm Shares set forth opposite its name on Schedule A, plus such
additional number of Firm Shares which such Underwriter may become obligated to
purchase pursuant to Section 3(b) hereof. The price at which such Firm Shares
shall be sold by the Company and purchased by the several Underwriters shall be
$_____ per share. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in
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<PAGE> 9
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of Firm Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within twenty four (24) hours after such default to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be
agreed upon between you and such purchasing Underwriter or Underwriters and
upon the terms herein set forth, all or any part of the Shares which such
defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such Shares and portion, the number of Shares which each non defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis (as adjusted by you in such manner
as you deem advisable to avoid fractional shares) to absorb the remaining
shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the Shares and portion which the defaulting Underwriter
or Underwriters agreed to purchase if the aggregate number of such Shares
exceeds ten percent (10%) of the total number of Shares which all Underwriters
agreed to purchase hereunder. If the total number of Shares which the
defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
24-hour period referred to above, to make arrangements with other underwriters
or purchasers reasonably satisfactory to you for purchase of such Shares and
portion on the terms herein set forth. In any such case, either you or the
Company shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If the aggregate number of Shares
which the defaulting Underwriter or Underwriters agreed to purchase exceeds 10%
of the total number of Shares which all Underwriters agreed to purchase
hereunder, and if neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase all
or any portion of the Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice by you to the Company
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<PAGE> 10
setting forth the aggregate number of shares of the Option Shares as to which
the several Underwriters are exercising the option. Delivery of certificates
for the shares of Option Shares, and payment therefor, shall be made as
provided in Section 5 hereof. Each Underwriter will purchase such percentage
of the Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing, the exact number of shares to be adjusted by you in
such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering of the
Shares by the Underwriters shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) You, on behalf of the Underwriters, represent and
warrant that (i) the information set forth in the last paragraph on the front
cover page and paragraph ___ under the caption "Underwriting" in the
Registration Statement, any Preliminary Prospectus and the Prospectus relating
to the Shares (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and
the Prospectus, and that the statements made therein are correct and do not
omit to state any 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, and (ii) the Underwriters have not distributed and
will not distribute prior to the Closing Date or on any Option Closing Date, as
the case may be, any of offering material in connection with the offering and
sale of the shares other than the Preliminary Prospectus, the Prospectus, the
Registration Statement and other materials permitted by the Act.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Option Shares (if the option granted pursuant to Section 3(c) hereof shall have
been exercised not later than 11:00 a.m., Denver time, on the date at least two
business days preceding the Closing Date), and payment therefor, shall be made
at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250,
Boulder, Colorado 80302 6737 (or at such other place as may be agreed upon by
the Company and you) at 7:00 a.m., Denver time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 2:30 p.m., Denver time, the fourth
(4th) full business day following the day that this Agreement is executed and
delivered or (c) at such time on such other day, not later than seven (7) full
business days following the first day that Shares are traded, as shall be
agreed upon in writing by the Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 11:00 a.m., Denver time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the Option Shares, and payment
therefor, shall be made at the offices of Cooley Godward LLP, 2595 Canyon
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Boulevard, Suite 250, Boulder, Colorado 80302 6737 at 7:00 a.m., Denver time,
on the third (3rd) business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company
shall be made to the Company or its order, by either a same day funds check or
Federal Funds wire transfer. Such payment shall be made upon delivery of
certificates for the Shares to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the
Shares to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least three business days
before the Closing Date, in the case of Firm Shares, and at least two business
days prior to the Option Closing Date, in the case of the Option Shares. Such
certificates will be made available to the Underwriters for inspection,
checking and packaging at a location in New York, New York, designated by the
Underwriters not less than one full business day prior to the Closing Date or,
in the case of the Option Shares, by 3:00 p.m., New York time, on the business
day preceding the Option Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and
agrees as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration Statement or
any subsequent amendment to the Registration Statement has become effective or
any supplement to the Prospectus has been filed. If the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a), the Company will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission. If for any
reason the filing of the final form of Prospectus is required under Rule
424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed with
the Commission within the time period prescribed. The Company will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information.
Promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the reasonable opinion of counsel to the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters. The Company will promptly prepare and file
with the Commission, and promptly notify you of the filing of, any amendments
or supplements to the Registration Statement or Prospectus which may
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<PAGE> 12
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act,
any event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. In case any Underwriter is required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, such amendment
or amendments to the Registration Statement and such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Act. The Company will file no amendment or supplement to the
Registration Statement or Prospectus that shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing or which is not in compliance with
the Act and Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the initiation or threat of any proceeding for
that purpose; and it will promptly use its best efforts to prevent the issuance
of any such stop order or to obtain its withdrawal at the earliest possible
moment if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith
or as a condition thereof to qualify as a foreign corporation, or to execute a
general consent to service of process in any jurisdiction, or to make any
undertaking with respect to the conduct of its business. In each jurisdiction
in which the Shares shall have been qualified, the Company will make and file
such statements, reports and other documents in each year as are or may be
reasonably required by the laws of such jurisdictions so as to continue such
qualifications in effect for so long a period as you may reasonably request for
distribution of the Shares, or as otherwise may be required by law.
(d) The Company will furnish to you, as soon as
available, copies of the Registration Statement (three of which will be signed
and which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and covering a
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<PAGE> 13
twelve-month period beginning after the effective date of the Registration
Statement, and will advise you in writing when such statement has been made
available.
(f) During a period of five years after the date hereof,
the Company, as soon as practicable after the end of each respective period,
will furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the
Company's stockholders; (ii) concurrently with the furnishing thereof to its
stockholders, a balance sheet of the Company as of the end of such fiscal year,
together with statements of operations, of stockholders' equity and of cash
flow of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of nationally recognized independent certified
public accountants; (iii) concurrently with the furnishing of such reports to
its stockholders, copies of all reports (financial or other) mailed to
stockholders; (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the Nasdaq National Market by the Company (except for documents for
which confidential treatment is requested); and (v) every material press
release and every material news item or article in respect of the Company or
its affairs which was generally released to stockholders or prepared for
general release by the Company. During such five-year period, if the Company
shall have any active subsidiaries, the foregoing financial statements shall be
on a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(g) Prior to or simultaneously with the execution and
delivery of this Agreement, the Company will obtain agreement from each
beneficial owner of the Company's Common Stock listed on Schedule B to this
Agreement providing that such person will not, for a period of 180 days after
the date of the Prospectus, without the prior written consent of UBS Securities
LLC, directly or indirectly, offer to sell, sell, hypothecate, contract to
sell, grant any option to purchase, or otherwise dispose of, any shares of
Common Stock beneficially owned as of the date such lockup agreement is
executed (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned in accordance with the Rules and Regulations
and shares of Common Stock which may be issued upon exercise of a stock option
or warrant) or any securities convertible into or exercisable or exchangeable
for such Common Stock except, (a) by operation of law or (b) pursuant to a bona
fide gift to any person or other entity which agrees in writing to be bound by
this restriction. Each such person or entity shall also agree and consent to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of shares of Common Stock held by such person or entity,
except in compliance with the foregoing restriction.
(h) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, file a registration statement covering any
of its shares of capital stock, except that one or more
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<PAGE> 14
registration statements on Form S 8 may be filed at any time following the
effective date of the Registration Statement.
(i) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any options, rights or warrants with respect to shares of
Common Stock, or any securities convertible into or exchangeable for Common
Stock, other than (i) the sale of Shares hereunder, (ii) the grant of options
or the issuance of shares of Common Stock under the Company's stock option
plans or stock purchase plan, as the case may be, existing on the date hereof,
(iii) the issuance of shares of Common Stock upon exercise of the currently
outstanding options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain
listing of its shares of Common Stock on the Nasdaq National Market.
(m) The Company is familiar with the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder, and has in
the past conducted its affairs, and will in the future conduct its affairs, in
such a manner so as to ensure that the Company was not and will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(n) If at any time during the 180-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely
to be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above consult with you in good faith regarding the necessity of
disseminating a press release or other public statement responding to or
commenting on such rumor, publication or event and, if the Company in its
reasonable judgment determines that such a press release or other public
statement is appropriate, the substance of any press release or other public
statement.
7. EXPENSES.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
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<PAGE> 15
amendments or supplements thereto; the reproduction of this Agreement, the
Master Agreement Among Underwriters, the Master Selected Dealer Agreement, the
Preliminary Blue Sky Memoranda and any Supplemental Blue Sky Memoranda and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any;
the cost of all stock certificates representing the Shares and Transfer Agents'
and Registrars' fees; the fees and disbursements of corporate, patent and
regulatory counsel for the Company; all fees and other charges of the Company's
independent public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and expenses incident to
securing any required review and the cost of qualifying the Shares under the
laws of such jurisdictions within the United States as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the Nasdaq National Market; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in clause (a) above,
reimburse the several Underwriters for all out-of-pocket expenses (including
reasonable fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in reviewing the Registration Statement and the Prospectus and in
otherwise investigating, preparing to market or marketing the Shares. The
Company will in no event be liable to any of the several Underwriters for any
loss of anticipated profits from the sale by them of the Shares.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for
the Shares, as provided herein, shall be subject to the accuracy, as of the
date hereof and the Closing Date and any later Option Closing Date, as the case
may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 9:00 a.m., New York City time, on the date following
the date of this Agreement, or such later time or date as shall be consented to
in writing by you. If the filing of the Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations,
the Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceeding for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of Underwriters' Counsel.
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(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this subsection.
(c) You shall have received, at no cost to you, on the
Closing Date and on any later Option Closing Date, as the case may be, the
opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
corporate counsel to the Company, dated the Closing Date or such later Option
Closing Date, in the forms attached hereto on Appendix A, addressed to the
Underwriters and with reproduced copies of signed counterparts thereof for each
of the Representatives.
(d) You shall have received from Cooley Godward LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
it may have reasonably requested for the purpose of enabling it to pass upon
such matters.
(e) You shall have received on the Closing Date and on
any later Option Closing Date, as the case may be, a letter from the
Accountants addressed to the Company and the Underwriters, dated the Closing
Date or such later Option Closing Date, as the case may be, confirming that it
is an independent certified public accountant with respect to the Company
within the meaning of the Act and the Rules and Regulations thereunder and
based upon the procedures described in its letter delivered to you concurrently
with the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than three days prior to the Closing Date or any
such later Option Closing Date, as the case may be, (i) confirming that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later Option Closing Date, as the case may be; and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter that are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements,
data or information. The letter shall not disclose any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company which, in your reasonable judgment, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. In addition, you shall have received from
the Accountants a letter addressed to the Company and made available to you for
the use of the Underwriters stating that its review of the Company's system of
internal accounting controls, to the extent it deemed necessary in establishing
the scope of its latest examination of the Company's financial statements, did
not disclose any weaknesses in internal controls that it considered to be
material weaknesses. All such letters shall be in a form reasonably
satisfactory to the Representatives and their counsel.
16
<PAGE> 17
(f) You shall have received on the Closing Date and on
any later Option Closing Date, as the case may be, a certificate of the
President and the Chief Financial Officer of the Company, dated the Closing
Date or such later date, to the effect that as of such date (and you shall be
satisfied that as of such date):
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or any later Option Closing Date, as the case may be; and the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become
effective under the Act and no stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the Prospectus
has been issued, and no proceedings for that purpose have been instituted or
are pending or, to the best of their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration
Statement and the Prospectus; and, when the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus and any amendments
or supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein not misleading;
and when the Registration Statement became effective, and at all times
subsequent thereto up to the delivery of such certificate, none of the
Registration Statement, the Prospectus or any amendment or supplement thereto
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended
or supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been (a) any material adverse change in the properties or assets
described or referred to in the Registration Statement and the Prospectus or in
the condition (financial or otherwise), operations, business or prospects of
the Company and Subsidiary, (b) any transaction which is material to the
Company and Subsidiary, except transactions entered into in the ordinary course
of business, (c) any obligation, direct or contingent, incurred by the Company
or Subsidiary, which is material to the Company and Subsidiary taken as a
whole, (d) any change in the capital stock or outstanding indebtedness of the
Company or Subsidiary which is material to the Company and Subsidiary taken as
a whole or (e) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy
of the representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
17
<PAGE> 18
(h) The Firm Shares and the Option Shares, if any, shall
have been approved for designation upon notice of issuance on the Nasdaq
National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration
statement) or any post effective amendment thereto (including any 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission is
contained in the section of the Prospectus entitled "Underwriting" (except for
the ____ paragraph thereof) or the last paragraph of text on the cover page of
the Prospectus, and (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or
to the benefit of any person controlling such Underwriter) if at or prior to
the written confirmation of the sale of such Shares a copy of the Prospectus
(or the Prospectus as amended or supplemented) was not sent or delivered to
such person and the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company with paragraph (a) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall
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<PAGE> 19
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its executive officers, each of its
directors, each other Underwriter and each person (including each partner or
officer thereof) who controls the Company or any such other Underwriter within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise and to reimburse each of them for any legal or
other expenses including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages
or liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post effective amendment thereto (including any 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that in the cases of clauses (i) and
(ii) above, such statement or omission is contained in the Section of the
Prospectus entitled "Underwriting" (except for the ____ paragraph thereof) or
the last paragraph on the cover page of the Prospectus. The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Shares.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 9 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party to
whom such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt
19
<PAGE> 20
of the Notice by giving written notice (the "Notice of Defense") to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled, at its or their own expense to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. It is understood that the indemnifying parties shall not, in respect
of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding, except
that (a) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (b) the indemnifying
party or parties shall bear such other expenses as it or they have authorized
to be incurred by the indemnified party or parties. If, within a reasonable
time after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause
20
<PAGE> 21
(i) above but also the relative fault of each indemnifying party in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on
the one hand, and the Underwriters, on the other, shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Shares received by the Company and the total underwriting discount received by
the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Shares.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
each indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparation to defend or defense against any
action or claim which is the subject of this paragraph (d). Notwithstanding
the provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in paragraph (c) of this Section 9).
(e) The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit
or proceeding.
21
<PAGE> 22
(f) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof, including without limitation
the provisions of this Section 9 and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 9
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
10. TERMINATION. This Agreement may be terminated by you at any
time on or prior to the Closing Date or on or prior to any later Option Closing
Date, as the case may be, (i) if the Company shall have failed, refused or been
unable, at or prior to the Closing Date, or on or prior to any later Option
Closing Date, as the case may be, to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market, by such trading exchanges or by order
of the Commission or any other governmental authority having jurisdiction, or
if a banking moratorium shall have been declared by federal or New York
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, accident or other calamity of such character as to have a Material
Adverse Effect regardless of whether or not such loss shall have been insured,
or (iv) if there shall have been a material adverse change in the general
political or economic conditions or financial markets in the United States as
in the judgment of the Representatives makes it inadvisable or impracticable
to proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have occurred an outbreak or escalation of hostilities between the United
States and any foreign power or of any other insurrection or armed conflict
involving the United States or other national or international calamity,
hostilities or crisis or the declaration by the United States of a national
emergency which, in the judgment of the Representatives, adversely affects the
marketability of the Shares, or (vi) if since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have occurred any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company or the business affairs, management, or business
prospects of the Company, whether or not arising in the ordinary course of
business, or (vii) if any foreign, federal or state statute, regulation, rule
or order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise promulgated which in the judgment of the
Representatives materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or trading in the
Common Stock shall have been suspended, or (viii) there shall have occurred a
material adverse decline in the value of securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or
(ix) action shall be taken by any foreign, federal, state or local government
or agency in respect of its monetary or fiscal affairs which, in the judgment
of the Representatives, has a material adverse effect on the securities markets
in the United States. If this Agreement shall be terminated in accordance with
this Section 10, there shall be no liability of the Company to the Underwriters
and no liability of the Underwriters to the Company; provided,
22
<PAGE> 23
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company under this
Agreement, including all costs and expenses referred to in Section 7.
If you elect to terminate this Agreement as provided in this Section
10, the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section
9 of this Agreement, the Company hereby agrees to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 9 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to
be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
(b) In addition to their other obligations under Section
9 of this Agreement, the Underwriters hereby agree to reimburse on a quarterly
basis the Company for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (b) of
Section 9 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to
be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the Company shall promptly refund it and (ii)
the Company shall provide to the Underwriter, upon request, reasonable
assurances of its ability to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company and the several Underwriters and,
with respect to the provisions of Section 9 hereof, the several parties (in
addition to the Company and the several Underwriters) indemnified under the
provisions of said Section 9, and their respective personal representatives,
successors and assigns. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Shares from
any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to UBS Securities LLC,
299 Park Avenue, New York, NY 10171, Attention: Mr. Richard Messina; and if to
the Company, shall be mailed, telegraphed or delivered
23
<PAGE> 24
to it at its office, 7400 East Orchard, Suite 230, Englewood, CO 80111,
Attention: George F. Adam, Jr. All notices given by telegraph shall be
promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (i) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its respective directors of officers, and (ii) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
You will act as Representatives of the several Underwriters in all
dealings with the Company under this Agreement, and any action under or in
respect of this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
24
<PAGE> 25
Please sign and return to the Company the enclosed copies of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
NEW ERA OF NETWORKS, INC.
By:
-------------------------------------
George F. Adam, Jr.
President and Chief Executive Officer
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
By: UBS SECURITIES LLC
By:
-----------------------
Title:
MONTGOMERY SECURITIES
By:
-----------------------
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
25
<PAGE> 26
SCHEDULE A
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Shares
Underwriters to be Purchased
- ------------------------------------------------------------------------------------------- ----------------
<S> <C>
UBS Securities LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total [ ]
===========
</TABLE>
1
<PAGE> 27
SCHEDULE B
LOCK-UP AGREEMENT
1
<PAGE> 28
APPENDIX A
1. OPINION OF COUNSEL TO THE COMPANY
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, shall
opine to the effect that:
(a) The Company has been duly organized and is validly
existing as a corporation, and is in good standing under, the laws of the State
of Delaware;
(b) The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect;
(c) Other than Subsidiary, the Company does not own or
control, directly or indirectly, any corporation, association or other entity.
Subsidiary has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement. Each
Subsidiary is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of the properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a Material Adverse Effect. All of the
outstanding shares of capital stock of Subsidiary have been duly authorized and
validly issued, are fully paid and non-assessable and, except as otherwise
stated in the Registration Statement), are owned by the Company, in each case
subject to no security interest, other encumbrance or adverse claim; to the
best of such counsel's knowledge, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligation into shares of capital stock or ownership interests in the
Subsidiaries are outstanding;
(d) The authorized capital stock of the Company consists
of shares of Preferred Stock, of which __________ shares are designated Series
A Preferred Stock, of which __________ shares are issued and outstanding,
__________ shares are designated Series B Preferred Stock, of which __________
shares are issued and outstanding, and __________ shares are designated Series
C Preferred Stock, of which __________ shares are issued and outstanding, and
__________ shares of Common Stock, $.001 par value, of which _________ shares
are oustanding (including the Firm Shares plus the number of Option Shares
issued on the date hereof; the authorized shares of the Company's Common Stock
have been duly authorized; the issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable, and have not been issued in violation of any preemptive
right, co- sale right, registration right, right of first refusal or other
similar right known to such counsel;
1
<PAGE> 29
(e) The Shares to be issued by the Company pursuant to
this Agreement have been duly authorized and will be, upon issuance and
delivery against payment therefor in accordance with the terms hereof, validly
issued, fully paid and nonassessable, and, to our knowledge, the stockholders
of the Company do not have any preemptive right, co-sale right, registration
right, right of first refusal or other similar right, which rights have not
previously been waived, in connection with the purchase or sale of any of the
Shares;
(f) The Company has full corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters
the Firm Shares or the Option Shares, as the case may be, to be issued and sold
by it hereunder;
(g) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as rights to
indemnity may be limited by applicable laws and public policy and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance;
(h) The Registration Statement has become effective under
the Act and, to our knowledge, no stop order suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules
and Regulations has been made in the manner and within the time period required
by such Rule 424(b);
(i) The Registration Statement, all Preliminary
Prospectuses, the Prospectus, and each amendment or supplement thereto (other
than the financial statements, financial data and supporting schedules included
therein, as to which such counsel need express no opinion), comply as to form
in all material respects with the requirements of the Act and the applicable
Rules and Regulations and to our knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(j) The terms and provisions of the capital stock of the
Company conform to the description thereof contained in the Registration
Statement and the Prospectus, and the information in the Prospectus under the
caption "Description of Capital Stock", to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by us and is correct,
and the form of certificate evidencing the Common Stock complies with the
applicable provisions of Delaware law;
(k) The statements in the Registration Statement and the
Prospectus summarizing statutes, rules and regulations, including the Delaware
corporation law and the description of the certificate of incorporation and
bylaws are accurate and fairly and correctly present the information required
to be presented by the Act or the Rules and Regulations in all material
respects; and such counsel does not know of any statutes, rules or regulations
required to
2
<PAGE> 30
be described in the Registration Statement or the Prospectus that are not
described or referred to therein as required;
(l) The statements under the captions "Risk Factors -
Shares Eligible for Future Sale," "Management - Employee Benefit Plans,"
"Management - Compensation Committee Interlocks and Insider Participation,"
"Certain Transactions" and "Description of Capital Stock" in the Prospectus,
insofar as such statements constitute a summary of documents referred to
therein or matters of law, are accurate summaries and fairly and correctly
present, in all material respects, the information called for with respect to
such documents and matters; provided that such counsel shall be entitled to
rely on representations of the Company with respect to certain factual matters
contained in such statements, and provided further that such counsel shall
state that nothing has come to the attention of such counsel which leads them
to believe that such representations are not true and correct in all material
respects;
(m) The information required to be set forth in the
Registration Statement in answer to Items 9, 10 (insofar as it relates to us)
and 11(c) of Form S-1 is to our knowledge accurately and adequately set forth
therein in all material respects or no response is required with respect to
such Items;
(n) The execution, delivery and performance of this
Agreement and the consummation of the transactions therein contemplated do not
and will not (a) conflict with or result in a breach of any of the terms or
provisions of or, constitute a default under, the certificate of incorporation,
as amended (the "Certificate of Incorporation"), or bylaws of the Company, any
agreement or document filed as an exhibit to the Registration Statement, or any
statute, rule or regulation applicable to the Company (except that no opinion
need to be expressed with respect to compliance with federal and state
securities laws) or (b) to our knowledge, result in the creation or imposition
of any lien or encumbrance upon any of the assets of the Company pursuant to
the terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default or result in the acceleration
of any obligation under, any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement, other evidence of indebtedness,
lease, contract or other agreement or instrument to which the Company is a
party or by which its property is bound or (c) to our knowledge, conflict with
or result in a violation or breach of, or constitute a default under, any
applicable license, authorization, approval, permit, judgment, franchise,
order, writ or decree of any court or governmental agency or body;
(o) The Company has the corporate power and authority to
own or lease all of the assets owned or leased by it and to conduct its
business, in each case as described in the Registration Statement and the
Prospectus, except where failure to have such power and authority would not
have a Material Adverse Effect, and has all licenses, permits, consents,
orders, approvals and authorizations of any federal or state government
authority that are necessary to conduct its business as described in the
Registration Statement and the Prospectus, except where failure to have such
licenses, permits, consents, orders, approvals and authorizations would not
have a Material Adverse Effect.
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<PAGE> 31
(p) No authorization, approval, consent, order,
designation or declaration of or filing by or with any governmental authority
or agency is necessary in connection with the execution and delivery of this
Agreement by the Company and the consummation of the transactions therein
contemplated except such as may have been obtained under the Act and the Rules
and Regulations or such as may be required under state securities or Blue Sky
laws or by the bylaws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters;
(q) The Company is not in violation of its Certificate of
Incorporation or bylaws, and to our knowledge, the Company is not in breach of
or default with respect to any provision of any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument by
which it or any of its properties may be bound or affected, except where such
default would not materially adversely affect the Company and, to the best of
such counsel's knowledge, the Company is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance would not
materially adversely affect the Company;
(r) To our knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful,
would have a Material Adverse Effect or would limit, revoke, cancel, suspend,
or cause not to be renewed any existing license, certificate, registration,
approval or permit, known to us, from any state, federal, or regulatory
authority that is material to the conduct of the business of the Company as
presently conducted, or that is of a character otherwise required to be
disclosed in the Registration Statement or the Prospectus under the Act or the
applicable Rules and Regulations;
(s) To our knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
registration rights with respect to shares of Common Stock or other securities
have, with respect to the offering contemplated hereby, waived such rights or
such rights have otherwise been waived or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement.
(t) The Company will not, upon consummation of the
transactions contemplated by this Agreement, be an "investment company," or a
"promoter" or "principal underwriter" for, a "registered investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended;
In addition, counsel shall include a statement to the effect that such
counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which caused them
to believe that, at the time the Registration
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<PAGE> 32
Statement became effective the Registration Statement (except as to financial
statements, financial and statistical data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
at the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement or the Prospectus (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under, which they were made, not misleading.
Counsel rendering the foregoing may rely (i) as to questions of law
not involving the laws of the State of [COLORADO], the United States or the
General Corporation Law of the State of Delaware upon opinions of local
counsel, and (ii) as to questions of fact upon representations or certificates
of officers of the Company and of governmental officials, as the case may be,
in which case its opinion is to state that it is so doing and that it has no
actual knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificates, and that they believe that they and the
Underwriters are justified in relying on such opinions or certificates. Copies
of any opinion, representation or certificate so relied upon shall be delivered
to you, as Representatives of the Underwriters, and to Underwriters' Counsel.
5
<PAGE> 1
EXHIBIT B
Registration Rights
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of
the agreement entered into by the Company with the purchasers of the Shares
relating to registration rights.
If no such agreement exists, then the Company and the Holder shall
enter into Holder's standard form of Registration Rights Agreement as in effect
on the Issue Date of the Warrant.
<PAGE> 2
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEON SOFTWARE, INC.
ARTICLE ONE
The name of the corporation is :
NEON SOFTWARE, INC.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilminton, County of New Castle 19805.
The name of its registered agent at such address is The Prentice Hall
Corporation System, Inc.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any and all lawful acts or activities for which corporations may
be organized under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
1. Authorized Shares The aggregate number of shares of capital
stock which the corporation has authority to issue is 41,352,367 shares,
comprised of (i) 26,000,000 shares of Common Stock, par value $.001 per share
(the "Common Stock"); and (ii) 9,169,028 shares of Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") and
6,183,339 shares of Series B Convertible Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock" and together with the Series A Preferred
Stock referred to herein as the "Preferred Stock.")
2. Voting
2A. General. Except as may be otherwise provided in
these terms of the Preferred Stock or by law, the holders of Preferred Stock
and Common Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation, including, but not limited to actions amending
the Articles of Incorporation of the Corporation to increase the number of
authorized shares of Common Stock. Each holder of Preferred Stock shall be
entitled to one vote for each share of Common Stock (including fractions of a
share) which would be issuable to such holder upon the
<PAGE> 3
conversion of all the shares of Preferred Stock so held on the record date for
the determination of stockholders entitled to vote. Each holder of Common
Stock shall be entitled to one vote per share.
2B. Board Size. The Corporation shall not, without the
written consent or affirmative vote of the holders of a majority of the then
outstanding shares of Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a single
class, reduce the number of directors constituting the Board of Directors to a
number less than five or increase the maximum number of directors constituting
the Board of Directors to a number in excess of seven.
2C. Board Seats. The holders of the Series A Preferred
Stock, voting as a separate series, shall be entitled to elect one director of
the Corporation. The holder of the Series B Preferred Stock, voting as a
separate series, shall be entitled to elect one director of the Corporation.
The holders of the Common Stock, voting as a separate class, shall be entitled
to elect the remaining directors of the Corporation. At any meeting (or in a
written consent in lieu thereof) held for the purpose of electing directors,
the presence in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of Series A Preferred Stock for the election of the
director to be elected solely by the holders of Series A Preferred Stock; and
the presence in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series B Preferred Stock then outstanding shall
constitute a quorum of Series B Preferred Stock for the election of the
director to be elected solely by the holders of Series B Preferred Stock. A
vacancy in the directorship elected by the holders of the Series A Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series A Preferred Stock. A vacancy in the directorship elected by the holders
of Series B Preferred Stock shall be filled only by vote or written consent of
the holders of Series B Preferred Stock. A vacancy in any directorship elected
by the holders of the Common Stock shall be filled only by vote or written
consent of the holders of the Common Stock.
3. Dividends. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of
Common Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible).
4. Liquidation.
4A. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Preferred Stock shall be entitled, before any distribution or payment
is made upon any stock ranking on liquidation junior to the Series B Preferred
Stock, to be paid an amount equal to the greater of (i) $.3032342 per share (as
adjusted for stock splits, stock dividends and the like) plus, in the case of
each share, an amount equal to any dividends declared but unpaid thereon,
computed to the date payment thereof is made available, or (ii) such amount per
share as would have been payable had each such
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<PAGE> 4
share been converted to Common Stock pursuant to paragraph 6 immediately prior
to such liquidation, dissolution or winding up, and the holders of Series B
Preferred Stock shall not be entitled to any further payment, such amount
payable with respect to one share of Series B Preferred Stock being sometimes
referred to as the "Series B Liquidation Payment" and with respect to all
shares of Series B Preferred Stock being sometimes referred to as the "Series B
Liquidation Payments." If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series B Preferred Stock shall be insufficient to permit
payment to the holders of Series B Preferred Stock of the amount distributable
as aforesaid, then the entire assets of the Corporation to be so distributed
shall be distributed ratably among the holders of Series B Preferred Stock.
Upon any such liquidation, dissolution or winding up of the Corporation, after
the holders of Series B Preferred Stock shall have been paid in full the
amounts to which they shall be entitled, the holders of the shares of Series A
Preferred Stock shall be entitled, before any distribution or payment is made
upon any stock ranking on liquidation junior to the Series A Preferred Stock,
to be paid an amount equal to the greater of (i) $.218 per share plus, (as
adjusted for stock split, stock dividends and the like) in the case of each
share, an amount equal to any dividends declared but unpaid thereon, computed
to the date payment thereof is made available, or (ii) such amount per share as
would have been payable had each such share been converted to Common Stock
pursuant to paragraph 6 immediately prior to such liquidation, dissolution or
winding up, and the holders of Series A Preferred Stock shall not be entitled
to any further payment, such amount payable with respect to one share of Series
A Preferred Stock being sometimes referred to as the "Series A Liquidation
Payment", with respect to all shares of Series A Preferred Stock being
sometimes referred to as the "Series A Liquidation Payments" and collectively
with the Series B Liquidation Payments, the "Liquidation Payments." If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series A Preferred Stock shall be insufficient to permit payment to the holders
of Series A Preferred Stock of the amount distributable as aforesaid, then the
entire remaining assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Series A Preferred Stock. Upon any
such liquidation, dissolution or winding up of the Corporation, after the
holders of Series A Preferred Stock shall have been paid in full the amounts to
which they shall be entitled, the remaining net assets of the Corporation may
be distributed to the holders of stock ranking on liquidation junior to the
Series A Preferred Stock. Written notice of such liquidation, dissolution or
winding up, stating a payment date, the amount of the Liquidation Payments and
the place where Liquidation Payments shall be payable, shall be delivered in
person, mailed by certified or registered mail, return receipt requested, or
sent by telecopier or telex, not less than 20 days prior to the payment date
stated therein, to the holders of record of Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation.
4B. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof (other than (x) a merger to reincorporate the Corporation in a
different jurisdiction and (y) a merger in which the Corporation is the
surviving entity, that is, in which the Corporation's shareholders own or
control 50% or more of the surviving entity's voting shares),
3
<PAGE> 5
and the sale, lease, abandonment, transfer or other disposition by the
Corporation of all or substantially all its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 4. For purposes of paragraph 4, the Common
Stock shall rank on liquidation junior to the Series A Preferred Stock and the
Series A Preferred Stock shall rank junior on liquidation to the Series B
Preferred Stock.
5. Restrictions. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of Incorporation, and in addition to any other vote required by law or
the Articles of Incorporation, without the approval of the holders of a
majority of the then outstanding shares of Preferred Stock given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, the Corporation will not:
5A. Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to both series
of Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of Preferred Stock or increase the authorized amount of any additional class or
series of shares of stock unless the same ranks junior to both series of
Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or create or authorize any
obligation or security convertible into shares of Preferred Stock or into
shares of any other class or series of stock unless the same ranks junior to
both series of Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation, authorization or increase shall be by means of amendment to the
Articles of Incorporation or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up
of the Corporation or consolidate or merge into or with any other entity or
entities or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets, provided, however, that this Section 5B does not
apply to mergers in which the Corporation is the surviving entity (that is, in
cases in which the Corporation's shareholders own or control 50% or more of the
surviving entity's voting shares);
5C. Amend, alter or repeal its Articles of Incorporation
or By-laws in a manner adversely and substantially affecting either series of
Preferred Stock.
5D. Purchase or set aside any sums for the purchase of,
or pay any dividend or make any distribution on, any shares of stock other than
Preferred Stock, except for dividends or other distributions payable on the
Common Stock solely in the form of additional shares of Common Stock and except
for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each
such purchase is made pursuant to contractual rights held by the Corporation
relating to the termination of employment of such former employee and the
purchase price does not exceed the original issue price paid by such former
employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Preferred
Stock except pursuant to a purchase offer made pro rata to all holders of the
shares of Preferred Stock on the
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<PAGE> 6
basis of the aggregate number of outstanding shares of Preferred Stock then
held by each such holder.
6. Conversions. The holders of shares of Preferred Stock shall
have the following conversion rights:
6A. Right to Convert. Subject to the terms and
conditions of this paragraph 6, the holder of any share or shares of Preferred
Stock shall have the right, at its option at any time, to convert any such
shares of Preferred Stock (except that upon any liquidation of the Corporation
the right of conversion shall terminate at the close of business on the
business day fixed for payment of the amount distributable on Preferred Stock)
into such number of fully paid and nonassessable shares of Common Stock as is
obtained as follows:
(i) with respect to the Series A Preferred Stock, by
(a) multiplying the number of shares of Series A Preferred Stock so to
be converted by $.218 and (b) dividing the result by the Conversion
Price of $.218 per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this paragraph 6,
then by the conversion price as last adjusted and in effect at the
date any share or shares of Series A Preferred Stock are surrendered
for conversion, and (ii) with respect to the Series B Preferred Stock,
by (a) multiplying the number of shares of Series B Preferred Stock so
to be converted by $.3032342 and (b) dividing the result by the
conversion price of $.3032342 per share or, in case an adjustment of
such price has taken place pursuant to the further provisions of this
paragraph 6, then by the conversion price as last adjusted and in
effect at the date any share or shares of Series B Preferred Stock are
surrendered for conversion. The respective prices at which the shares
of Series A Preferred Stock and the shares of Series B Preferred Stock
may be converted into shares of Common Stock, as adjusted in
accordance with this paragraph 6, are referred to herein as the
"Series A Conversion Price" and the "Series B Conversion Price";
respectively, and the term "Conversion Price" as used herein shall
refer to either the Series A Conversion Price or the Series B
Conversion Price, as the context shall require.
Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Preferred
Stock) at any time during its usual business hours on the date set forth in
such notice, together with a statement of the name or names (with address) in
which the certificate or certificates for shares of Common Stock shall be
issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names
5
<PAGE> 7
as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Preferred Stock into
Common Stock and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Common Stock issued upon such conversion.
At the time of each conversion, the Corporation shall pay in cash an amount
equal to all dividends, declared and unpaid on the shares of Preferred Stock
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in subparagraph 6B. In case the number of shares of
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 6A exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the holder, at
the expense of the Corporation, a new certificate or certificates for the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this subparagraph 6C, be delivered upon such conversion, the Corporation, in
lieu of delivering such fractional share, shall pay to the holder surrendering
the Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Series A Conversion Price or Series B Conversion Price, as the
case may be (the "Applicable Conversion Price"), in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
Applicable Conversion Price shall be reduced to the price determined by
dividing (i) an amount equal to the sum of (a) the number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the
then existing Applicable Conversion Price and (b) the consideration, if any,
received by the Corporation upon such issue or sale, by (ii) the total number
of shares of Common Stock outstanding immediately after such issue or sale.
For purposes of this subparagraph 6D, the following subparagraphs
6D(1) to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase,
6
<PAGE> 8
or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i)
the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case
of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion
or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than the Applicable
Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case
the Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Applicable
Conversion Price in effect immediately prior to the time of such issue
or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per
share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided
that (a)
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<PAGE> 9
except as otherwise provided in subparagraph 6D(3), no adjustment of
the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
subparagraph 6D, no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.
6D(3) Change in Option Price or Conversion Rate.
Upon the happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in subparagraph
6D(1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraph 6D(1) or 6D(2), or the rate at which Convertible
Securities referred to in subparagraph 6D(1) or 6D(2) are convertible
into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Applicable
Conversion Price in effect at the time of such event shall forthwith
be readjusted to the Applicable Conversion Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Applicable Conversion Price then in effect hereunder is
thereby reduced; and on the termination of any such Option or any such
right to convert or exchange such Convertible Securities, the
Applicable Conversion Price then in effect hereunder shall forthwith
be increased to the Applicable Conversion Price which would have been
in effect at the time of such termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation
shall declare a dividend or make any other distribution upon any stock
of the Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares
of Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall
8
<PAGE> 10
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection with the
issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued for such consideration as
determined in good faith by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall
take a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Stock, Options or Convertible Securities or (ii) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything
herein to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Conversion Price in the case of the issuance from
and after the date of filing of these terms of the Series A Convertible
Preferred Stock of up to an aggregate of 3,927,629 shares (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F)
of Common Stock to directors, officers, employees or consultants of the
Corporation in connection with their service as directors of the Corporation,
their employment by the Corporation or their retention as consultants by the
Corporation, or to suppliers and other parties as payment for goods or services
rendered to the Corporation, plus such number of shares of Common Stock which
are repurchased by the Corporation from such persons after such date pursuant
to contractual rights held by the Corporation and at repurchase prices not
exceeding the respective original purchase prices paid by such persons to the
Corporation therefor.
6F. Subdivision or Combination of Common Stock. In case
the Corporation shall at any time subdivide (by any stock split, stock dividend
or otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately
9
<PAGE> 11
increased. In the case of any such subdivision, no further adjustment shall be
made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or reclassification,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion
of such share or shares of Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such Common Stock immediately theretofore receivable upon such conversion had
such reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the Applicable Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6H. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, addressed to each holder of shares of
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Series A Conversion Price or the
Series B Conversion Price, as the case may be, resulting from such adjustment,
setting forth in reasonable detail the method upon which such calculation is
based.
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of
stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer or other
disposition of all or substantially all its assets; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
10
<PAGE> 12
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier
or telex, addressed to each holder of any shares of Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may
be.
6J. Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issuance upon the conversion of Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issued shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the Series A Conversion Price and the Series B Conversion Price in effect
at the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Conversion
Price if the total number of shares of Common Stock issued and issuable after
such action upon conversion of the Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Articles of
Incorporation.
6K. No Reissuance of Preferred Stock. Shares of
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
6L. Issue Tax. The issuance of certificates for shares
of Common Stock upon conversion of Preferred Stock shall be made without charge
to the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock
which is being converted.
11
<PAGE> 13
6M. Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
6N. Definition of Common Stock. As used in this
paragraph 6, the term "Common Stock" shall mean and include the Corporation's
authorized Common Stock, par value $.001 per share, as constituted on the date
of filing of these terms of the Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Preferred Stock shall include only shares designated as
Common Stock of the Corporation on the date of filing of this instrument, or in
case of any reorganization or reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in subparagraph 6G.
6O. Mandatory Conversion. If at any time the Corporation
shall effect a firm commitment underwritten public offering of shares of Common
Stock in which (i) the aggregate price paid for such shares by the public shall
be at least $10,000,000 and (ii) the price paid by the public for such shares
be at least $1.50 per share (appropriately adjusted to reflect the occurrence
of any event described in subparagraph 6F), then effective upon the closing of
the sale of such shares by the Corporation pursuant to such public offering,
all outstanding shares of Preferred Stock shall automatically convert to shares
of Common Stock on the basis set forth in this paragraph 6. Holders of shares
of Preferred Stock so converted may deliver to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so converted. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any cash dividends
and payment in lieu of fractional shares to which such holder may be entitled
pursuant to subparagraph 6C. Until such time as a holder of shares of
Preferred Stock shall surrender his or its certificates therefor as provided
above, such certificates shall be deemed to represent the shares of Common
Stock to which such holder shall be entitled upon the surrender thereof.
ARTICLE FIVE
The name and mailing address of the Sole Incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Lynn Nannette Teng Gordon & Glickson P.C.
444 N. Michigan Ave., Suite 3600
Chicago, IL 60611
12
<PAGE> 14
ARTICLE SIX
The corporation shall have perpetual existence.
ARTICLE SEVEN
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
By-laws of the corporation. Election of directors need not be by written
ballot unless the By-laws of the corporation so provide.
ARTICLE EIGHT
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE EIGHT shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE NINE
Unless this Certificate of Incorporation is amended or repealed with
respect to this ARTICLE NINE or unless the By-laws of the corporation designate
otherwise, the corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware
ARTICLE TEN
The corporation reserves the right to mend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed herein and by the General Corporation Law of the State
of Delaware, and all rights conferred upon stockholders herein are granted
subject to this reservation.
13
<PAGE> 15
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, under penalties of perjury do make this
Certificate, hereby declaring, certifying and acknowledging that this is my
true act and deed and the facts stated herein are true, and accordingly have
hereunto set my name as of this 27th day of December, 1995.
----------------------------------------
Lynn Nannette Teng, Sole Incorporator
14
<PAGE> 16
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES: "NEON SOFTWARE, INC." A ILLINOIS CORPORATION WITH AND
INTO "NEON SOFTWARE, INC." UNDER THE NAME OF "NEON SOFTWARE, INC." A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE,
AS RECEIVED AND FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF DECEMBER,
A.D. 1995 AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7771277
2564986 8100M DATE: 12-28-95
950310858
<PAGE> 17
STATE OF ILLINOIS
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/28/1995
950310858 - 2564986
CERTIFICATE OF OWNERSHIP AND MERGER
Merging
NEON SOFTWARE, INC.
An Illinois Corporation
With and Into
NEON SOFTWARE, INC.
A Delaware Corporation
* * * * * * *
(In Accordance with the Provisions of Section 253 of the General
Corporation Law of the State of Delaware.)
* * * * * * *
Neon Software, Inc. a corporation organized and existing under and by virtue of
the Illinois Business Corporation Act (the "Parent"), DOES HEREBY CERTIFY THAT:
FIRST: The Parent was duly incorporated on the 30th day of June 1993
in accordance with the Illinois Business Corporation Act, the provisions of
which permit a merger of a corporation of that jurisdiction with a corporation
of another jurisdiction.
SECOND: The Parent owns One Hundred percent (100%) of the issued and
outstanding shares of capital stock of Neon Software, Inc., a corporation
incorporated on the 27th day of December, 1995 in accordance with the General
Corporation Law of the State of Delaware (the "Subsidiary").
THIRD: Each of the Board of Directors of the Parent and the
shareholders of such Parent entitled to vote theron, duly adopted the following
resolutions, by unanimous written consents each dated as of the 2nd day of
December 1995, determining to merge itself with and into the Subsidiary:
(Resolutions Begin Here)
Merger With and Into Neon Software, Inc., a Delaware Corporation
WHEREAS, each of the Board of Directors and shareholders of the
Corporation previously approved and entered into that certain Series B
<PAGE> 18
Convertible Preferred Stock Purchase Agreement, dated September 20,
1995, whereby Section 5.12 thereof provides for the reincorporation of
the Corporation in the State of Delaware, and
WHEREAS, the Board of Directors deems it advisable and in the
Corporation's best interest to merge the Corporation with and into Neon
Software, Inc., a Delaware Corporation and wholly-owned subsidiary of
the Corporation ("Neon Delaware"), solely for the purpose of instituting
a change of the state of incorporation of the Corporation from Illinois
to Delaware (the "Reincorporation Merger").
BE IT RESOLVED, that the Reincorporation Merger, including the
conversion of the Corporation's issued and outstanding shares into
shares of like kind and denominations of Neon Delaware, all in
accordance with the terms and provisions of each of the Certificate of
Ownership and Merger to be filed with the Secretary of State of Delaware
(the "Certificate of Ownership") and Articles of Merger, together with a
Plan of Merger (the "Articles") be, and hereby is, approved and adopted
in all respects.
FURTHER RESOLVED, that the Plan of Merger reflecting the terms
of the Reincorporation Merger as provided for in the preceding
resolution, but and between the Corporation and Neon Delaware (the "Plan
of Merger"), and the Corporation's performance of the obligations under
the Plan of Merger and any supplementary or ancillary documents or
agreements contemplated thereby, be, and hereby are, approved in all
respects.
FURTHER RESOLVED, that in accordance with the applicable
provisions of the Illinois Business Corporation Act, the matter of the
Reincorporation Merger, subject to the terms and provisions of the Plan
of Merger, be submitted to the shareholders of the Corporation entitled
to vote thereon for their consideration, approval and adoption thereof.
FURTHER RESOLVED, that upon the approval by the holders of the
issued and outstanding shares of the Corporation's capital stock
entitled to vote thereon, the Chief Executive Officer, President and
Secretary of the Corporation be, and each hereby is, authorized and
empowered to execute and deliver, the Certificate of Ownership and the
Articles each to be filed with the Secretaries of States, and to cause
the same to be filed accordingly, and to consummate the transactions
contemplated thereby including the Corporation's performance of its
obligations thereunder, all in the name and on behalf of the
Corporation.
FURTHER RESOLVED, that the Reincorporation Merger approved
herein may be amended or terminated and abandoned by the Board of
Directors of
2
<PAGE> 19
the Corporation at any time prior to the filing of either the
Certificate of Ownership or the Articles with the respective Secretaries
of State without any further action of the Board of Directors of the
Corporation and as deemed necessary by the Chief Executive Officer and
President as evidenced by his actions.
FURTHER RESOLVED, that the Chief Executive Officer, President
and any other proper officers of the Corporation be, and each hereby is,
authorized and empowered to take all such further actions deemed
necessary in furtherance of this Reincorporation Merger including,
without limitation, to pay all related fees, which shall in such
acting officer's judgment be deemed necessary, proper or advisable in
order to fully carry out the intent and effectuate the purpose of this
and the other resolutions provided for herein, with such changes therein
and modifications thereto as each executing officer shall upon his
discretion approve, which approval shall conclusively evidenced by his
execution thereof.
FURTHER RESOLVED, that at the Effective Time (as that term is
defined in the Plan of Merger), of the Reincorporation Merger approved
herein, each certificate representing shares of capital stock issued and
outstanding in the Corporation immediately prior to the Reincorporation
Merger authorized herein, shall be automatically canceled and
extinguished without any action of the holders thereof, and further,
each share canceled shall be converted into and become a right to
receive shares of capital stock in Neon Delaware of like kind and
denominations.
FURTHER RESOLVED, that contemporaneously with the effectiveness
of the Reincorporation Merger approved herein, any proper officers of
Neon Delaware be, and each hereby is, authorized and empowered to do all
things necessary to settle the affairs of this Corporation, including,
without limitation, to execute and deliver any requisite federal or
local tax forms (including a Federal Form 996) in the name and on behalf
of the Corporation, all in furtherance of legally merging this
Corporation out of existence.
Further Actions
FURTHER RESOLVED, that the Chief Executive Officer, the
President, any Vice President, Secretary or Assistant Secretary and any
other proper officers of the Corporation be, and each hereby is,
authorized and empowered to take all such further action including,
without limitation, to arrange for and enter into supplemental
agreements, instruments, certificates or documents relating to the
Reincorporation Merger, each of the Certificate of Ownership and the
Articles and any transactions contemplated thereby or therein, and to
execute and deliver all such supplemental agreements, instruments,
certificates of documents in the name and on behalf of the Corporation,
which shall upon each such executing officer's sole discretion be
deemed necessary, proper or advisable in order to perform the
Corporation's obligations under or in connection with the aforementioned
3
<PAGE> 20
documents and the transactions contemplated therein, and to carry out
fully the intent and effectuate the purposes of this and the foregoing
resolutions.
(End of Resolutions)
FOURTH: The Reincorporation Merger has been approved, adopted,
certified, executed and acknowledged by the Parent in accordance with the
applicable provisions of the Illinois Business Corporation Act, the laws under
which it was organized.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding,
this Reincorporation Merger may be amended or terminated and abandoned by the
Board of Directors of the Corporation at any time prior to the date of filing
this Certificate of Ownership and Merger with the Secretary of State of
Delaware.
SIXTH: The effective time of this Certificate of Ownership and Merger
and the Reincorporation Merger certified herein shall be December 31, 1995.
4
<PAGE> 21
IN WITNESS WHEREOF, the undersigned, for the purpose of effectuating
the Reincorporation Merger of the Parent with and into the Subsidiary, pursuant
to the General Corporation Law of the State of Delaware, under penalties of
perjury does hereby declare and certify that this is the act and deed of the
Parent and the facts stated herein are true and accordingly have hereunto
signed this Certificate of Ownership and Merger as of this 2nd day of December,
1995.
Neon Software, Inc.
an Illinois Corporation
By: /s/ GEORGE F. ADAM, JR.
----------------------------------
George F. Adam, Jr.
Its: Chief Executive Officer and President
5
<PAGE> 22
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "NEON SOFTWARE, INC." CHANGING ITS NAME FROM "NEON SOFTWARE, INC."
TO "NEW ERA OF NETWORKS, INC." FILED IN THIS OFFICE ON THE TWELFTH DAY OF
APRIL, A.D. 1996 AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7905493
2564986 8100 DATE: 04-12-96
960105934
<PAGE> 23
NEON SOFTWARE, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Adopted in Accordance with the Provisions of Section 242
of the General Corporation Law of the State of Delaware)
- --------------------------------------------------------------------------------
George F. Adam, being the Chief Executive Officer and Secretary of Neon
Software, Inc. a corporation organized and existing under and by virtue of the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as
follows:
FIRST: That the Corporation's Certificate of Incorporation (the "Certificate
of Incorporation") be, and hereby is, amended to reflect a change in the
Corporation's name from Neon Software, Inc. to New Era Of Networks, Inc. by
deleting Article One in its entirety and substituting in lieu thereof a new
Article One as hereinafter set forth:
"ARTICLE ONE
The name of the Corporation is:
New Era Of Networks, Inc."
SECOND: That the Board of Directors of the Corporation approved the foregoing
amendments by unanimous written consent in accordance with the provisions of
Sections 141(f) and 242 of the General Corporation Law of the State of Delaware
and directed that such amendments be submitted to the Stockholders of the
Corporation entitled to vote thereon form their consideration, approval and
adoption thereof.
THIRD: That the Stockholders of the Corporation entitled to vote thereon
approved the foregoing amendments by unanimous written consent in accordance
with the provisions of Sections 228(c) and 242 of the General Corporation Law
of the State of Delaware.
[SIGNATURE PAGE TO FOLLOW]
<PAGE> 24
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer and
Secretary hereinabove named, for the purpose of amending the Certificate of
Incorporation of the Corporation in accordance with the applicable provisions
of the General Corporation Law of the State of Delaware, under penalties of
perjury does hereby declare and certify that this is the act and deed of the
Corporation and that the facts stated herein are true, and accordingly have
hereunto signed this Certificate of Amendment of Certificate of Incorporation
as of this 1st day of March, 1996.
NEON SOFTWARE, INC.
By: /s/ GEORGE F. ADAM, JR.
-----------------------------------
George F. Adam, Jr.
Its: Chief Executive Officer & Secretary
<PAGE> 25
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "NEW ERA OF NETWORKS, INC.", FILED IN THIS OFFICE ON THE THIRD DAY
OF JUNE, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7970281
2564986 8100 DATE: 06-03-96
960159993
<PAGE> 26
NEW ERA OF NETWORKS, INC.
Certificate of Amendment of Certificate of Incorporation
(Adopted in Accordance with the Provisions of Section 242
of the General Corporation Law of the State of Delaware)
- --------------------------------------------------------------------------------
George F. Adam, being the Chief Executive Officer and Secretary of New Era Of
Networks, Inc., a corporation organized and existing under and by virtue of
the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as
follows:
FIRST: That the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation") be, and hereby is, amended to (i) provide
for an increase in its authorized shares, inclusive of such is the
creation and designation of a new "Series C Convertible Preferred Stock,"
par value $.01 per share and (ii) restate the preferences, qualifications,
limitations, restrictions and special or relative rights of the
Corporation's Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock, by deleting Article Four in its entirety and substituting
in lieu thereof a new Article Four, all as set forth on Exhibit A attached
hereto and made a part hereof.
SECOND: That the Board of Directors of the Corporation approved the
foregoing amendments by unanimous written consent in accordance with the
provisions of Sections 141(f) and 242 of the General Corporation Law of
the State of Delaware and directed that such amendments be submitted to
the Stockholders of the Corporation entitled to vote thereon for their
consideration, approval and adoption thereof.
THIRD: That the Stockholders of the Corporation entitled to vote
thereon approved the foregoing amendments by unanimous written consent in
accordance with the provisions of Sections 228(c) and 242 of the General
Corporation Law of the State of Delaware.
[SIGNATURE PAGE TO FOLLOW]
<PAGE> 27
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer and
Secretary hereinabove named, for the purpose of amending the Certificate of
Incorporation of the Corporation in accordance with the applicable provisions
of the General Corporation Law of the State of Delaware, under penalties of
perjury does hereby declare and certify that this is the act and deed of the
Corporation and that the facts stated herein are true, and accordingly have
hereunto signed this Certificate of Amendment of Certificate of Incorporation
as of this 28th day of May, 1996.
NEW ERA OF NETWORKS, INC.
By: /s/ GEORGE F. ADAM, JR.
----------------------------
George F. Adam, Jr.
Its: Chief Executive Officer & Secretary
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NEW ERA OF NETWORKS, INC.
EXHIBIT A TO CERTIFICATE OF AMENDMENT
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ARTICLE FOUR
1. Authorized Shares/Designations The aggregate number of
shares of capital stock which the corporation has authority to issue is
53,292,615 shares, comprised of (i) 33,275,652 shares of Common Stock, par
value $.001 per share (the "Common Stock"); and (ii) 9,169,028 shares of Series
A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock") and 6,183,339 shares of Series B Convertible Preferred Stock,
par value $.01 per share (the "Series B Preferred Stock" and 4,664,596 shares of
Series C Convertible Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock); the Series A, Series B and Series C Preferred Stock are
sometimes collectively referred to herein as the "Preferred Stock")
2. Voting
2A. General. Except as may be otherwise provided in
these terms of the Preferred Stock or by law, the holders of Preferred Stock
and Common Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation, including, but not limited to actions amending
the Articles of Incorporation of the Corporation to increase the number of
authorized shares of Common Stock. Each holder of Preferred Stock shall be
entitled to one vote for each share of Common Stock (including fractions of a
share) which would be issuable to such holder upon the conversion of all the
shares of Preferred Stock so held on the record date for the determination of
stockholders entitled to vote. Each holder of Common Stock shall be entitled
to one vote per share.
2B. Board Size. The Corporation shall not, without the
written consent or affirmative vote of the holders of a majority of the then
outstanding shares of Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a single
class, reduce the number of directors constituting the Board of Directors to a
number less than five or increase the maximum number of directors constituting
the Board of Directors to a number in excess of seven.
2C. Board Seats. The holders of the Series A Preferred
Stock, voting as a separate series, shall be entitled to elect one director of
the Corporation. The holders of the Series B Preferred Stock, voting as a
separate series, shall be entitled to elect one director of the Corporation.
The holders of the Series C. Preferred Stock, voting as a separate series,
shall be entitled to elect one director of the Corporation. The holders of the
Common Stock, voting as a separate class, shall be entitled to elect the
remaining directors of the Corporation. At any meeting (or in a written
consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or the written consent) of the holders of a
majority of the shares
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of Series A Preferred Stock then outstanding shall constitute a quorum of
Series A Preferred Stock for the election of the director to be elected solely
by the holders of Series A Preferred Stock; the presence in person or by
proxy (or the written consent) of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum of Series B
Preferred Stock for the election of the director to be elected solely by the
holders of Series B Preferred Stock and the presence in person or by proxy (or
the written consent) of the holders of a majority of the shares of Series C
Preferred Stock then outstanding shall constitute a quorum of Series C
Preferred stock for the election of the director to be elected solely by the
holders of Series C Preferred Stock. A vacancy in the directorship elected by
the holders of the Series A Preferred Stock shall be filled only by vote or
written consent of the holders of the Series A Preferred Stock. A vacancy in
the directorship elected by the holders of Series B Preferred Stock shall be
filled only by vote or written consent of the holders of Series B Preferred
Stock. A vacancy in the directorship elected by the holders of Series C
Preferred Stock shall be filled only by vote or written consent of the holders
of Series C Preferred Stock. A vacancy in any directorship elected by the
holders of the Common Stock shall be filled only by vote or written consent of
the holders of the Common Stock.
3. Dividends. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of
Common Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible).
4. Liquidation.
4A(1) Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Preferred Stock and Series C Preferred Stock shall together be
entitled, before any distribution or payment is made upon any stock ranking on
liquidation junior to the Series B Preferred Stock or the Series C Preferred
Stock, to be paid an amount equal to the greater of (i) $.3032342 per share in
the case of the Series B Preferred Stock and $1.61 per share in the case of the
Series C Preferred Stock (each as adjusted for stock splits, stock dividends
and the like) plus, in the case of each share, an amount equal to any dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, or (ii) such amount per share as would have been payable had each
such share been converted to Common Stock pursuant to paragraph 6 immediately
prior to such liquidation, dissolution or winding up, and the holders of Series
B Preferred Stock and Series C Preferred Stock shall not be entitled to any
further payment, such amount payable with respect to one share of Series B
Preferred Stock being sometimes referred to as the "Series B Liquidation
Payment" and with respect to all shares of Series B Preferred Stock being
sometimes referred to as the "Series B Liquidation Payments" and such amount
payable with respect to one share of Series C Preferred Stock being sometimes
referred to as the "Series C Liquidation Payment" and with respect to all
shares of Series C Preferred Stock being sometimes referred to as the "Series C
Liquidation Payments." If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series B Preferred Stock and the holders of Series C
Preferred Stock shall be insufficient to permit
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payment to such holders of the amount distributable
as aforesaid, then the entire assets of the Corporation to be so distributed
shall be distributed ratably among the holders of Series B Preferred Stock and
the holders of Series C Preferred Stock in the proportion that the value of the
Series B Preferred Stock and Series C Preferred Stock held by each such holder
bears to the total value of the series B Preferred Stock and Series C Preferred
Stock computed as follows:
(i) the value of the Series B Preferred Stock ("VB") held
by each Series B Preferred Shareholder shall equal the number of shares of
Series B Preferred Stock so held multiplied by $.3032342 (as adjusted for stock
splits, stock dividends and the like).
(ii) the value of the Series C Preferred Stock ("VC") held
by each Series C Preferred Shareholder shall equal the number of shares of
Series C Preferred Stock so held multiplied by $1.61 (as adjusted for stock
splits, stock dividends and the like).
(iii) the total value of the Series B Preferred Stock and
Series C Preferred Stock shall equal the sum of VB and VC for all holders of
Series B Preferred Stock and all holders of Series C Preferred Stock.
4A(2) Upon any such liquidation, dissolution or winding up
of the Corporation, after the holders of Series B Preferred Stock and the
holders of Series C Preferred stock shall have been paid in full the amounts to
which they shall be entitled, the holders of the shares of Series A Preferred
Stock shall be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Series A Preferred Stock, to be paid
an amount equal to the greater of (i) $.218 per share plus, (as adjusted for
stock split, stock dividends and the like) in the case of each share, an amount
equal to any dividends declared but unpaid thereon, computed to the date
payment thereof is made available, or (ii) such amount per share as would have
been payable had each such share been converted to Common Stock pursuant to
paragraph 6 immediately prior to such liquidation, dissolution or winding up,
and the holders of Series A Preferred Stock shall not be entitled to any
further payment, such amount payable with respect to one share of Series A
Preferred Stock being sometimes referred to as the "Series A Liquidation
Payment," with respect to all shares of Series A Preferred Stock being
sometimes referred to as the "Series A Liquidation Payments," and collectively
with the Series B Liquidation Payments and the Series C Liquidation Payments,
the "Liquidation Payments." If upon such liquidation dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series A Preferred Stock shall be insufficient
to permit payment to the holders of Series A Preferred Stock of the amount
distributable as aforesaid, then the entire remaining assets of the Corporation
to be so distributed shall be distributed ratably among the holders of Series A
Preferred Stock. Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Series A Preferred Stock shall have been paid
in full the amounts to which they shall be entitled, the remaining net assets
of the Corporation may be distributed to the holders of stock ranking on
liquidation junior to the Series A Preferred Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the Liquidation Payments and the place where Liquidation Payments shall be
payable, shall be delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex, not less than 20 days
prior to the payment date stated therein, to the holders of
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record of Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
4B. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof (other than (x) a merger to reincorporate the Corporation in a
different jurisdiction and (y) a merger in which the Corporation is the
surviving entity, that is, in which the Corporation's shareholders own or
control 50% or more of the surviving entity's voting shares), and the sale,
lease, abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4. For purposes of paragraph 4, the Common Stock shall rank on
liquidation junior to the Series A Preferred Stock; the Series A Preferred
Stock shall rank on liquidation junior to the Series B Preferred Stock and the
Series C Preferred Stock, and the Series B Preferred Stock shall rank on
liquidation in parity with the Series C Preferred Stock.
5. Restrictions. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of Incorporation, and in addition to any other vote required by law or
the Articles of Incorporation, without the approval of the holders of a
majority of the then outstanding shares of Preferred Stock given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, the Corporation will not:
5A. Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to each and all
series of Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of Preferred Stock or increase the authorized amount of any additional class or
series of shares of stock unless the same ranks junior to each and all series
of Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or create or authorize any
obligation or security convertible into shares of Preferred Stock or into
shares of any other class or series of stock unless the same ranks junior to
both series of Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation, authorization or increase shall be by means of amendment to the
Articles of Incorporation or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up
of the Corporation or consolidate or merge into or with any other entity or
entities or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets, provided, however, that this Section 5B does not
apply to mergers in which the Corporation is the surviving entity (that is, in
cases in which the Corporation's shareholders own or control 50% or more of the
surviving entity's voting shares);
5C. Either (i) amend, alter or repeal its By-laws or (ii)
amend, alter or repeal its Articles of Incorporation or By-laws in manner
adversely and substantially affecting any series of Preferred Stock relative to
the other series of Preferred Stock; provided that, in the case of
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clause (ii), the holders of a majority of the then outstanding shares of such
series of Preferred Stock being so affected have previously approved such
amendment, alteration or repeal.
5D. Purchase or set aside any sums for the purchase of,
or pay any dividend or make any distribution on, any shares of stock other than
Preferred Stock, except for dividends or other distributions payable on the
Common Stock solely in the form of additional shares of Common Stock and except
for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each
such purchase is made pursuant to contractual rights held by the Corporation
relating to the termination of employment of such former employee and the
purchase price does not exceed the original issue price paid by such former
employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Preferred
Stock except pursuant to a purchase offer made pro rata to all holders of the
shares of Preferred Stock on the basis of the aggregate number of outstanding
shares of Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Preferred Stock shall
have the following conversion rights:
6A. Right to Convert. Subject to the terms and
conditions of this paragraph 6, the holder of any share or shares of Preferred
Stock shall have the right, at its option at any time, to convert any such
shares of Preferred Stock (except that upon any liquidation of the Corporation
the right of conversion shall terminate at the close of business on the
business day fixed for payment of the amount distributable on Preferred Stock)
into such number of fully paid and nonassessable shares of Common Stock as is
obtained as follows:
(i) with respect to the Series A Preferred Stock, by
(a) multiplying the number of shares of Series A Preferred Stock so to
be converted by $.218 and (b) dividing the result by the conversion
price of $.218 per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this paragraph 6,
then by the conversion price as last adjusted and in effect at the
date any share or shares of Series A Preferred Stock are surrendered
for conversion, and
(ii) with respect to the Series B Preferred Stock, by
(a) multiplying the number of shares of Series B Preferred Stock so to
be converted by $.3032342 and (b) dividing the result by the
conversion price of $.3032342 per share or, in case an adjustment of
such price has taken place pursuant to the further provisions of this
paragraph 6, then by the conversion price as last adjusted and in
effect at the date any share or shares of Series B Preferred Stock are
surrendered for conversion; and
(iii) with respect to the Series C Preferred Stock,
by (a) multiplying the number of shares of Series C Preferred Stock so
to be converted by $1.61 and (b) dividing the result by the conversion
price of $1.61 per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this paragraph 6,
then by the
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conversion price as last adjusted and in effect at the date any share
or shares of Series C Preferred Stock are surrendered for conversion.
The respective prices at which the shares of Series A Preferred Stock and the
shares of Series B Preferred Stock and the Series C Preferred Stock may be
converted into shares of Common Stock, as adjusted in accordance with this
paragraph 6, are referred to herein as the "Series A Conversion Price," "Series
B Conversion Price" and the "Series C Conversion Price"; respectively, and the
term "Conversion Price" as used herein shall refer to either the Series A
Conversion Price, Series B Conversion Price or the Series C Conversion Price,
as the context shall require.
Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Preferred
Stock) at any time during its usual business hours on the date set forth in
such notice, together with a statement of the name or names (with address) in
which the certificate or certificates for shares of Common Stock shall be
issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number
of whole shares of Common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Preferred Stock into
Common Stock and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Common Stock issued upon such conversion.
At the time of each conversion, the Corporation shall pay in cash an amount
equal to all dividends, declared and unpaid on the shares of Preferred Stock
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in subparagraph 6B. In case the number of shares of
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 6A exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the holder, at
the expense of the Corporation, a new certificate or certificates for the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If
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any fractional share of Common Stock would, except for the provisions of the
first sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good
faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock.
Except as provided in subparagraph 6E, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 6D(1) through 6D(7),
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price, as the case may be (the "Applicable Conversion
Price"), in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the Applicable Conversion Price shall be
reduced to the price determined by dividing (i) an amount equal to the sum of
(a) the number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Applicable Conversion Price and
(b) the consideration, if any, received by the Corporation upon such issue or
sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
For purposes of this subparagraph 6D, the following subparagraphs
6D(1) to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any
time the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called
"Options" and such convertible or exchangeable stock or securities
being called "Convertible Securities") whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Applicable Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of
granting of such Options or the
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issuance of such Convertible Securities and thereafter shall be deemed
to be outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case
the Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Applicable
Conversion Price in effect immediately prior to the time of such issue
or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per
share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided
that (a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
subparagraph 6D, no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.
6D(3) Change in Option Price or Conversion Rate.
Upon the happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in subparagraph
6D(1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraph 6D(1) or 6D(2), or the rate at which Convertible
Securities referred to in subparagraph 6D(1) or 6D(2) are convertible
into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Applicable
Conversion Price in effect at the time of such event shall forthwith
be readjusted to the Applicable Conversion Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Applicable Conversion Price then in effect hereunder is
thereby reduced; and on the termination of any such Option or any such
right to convert or exchange such Convertible Securities, the
Applicable Conversion Price then in effect hereunder shall forthwith
be increased to the Applicable Conversion Price which would have been
in effect
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<PAGE> 36
at the time of such termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
termination, never been issued.
6D(4) Stock Dividends. In case the Corporation
shall declare a dividend or make any other distribution upon any stock
of the Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares
of Common Stock, Options or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other securities of
the Corporation, together comprising one integral transaction in which
no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of Directors of
the Corporation.
6D(6) Record Date. In case the Corporation shall
take a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Stock, Options or Convertible Securities or (ii) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything
herein to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment of the Conversion Price in the case of the issuance from
and after May 2, 1995 of up to an aggregate of 6,427,629 shares (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F)
of Common Stock to directors, officers, employees or consultants of the
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Corporation in connection with their service as directors of the Corporation,
their employment by the Corporation or their retention as consultants by the
Corporation, or to suppliers and other parties as payment for goods or services
rendered to the Corporation, plus such number of shares of Common Stock which
are repurchased by the Corporation from such persons after such date pursuant
to contractual rights held by the Corporation and at repurchase prices not
exceeding the respective original purchase prices paid by such persons to the
Corporation therefor.
6F. Subdivision or Combination of Common Stock. In case
the Corporation shall at any time subdivide (by any stock split, stock dividend
or otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or reclassification,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion
of such share or shares of Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such Common Stock immediately theretofore receivable upon such conversion had
such reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the Applicable Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6H. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, addressed to each holder of shares of
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Series A Conversion Price, Series B
Conversion Price or the Series C Conversion Price, as the case may be,
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.
-10-
<PAGE> 38
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of
stock of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer or other
disposition of all or substantially all its assets; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier
or telex, addressed to each holder of any shares of Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least
20 days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may
be.
6J. Stock to be Reserved. The Corporation will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issuance upon the conversion of Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issued shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it
will from time to time take all such action as may be requisite to assure that
the par value per share of the Common Stock is at all times equal to or less
than the Series A Conversion Price and the Series B Conversion Price in effect
at the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Conversion
Price if the total number of shares of Common Stock issued and issuable after
-11-
<PAGE> 39
such action upon conversion of the Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Articles of
Incorporation.
6K. No Reissuance of Preferred Stock. Shares of
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
6L. Issue Tax. The issuance of certificates for shares
of Common Stock upon conversion of Preferred Stock shall be made without charge
to the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock
which is being converted.
6M. Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
6N. Definition of Common Stock. As used in this
paragraph 6, the term "Common Stock" shall mean and include the Corporation's
authorized Common Stock, par value $.001 per share, as constituted on the date
of filing of these terms of the Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Preferred Stock shall include only shares designated as
Common Stock of the Corporation on the date of filing of this instrument, or in
case of any reorganization or reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in subparagraph 6G.
6O. Mandatory Conversion. If at any time the Corporation
shall effect a firm commitment underwritten public offering of shares of Common
Stock in which (i) the aggregate price paid for such shares by the public shall
be at least $15,000,000 and (ii) the price paid by the public for such shares
be at least $3.22 per share (appropriately adjusted to reflect the occurrence
of any event described in subparagraph 6F), then effective upon the closing of
the sale of such shares by the Corporation pursuant to such public offering,
all outstanding shares of Preferred Stock shall automatically convert to shares
of Common Stock on the basis set forth in this paragraph 6. Holders of shares
of Preferred Stock so converted may deliver to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so converted. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any cash dividends
and payment in lieu of fractional shares to which such holder may be entitled
pursuant to subparagraph 6C. Until such time as a holder of shares of
Preferred Stock shall surrender his or
-12-
<PAGE> 40
its certificates therefor as provided above, such certificates shall be deemed
to represent the shares of Common Stock to which such holder shall be entitled
upon the surrender thereof.
7. Right of Participation. The Corporation shall, prior to any
proposed issuance by the Corporation of any of its securities (other than debt
securities with no equity feature), offer to each Preferred Stockholder by
written notice the right, for a period of thirty (30) days, to purchase for
cash at an amount equal to the price or other consideration for which such
securities are to be issued, a number of such securities so that, after giving
effect to such issuance (and the conversion, exercise and exchange into or for
(whether directly or indirectly) shares of Common Stock of all such securities
that are so convertible, exercisable or exchangeable), such Preferred
Stockholder will continue to maintain its same proportionate equity ownership
in the Corporation as of the date of such notice (treating each Preferred
Stockholder, for the purpose of such computation, as the holder of the number
of shares of Common Stock which would be issuable to such Preferred Stockholder
upon conversion, exercise and exchange of all securities (including but not
limited to the Preferred Shares) held by such Preferred Stockholder on the date
such offer is made, that are convertible, exercisable or exchangeable into or
for (whether directly or indirectly) shares of Common Stock and assuming the
like conversion, exercise and exchange of all such other securities held by
other persons); provided, however, that the participation rights of the
Preferred Stockholder pursuant to this Section shall not apply to securities
issued (A) upon conversion of any of the Preferred Shares, (B) as a stock
dividend or upon any subdivision of shares of Common Stock, provided that the
securities issued pursuant to such stock dividend or subdivision are limited to
additional shares of Common Stock, (C) pursuant to subscriptions, warrants,
options, convertible securities, or other rights outstanding as of the date of
the filing of these Preferred Stock Terms (D) solely in consideration for the
acquisition (whether by merger or otherwise) by the Corporation or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity, (E) pursuant to a firm commitment public offering, (F) pursuant to the
exercise of options to purchase Common Stock granted to directors, officers,
employees or consultants of the Corporation in connection with their service to
the Corporation, or to suppliers or other parties as payment for goods or
services rendered to the Corporation, not to exceed in the aggregate 6,427,629
shares (appropriately adjusted to reflect stock splits, stock dividends,
combinations of shares and the like with respect to the Common Stock) less the
number of shares (as so adjusted) issued pursuant to subscriptions, warrants,
options, convertible securities, or other rights outstanding as of the date of
the filing of these Preferred Stock Terms Pursuant to clause (C) above (the
shares exempted by this clause (F) being hereinafter referred to as the
"Reserved Employee Shares"), and (G) upon the exercise of any right which was
not itself in violation of the terms of this Section. The Corporation's
written notice to the Preferred Stockholders shall describe the securities
proposed to be issued by the Corporation and specify the number, price and
payment terms. Each Preferred Stockholder may accept the Corporation's offer
as to the full number of securities offered to it or any lesser number, by
written notice thereof given by it to the Corporation prior to the expiration
of the aforesaid thirty (30) day period, in which event the Corporation shall
promptly sell and such Preferred Stockholder shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Preferred
Stockholder. The Corporation shall be free at any time prior to ninety (90)
days after the date of its notice of offer to the Preferred Stockholders, to
offer and sell to any third party or parties the remainder of such securities
proposed to be issued by the Corporation (including but not limited
-13-
<PAGE> 41
to the securities not agreed by the Preferred Stockholders to be purchased by
them, at a price and on payment terms no less favorable to the Corporation than
those specified in such notice of offer to the Preferred Stockholders.
However, if such third party sale or sales are not consummated within such
ninety (90) day period, the Corporation shall not sell such securities as shall
not have been purchased within such period without again complying with this
Section.
[END OF ARTICLE FOUR]
-14-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW ERA OF NETWORKS, INC.
A DELAWARE CORPORATION
New Era of Networks, Inc., a corporation organized and existing under
the laws of the State of Delaware, does hereby certify:
1. The name of the corporation is New Era of Networks, Inc., (the
"Corporation"). The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on December 27,
1995.
2. The amendment and restatement herein set forth has been duly
approved by the Board of Directors of the Corporation and by the stockholders
of the Corporation pursuant to Sections 141, 228 and 242 of the General
Corporation Law of the State of Delaware ("Delaware Law"). Approval of this
amendment and restatement was approved by a written consent signed by less than
all of the stockholders of the Corporation pursuant to Section 228 of the
Delaware Law, and notice has been given in accordance with Section 228(d) of
the Delaware Law to those shareholders not signing such written consent.
3. The restatement herein set forth has been duly adopted
pursuant to Section 245 of the Delaware Law. This Amended and Restated
Certificate of Incorporation restates and integrates and amends the provisions
of the Corporation's Certificate of Incorporation.
4. The text of the Certificate of Incorporation is hereby amended
and restated to read in its entirety as follows:
ARTICLE ONE
The name of this corporation is New Era of Networks, Inc. (the
"Corporation").
<PAGE> 2
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
The Corporation shall have perpetual existence. The nature of the
business or purposes to be conducted or promoted by the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE FOUR
This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock and Common Stock. The total number of
shares of Common Stock this Corporation shall have the authority to issue is
45,000,000 shares, par value $0.0001 per share ("Common"), and the total number
of shares of Preferred Stock this corporation shall have authority to issue is
2,000,000, par value of $0.0001 per share, all of which Preferred Stock shall
initially be undesignated as to series ("Preferred").
Any Preferred Stock not previously designated as to series may be
issued from time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board), and such
resolution or resolutions shall also set forth the voting powers, full or
limited or none, of each such series of Preferred Stock and shall fix the
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions of each such
series of Preferred Stock. The Board of Directors is authorized to alter the
designation, rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of
Preferred Stock, to increase or decrease (but not below the number of shares of
any such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if reacquired
by the Corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series
and available for designation and issuance by the Corporation in accordance
with the immediately preceding paragraph.
-2-
<PAGE> 3
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
ARTICLE SEVEN
The number of directors which constitute the whole Board of Directors
of the Corporation shall be fixed exclusively by one or more resolution adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the date hereof, the term of office of
the Class I directors shall expire and Class I directors shall be elected for a
full term of three years. At the second annual meeting of stockholders
following the date hereof, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the date hereof, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
ARTICLE EIGHT
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
-3-
<PAGE> 4
ARTICLE NINE
(a) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(b) The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director, officer,
employee or agent of the Corporation or any predecessor of the Corporation or
serves or served at any other enterprise as a director, officer, employee or
agent at the request of the Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article Nine, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article Nine, shall eliminate or reduce the effect of
this Article Nine, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article Nine, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE TEN
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. No action may be taken by the stockholders
of the Corporation without a meeting, and no consents in lieu of a meeting may
be taken pursuant to Section 228 of the Delaware Law. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the
Corporation.
ARTICLE ELEVEN
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director.
ARTICLE TWELVE
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided
in the Bylaws of the Corporation.
-4-
<PAGE> 5
ARTICLE THIRTEEN
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation."
IN WITNESS WHEREOF, New Era of Networks, Inc. has caused this Restated
and Amended Certificate of Incorporation to be signed by George F. Adam, Jr.,
its President and Chief Executive Officer and attested to by Leonard M.
Goldstein, its Secretary, on __________, 1997.
NEW ERA OF NETWORKS, INC.
A Delaware Corporation
By:
----------------------------------
George F. Adam, Jr.
President and Chief
Executive Officer
ATTEST:
By:
------------------------------
Leonard M. Goldstein
Secretary
-5-
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
NEW ERA OF NETWORKS, INC.
(A Delaware Corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . 1
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 3
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . 4
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . 5
2.8 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . 5
2.9 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . 5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . 6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. 6
2.13 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . 7
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 8
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . 8
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . 9
3.6 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . 9
3.7 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . 9
3.8 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . 10
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . 10
3.11 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . 11
3.12 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . 11
3.13 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 11
3.14 CLASSES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . 12
4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . 13
4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . 13
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 APPOINTMENT OF OFFICERS . . . . . . . . . . . . . . . . . . 13
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . 14
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . 14
5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . 14
5.7 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . 15
5.9 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . 15
5.11 ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . 16
5.12 ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . . 16
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . 16
5.14 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . 16
ARTICLE VI - INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . 17
6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . 17
6.3 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . 18
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . 18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . . . 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . 20
8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 20
8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . 20
8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . 21
8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . 21
8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . 21
ARTICLE IX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-iii-
<PAGE> 5
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
NEW ERA OF NETWORKS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the Corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES
The Board of Directors may at any time establish other offices at
any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the Corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held
each year on a date and at a time designated by the Board of Directors. At the
meeting, Directors shall be elected and any other proper business may be
transacted.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a
<PAGE> 6
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, such stockholder's notice
must be delivered to or mailed and received by the Secretary of the Corporation
not less than ninety (90) days prior to the meeting; provided, however, that in
the event that less than one-hundred (100) days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in such stockholder's
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this paragraph (b). The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with
the procedures set forth in this paragraph (c) shall be eligible for election
as Directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the Corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the Corporation in accordance
with the provisions of paragraph (b) of this Section 2.2. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or reelection as a Director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the Corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for elections of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this
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Section 2.2. At the request of the Board of Directors, any person nominated by
a stockholder for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by
the Board of Directors, or by the Chairman of the Board, or by the Chief
Executive Officer, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than twenty percent (20%) of the votes of
all shares of stock owned by stockholders entitled to vote at that meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the purpose or purposes for which the meeting is called (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the
stockholders (but any proper matter may be presented at the meeting for such
action). The notice of any meeting at which Directors are to be elected shall
include the name of any nominee or nominees who, at the time of the notice, the
Board intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of Director or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or other person so authorized pursuant
to Section 2.3 of these bylaws, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
Secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the case of a meeting called by or on behalf of the
Board of Directors of the Corporation where prior notice, or public disclosure,
of the meeting has not been given or made at least 100 days prior to such
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meeting, notice by the stockholder to be timely must be so received not later
than the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made. To be in proper form, a stockholder's notice to the Secretary shall set
forth:
(i) the name and address of the stockholder who
intends to make the nominations, propose the business, and,
as the case may be, the name and address of the person or
persons to be nominated or the nature of the business to
be proposed;
(ii) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at
such meeting and, if applicable, intends to appear in person
or by proxy at the meeting to nominate the person or persons
specified in the notice or introduce the business specified
in the notice;
(iii) if applicable, a description of all arrangements
or understandings between the stockholder and each nominee
and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are
to be made by the stockholder;
(iv) such other information regarding each nominee or
each matter of business to be proposed by such stockholder
as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or
intended to be proposed by the Board of Directors' and
(v) if applicable, the consent of each nominee to serve as
Director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
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2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by facsimile, telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. If no such address appears on the
Corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the Corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, then all future notices or reports shall be deemed to have
been duly given without further mailing if the same shall be available to the
stockholder on written demand of the stockholder at the principal executive
office of the Corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting, executed by the Secretary, Assistant Secretary or
any transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by the Stockholders Agreement. If, however, such quorum is
not present or represented at any meeting of the stockholders, then either (i)
the Chairman of the meeting or (ii) the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
by-laws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed
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for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.9 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation
of the manner of voting and the conduct of business.
2.10 VOTING
The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.12 of these
by-laws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.11 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these by-laws.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a Corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
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Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of
any meeting or to vote thereat, the Board of Directors may fix, in advance, a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors and which shall not be
more than sixty (60) days nor less than ten (10) days before the date of any
such meeting, and in such event only stockholders of record on the date so
fixed are entitled to notice and to vote, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.
If the Board of Directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in
Section 7.1 of these bylaws.
2.14 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the Secretary of the
Corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that
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states on its face that it is irrevocable shall be governed by the provisions
of Section 212(e) of the General Corporation Law of Delaware.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Such list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these by-laws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of five(5) members. The number
of Directors may be changed by an amendment to this bylaw, duly adopted by the
Board of Directors or by the stockholders, or by a duly adopted amendment to
the certificate of incorporation.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, the certificate
of incorporation or the Stockholders Agreement, Directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these by-laws, wherein other qualifications for
Directors may be
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prescribed. Each Director, including a Director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Elections of Directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any Director may resign at any time upon written notice to the
attention of the Secretary of the Corporation. Subject to the provisions of
the Stockholders Agreement and the certificate of incorporation, when one or
more Directors so resigns and the resignation is effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as provided in this section in the filling
of other vacancies.
Unless otherwise provided in the certificate of incorporation, these
by-laws or the Stockholders Agreement:
(i) Vacancies and newly created
Directorships resulting from any increase in the authorized number of Directors
elected by all of the stockholders having the right to vote as a single class
may be filled by a majority of the Directors then in office, although less than
a quorum, or by a sole remaining Director.
(ii) Whenever the holders of any class or
classes of stock or series thereof are entitled to elect one or more Directors
by the provisions of the certificate of incorporation, vacancies and newly
created Directorships of such class or classes or series may be filled by a
majority of the Directors elected by such class or classes or series thereof
then in office, or by a sole remaining Director so elected.
If at any time, by reason of death or resignation or other cause,
the Corporation should have no Directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
by-laws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created
Directorship, the Directors then in office constitute less than a majority of
the whole Board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such Directors, summarily order an
election to be held to fill any such vacancies or newly created Directorships,
or to replace the Directors chosen by the Directors then in office as
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aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
any Vice President, the Secretary or any one Director.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Director or sent by first-class mail or
telegram, charges prepaid, addressed to each Director at that Director's
address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the Director or to a
person at the office of the Director who the person giving the notice has
reason to believe will promptly communicate it to the Director. The notice
need not specify the purpose or the place of the meeting, if the meeting is to
be held at the principal executive office of the Corporation.
3.8 QUORUM
At all meetings of the Board of Directors, a majority of the
authorized number of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the Directors present thereat may adjourn
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the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Directors, or members of a committee of
Directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, the Board of Directors shall have the authority to fix the
compensation of Directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of,
or otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a Director of the
Corporation or its subsidiary, whenever, in the judgment of the Directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
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3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, and except as otherwise
provided by the certificate of incorporation, these by-laws or the Stockholders
Agreement, any Director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of Directors; provided, however, that, so long as
stockholders of the Corporation are entitled to cumulative voting, if less than
the entire Board is to be removed, no Director may be removed without cause if
the votes cast against his or her removal would be sufficient to elect such
Director if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of Directors shall have the
effect of removing any Director prior to the expiration of such Director's term
of office.
3.14 CLASSES OF DIRECTORS
Following the closing of the Corporation's initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the Corporation (the "Initial Public Offering"), the Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Such Directors shall be assigned to each class in accordance
with a resolution or resolutions adopted by the Board of Directors. At the
first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I Directors shall expire and
Class I Directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class II Directors shall expire and
Class II Directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III Directors shall expire and
Class III Directors shall be elected a full term of three years. At each
succeeding annual meeting of stockholders, such Directors shall be elected for
a full term of three years to succeed the Directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
Director shall serve until his successor is duly elected and qualified or until
his earlier death, resignation or removal. No decrease in the number of
Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, with each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any
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committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
or in the by-laws of the Corporation, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the bylaws of the Corporation; and, unless the
Board resolution establishing the committee, the by-laws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the provisions of Article III of these by-laws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those by-laws as are necessary to
substitute the committee and its members for the Board of Directors and its
members; provided, however, that the time of regular meetings of committees may
be determined either by resolution of the Board of Directors or by resolution
of the committee, that special meetings of committees may also be called by
resolution of the Board of Directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors
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<PAGE> 18
may adopt rules for the government of any committee not inconsistent with the
provisions of these by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a president, a secretary,
and a chief financial officer. The Corporation may also have, at the
discretion of the Board of Directors, a chairman of the Board, one or more vice
presidents, one or more assistant vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and any such other officers as
may be appointed in accordance with the provisions of Section 5.3 of these
by-laws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
by-laws, shall be appointed by the Board of Directors, subject to the rights,
if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or empower the Chief Executive
Officer of the Corporation to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these by-laws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
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<PAGE> 19
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected and unless
otherwise designated by the Board of Directors, shall, if present, preside at
meetings of the Board of Directors. In addition, such officer shall exercise
and perform such other powers and duties as may from time to time be assigned
to him by the Board of Directors or as may be prescribed by these by-laws. If
so designated by the Board of Directors, then the Chairman of the Board shall
also be the Chief Executive Officer of the Corporation and shall have the
powers and duties prescribed in Section 5.7 of these by-laws.
5.7 PRESIDENT
Subject to such powers and duties, if any, as may be given
by the Board of Directors to the Chairman of the Board or any vice chairman, if
there be such an officer, the President shall be the Chief Executive Officer of
the Corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction, and control of the business and the
officers of the Corporation. The President shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairman of the Board
or if otherwise designated by the Board of Directors, at all meetings of the
Board of Directors. The President shall have the general powers and duties of
management usually vested in the office of president of a Corporation and shall
have such other powers and duties as may be prescribed by the Board of
Directors or these by-laws.
5.8 VICE PRESIDENTS
In the absence or disability of the Chairman of the Board, any vice
chairman and the President, the Vice Presidents, if any, in order of their rank
as fixed by the Board of Directors or, if not ranked, a vice president
designated by the Board of Directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, these by-laws, the
President or the Chairman of the Board.
5.9 SECRETARY
The Secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
Directors, committees of Directors, and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
Directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
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<PAGE> 20
The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these by-laws. The Secretary shall keep the seal of the
Corporation, if one be adopted, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or by these by-laws.
5.10 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. The Chief
Financial Officer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the Chief Executive Officer and
Directors, whenever they request it, an account of all his or her transactions
as Chief Financial Officer and of the financial condition of the Corporation,
and shall have other powers and perform such other duties as may be prescribed
by the Board of Directors or these by-laws.
The Chief Financial Officer shall be the Treasurer of the
Corporation unless otherwise designated by the Board of Directors.
5.11 ASSISTANT SECRETARY
The Assistant Secretary, or, if there is more than one, the
Assistant Secretaries in the order determined by the stockholders or Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
be prescribed by the Board of Directors or these by-laws.
5.12 ASSISTANT TREASURER
The Assistant Treasurer, or, if there is more than one, the
Assistant Treasurers, in the order determined by the stockholders or Board of
Directors (or if there be no such determination, then in
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<PAGE> 21
the order of their election), shall, in the absence of the Chief Financial
Officer or in the event of his or her inability or refusal to act, perform the
duties and exercise the powers of the Chief Financial Officer and shall perform
such other duties and have such other powers as may be prescribed by the Board
of Directors or these by-laws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any Vice President, the
Chief Financial Officer, the Secretary or Assistant Secretary of this
Corporation, or any other person authorized by the Board of Directors or the
President or a vice president, is authorized to vote, represent, and exercise
on behalf of this Corporation all rights incident to any and all shares of any
other Corporation or Corporations standing in the name of this Corporation.
The authority granted herein may be exercised either by such person directly or
by any other person authorized to do so by proxy or power of attorney duly
executed by such person having the authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of
the Corporation shall respectively have such authority and perform such duties
in the management of the business of the Corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
Directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"Director" or "officer" of the Corporation includes any person (i) who is or
was a Director or officer of the Corporation, (ii) who is or was serving at the
request of the Corporation as a Director or officer of another Corporation
partnership, joint venture, trust or other enterprise, or (iii) who was a
Director or officer of a Corporation that was a predecessor Corporation of the
Corporation or of another enterprise at the request of such predecessor
Corporation.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than Directors and officers) against
expenses (including attorney's fees), judgments, fines, settlements, and
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<PAGE> 22
other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that such person is or was an agent of
the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the Corporation (other than a Director or officer) includes any person (i) who
is or was an employee or agent of the Corporation, (ii) who is or was serving
at the request of the Corporation as an employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was an employee or agent of a Corporation which was a predecessor
Corporation of the Corporation or of another enterprise at the request of such
predecessor Corporation.
6.3 INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive officer or
at such place or places as designated by the Board of Directors, keep a record
of its stockholders listing their names and addresses and the number and class
of shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent so
to act on behalf of the stockholder. The demand under oath shall be directed
to the Corporation at its registered office in Delaware or at its principal
place of business.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of each
stockholder and
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<PAGE> 23
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any Director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a Director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a Director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the Director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the Corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board of Directors, except as otherwise provided in these
by-laws, may authorize any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of
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<PAGE> 24
an officer, no officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the
Board of Directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, or the President or Vice-President,
and by the Chief Financial Officer or an assistant treasurer, or the Secretary
or an assistant secretary of such Corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if the person were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of
stock or more than one series of any class, then the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate that the
Corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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<PAGE> 25
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Corporation may issue a new certificate of stock or uncertificated shares in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or the owner's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or uncertificated
shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a Corporation and a
natural person.
8.7 DIVIDENDS
The Directors of the Corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the
certificate of incorporation, may declare and pay dividends upon the shares of
its capital stock. Dividends may be paid in cash, in property, or in shares of
the Corporation's capital stock.
The Directors of the Corporation may set apart out of any of the
funds of the Corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include
but not be limited to equalizing dividends, repairing or maintaining any
property of the Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of
the Board of Directors and may be changed by the Board of Directors.
8.9 SEAL
The Corporation may adopt a corporate seal, which shall be adopted
and which may be altered by the Board of Directors, and may use the same by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
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<PAGE> 26
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the Corporation to restrict the transfer of shares of stock of the
Corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE IX
AMENDMENTS
Subject to any voting requirements set forth in the Corporation's
certificate of incorporation, the by-laws of the Corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the Corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal by-laws upon the Directors. The fact that such power
has been so conferred upon the Directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal by-laws.
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<PAGE> 27
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BY-LAWS
OF
NEW ERA OF NETWORKS, INC.
Certificate by Secretary of Adoption
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Assistant Secretary of New Era of Networks, Inc. and that
the foregoing Amended and Restated By-Laws, comprising 26 pages, were ratified
as the By-Laws of the Corporation by the unanimous written consent of the Board
of Directors effective as of January 3, 1997.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Adoption of Amended and Restated By-laws on January 3, 1997.
By:
-----------------------
Leonard M. Goldstein
Secretary
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
NEW ERA OF NETWORKS, INC.
NEON
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN DEFINITIONS
BOSTON, MA OR NEW YORK, NY AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.0001 PAR VALUE PER SHARE, OF
NEW ERA OF NETWORKS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY /s/ [ILLEGIBLE]
AUTHORIZED SIGNATURE
- ----------------------------------------------
AMERICAN BANK NOTE COMPANY JAN 3, 1997 fm
3604 ATLANTIC AVENUE
SUITE 12 048299fc
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 7B Proof SE NEW
--
- ----------------------------------------------
<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determinations,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ---------------------------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants
in common Under Uniform Gift to Minors
COM PROP - as community property Act
------------------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
---------------------------------
(Cust)
under Uniform Transfers
---------
(Minor)
to Minors Act
--------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated X
----------------------- -------------------------------------------------
X
-------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
--------------------------------------------
THE SIGNATURE SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
- ----------------------------------------------
AMERICAN BANK NOTE COMPANY JAN 3, 1997 fm
3604 ATLANTIC AVENUE
SUITE 12 048229bk
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 Proof SE NEW
--
- ----------------------------------------------
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the
___ day of __________, 1997 by and between New Era of Networks, Inc. a Delaware
corporation (the "COMPANY") and ____________________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM") by reason of (or
arising in part out of) any
<PAGE> 2
event or occurrence related to the fact that Indemnitee is or was a director,
officer, employee, agent or fiduciary of the Company, or any subsidiary of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action or inaction on
the part of Indemnitee while serving in such capacity (hereinafter an
"INDEMNIFIABLE EVENT") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by Indemnitee therefor is presented to
the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear
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<PAGE> 3
in any such proceeding. Any determination by the Reviewing Party otherwise shall
be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court
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<PAGE> 4
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any
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<PAGE> 5
applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder except
as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement,
any vote of stockholders or disinterested directors, the General Corporation Law
of the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
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<PAGE> 6
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or fiduciaries, so that if Indemnitee is or was a director,
officer, employee, agent or fiduciary of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as Indemnitee would have with respect
to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
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<PAGE> 7
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
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<PAGE> 8
(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal
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<PAGE> 9
corporate offices (attention: Secretary) or at such other address as such party
may designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
New Era of Networks, Inc.
By:_________________________________________
Title:______________________________________
Address: 7400 East Orchard Road, Suite 230
___________________________________
Englewood, CO 80111
___________________________________
AGREED TO AND ACCEPTED BY:
_____________________________
Name:
Address: ____________________
____________________
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<PAGE> 1
EXHIBIT 10.2
NEW ERA OF NETWORKS, INC.
1995 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JANUARY 3, 1997)
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors
and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means the commission of any act affecting employment
which involves (1) dishonesty, fraud or criminal conduct by Optionee, (2)
Optionee's knowing and willful violation of a material Company written policy or
a lawful direction by an authorized executive officer or the Board, (3)
Optionee's engaging in any activity in competition with the Company or its
subsidiaries in a material manner (excluding a less than 5% investment in any
public company), or (4) Optionee's knowing unauthorized disclosure of
confidential material, proprietary information or trade secrets of the Company.
<PAGE> 2
(e) "Change in Control" means the occurrence of any of the
following events:
(i) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(ii) The acquisition by any Person or Group of Persons as
Beneficial Owner (as such terms are defined in the Securities Exchange Act of
1934, as amended), directly or indirectly, other than George F. (Rick) Adam,
Jr., of securities of the Company representing a majority of the total voting
power represented by the Company's then outstanding voting securities.
(iii) A majority of the Board of Directors of the Company in
office at the beginning of any thirty-six (36) month period is replaced during
the course of such thirty-six (36) month period (other than by voluntary
resignation of individual directors in the ordinary course of business) and such
replacement was not initiated by the Board of Directors of the Company as
constituted at the beginning of such thirty-six (36) month period.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(h) "Common Stock" means the Common Stock of the Company.
(i) "Company" means New Era of Networks, Inc., a Delaware
corporation.
(j) "Constructive Termination" means only the following:
(i) the continued assignment to Optionee of any duties or
the continued material reduction of Optionee's duties, either of which is
materially inconsistent with the level of Optionee's position with the Company.
(ii) a material reduction in Optionee's salary, other than
any such reduction which is part of, and generally consistent with, a general
reduction of officer salaries;
(iii) a material reduction by the Company in the kind or
level of Optionee benefits (other than salary and bonus) to which Optionee is
entitled immediately prior to such
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<PAGE> 3
reduction with the result that Optionee's overall benefits package (other than
salary and bonus) is materially reduced (other than any such reduction
applicable to officers of the Company generally); or
(iv) the relocation of Optionee's principal place for the
rendering of the services to be provided by him hereunder to a location more
than fifty (50) miles from the present location of the principal executive
office of the Company;
provided that none of the foregoing shall constitute a Constructive Termination
to the extent Optionee has agreed thereto.
(k) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(l) "Director" means a member of the Board.
(m) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(n) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the
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mean between the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(r) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(t) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(w) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(y) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(z) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1995 Stock Option Plan.
(bb) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
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(cc) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "Section 16(b)" means Section 16(b) of the Exchange Act.
(ff) "Service Provider" means an Employee, Director or
Consultant.
(gg) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(hh) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ii) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
13 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 3,500,000 (which number gives effect to a 1 for 3 reverse
split of the Common Stock approved by the Board in January 1997) The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the
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<PAGE> 6
meaning of Section 162(m) of the Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the meaning of Section
162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
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<PAGE> 7
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Service Providers. Incentive Stock Options may be
granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with
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<PAGE> 8
the Company, nor shall they interfere in any way with the Optionee's right or
the Company's right to terminate such relationship at any time, with or without
cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 200,000 Shares (which number
gives effect to a 1 for 3 reverse split of the Common Stock approved by the
Board in January 1997).
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 200,000
Shares which shall not count against the limit set forth in subsection (i) above
(which number gives effect to a 1 for 3 reverse split of the Common Stock
approved by the Board in January 1997).
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
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<PAGE> 9
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
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<PAGE> 10
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. Subject to
Section 13(c), if an Optionee ceases to be a Service Provider, other than upon
the Optionee's death or Disability, the Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for thirty (30) days following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified
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<PAGE> 11
by the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon
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<PAGE> 12
the voluntary or involuntary termination of the purchaser's service with the
Company for any reason (including death or Disability). The purchase price for
Shares repurchased pursuant to the Restricted Stock purchase agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution or Change
in Control.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
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<PAGE> 13
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Change in Control.
(i) Unless otherwise provided for in the individual stock
option agreement, in the event of a Change in Control as described in Section
2(e)(i), then each outstanding Option may be assumed or an equivalent option may
be substituted by such successor corporation or a Parent or Subsidiary of such
successor corporation. In the event the successor corporation refuses to assume
or substitute for the Option, the Optionee shall fully vest in and have the
right to exercise the Option as to all of the Optioned Stock, including such
Shares as to which the Option would not otherwise be vested or exercisable. If
an Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a Change in Control, the Administrator shall notify
the Optionee that the Option is fully vested and exercisable for a period of
fifteen (15) days from the date of such notice and the Option shall be canceled
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the Change in Control, the
Option confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash, or other securities or property) received in
the Change of Control event by holders of Common Stock for each Share held on
the effective date of the transaction (and if the holders are offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares). If such consideration received in the Change of
Control event is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the
outstanding Change in Control; and
(ii) Upon any termination of the Optionee's status as a
Service Provider without Cause or as a result of Optionee's Constructive
Termination at any time within one (1) year after a Change in Control, each
Option then held by an Optionee (including any assumed or substituted option
upon the Change in Control) shall immediately become vested and exercisable with
respect to all shares which would otherwise become vested and exercisable within
one (1) year of the date of such termination of the Optionee's status as a
Service Provider.
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<PAGE> 14
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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<PAGE> 15
19. Stockholder Approval. The Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
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<PAGE> 16
NEW ERA OF NETWORKS, INC.
1995 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
One-sixth (1/6) of the Shares subject to the Option shall vest one (1)
year after the Vesting Commencement Date, an additional one-third (1/3) of the
Shares subject to the Option shall vest two (2) years after the Vesting
Commencement Date and the last one half (1/2) of the Shares subject to the
Option shall vest three (3) years after the Vesting Commencement Date, subject
to the Optionee continuing to be a Service Provider on such dates.
<PAGE> 17
Termination Period:
This Option may be exercised for thirty (30) days after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer period as provided in the Plan. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE> 18
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating
to this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as
an ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair
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<PAGE> 19
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative minimum
taxable income for federal tax purposes and may subject the Optionee to
alternative minimum tax in the year of exercise. In the event that the Optionee
ceases to be an Employee but remains a Service Provider, any Incentive Stock
Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option on the date three (3) months and one (1) day following such change
of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of Colorado.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT
THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
-4-
<PAGE> 20
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: NEW ERA OF NETWORKS, INC.
- ------------------------------------ --------------------------------------
Signature By
- ------------------------------------ --------------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
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<PAGE> 21
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
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<PAGE> 22
EXHIBIT A
NEW ERA OF NETWORKS, INC.
1995 STOCK OPTION PLAN
EXERCISE NOTICE
New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, CO 80111
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of New Era of Networks, Inc. (the
"Company") under and pursuant to the 1995 Stock Option Plan (the "Plan") and the
Stock Option Agreement dated _____, 19___ (the "Option Agreement"). The purchase
price for the Shares shall be $_________ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
<PAGE> 23
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of Colorado.
Submitted by: Accepted by:
PURCHASER: NEW ERA OF NETWORKS, INC.
__________________________________ _____________________________________
Signature By
__________________________________ _____________________________________
Print Name Title
_____________________________________
Date Received
Address: Address:
_________________________________ New Era of Networks, Inc.
7400 East Orchard Road
_________________________________ Suite 230
Englewood, CO 80111
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<PAGE> 24
NEW ERA OF NETWORKS, INC.
1995 STOCK OPTION PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Stock Purchase Right is granted under
and governed by the terms and conditions of the 1995 Stock Option Plan and the
Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of
which are made a part of this document. You further agree to execute the
attached Restricted Stock Purchase Agreement as a condition to purchasing any
shares under this Stock Purchase Right.
GRANTEE: NEW ERA OF NETWORKS, INC.
___________________________ ________________________________
Signature By
___________________________ ________________________________
Print Name Title
<PAGE> 25
EXHIBIT A-1
NEW ERA OF NETWORKS, INC.
1995 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the
Purchaser and the Purchaser hereby agrees to purchase shares of the Company's
Common Stock (the "Shares"), at the per Share purchase price and as otherwise
described in the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may
be paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price,
<PAGE> 26
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the number
of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [one year] after the Date of
Grant and __________________ percent (______%) of the Shares [at the end of each
month thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provisions of this Agreement, other than by will or the
laws of descent and distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the
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<PAGE> 27
Company may require the spouse of Purchaser, if any, to execute and deliver to
the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of
Shares and the purchase price of the Shares in this Agreement shall be
appropriately adjusted to reflect any stock split, stock dividend or other
change in the Shares which may be made by the Company after the date of this
Agreement.
9. Tax Consequences. The Purchaser has reviewed with the
Purchaser's own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by this
Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Purchaser
understands that the
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<PAGE> 28
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the right of the Company to buy back the Shares pursuant
to the Repurchase Option. The Purchaser understands that the Purchaser may elect
to be taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Colorado. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
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<PAGE> 29
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
------------------------
PURCHASER: NEW ERA OF NETWORKS, INC.
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-5-
<PAGE> 30
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto_______________________________________(__________) shares of
the Common Stock of New Era of Networks, Inc. standing in my name of the books
of said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint_____________________________ to transfer the
said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement") between
________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 31
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_______, 19__
Corporate Secretary
New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, CO 80111
Dear ___________________ :
As Escrow Agent for both New Era of Networks, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number of
shares being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE> 32
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
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<PAGE> 33
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, CO 80111
PURCHASER: _________________________________
_________________________________
_________________________________
ESCROW AGENT: Corporate Secretary
New Era of Networks, Inc.
7400 East Orchard Road
Suite 230
Englewood, CO 80111
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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<PAGE> 34
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the internal substantive laws, but
not the choice of law rules, of Colorado.
Very truly yours,
NEW ERA OF NETWORKS, INC.
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
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<PAGE> 35
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of New Era of Networks, Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19 __
_________________________________________
Signature of Spouse
<PAGE> 36
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:____________________ shares (the "Shares") of the Common Stock
of New Era of Networks, Inc. (the "Company").
3. The date on which the property was transferred is:____________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over
time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is:
$______________________.
6. The amount (if any) paid for such property is:
$______________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ _______________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.3
NEW ERA OF NETWORKS, INC.
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control" means the occurrence of any of the
following events:
(i) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(ii) The acquisition by any Person or Group of Persons as
Beneficial Owner (as such terms are defined in the Securities Exchange Act of
1934, as amended), directly or indirectly, other than George F. (Rick) Adam,
Jr., of securities of the Company representing a majority of the total voting
power represented by the Company's then outstanding voting securities.
(iii) A majority of the Board of Directors of the Company
in office at the beginning of any thirty-six (36) month period is replaced
during the course of such thirty-six (36) month period (other than by voluntary
resignation of individual directors in the ordinary course of business) and such
replacement was not initiated by the Board of Directors of the Company as
constituted at the beginning of such thirty-six (36) month period.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means New Era of Networks, Inc., a Delaware
corporation.
(f) "Director" means a member of the Board.
<PAGE> 2
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(j) "Inside Director" means a Director who is an Employee.
(k) "Option" means a stock option granted pursuant to the Plan.
(l) "Optioned Stock" means the Common Stock subject to an Option.
(m) "Optionee" means a Director who holds an Option.
(n) "Outside Director" means a Director who is (i) not an
Employee and (ii) not a partner nor a member of any venture capital firm which
owns securities of the Company having more than five percent (5%) of the total
voting power of the Company.
(o) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1997 Director Option Plan.
(q) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
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<PAGE> 3
(r) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 150,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock. The number of
Shares in the Pool and the number of Shares subject to each grant provided for
in Section 4 below give effect to a 1 for 3 reverse stock split of the Common
Stock approved by the Board in January 1997.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who shall first become an
Outside Director following completion of the Company's initial underwritten
public offering shall be automatically granted an Option to purchase 25,000
Shares (the "First Option") on the date on which the later of the following
events occurs: (A) the effective date of this Plan, as determined in accordance
with Section 6 hereof, or (B) the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(iii) Each Outside Director shall be automatically granted
an Option to purchase 7,500 Shares (a "Subsequent Option") each year following
completion of the Company's initial underwritten public offering on the first
day after the annual stockholder meeting provided he or she is then an Outside
Director and as of such date he or she shall have served on the Board for at
least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii)
and (iii) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
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<PAGE> 4
(v) The terms of a First Option granted hereunder shall
be as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to one-third (1/3) of the Shares subject to the
First Option on each year on the anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the Subsequent Option.
In the event that the date of grant of the Subsequent Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on the next
trading day immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to 100% of the Shares subject to the
Subsequent Option on the third anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such date.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
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<PAGE> 5
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
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<PAGE> 6
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Change
in Control.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for
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<PAGE> 7
any increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Change in Control.
(i) In the event of a Change in Control, if the
transaction is described in Section 2(b)(i), then each outstanding Option may be
assumed or an equivalent option may be substituted by such successor corporation
or a Parent or Subsidiary of such successor corporation (the "Successor
Corporation"). In the event the Successor Corporation refuses to assume or
substitute for the Option, the Optionee shall fully vest in and have the right
to exercise the Option as to all of the Optioned Stock, including such Shares as
to which the Option would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a Change in Control, the Board shall notify the Optionee that the
Option is fully vested and exercisable for a period of fifteen (15) days from
the date of such notice and the Option shall be canceled upon the expiration of
such period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the Change in Control, the Option confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the Change in Control, the consideration (whether stock,
cash, or other securities or property) received in the Change of Control event
by holders of Common Stock for each Share held on the effective date of the
transaction (and if the holders are offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the Change of Control event is not solely
common stock of the Successor Corporation or its Parent, the Board may, with the
consent of the Successor Corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the Successor Corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the outstanding Change in Control; and
(ii) In the event of the termination of the Optionee's
status as either a Director or a director of the Successor Corporation for any
reason other than a voluntary resignation at any time within one (1) year after
a Change in Control, each Option then held by an Optionee (including any assumed
or substituted Options as a result of the Change in Control) shall immediately
become vested and exercisable (and shall remain exercisable for a period of at
least 15 days after
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<PAGE> 8
notice from the Company or the Successor Corporation) with respect to all shares
which would have otherwise become vested and exercisable within one (1) year of
the date of Optionee's termination.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
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<PAGE> 9
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
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<PAGE> 1
EXHIBIT 10.4
NEW ERA OF NETWORKS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of New Era of Networks, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company, or
a committee of the Board appointed in accordance with Section 13.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean New Era of Networks, Inc., and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings paid in cash including commissions, overtime, shift premium, incentive
compensation, incentive payments, bonuses and other cash compensation, but
excluding any income received from the exercise of options.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
<PAGE> 2
(i) "Exercise Date" shall mean the last trading day of each
Purchase Period, if any, or each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment Date under the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final Prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock.
(k) "Offering Period" shall mean the period beginning with the
date an option is granted under the Plan and ending with the date determined by
the Board. During the term of the Plan, the duration of each Offering Period
shall be determined from time to time by the Board, provided that no Offering
Period may exceed twenty-four (24) months in duration. If determined by the
Board, an Offering Period may include one or more Purchase Periods. The first
Offering Period shall begin on the effective date of the Company's initial
public offering of its Common Stock that is registered with the Securities and
Exchange Commission (the "Effective Date") and shall end on the last Trading Day
on or before August 15, 1997.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the period commencing on an
Enrollment Date or after an Exercise Date and which is of such duration as the
Board shall determine.
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<PAGE> 3
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering and Purchase Periods. The Plan shall be implemented by
consecutive, overlapping Offering Periods, each of which shall be of such
duration (not to exceed 24 months) as the Board shall determine from time to
time in its discretion, and each of which shall consist of such number of
Purchase Periods as the Board shall determine from time to time in its
discretion. The Plan shall continue until terminated in accordance with Section
19 hereof. The initial Offering Period shall commence on the Effective Date and
shall end on the last Trading Day on or before August 15, 1997. Unless otherwise
specified by the Board, Offering Periods subsequent to the initial Offering
Period shall be six months in duration, without any Purchase Periods, with the
second Offering Period commencing on the first Trading Day on or after August
16, 1997 and ending on the last Trading Day on or before February 15, 1998. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) at any time or from time to time, and shall have
the power to implement multiple Purchase Periods within any Offering Period,
provided that (except as the shareholders may otherwise approve) any such change
shall be effected only with respect to Offering Periods commencing after the
date on which the change is made.
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<PAGE> 4
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period, provided, however, that for purposes of the first Offering Period, the
maximum payroll deduction shall not exceed twenty percent (20%) of the
Compensation which a participant receives during the first Offering Period. The
Board shall have the power to change the payroll deduction rate up to a maximum
rate of twenty percent (20%) at any time or from time to time; provided that
(except as the stockholders may otherwise approve) any such change shall be
effected only with respect to Offering Periods commencing after the date the
change is made.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at such
time during any Purchase or Offering Period. Payroll deductions shall recommence
at the rate provided in such participant's subscription agreement at the
beginning of the first Offering Period, or, if applicable, first Purchase Period
which is scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10 hereof.
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<PAGE> 5
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price. In no event shall an Employee be
permitted to purchase during each Offering Period, or Purchase Period, if
applicable, more than $12,500 worth of Common Stock valued at the Fair Market
Value on the first day of such Offering Period; provided, however, that for the
first Offering Period under the Plan an Employee shall not be permitted to
purchase more than $25,000 worth of Common Stock valued at the Fair Market Value
on the first day of the first Offering Period; and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period or, if applicable, Purchase Period subject to earlier withdrawal
by the participant as provided in Section 10 hereof. Any other monies left over
in a participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) On any given Exercise Date, the number of shares with respect
to which options are to be exercised shall not exceed 75,000 shares (which
number gives effect to a 1 for 3 reverse split of the Common Stock approved by
the Board in January 1997); provided, however, for the Exercise Date of the
first Offering Period under the Plan, the number of shares with respect to which
options are to be exercised shall not exceed 100,00 shares (which number gives
effect to a 1 for 3 reverse split of the Common Stock approved by the Board in
January 1997). If, on a given
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<PAGE> 6
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the share limit described in this subsection, the Company
shall make a pro rata allocation of the shares remaining available for purchase
in as uniform a manner as shall be practicable and as it shall determine to be
equitable.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of the shares purchased upon exercise of his
or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of
a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 325,000 shares
(which number gives effect to a 1 for 3 reverse split of the Common Stock
approved by the Board in January 1997), subject to
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<PAGE> 7
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment,
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<PAGE> 8
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, as well as the price per share
and the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, any Offering Periods then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
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<PAGE> 9
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 18 hereof, no such termination can
affect options previously granted, provided that an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that the
termination of the Plan is in the best interests of the Company and its
shareholders. Except as provided in Section 18 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain shareholder approval in such a manner and to such a
degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
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<PAGE> 10
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
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<PAGE> 11
EXHIBIT A
NEW ERA OF NETWORKS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________ hereby elects to participate in the
New Era of Networks, Inc. 1997 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck (i) in the
amount of ____% of my Compensation on each payday for the first
Offering Period (from 1 to 20% for the first Offering Period) and (ii)
in the amount of ______ % of my Compensation on each payday for
subsequent Offering Periods (from 1 to 10%). Such amounts shall be
deducted each payday during the Offering Period in accordance with the
Employee Stock Purchase Plan. (Please note that no fractional
percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):
_______________________________________.
<PAGE> 12
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares) or one year
after the Exercise Date, I will be treated for federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased by me over the
price which I paid for the shares. I hereby agree to notify the Company
in writing within 30 days after the date of any disposition of my
shares and I will make adequate provision for Federal, state or other
tax withholding obligations, if any, which arise upon the disposition
of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
__________________________________ _________________________________________
Relationship
_________________________________________
(Address)
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<PAGE> 13
Employee's Social
Security Number: ____________________________________________________
Employee's Address: ____________________________________________________
____________________________________________________
____________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:___________________ ____________________________________________________
Signature of Employee
____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
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<PAGE> 14
EXHIBIT B
NEW ERA OF NETWORKS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the New Era of
Networks, Inc. 1997 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:_________________________
<PAGE> 1
EXHIBIT 10.5
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: NEW ERA OF NETWORKS, INC., a Delaware corporation
Number of Shares: See Below.
Class of Stock: See Below.
Initial Exercise Price: See Below.
Issue Date: April 12,1996
Expiration Date: April 11, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and
for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth as
follows, and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth of this Warrant. The
Shares shall be the shares issued by Borrower in Borrower's next round of
equity financing in which Borrower receives not less than $3,000,000 of
proceeds, and the Warrant Price shall be the price at which the Shares are sold
in such round; provided that if Borrower does not receive such proceeds by
September 30, 1996, the Shares shall be Borrower's Series B Preferred Stock,
and the Warrant Price shall be $0.31 per Share. The number of Shares shall be
equal to the quotient obtained by dividing $50,000 by the Warrant Price.
ARTICLE I
EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole, but not in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The fair market value of
the Shares shall be determined pursuant Section 1.4.
<PAGE> 2
1.3 [Deleted]
1.4 Fair Market Value. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a
reputable investment banking firm to undertake such valuation. If the valuation
of such investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant,
a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition." For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3 Purchase Right. Notwithstanding the foregoing at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to
-2-
<PAGE> 3
participate in the proceeds of the Acquisition, less (b) the aggregate Warrant
Price of the Shares, but in no event less than zero.
ARTICLE II
ADJUSTMENTS TO THE SHARES
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays
a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the
Shares are convertible, then upon exercise of this Warrant, for each Share
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned
the Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on
Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution,
-3-
<PAGE> 4
issue, or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed under this Warrant by the Company, but shall at all times in good
faith assist in carrying out of all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall
be adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the factional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Warrant Price in effect upon the date thereof and the series
of adjustments leading to such Warrant Price.
ARTICLE III
REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least
$500,000 of the Shares were sold and (ii) the fair market value of the Shares
as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any
-4-
<PAGE> 5
class or series of its stock any additional shares of stock of any class or
series or other rights; (c) to effect any reclassification or recapitalization
of common stock; (d) to merge or consolidate with or into any other
corporation, or sell, lease, license, or convey all or substantially all of its
assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company's securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2)
in the case of the matters referred to in (c) and (d) above at least 20 days
prior written notice of the date when the same will take place (and specifying
the date on which the holders of common stock will be entitled to exchange
their common stock for securities or other property deliverable upon the
occurrence of such event); and (3) in the case of the matter referred to in (e)
above, the same notice as is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 Registration Under Securities Act of 1933, as amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE IV
MISCELLANEOUS
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION
-5-
<PAGE> 6
OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as
reasonably requested by the Company). The Company shall not require Holder to
provide an opinion of counsel if the transfer is to an affiliate of Holder or
if there is no material question as to the availability of current information
as referenced in Rule 144(c), Holder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that it has
complied with Rule 144(f), and the Company is provided with a copy of Holder's
notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when
given personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought.
4.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
-6-
<PAGE> 7
4.8 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect
to its principles regarding conflicts of law.
"COMPANY"
NEW ERA OF NETWORKS, INC.
By:
-----------------------------
Name:
---------------------------
(Print)
Title: Chairman of the Board,
President, or Vice President
By:
-----------------------------
Name:
---------------------------
(Print)
Title: Chief Financial Officer,
Secretary, Assistant
Treasurer, or Assistant
Secretary
-7-
<PAGE> 8
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ____________ shares
of the Common/Series ___ Preferred [strike one] Stock of pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
2. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ____________ of the Shares covered by
the Warrant.
[Strike paragraph that does not apply.]
3. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below.
----------------------------------
(Name)
----------------------------------
----------------------------------
(Address)
4. The undersigned represents it is acquiring the shares solely
for its own account and not as a nominee for any other party and not with a
view toward the resale or distribution thereof except in compliance with
applicable securities laws.
----------------------------------
(Signature)
- ------------------------
(Date)
<PAGE> 9
EXHIBIT A
Anti-Dilution Provisions
(For Preferred Stock Warrants With Existing Anti-Dilution Protection)
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Articles (Certificate) of Incorporation
which apply to Diluting Issuances.
Under no circumstances shall the aggregate Warrant Price payable by
the Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE> 10
EXHIBIT B
Registration Rights
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of
the agreement entered into by the Company with the purchasers of the Shares
relating to registration rights.
If no such agreement exists, then the Company and the Holder shall
enter into Holder's standard form of Registration Rights Agreement as in effect
on the Issue Date of the Warrant.
<PAGE> 1
EXHIBIT 10.6
================================================================================
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
NEON SOFTWARE, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of May 9, 1995
================================================================================
<PAGE> 2
Series A Convertible Preferred Stock Purchase Agreement
Dated May 9, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . 2
SECTION 2.1 Operations . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2 Organization, Qualifications and Corporate Power . . . 2
SECTION 2.3 Authorization of Agreements, Etc . . . . . . . . . . . 2
SECTION 2.4 Validity . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Authorized Capital Stock . . . . . . . . . . . . . . . 3
SECTION 2.6 Third Party Approvals . . . . . . . . . . . . . . . . . 4
SECTION 2.7 Proprietary Information of Third Parties . . . . . . . 4
SECTION 2.8 Patents, Trademarks, Etc . . . . . . . . . . . . . . . 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . 5
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS . . . . . . . . . . 6
ARTICLE V - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5.1 Financial Statements, Reports, Etc . . . . . . . . . . 9
SECTION 5.2 Right of Participation . . . . . . . . . . . . . . . 11
SECTION 5.3 Reserve for Conversion Shares . . . . . . . . . . . . 12
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . 12
SECTION 5.5 Properties, Business, Insurance . . . . . . . . . . . 12
SECTION 5.6 Inspection, Consultation and Advice . . . . . . . . . 12
SECTION 5.7 Restrictive Agreements Prohibited . . . . . . . . . . 12
SECTION 5.8 Transactions with Affiliates . . . . . . . . . . . . 13
SECTION 5.9 Expenses of Directors . . . . . . . . . . . . . . . . 13
SECTION 5.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . 13
SECTION 5.11 Board of Directors Meetings . . . . . . . . . . . . . 13
SECTION 5.12 CEO Compensation . . . . . . . . . . . . . . . . . . 13
SECTION 5.14 Performance of Contracts . . . . . . . . . . . . . . 14
SECTION 5.15 Vesting of Reserved Employee Shares . . . . . . . . . 14
SECTION 5.16 Employee Non-disclosure and Developments Agreements . 14
SECTION 5.17 Activities of Subsidiaries . . . . . . . . . . . . . 14
SECTION 5.18 Compliance with Laws . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5.19 Keeping of Records and Books of Account . . . . . 14
SECTION 5.20 Change in Nature of Business . . . . . . . . . . 15
SECTION 5.21 U.S. Real Property Interest Statement . . . . . . 15
SECTION 5.22 Rule 144A Information . . . . . . . . . . . . . . 15
SECTION 5.24 Termination of Covenants . . . . . . . . . . . . 16
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.1 Expenses . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.2 Survival of Agreements . . . . . . . . . . . . . 16
SECTION 6.3 Brokerage . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.4 Parties in Interest . . . . . . . . . . . . . . . 17
SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.6 Governing Law . . . . . . . . . . . . . . . . . . 17
SECTION 6.7 Entire Agreement . . . . . . . . . . . . . . . . 17
SECTION 6.8 Counterparts . . . . . . . . . . . . . . . . . . 17
SECTION 6.9 Amendments . . . . . . . . . . . . . . . . . . . 17
SECTION 6.10 Severability . . . . . . . . . . . . . . . . . . 17
SECTION 6.11 Titles and Subtitles . . . . . . . . . . . . . . 18
SECTION 6.12 Certain Defined Terms . . . . . . . . . . . . . . 18
</TABLE>
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stock Restriction Agreement
EXHIBIT C Form of Voting Agreement
EXHIBIT D Charter and All Amendments Thereto
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Form of Employee Nondisclosure and Developments Agreement
EXHIBIT G Form of Lazarus side letter
EXHIBIT H Form of Adam Side Letter
EXHIBIT I Form of Board Observer Nondisclosure/Confidentiality Agreement
-ii-
<PAGE> 4
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of May
9,1995 between Neon Software, Inc., an Illinois corporation (the "Company"),
and the several purchasers named in the attached Schedule I (individually a
"Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 9,169,028 shares (the "Preferred Shares") of the authorized but
unissued Series A Convertible Preferred Stock, no par value, of the Company
(the "Series A Convertible Preferred Stock'); and
WHEREAS, the Purchasers, severally, wish to purchase the Prefer-red
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares.
The Company agrees to issue and sell to each Purchaser, and each Purchaser
hereby agrees to purchase from the Company, the number of Preferred Shares set
forth opposite the name of such Purchaser under the heading "Number of
Preferred Shares to be Purchased" on Schedule I, at the aggregate purchase
price set forth opposite the name of such Purchaser under the heading
"Aggregate Purchase Price for Preferred Shares" on Schedule I.
SECTION 1.2 Closing. The closing shall take place at the offices
of Gordon & Glickson, P.C., 444 North Michigan Avenue, Suite 3600, Chicago, IL
60611-3903, at 11:00 a.m., Chicago time, on May 9,1995, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and deliver
to each Purchaser a stock certificate or certificates in definitive form,
registered in the name of such Purchaser, representing the Preferred Shares
being purchased by it at the Closing. As payment in full for the Preferred
Shares being purchased by it under this Agreement, and against delivery of the
stock certificate or certificates therefor as aforesaid, on the Closing Date
each Purchaser shall transfer to the account of the Company by wire transfer
the amount set forth opposite the name of such Purchaser under the heading
"Aggregate Purchase Price for Preferred Shares" on Schedule I.
<PAGE> 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II:
SECTION 2.1 Operations. As of the date hereof there is no action,
suit, claim, proceeding or investigation pending or threatened against or
affecting the Company and the Company is not subject to any order, writ,
injunction or decree entered in any lawsuit or proceeding. Schedule II contains
a complete list of the Company's material agreements, obligations and
liabilities. The Company does not have an Employee Benefit Plan as defined in
the Employee Retirement Income Security Act of 1974, as amended.
SECTION 2.2 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Illinois
and is duly licensed or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such licensing or qualification, except where failure to so qualify
would not have a material adverse effect on the business, affairs or prospects
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement, the
Registration Rights Agreement with the Purchasers in the form attached as
Exhibit A (the "Registration Rights Agreement"), the Stock Restriction
Agreement with the Purchasers and the other parties thereto named in paragraph
(h) of Article V of this Agreement, in the form attached as Exhibit B (the
"Stock Restriction Agreement") and the Voting Agreement with the Purchasers in
the form attached as Exhibit C (the "Voting Agreement"), to issue, sell and
deliver the Preferred Shares and to issue and deliver the shares of Common
Stock, no par value, of the Company ("Common Stock') issuable upon conversion
of the Preferred Shares (the "Conversion Shares").
(b) The Company has no subsidiaries. The Company does not
(i) own of record or beneficially, directly or indirectly, (A) any shares of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.3 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
and the Voting Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and
-2-
<PAGE> 6
delivery of the Preferred Shares and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action
and win not violate any provision of law, any order of any court or other
agency of government, the Articles of Incorporation of the Company, as amended
(the "Charter") or the Bylaws of the Company, as amended, or any provision of
any indenture, agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries. To the best of
the Company's knowledge, no provision of the Stock Restriction Agreement
violates, conflicts with, results in a breach of or constitutes (with due
notice or lapse of time or both) a default by any other party under any other
indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable shares of Series A Convertible Preferred Stock with no
personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by
or through the Company except as set forth in the Registration Rights
Agreement. The Conversion Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and, when so issued, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Registration Rights
Agreement. Neither the issuance, sale or delivery of the Preferred Shares nor
the issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company or to any right of first refusal or other
right in favor of any person.
SECTION 2.4 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Registration Rights Agreement, the Stock Restriction Agreement and the Voting
Agreement, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms (subject in each case, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
SECTION 2.5 Authorized Capital Stock. The authorized capital
stock of the Company consists of (i) 9,169,028 shares of Preferred Stock, no
par value (the "Preferred Stock"), of which 9,169,028 shares have been
designated Series A Convertible Preferred Stock, and (ii) 20,000,000 shares of
Common Stock. Immediately prior to the Closing, 10,600,000 shares of Common
Stock will be validly issued and outstanding, fully paid and nonassessable with
no personal liability attaching to the ownership thereof and no shares of
Preferred Stock shall have been issued. The stockholders of record and holders
of subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company,
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and the number of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule III, (i) no
person owns of record or is known to the Company to own beneficially any share
of Common Stock, (ii) no subscription, warrant, option, convertible security,
or other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in the attached Schedule III, the
Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof. Except for
the Stock Restriction Agreement and the Voting Agreement, to the best of the
Company's knowledge there are no voting trusts or agreements, stockholders
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company or any
of its subsidiaries (whether or not the Company or any of its subsidiaries is a
party thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
SECTION 2.6 Third Party Approvals. No registration or filing
with, or consent or approval of or other action by any third party, is or will
be necessary for the valid execution, delivery and performance by the Company
of this Agreement, the Registration Rights Agreement, the Stock Restriction
Agreement and the Voting Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws
(all of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with
respect to the Registration Rights Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to state securities
laws.
SECTION 2.7 Proprietary Information of Third Parties. To the best
of the Company's knowledge, no third party has claimed or has reason to claim
that any person employed by or affiliated with the Company has (a) violated or
may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might
be contemplated. To the best of the Company's knowledge, no person employed by
or affiliated with the Company has employed or proposes to employ any trade
secret or any information or documentation proprietary
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to any former employer, and to the best of the Company's knowledge, no person
employed by or affiliated with the Company has violated any confidential
relationship which such person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Company, and
the Company has no reason to believe there will be any such employment or
violation. To the best of the Company's knowledge, none of the execution or
delivery of this Agreement, or the carrying on of the business of the Company
as officers, employees or agents by any officer, director or key employee of
the Company, or the conduct or proposed conduct of the business of the Company,
will conflict with or result in a breach of the terms, conditions or provisions
of or constitute a default under any contract, covenant or instrument under
which any such person is obligated.
SECTION 2.8 Patents, Trademarks, Etc. Set forth in Schedule II is
a list and brief description of all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or registered in the
name of the Company, or of which the Company is a licensor or licensee or in
which the Company has any right, and in each case a brief description of the
nature of such right. The Company owns or possesses adequate licenses or other
rights to use an patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets, customer lists
and know how (collectively, "Intellectual Property") necessary or desirable to
the conduct of its business as conducted and as proposed to be conducted, and
no claim is pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with
the asserted rights of any other person under any Intellectual Property, and to
our knowledge there is no basis for any such claim (whether or not pending or
threatened). To our knowledge, no claim is pending or threatened to the effect
that any such Intellectual Property owned or licensed by the Company, or which
the Company otherwise has the right to use, is invalid or unenforceable by the
Company, and there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the specific
purpose of acquiring the Preferred Shares;
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(b) it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage
of development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by reason
of their issuance in a transaction exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act, (ii) the Preferred Shares and, upon
conversion thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares and the Conversion
Shares will bear a legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule
144A promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including
(i) obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
(g) it is an "institutional investor" within the meaning
of Section 4C of the Illinois Securities Law of 1953, as amended.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall
have received from Gordon & Glickson, P.C., counsel for the Company, an opinion
dated the Closing Date, in form and scope reasonably satisfactory to the
Purchasers and their counsel.
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(b) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article II shall be
true, complete and correct on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date, and the President of the Company shall have certified to such effect to
the Purchasers in writing, provided, that if this agreement is executed on the
Closing Date, execution of this Agreement by such persons shall suffice.
(c) Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date, and the President of the
Company shall have certified to the Purchasers in writing to such effect and to
the further effect that all of the conditions set forth in this Article IV have
been satisfied, provided, that if this agreement is executed on the Closing
Date, execution of this Agreement by such persons shall suffice.
(d) All Proceedings to be Satisfactory. All corporate and
other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Purchasers and their counsel, and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their
counsel shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent
date by the Secretary of State of the State of Illinois, and(B) a certificate
of said Secretary dated as of a recent date as to the due incorporation and
good standing of the Company, the payment of an franchise taxes by the Company
and listing all documents of the Company on file with said Secretary.
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and certifying: (A)
that attached thereto is a true and complete copy of the Bylaws of the Company
as in effect on the date of such certification; (B) that attached thereto is a
true and complete copy of all resolutions adopted by the Board of Directors or
the stockholders of the Company authorizing the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Voting Agreement, the issuance, sale and delivery
of the Preferred Shares and the reservation, issuance and delivery of the
Conversion Shares, and that all such resolutions are in full force and effect
and are all the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Voting Agreement; (C) that the Charter has not
been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i)(B) above; and (D) to the
incumbency and specimen signature of each officer of the Company executing this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
or the Voting Agreement, the stock certificates representing the Preferred
Shares and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the
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Company as to the incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs of the Company as
the Purchasers or their counsel reasonably may request.
(f) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
(g) Stock Restriction Agreement. The Stock Restriction
Agreement shall have been executed and delivered by the Company and George F.
Adam.
(h) Non-Competition Agreements. Each of the following
persons shall have entered into a Non- Competition Agreement with the Company
in the form attached as Exhibit E (collectively, the "Non-Competition
Agreements"), and copies thereof shall have been delivered to counsel for the
Purchasers: George F. Adam, Jr. and Harold Piskiel.
(i) Charter. The Charter shall read in its entirety as
set forth in Exhibit D. The Charter shall provide the number of shares of
authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class.
(j) Bylaws. The Company's By-laws shall have been
amended, if necessary, to provide that (i) unless otherwise required by the
laws of the State of Illinois, (A) any director or (B) any holder or holders of
at least 25% of the outstanding shares of Series A Convertible Preferred Stock,
shall have the right to call a meeting of the Board of Directors or
stockholders, (ii) the number of directors fixed in accordance therewith shall
in no event conflict with any of the terms or provisions of the Series A
Convertible Preferred Stock as set forth in the Charter, (iii) the Company
shall have a Compensation Committee comprised of two (2) members which shall
have as its functions the approval of employee compensation over $120,000 per
year and the overall approval of employee option grants under the Management
Stock Option Plan as submitted by the Chief Executive Officer, (iv) all
meetings of stockholders shall be held at the principal office of the
corporation unless a different place (within or without Colorado, but within
the United States) is fixed by the Directors or the President and stated in the
notice of the meeting, (v) a written notice of the place, date and hour of all
meetings of stockholders stating the purpose of the meeting shall be given at
least seven (7) days before the meeting or such longer period as is required by
law to each stockholder entitled to vote thereat, (vi) regular meetings of the
Directors may be held without can or notice at such places and at such time as
the Directors may from time to time determine, provided that any Director who
is absent when such determination is made shall be given a notice of the
determination and (vii) that all directors of the Company shall be indemnified
against, and
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absolved of, liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
(k) Employee Agreements. Copies of the Employee
Nondisclosure and Developments Agreements in the form attached hereto as
Exhibit F executed by all employees shall have been delivered to counsel for
the Purchasers.
(l) Election of Directors. The number of directors
constituting the entire Board of Directors shall have been fixed at five (5)
and the following persons shall have been elected as the directors and shall
each hold such position as of the Closing Date: George F. Adam, Mark Gordon,
Harold Piskiel and one additional individual as the directors elected solely by
the holders of the Common Stock and Steven Lazarus as the director elected
solely by the holders of the Series A Convertible Preferred Stock. Steve
Lazarus shall, prior to attending any future board meetings of the Company,
execute a side letter agreement substantially in the form attached hereto as
Exhibit G.
(m) Voting Agreement. George F. Adam shall have executed
and delivered a Voting Agreement substantially in the form attached hereto as
Exhibit C.
(n) Preemptive Rights. All stockholders of the Company
having any preemptive, first refusal or other rights with respect to the
issuance of the Preferred Shares or the Conversion Shares shall have
irrevocably waived the same in writing.
(o) Fees of Purchasers' Counsel. The Company shall have
paid in accordance with Section 6.1 the fees and disbursements of Purchasers'
counsel invoiced at the Closing.
(p) Adam Side Letter. George F. Adam, Jr. shall have
executed and delivered to AVF II a side letter substantially in the form of
Exhibit H.
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that for
so long as any Series A Convertible Preferred Stock is outstanding:
SECTION 5.1 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser:
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(a) within fifteen (15) days after the end of each fiscal
year, but in no case later than one hundred twenty (120) days after the end of
each fiscal year of the Company, a consolidated balance sheet of the Company
and its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company,
(b) within fifteen (15) days after the end of each month,
but in no case later than ninety (90) days after the end of each month in each
fiscal year (other than the last month in each fiscal year) a consolidated
balance sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company, such consolidated
balance sheet to be as of the end of such month and such consolidated
statements of income, stockholders' equity and cash flows to be for such month
and for the period from the beginning of the fiscal year to the end of such
month, in each case with comparative statements for the prior fiscal year,
provided that the Company's obligations under this Section 5.1(b) shall
terminate upon the completion of a firm commitment underwritten public offering
of the Company's securities;
(c) at the time of delivery of each annual financial
statement pursuant to Section 5.1(a), a certificate executed by the Chief
Executive Officer of the Company stating that such officer has caused this
Agreement and the Series A Convertible Preferred Stock to be reviewed and has
no knowledge of any default by the Company in the performance or observance of
any of the provisions of this Agreement or the Series A Convertible Preferred
Stock or, if such officer has such knowledge, specifying such default and the
nature thereof,
(d) at the time of delivery of each monthly statement
pursuant to Section 5.1(b), a management narrative report explaining all
significant variances from forecasts and all significant current developments
in staffing, marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of
each fiscal year, consolidated capital and operating expense budgets, cash flow
projections and income and loss projections for the Company and its
subsidiaries in respect of such fiscal year, all itemized in reasonable detail
and prepared on a monthly basis, and, promptly after preparation, any revisions
to any of the foregoing;
(f) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company or any of its
subsidiaries;
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(g) promptly after the commencement thereof, notice of an
actions, suits, claims, proceedings, investigations and inquiries of the type
described in Section 2.7 that could materially adversely affect the Company or
any of its subsidiaries;
(h) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the Company
sends or makes available to its stockholders or directors or files with the
Commission; and
(i) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Purchaser reasonably may
request.
(j) notwithstanding the foregoing, AVF II may request
certain financial statements in less time in order to prepare partnership
quarterly reports or annual audits. The Company will make a good faith effort
to comply with these requests.
SECTION 5.2 Right of Participation. The Company shall, prior to
any proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to each Purchaser by written notice
the right, for a period of thirty (30) days, to purchase for cash at an amount
equal to the price or other consideration for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice (treating each Purchaser, for the purpose of such computation,
as the holder of the number of shares of Common Stock which would be issuable
to such Purchaser upon conversion, exercise and exchange of all securities
(including but not limited to the Preferred Shares) held by such Purchaser on
the date such offer is made, that are convertible, exercisable or exchangeable
into or for (whether directly or indirectly) shares of Common Stock and
assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the participation
rights of the Purchasers pursuant to this Section 5.2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule III as being outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment public offering,
(F) pursuant to the exercise of options to purchase Common Stock granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company, or to suppliers or other parties as payment for
goods or services adjusted to reflect stock splits, stock dividends,
combinations of shares and the like with respect to the Common Stock) less the
number of shares (as so adjusted) issued pursuant to subscriptions, warrants,
options, convertible securities, or other rights outstanding on the date of
this
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Agreement and listed in Schedule III pursuant to clause (C) above (the shares
exempted by this clause (F) being hereinafter referred to as the "Reserved
Employee Shares"), and (G) upon the exercise of any right which was not itself
in violation of the terms of this Section 5.2. The Company's written notice to
the Purchasers shall describe the securities proposed to be issued by the
Company and specify the number, price and payment terms. Each Purchaser may
accept the Company's offer as to the full number of securities offered to it or
any lesser number, by written notice thereof given by it to the Company prior
to the expiration of the aforesaid thirty (30) day period, in which event the
Company shall promptly sell and such Purchaser shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Purchaser.
The Company shall be free at any time prior to ninety (90) days after the date
of its notice of offer to the Purchasers, to offer and sell to any third party
or parties the remainder of such securities proposed to be issued by the
Company (including but not limited to the securities not agreed by the
Purchasers to be purchased by them), at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying
with this Section 5.2.
SECTION 5.3 Reserve for Conversion Shares. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be sufficient to effect
the conversion of the Preferred Shares from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of the Preferred Shares or otherwise to comply with
the terms of this Agreement, the Company will forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Common Stock upon conversion of the Preferred Shares.
SECTION 5.4 Corporate Existence. The Company shall maintain and,
except as otherwise permitted by Section 5.17 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.5 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of George F. Adam (so long as he remains an employee of
the Company), in the amount of $500,000. The Company shall not cause or permit
any assignment or change in beneficiary and shall not borrow against any such
policy. If requested by
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Purchasers holding at least a majority of the outstanding Preferred Shares, the
Company will add one designee of such Purchasers as a notice party for each
such policy and shall request that the issuer of each policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any change is made
in the beneficiary thereof.
SECTION 5.6 Inspection, Consultation and Advice. The Company
shall permit and cause each of its subsidiaries to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and its subsidiaries, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and its subsidiaries with their officers,
employees and public accountants (and the Company hereby authorizes said
accountants to discuss with such Purchaser and such designees such affairs,
finances and accounts), and consult with and advise the management of the
Company and its subsidiaries as to their affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 5.7 Restrictive Agreements Prohibited. Neither the
Company nor any of its subsidiaries shall become a party to any agreement which
by its terms restricts the Company's performance of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement or the Charter.
SECTION 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.9 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected as a director solely or in part by the holders of
Series A Convertible Preferred Stock, for all of his reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of the
Company or any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds
from the sale of the Preferred Shares solely for working capital, sales and
marketing development, software applications technology and administration of
the business as outlined in the Company's business plan.
SECTION 5.11 Board of Directors Meetings. The Company shall use
its best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
permit AVF II to have one representative reasonably acceptable
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to the Company attend each meeting of the Board of Directors of the Company and
each meeting of any Committee thereof and to participate in all discussions
during each such meeting. The Company shall send to AVF II and such designee
the notice of the time and place of such meeting in the same manner and at the
same time as it shall send such notice to its directors or committee members,
as the case may be. The Company shall also provide to AVF II and such designee
copies of all notices, reports, minutes and consents at the time and in the
manner as they are provided to the Board of Directors or committee, except for
information reasonably designated as proprietary information by the Board of
Directors. The initial AVF II designee (whom the Company agrees is reasonably
acceptable) shall be Keith Crandell. As a condition to such designee's
attendance at Board meetings, such designee will execute a
Non-disclosure/Confidentiality Agreement with the Company, such agreement to be
substantially in the form of Exhibit I.
SECTION 5.12 CEO Compensation. The Chief Executive Officer's
annual compensation will initially be $140,000 with a bonus amount of $40,000
based on performance of the business compared to plan objectives.
SECTION 5.13 Bylaws. The Company shall at all times cause its
Bylaws to contain the provisions set forth in paragraph IV(j) of this
Agreement. The Company shall at all times maintain provisions in its Bylaws
and/or Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
SECTION 5.14 Performance of Contracts. The Company shall not
amend, modify, terminate, waive or otherwise alter, in whole or in part, any of
the Employee Nondisclosure and Developments Agreements or the Non-Competition
Agreements without the written consent of the member of the Company's Board of
Directors elected solely by the holders of Series A Convertible Preferred
Stock.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company
shall not grant to any of its employees options to purchase Reserved Employee
Shares which will become exercisable at a rate in excess of 33 1/3% per annum
from the date of such grant without the unanimous written consent of those
members of the Company's Board of Directors elected solely by the holders of
Series A Convertible Preferred Stock; provided, however, that options granted
under the Company's Management Stock Option Plan will vest one-sixth in year
one, two-sixths in year two and three-sixths in year three.
SECTION 5.16 Employee Non-disclosure and Developments Agreements.
The Company shall use its best efforts to obtain, and shall cause its
subsidiaries to use their best efforts to obtain, an Employee Nondisclosure and
Developments Agreement in substantially the form of Exhibit E from all future
officers, key employees and other employees who will have access to
confidential information of the Company or any of its subsidiaries, upon their
employment by the Company or any of its subsidiaries.
-14-
<PAGE> 18
SECTION 5.17 Activities of Subsidiaries. The Company shall not
permit any subsidiary to consolidate or merge into or with or sell or transfer
an or substantially all its assets, except that any subsidiary may (i)
consolidate or merge into or with or sell or transfer assets to any other
subsidiary, or (ii) merge into or sell or transfer assets to the Company. The
Company shall not sell or otherwise transfer any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit any
subsidiary to issue, sell or otherwise transfer any shares of its capital stock
or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set
aside any sums for the purchase of, or pay any dividend or make any
distribution on, any shares of its stock, except for dividends or other
distributions payable to the Company or another subsidiary.
SECTION 5.18 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
SECTION 5.19 Keeping of Records and Books of Account. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.20 Change in Nature of Business. The Company shall
remain in the business of software development and consulting.
SECTION 5.21 U.S. Real Property Interest Statement. The Company
shall provide prompt written notice to each Purchaser following any
"determination date" (as defined in Treasury Regulation Section 1.897-2(c)(i))
on which the Company becomes a United States real property holding corporation.
In addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-(h)(2) or any
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.22 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.22 Rule 144A Information. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b)
-15-
<PAGE> 19
under the Exchange Act, provide in writing, upon the written request of any
Purchaser or a prospective buyer of Preferred Shares or Conversion Shares from
any Purchaser, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.24 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of
any Preferred Shares or Conversion Shares.
SECTION 5.23 Compensation Committee. The Company shall, by
amending its Bylaws or otherwise, establish and maintain a Compensation
Committee of the Board of Directors, which shall consist of two (2) directors,
one of whom shall be the director elected solely by the holders of the Series A
Convertible Preferred Stock. The Compensation Committee shall have as its
functions the approval of employee compensation over $120,000 per year and
overall approval of employee option grants under the Management Stock Option
Plan as submitted by the Chief Executive Officer. Effective upon purchase of
the Preferred Shares, the members of the Compensation Committee shall
be Steven Lazarus and Mark Gordon. No compensation or other remuneration at an
annual rate in excess of $120,000 shall be paid to, and no capital stock of the
Company shall be issued or granted to, any director, officer or employee of, or
any consultant or adviser to, the Company or any of its subsidiaries, without
the approval of the Compensation Committee. No employee stock option plan,
employee stock purchase plan, employee restricted stock plan or other employee
stock plan shall be established without the approval of the Compensation
Committee.
SECTION 5.24 Termination of Covenants. The covenants set forth in
Sections 5.21 and 5.22 shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser no longer holds any shares of
capital stock of the Company. All of the other covenants set forth in this
Article V shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser owns less than 500,000 Preferred Shares
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Series A Convertible Preferred
Stock). Each Purchaser acknowledges that the covenants terminate with respect
to such Purchaser as set forth in the preceding sentence in the event that such
Purchaser's holdings of Preferred Shares are reduced via conversion of such
holdings into Common Stock, whether voluntarily or involuntarily.
-16-
<PAGE> 20
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that assuming a
successful completion of such transactions, the Company shall pay the fees and
disbursements, not to exceed $20,000, of the Purchasers' special counsel,
Testa, Hurwitz & Thibeault, in connection with such transactions and any
subsequent amendment, waiver, consent or enforcement thereof.
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Stock Restriction Agreement or any certificate or instrument
delivered to the Purchasers pursuant to or in connection with this Agreement,
the Registration Rights Agreement or the Stock Restriction Agreement, shall
survive the execution and delivery of this Agreement, the Registration Rights
Agreement and the Stock Restriction Agreement, the issuance, sale and delivery
of the Preferred Shares, and the issuance and delivery of the Conversion
Shares, and all statements contained in any certificate or other instrument
delivered by the Company hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made by
the Company.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4 Parties in Interest. All representations, covenants
and agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 7400 E. Orchard Road, Suite
230, Englewood, Colorado 80111, Attention: President, with a copy to Mark L.
Gordon, Esq., Gordon & Glickson, P.C., 444 North Michigan Avenue, Suite 3600,
Chicago, IL 60611-3903; and
(b) if to any Purchaser, at the address of such Purchaser
set forth in Schedule L with a copy to Robin A. Painter, Esq., Testa, Hurwitz &
Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts 02109;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
-17-
<PAGE> 21
SECTION 6.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
SECTION 6.7 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 6.8 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.9 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent
of the Company and the holders of at least two-thirds of the outstanding shares
of Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be effected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used
in this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "person" shall mean an individual, corporation,
trust, partnership, joint venture, unincorporated organization, government
agency or any agency or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other 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 directly or indirectly owned by
the Company, or by one or more of its subsidiaries, or by the Company and one
or more of its subsidiaries.
-18-
<PAGE> 22
IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
-----------------------------------
George F. Adam, Jr.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------------
Keith Crandell
Managing Director
As a Purchaser and as President of the
Company pursuant to Paragraphs IV(b)
and IV(c)
--------------------------------------
George F. Adam, Jr.
-19-
<PAGE> 23
IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
-----------------------------------
George F. Adam, Jr.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------------
Keith Crandell
Managing Director
As a Purchaser and as President of the
Company pursuant to Paragraphs IV(b)
and IV(c)
--------------------------------------
George F. Adam, Jr.
-20-
<PAGE> 24
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Number of
Preferred Aggregate Purchase
Name and Address Shares to be Price for
of Purchaser Purchased Preferred Shares
- -------------------------------- ---------------------------- ------------------------
<S> <C> <C>
ARCH Venture Fund II, L.P. 2,292,257 $500,000 in cash
1101 East 58th Street
Walker 213
Chicago, IL 60637
George F. Adam, Jr. 6,876,771 $500,000 in cash; cancellation of
c/o Neon Software, Inc. $1,000,000 of indebtedness and
7400 E. Orchard Road, #230 4,584,514 shares of Common Stock
Englewood, CO 80111
9,169,028
</TABLE>
<PAGE> 25
SCHEDULE II
DISCLOSURE SCHEDULE
I. LITIGATION
A. The Company is currently in a dispute with MSI concerning an
invoice in the amount of approximately $35,000 owed.
B. There is a possibility that a claim may be made against the
Company by MasterChart, Incorporated, in connection with a
license permitting the Company to use certain computer
software in the development of its products and providing for
the issuance to MasterChart of Neon Common Stock, which
issuance Neon has not made and does not intend to make.
II. INTELLECTUAL PROPERTY
A. The Company has no registered patents, trademarks or
copyrights.
B. In 1993, the Company applied to the U.S. Patent and Trademark
Office for registration of the service mark "NEON Systems,
Inc." The registration was refused in October, 1993, and the
application was subsequently abandoned.
III. STOCK OPTIONS
A. The Company maintains a Management Stock Option Plan, the
terms of which have been previously provided to the purchasers
and which will be amended to conform with the terms of this
Agreement. The Plan provides the Company with a right of first
refusal and repurchase rights with respect to certain
transfers of stock by recipients of the Management Stock
Options as well. As of the date of this Agreement, the Company
has granted options to purchase 97,200 shares of Common Stock
pursuant to this Plan.
B. The Company has granted options to purchase a total 10,000
shares of common stock to certain consultants and suppliers.
IV. FINANCING
A. George F. Adam currently holds a note from the Company in the
amount of $1,000,000. Mr. Adam has loaned an additional
$307,000 to the Company. Pursuant to this Agreement, the
$1,000,000 note will be canceled as partial consideration for
his receipt of 6,876,771 shares of Series A Convertible
Preferred Stock. A new note
<PAGE> 26
will be issued evidencing the indebtedness of the Company to
Mr. Adam for the remaining $307,000 on the same terms and
conditions as the canceled note.
B. The Company maintains a $I 00,000 line of credit with Guaranty
Bank.
V. LIST OF MATERIAL AGREEMENTS
A. Master Software License and Distribution Agreements Strategic
Marketing Information, Inc., dated April 14, 1994 Beth and
Jerold Just, dated December 1, 1994
B. United Western Medical Center, Software Development Agreement
dated April 6, 1994
C. Multimedia Systems Integration, Inc., Licensed Software and
Software Maintenance Agreement
D. CONNECT: The Knowledge Network Corp., Master Agreement dated
December 14, 1994
E. Software License Agreements
Ingalls Health System, dated March 3, 1995
Huron Regional Medical Center, dated
March 28, 1995 (Proposed)
Provenant Health Partners, dated February 10, 1995
United Western Medical Centers, dated February 10,
1995
Bertelsmann Music Group, dated March 9, 1995
F. Merrill Lynch & Co., Consulting Agreement, Middleware
Agreement, Development Agreement, and Technical Agreement
dated March 29, 1995 (Proposed)
G. Northwest Texas Hospital, PRISM License Agreement and
Statement of Work dated March 30, 1995
H. CyData, Inc., Marketing Agreement dated February 23, 1995
Dr. Robert E.H. Khoo, M.D., Processing Agreement with CyData,
Inc. dated February 23, 1995
I. Dr. Robert E.H. Khoo, M.D., Lease Agreement dated December 15,
1994
J. Lutheran Medical Center, Engagement Letter dated December 23,
1994.
-2-
<PAGE> 27
SCHEDULE III
SECURITY HOLDERS
<TABLE>
<CAPTION>
Name Shares
---- ---------------------
<S> <C>
George F. Adam 10,000,000
Harold Piskiel 600,000
<CAPTION>
Employee Options
----------------
Name No. of Options Granted
---- ----------------------
<S> <C>
Sally K. Arner 3,000
Donald M. Boyarsky 1,200
Donald C. Brizendine 12,000
John A. Carter 5,400
Beverly S. Cline 3,000
Richard L. DeGuevara 3,600
Sal Gentile 30,000
Theresa Groves-Scavo 3,600
Susan N. Harding 9,000
Beth Just Haenke 7,800
Thomas D. Meyers 3,000
Christopher b. Preston 9,000
Gary H. Robinson 3,000
Ruth Shy Whalden 3,600
<CAPTION>
Non-Employee Options
--------------------
Name No. of Options Granted
---- ----------------------
<S> <C>
Marilyn Terry 10,000
</TABLE>
<PAGE> 1
================================================================================
EXHIBIT 10.7
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
NEON SOFTWARE, INC.
AND
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
DATED AS OF SEPTEMBER 20, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . 2
SECTION 2.1 Organization, Qualifications and Corporate Power . . . . . 2
SECTION 2.2 Authorization of Agreements, Etc . . . . . . . . . . . . . 2
SECTION 2.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.4 Authorized Capital Stock . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Financial Statements . . . . . . . . . . . . . . . . . . . 4
SECTION 2.6 Events Subsequent to the Date of the Balance Sheet . . . . 4
SECTION 2.7 Litigation; Compliance with Law . . . . . . . . . . . . . . 5
SECTION 2.8 Third Party Approvals . . . . . . . . . . . . . . . . . . . 5
SECTION 2.9 Proprietary Information of Third Parties . . . . . . . . . 6
SECTION 2.10 Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . 6
SECTION 2.11 Title to Properties . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.12 Leasehold Interests . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.15 Offering of the Preferred Shares . . . . . . . . . . . . . 7
SECTION 2.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.17 Transactions with Affiliates . . . . . . . . . . . . . . . 8
SECTION 2.18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.19 Non-Competition Agreement . . . . . . . . . . . . . . . . . 8
SECTION 2.20 Material Contracts and Obligations . . . . . . . . . . . . 8
SECTION 2.21 Compliance . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.22 Books and Records . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.23 U.S. Real Property Holding Corporation . . . . . . . . . . 9
SECTION 2.24 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.25 Qualified Small Business Stock . . . . . . . . . . . . . . 9
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . 9
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS . . . . . . . . . . . 10
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.1 Financial Statements, Reports, Etc. . . . . . . . . . . . . 12
SECTION 5.2 Right of Participation . . . . . . . . . . . . . . . . . . 14
SECTION 5.3 Reserve for Conversion Shares . . . . . . . . . . . . . . . 15
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.5 Properties, Business, Insurance . . . . . . . . . . . . . . 15
SECTION 5.6 Inspection, Consultation and Advice . . . . . . . . . . . . 16
SECTION 5.7 Restrictive Agreements Prohibited . . . . . . . . . . . . . 16
SECTION 5.8 Transactions with Affiliates . . . . . . . . . . . . . . . 16
SECTION 5.9 Expenses of Directors . . . . . . . . . . . . . . . . . . . 16
SECTION 5.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11 Board of Directors Meetings . . . . . . . . . . . . . . . . 16
SECTION 5.12 Reincorporation in Delaware . . . . . . . . . . . . . . . . 17
SECTION 5.13 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.14 Performance of Contracts . . . . . . . . . . . . . . . . . 17
SECTION 5.15 Vesting of Reserved Employee Shares . . . . . . . . . . . . 17
SECTION 5.16 Employee Nondisclosure and Developments Agreements . . . . 17
SECTION 5.17 Activities of Subsidiaries . . . . . . . . . . . . . . . . 17
SECTION 5.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . 18
SECTION 5.19 Keeping of Records and Books of Account . . . . . . . . . . 18
SECTION 5.20 Change in Nature of Business . . . . . . . . . . . . . . . 18
SECTION 5.21 U.S. Real Property Interest Statement . . . . . . . . . . . 18
SECTION 5.22 Rule 144A Information . . . . . . . . . . . . . . . . . . . 18
SECTION 5.23 Committees . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.24 Garnett Option . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.25 Further Assurances . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.26 Termination of Covenants . . . . . . . . . . . . . . . . . 19
SECTION 5.27 Qualified Small Business Stock . . . . . . . . . . . . . . 19
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.2 Survival of Agreements . . . . . . . . . . . . . . . . . . 20
SECTION 6.3 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.4 Parties in Interest . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.11 Titles and Subtitles . . . . . . . . . . . . . . . . . . . 21
SECTION 6.12 Waiver and Termination of Certain Provisions of Series A
Convertible Preferred Stock Purchase Agreement . . . 21
SECTION 6.13 Certain Defined Terms . . . . . . . . . . . . . . . . . . . 21
SECTION 6.14 Garnett's Shares . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 1 to the Registration Rights Agreement
EXHIBIT B Form of Amended and Restated Stock Restriction Agreement
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of Employee Nondisclosure and Developments Agreement
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Piskiel Noncompetition, Nondisclosure and Developments Agreement
-iii-
<PAGE> 5
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of
September 20, 1995 between Neon Software, Inc., an Illinois corporation (the
"Company"), and the several purchasers named in the attached Schedule I
(individually, a "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 6,183,339 shares (the "Preferred Shares") of the authorized but
unissued Series B Convertible Preferred Stock, no par value, of the Company
(the "Series B Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Aggregate Purchase
Price for Preferred Shares" on Schedule I.
SECTION 1.2 Closing. The closing shall take place at the offices of
Gordon & Glickson, P.C., 444 North Michigan Avenue, Suite 3600, Chicago, IL
60611-3903, at 11:00 a.m., Chicago time, on September 20, 1995, or at such
other location, date and time as may be agreed upon between the Purchasers and
the Company (such closing being called the "Closing" and such date and time
being called the "Closing Date"). At the Closing, the Company shall issue and
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Preferred
Shares being purchased by it at the Closing. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall transfer to the account of the Company by
wire transfer the amount set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I.
<PAGE> 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached hereto as Schedule II:
SECTION 2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Illinois
and is duly licensed or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such licensing or qualification, except where failure to so qualify
would not have a material adverse effect on the business, affairs or prospects
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement,
Amendment No. 1 to the Registration Rights Agreement with the Purchasers in the
form attached as Exhibit A (the "Registration Rights Amendment") and the
Amended and Restated Stock Restriction Agreement with the Purchasers and the
other parties thereto named in paragraph (g) of Article V of this Agreement, in
the form attached as Exhibit B (the "Restated Stock Restriction Agreement"), to
issue, sell and deliver the Preferred Shares and to issue and deliver the
shares of Common Stock, no par value, of the Company ("Common Stock") issuable
upon conversion of the Preferred Shares (the "Conversion Shares").
(b) The Company has no subsidiaries. The Company does
not (i) own of record or beneficially, directly or indirectly, (A) any shares
of capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement, the Registration Rights Amendment and the Restated Stock Restriction
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Preferred Shares and the
issuance and delivery of the Conversion Shares have been duly authorized by all
requisite corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Articles of Incorporation of
the Company, as amended (the "Charter") or the By-laws of the Company, as
amended, or any provision of any indenture, agreement or other instrument to
which the Company, any of its subsidiaries or any of their respective
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries. To the best of the Company's knowledge, no provision of the
Restated Stock
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<PAGE> 7
Restriction Agreement violates, conflicts with, results in a breach of or
constitutes (with due notice or lapse of time or both) a default by any other
party under any other indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable shares of Series B Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Amendment and the
Restated Stock Restriction Agreement. The Conversion Shares have been duly
reserved for issuance upon conversion of the Preferred Shares and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Amendment and the Restated Stock Restriction Agreement.
Neither the issuance, sale or delivery of the Preferred Shares nor the issuance
or delivery of the Conversion Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other similar
right in favor of any person, other than the preemptive rights of certain
holders of the outstanding shares of Series A Convertible Preferred Stock, no
par value, of the Company (the "Series A Preferred Stock") which preemptive
rights have been either exercised or waived by such holders with respect to
such issuance, sale and delivery.
SECTION 2.3 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Registration Rights Amendment and, the Restated Stock Restriction Agreement,
when executed and delivered in accordance with this Agreement, will constitute
the legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject in each case, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
SECTION 2.4 Authorized Capital Stock. The authorized capital stock
of the Company consists of (a) 15,352,367 shares of Preferred Stock, no par
value (the "Preferred Stock"), of which (i) 9,169,028 shares have been
designated Series A Convertible Preferred Stock ("Series A Preferred Stock"),
and (ii) 6,183,339 shares have been designated Series B Preferred, and (b)
26,000,000 shares of Common Stock. Immediately prior to the Closing, 6,015,486
shares of Common Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof;
9,169,028 shares of Series A Preferred Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and no shares of Series B Preferred Stock shall have
been issued. The stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in
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<PAGE> 8
accordance with all applicable laws. Except as set forth in the attached
Schedule III, (i) no person owns of record or is known to the Company to own
beneficially any share of Common Stock or Preferred Stock, (ii) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding and (iii) there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or
other such rights or to distribute to holders of any of its equity securities
any evidence of indebtedness or asset. Except as provided for in the Charter
or as set forth in the attached Schedule III, the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Except for the Series A Preferred Stock
Purchase Agreement dated as of May 9, 1995 by and among the Company and the
Purchasers named therein (the "Series A Purchase Agreement"), the Restated
Stock Restriction Agreement and the Voting Agreement by and among the Company,
ARCH Venture Fund II, L.P. and George F. Adam, Jr., dated as of May 9, 1995, to
the best of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.5 Financial Statements. The Company has furnished to the
Purchasers the unaudited consolidated balance sheet of the Company as of July
31, 1995 (the "Balance Sheet") and the related unaudited consolidated
statements of income, stockholders' equity and cash flows of the Company for
the seven months ended July 31, 1995. All such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes) and fairly present the consolidated
financial position of the Company as of July 31, 1995 and the consolidated
results of their operations and cash flows for the seven months ended July 31,
1995, respectively. Since the date of the Balance Sheet, (i) there has been no
change in the assets, liabilities or financial condition of the Company (on a
consolidated basis) from that reflected in the Balance Sheet except for changes
in the ordinary course of business which in the aggregate have not been
materially adverse and (ii) none of the business, prospects, financial
condition, operations, property or affairs of the Company (on a consolidated
basis) has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 2.6 Events Subsequent to the Date of the Balance Sheet.
Since the date of the Balance Sheet, the Company has not (i) issued any stock,
bond or other corporate security, (ii) borrowed an amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the
ordinary course of business, (iv) declared or made any payment or distribution
to stockholders or purchased or redeemed any share of its capital stock or
other security, (v) mortgaged, pledged, encumbered or subjected to lien any of
its assets, tangible or intangible, other than liens of current real property
taxes not yet due and payable, (vi) sold, assigned or
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<PAGE> 9
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.7 Litigation; Compliance with Law. Except as set forth in
Schedule II, there is no (i) action, suit, claim, proceeding or investigation
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, (ii) arbitration proceeding relating
to the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (including without limitation any
inquiry as to the qualification of the Company to hold or receive any license
or permit), and to the Company's actual knowledge there is no basis for any of
the foregoing. The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, property or affairs. The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. There is no action or suit by the
Company pending or threatened against others. To its knowledge, the Company
has complied with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, the Company
has all necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted, and the
Company has been operating its business pursuant to and in compliance with the
terms of all such permits, licenses and other authorizations. To the Company's
actual knowledge, there is no existing law, rule, regulation or order, and the
Company after due inquiry is not aware of any proposed law, rule, regulation or
order, whether Federal, state, county or local, which would prohibit or
restrict the Company from, or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it is now conducting
business.
SECTION 2.8 Third Party Approvals. No registration or filing with,
or consent or approval of or other action by any third party, is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Amendment, the Stock Restriction
Agreement and the Voting Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws
(all of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with
respect to the Registration Rights Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to state securities
laws.
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<PAGE> 10
SECTION 2.9 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may
be violating any of the terms or conditions of his employment, non-competition
or non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the
best of the Company's knowledge, no person employed by or affiliated with the
Company has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any such person is obligated.
SECTION 2.10 Patents, Trademarks, Etc. Set forth in Schedule II is
a list and brief description of all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or registered in the
name of the Company, or of which the Company is a licensor or licensee or in
which the Company has any right, and in each case a brief description of the
nature of such right. The Company owns or possesses adequate licenses or other
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets, customer lists
and know how (collectively, "Intellectual Property") necessary or desirable to
the conduct of its business as conducted and as proposed to be conducted, and
no claim is pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with
the asserted rights of any other person under any Intellectual Property, and to
the Company's knowledge there is no basis for any such claim (whether or not
pending or threatened). To the Company's knowledge, no claim is pending or
threatened to the effect that any such Intellectual Property owned or licensed
by the Company, or which the Company otherwise has the right to use, is invalid
or unenforceable by the Company, and there is no basis for any such claim
(whether or not pending or threatened). To the best of the Company's
knowledge, all technical information developed by and belonging to the Company
which has not been patented has been kept confidential.
SECTION 2.11 Title to Properties. The Company has good and
marketable title to the properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security
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<PAGE> 11
interests, liens, charges and other encumbrances, except for liens for current
taxes not yet due and payable and minor imperfections of title, if any, not
material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations
or proposed operations of the Company.
SECTION 2.12 Leasehold Interests. Each lease or agreement to which
the Company is a party under which it is a lessee of any property, real or
personal, is a valid subsisting agreement, without any material default of the
Company thereunder and, to the knowledge of the Company, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default under any such lease or agreement. The Company's possession
of such property has not been disturbed nor has any claim been asserted against
the Company adverse to its rights in such leasehold interests.
SECTION 2.13 Insurance. The Company has policies of casualty and
comprehensive general liability insurance in respect of (i) the plants,
equipment and inventory of the Company with extended coverage against such
casualties and contingencies, in such amounts and of such types as is customary
for companies similarly situated and are deemed by the Company to be sufficient
and (ii) its products and services against such casualties and contingencies,
in such amounts and of such types as is customary for companies similarly
situated and are deemed by the Company to be sufficient. Valid policies in
such amounts will be outstanding and duly in force at the Closing Date.
SECTION 2.14 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made in accordance with generally accepted practice by the Company
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. Except for taxes for the payment of which an
adequate reserve has been established on the Balance Sheet, there is no tax
lien, whether imposed by the Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company.
SECTION 2.15 Offering of the Preferred Shares. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer
or otherwise in connection with the offering or sale of the Preferred Shares or
any such similar security of the Company has offered the Preferred Shares or
any such similar security for sale to, or solicited any offer to buy the
Preferred Shares or any similar security of the Company from, or otherwise
approached or negotiated with respect thereto with, any person or persons, and
neither the Company nor any person acting on its behalf has taken or will take
any action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Preferred Shares under the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of the Commission
thereunder), that might subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
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SECTION 2.16 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.17 Transactions with Affiliates. Except as set forth in
the Schedule II, no officer of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with
the Company, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.18 Employees. George F. Adam, Jr. has executed a
Non-disclosure and Developments Agreement on May 9, 1995 and such agreement is
in full force and effect. Each other key employee of the Company has executed
an Employee Nondisclosure and Developments Agreement (the "Employee Agreement")
substantially in the form of Exhibit D attached hereto, and such agreements are
in full force and effect. To the Company's actual knowledge, the Company has
compiled in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to waves, hours, equal
opportunity, collective bargaining and the payment of Social Securities and
other taxes, and with the Employee Retirement Income Security Act of 1974, as
amended.
SECTION 2.19 Non-Competition Agreement. George F. Adam, Jr., has
entered into a Non-Competition Agreement with the Company substantially in the
form attached as Exhibit E (the "Non-Competition Agreement") and such agreement
is in full force and effect.
SECTION 2.20 Material Contracts and Obligations. Schedule II
includes a list of all material agreements of any nature to which the Company
is a party or by which it is bound, including without limitation (i) each
agreement which requires future expenditures by the Company in excess of
$10,000, (ii) all employment and consulting agreements, employee benefit,
bonus, pensions, profit sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements, and
(iii) any agreement to which the Company and any stockholder, officer,
consultant, independent contractor or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), is presently a
party, including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity.
All of such agreements and contracts are valid and binding obligations of the
Company, enforceable in accordance with their respective terms, and in full
force and effect, and the Company is not in material breach or default under
any such agreement or contract.
SECTION 2.21 Compliance. There is no term or provision of any
material mortgage, indenture, contract, agreement or instrument to which the
Company is a party or by which it is bound, or, to the best of the Company's
knowledge, of any provision of any state or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon the Company, which
materially adversely affects or, so far as the Company may now foresee, in the
future is reasonably likely to materially adversely affect, the business,
prospects, condition, affairs or operations of the Company or any of its
properties or assets.
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SECTION 2.22 Books and Records. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its board of directors and committees thereof.
The stock ledger of the Company is complete and accurate in all respects and
reflects all issuances, transfers, repurchases and cancellations of shares of
capital stock of the Company.
SECTION 2.23 U.S. Real Property Holding Corporation. The Company is
not now and has never been a "United States real property holding corporation",
as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended (the "Code") and Section 1.897-2(b) of the regulations promulgated
thereunder.
SECTION 2.24 Disclosures. Neither this Agreement, the Registration
Rights Amendment, the Restated Stock Restriction Agreement nor any Schedule or
Exhibit hereto or thereto, nor any report, certificate or instrument furnished
to any of the Purchasers or their special counsel in connection with the
transactions contemplated by this Agreement, the Registration Rights Amendment,
the Restated Stock Restriction Agreement or the Charter, contains or will
contain any material misstatement of fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact which has or would have a material
adverse effect on the financial condition, business or prospects of the Company
which has not been disclosed to the Purchasers or to their special counsel.
SECTION 2.25 Qualified Small Business Stock. The Preferred Shares
constitute "qualified small business stock" as defined in Section 1202(c) of
the Code (assuming that the exchange of 4,584,514 shares of Common Stock for
4,584,514 shares of the Series A Convertible Preferred Stock, no par value, of
the Company effected on May 9, 1995 effected by George F. Adam, Jr. does not
disqualify the Preferred Shares from such treatment).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks
and merits of its investment in the Company and it is able financially
to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management;
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<PAGE> 14
(d) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not
with a view to or for sale in connection with any distribution
thereof;
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or
Rule 505 or 506 promulgated under the Securities Act, (ii) the
Preferred Shares and, upon conversion thereof, the Conversion Shares
must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such
registration, (iii) the Preferred Shares and the Conversion Shares
will bear a legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule
144A promulgated under the Securities Act, it will take all necessary
steps in order to perfect the exemption from registration provided
thereby, including (i) obtaining on behalf of the Company information
to enable the Company to establish a reasonable belief that the
purchaser is a qualified institutional buyer and (ii) advising such
purchaser that Rule 144A is being relied upon with respect to such
resale.
(g) it is an "institutional investor" within the meaning
of Section 4C of the Illinois Securities Law of 1953, as amended.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the
Preferred Shares being purchased by it on the Closing Date is, at its
option, subject to the satisfaction, on or before the Closing Date, of
the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall
have received from Gordon & Glickson, P.C., counsel for the Company,
an opinion dated the Closing Date, in form and scope reasonably
satisfactory to the Purchasers and their counsel.
(b) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article II
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as of such date, and the President of the Company shall
have certified to such effect to the Purchasers in writing, provided,
that if this agreement is executed on the Closing Date, execution of
this Agreement by such persons shall suffice.
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(c) Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date, and the
President of the Company shall have certified to the Purchasers in
writing to such effect and to the further effect that all of the
conditions set forth in this Article IV have been satisfied, provided,
that if this agreement is executed on the Closing Date, execution of
this Agreement by such persons shall suffice.
(d) All Proceedings to be Satisfactory. All corporate
and other proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers
and their counsel, and the Purchasers and their counsel shall have
received all such counterpart originals or certified or other copies
of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their
counsel shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent
date by the Secretary of State of the State of Illinois, and
(B) a certificate of said Secretary dated as of a recent date
as to the due incorporation and good standing of the Company,
the payment of all franchise taxes by the Company and listing
all documents of the Company on file with said Secretary.
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that attached thereto is a true and complete
copy of the By-laws of the Company as in effect on the date of
such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the
Registration Rights Amendment and the Restated Stock
Restriction Agreement, the issuance, sale and delivery of the
Preferred Shares and the reservation, issuance and delivery of
the Conversion Shares, and that all such resolutions are in
full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this
Agreement, the Registration Rights Amendment and the Restated
Stock Restriction Agreement; (C) that the Charter has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(B) above; and
(D) to the incumbency and specimen signature of each officer
of the Company executing this Agreement, the Registration
Rights Amendment or the Restated Stock Restriction Agreement,
the stock certificates representing the Preferred Shares and
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchasers or their counsel reasonably
may request.
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(f) Registration Rights Amendment. The Company shall
have executed and delivered the Registration Rights Amendment.
(g) Restated Stock Restriction Agreement. The Restated
Stock Restriction Agreement shall have been executed and delivered by
the Company and George F. Adam.
(h) Piskiel Agreement. Harold Piskiel shall have
executed and delivered an Employee Noncompetition, Nondisclosure and
Developments Agreement in the form of Exhibit F hereto.
(i) Charter. The Charter shall read in its entirety as
set forth in Exhibit C. The Charter shall provide the number of
shares of authorized Common Stock of the Company may be increased or
decreased (but not below the number then outstanding) by the
affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote thereon,
voting together as a single class.
(j) By-Laws. The Company's By-laws shall have been
amended, if necessary, to provide that unless otherwise required by
the laws of the State of Illinois, (A) any director or (B) any holder
or holders of at least 25% of the outstanding shares of Preferred
Stock, shall have the right to call a meeting of the Board of
Directors or stockholders.
(k) Preemptive Rights. All stockholders of the Company
having any preemptive, first refusal or other rights with respect to
the issuance of the Preferred Shares or the Conversion Shares shall
have irrevocably waived the same in writing.
(l) Fees of Purchasers' Counsel. The Company shall have
paid in accordance with Section 6.1 the fees and disbursements of
Purchasers' counsel invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that for
so long as any Preferred Stock is outstanding:
SECTION 5.1 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser holding either (i) together with its affiliates,
500,000 Preferred Shares (as adjusted for stock splits, stock dividends and the
like) or (ii) all of the Preferred Shares purchased by it on the date hereof
(in either case a "Qualified Purchaser"):
(a) within fifteen (15) days after the end of each fiscal
year, but in no case later than one hundred twenty (120) days after
the end of each fiscal year of the Company, an audited
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consolidated balance sheet of the Company and its subsidiaries as of
the end of such fiscal year and the related audited consolidated
statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company;
(b) within fifteen (15) days after the end of each month,
but in no case later than ninety (90) days after the end of each month
in each fiscal year (other than the last month in each fiscal year) a
consolidated balance sheet of the Company and its subsidiaries and the
related consolidated statements of income, stockholders' equity and
cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial
Officer of the Company but with no requirement to provide the
customary footnotes, such consolidated balance sheet to be as of the
end of such month and such consolidated statements of income,
stockholders' equity and cash flows to be for such month and for the
period from the beginning of the fiscal year to the end of such month,
in each case with comparative statements for the prior fiscal year,
provided that the Company's obligations under this Section 5.1(b)
shall terminate upon the completion of a firm commitment underwritten
public offering of the Company's securities;
(c) at the time of delivery of each annual financial
statement pursuant to Section 5.1(a), a certificate executed by the
Chief Executive Officer of the Company stating that such officer has
caused this Agreement and the Preferred Stock to be reviewed and has
no knowledge of any default by the Company in the performance or
observance of any of the provisions of this Agreement or the Preferred
Stock or, if such officer has such knowledge, specifying such default
and the nature thereof;
(d) at the time of delivery of each monthly statement
pursuant to Section 5.1(b), a management narrative report explaining
all significant variances from forecasts and all significant current
developments in staffing, marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of
each fiscal year, consolidated capital and operating expense budgets,
cash flow projections and income and loss projections for the Company
and its subsidiaries in respect of such fiscal year, all itemized in
reasonable detail and prepared on a monthly basis, and, promptly after
preparation, any revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written
report submitted to the Company by its independent public accountants
in connection with an annual or interim audit of the books of the
Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of
all actions, suits, claims, proceedings, investigations and inquiries
of the type described in Section 2.7 that could materially adversely
affect the Company or any of its subsidiaries;
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<PAGE> 18
(h) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the
Company sends or makes available to its stockholders or directors or
files with the Commission; and
(i) promptly, from to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company and its subsidiaries as such
Purchaser reasonably may request.
(j) notwithstanding the foregoing, each Purchaser may
request certain financial statements in less time in order to prepare
partnership quarterly reports or annual audits. The Company will make
a good faith effort to comply with these requests.
SECTION 5.2 Right of Participation. The Company shall, prior to any
proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to each Purchaser by written notice
the right, for a period of thirty (30) days, to purchase for cash at an amount
equal to the price or other consideration for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice (treating each Purchaser, for the purpose of such computation,
as the holder of the number of shares of Common Stock which would be issuable
to such Purchaser upon conversion, exercise and exchange of all securities
(including but not limited to the Preferred Shares) held by such Purchaser on
the date such offer is made, that are convertible, exercisable or exchangeable
into or for (whether directly or indirectly) shares of Common Stock and
assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the participation
rights of the Purchasers pursuant to this Section 5.2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule III as being outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment public offering,
(F) pursuant to the exercise of options to purchase Common Stock granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company, or to suppliers or other parties as payment for
goods or services rendered to the Company, not to exceed in the aggregate
3,927,629 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common
Stock) less the number of shares (as so adjusted) issued pursuant to
subscriptions, warrants, options, convertible securities, or other rights
outstanding on the date of this Agreement and listed in Schedule III pursuant
to clause (C) above (the shares exempted by this clause (F) being hereinafter
referred to as the "Reserved Employee Shares"), and (G) upon the exercise of
any right which was not itself in violation of the terms of this Section 5.2.
The Company's written notice to the Purchasers shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. Each Purchaser may accept the Company's offer as to the full number of
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<PAGE> 19
securities offered to it or any lesser number, by written notice thereof given
by it to the Company prior to the expiration of the aforesaid thirty (30) day
period, in which event the Company shall promptly sell and such Purchaser shall
buy, upon the terms specified, the number of securities agreed to be purchased
by such Purchaser. The Company shall be free at any time prior to ninety (90)
days after the date of its notice of offer to the Purchasers, to offer and sell
to any third party or parties the remainder of such securities proposed to be
issued by the Company (including but not limited to the securities not agreed
by the Purchasers to be purchased by them), at a price and on payment terms no
less favorable to the Company than those specified in such notice of offer to
the Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying
with this Section 5.2.
SECTION 5.3 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Shares or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required
under applicable state securities laws in connection with the issuance of
shares of Common Stock upon conversion of the Preferred Shares.
SECTION 5.4 Corporate Existence. The Company shall maintain and,
except as otherwise permitted by Section 5.17 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.5 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of George F. Adam, Jr., (so long as he remains an employee
of the Company), in the amount of $1,000,000 with the proceeds thereof payable
to the Company. The Company shall not cause or permit any assignment or change
in beneficiary and shall not borrow against any such policy. If requested by
Purchasers holding at least a majority of the outstanding Preferred Shares, the
Company will add one designee of such Purchasers as a notice party for each
such policy and shall request that the issuer of each policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any chance is made
in the beneficiary thereof.
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<PAGE> 20
SECTION 5.6 Inspection, Consultation and Advice. The Company shall
permit and cause each of its subsidiaries to permit each Qualified Purchaser
and such persons as it may designate, at such Qualified Purchaser's expense, to
visit and inspect any of the properties of the Company and its subsidiaries,
examine their books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company and its subsidiaries with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Qualified Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the
management of the Company and its subsidiaries as to their affairs, finances
and accounts, all at reasonable times and upon reasonable notice.
SECTION 5.7 Restrictive Agreements Prohibited. Neither the Company
nor any of its subsidiaries shall become a party to any agreement which by its
terms restricts the Company's performance of this Agreement, the Registration
Rights Amendment, the Restated Stock Restriction Agreement or the Charter.
SECTION 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.9 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected as a director solely or in part by the holders of
Series A Preferred Stock or Series B Preferred Stock (each a "Preferred
Director"), for all of his reasonable out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of the Company or any
Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds
from the sale of the Preferred Shares solely for working capital, sales and
marketing development, software applications technology and administration of
the business as outlined in the Company's business plan.
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
permit each Qualified Purchaser to have one representative reasonably
acceptable to the Company attend each meeting of the Board of Directors of the
Company and each meeting of any Committee thereof and to participate in all
discussions during each such meeting. The Company shall send to each Qualified
Purchaser and such designee the notice of the time and place of such meeting in
the same manner and at the same time as it shall send such notice to its
directors or committee members, as the case may be. The Company shall also
provide to each Qualified Purchaser and such designee copies of all notices,
reports, minutes and consents at the time and in the manner as they are
provided to the Board of Directors or committee, except for information
reasonably designated
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as proprietary information by the Board of Directors. The Company may require
each such representative, prior to attendance at his or her first meeting of
the Company's Board of Directors, to execute a confidentiality agreement
reasonably acceptable to the Company. Notwithstanding the foregoing, the
Company may require that all affiliated Qualified Purchasers designate a single
representative to attend meetings of the Company's Board of Directors as long
as such Qualified Purchasers remain affiliated with each other.
SECTION 5.12 Reincorporation in Delaware. The Company shall take all
necessary actions as soon as practical but in no event later than January 1,
1996 to cause the Company to be reincorporated under the laws of the state of
Delaware.
SECTION 5.13 By-Laws. The Company shall at all times cause its
By-Laws to contain the provisions set forth in paragraph IV(i) of this
Agreement. The Company shall at all times maintain provisions in its By-laws
and/or Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employee Nondisclosure and Developments Agreements or the Non-Competition
Agreements without the unanimous written consent of the Preferred Directors.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company shall
not grant to any of its employees options to purchase Reserved Employee Shares
which will become exercisable at a rate in excess of 33-1/3% per annum from the
date of such grant without the unanimous written consent of the Preferred
Directors; provided, however, that options granted under the Company's
Management Stock Option Plan will vest one-sixth in year one, two-sixths in
year two and three-sixths in year three.
SECTION 5.16 Employee Nondisclosure and Developments Agreements. The
Company shall obtain, and shall cause its subsidiaries to obtain, an Employee
Nondisclosure and Developments Agreement in substantially the form of Exhibit E
from all future officers, key employees and other employees who will have
access to confidential information of the Company or any of its subsidiaries,
upon their employment by the Company or any of its subsidiaries.
SECTION 5.17 Activities of Subsidiaries. The Company shall not
permit any subsidiary to consolidate or merge into or with or sell or transfer
all or substantially all its assets, except that any subsidiary may (i)
consolidate or merge into or with or sell or transfer assets to any other
subsidiary, or (ii) merge into or sell or transfer assets to the Company. The
Company shall not sell or otherwise transfer any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit any
subsidiary to issue, sell or otherwise transfer any shares of its capital stock
or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set
aside any sums for the purchase of, or pay any dividend or make any
distribution on, any shares of its stock, except for dividends or other
distributions payable to the Company or another subsidiary.
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SECTION 5.18 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
SECTION 5.19 Keeping of Records and Books of Account. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.20 Change in Nature of Business. The Company shall remain
in the business of software development and consulting.
SECTION 5.21 U.S. Real Property Interest Statement. The Company
shall provide prompt written notice to each Purchaser following any
"determination date" (as defined in Treasury Regulation Section 1.897-2(c)(i))
on which the Company becomes a United States real property holding corporation.
In addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.22 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.22 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of any Purchaser or a
prospective buyer of Preferred Shares or Conversion Shares from any Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.24 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of
any Preferred Shares or Conversion Shares.
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SECTION 5.23 Committees. The Company shall, by amending its By-Laws
or otherwise, establish and maintain a Compensation Committee of the Board of
Directors, which shall consist of two (2) directors, one of whom shall be a
Preferred Director. No compensation or other remuneration at an annual rate in
excess of $120,000 shall be paid to, and no capital stock of the Company shall
be issued or granted to, any director, officer or employee of, or any
consultant or adviser to, the Company or any of its subsidiaries, without the
approval of the Compensation Committee. No employee stock option plan,
employee stock purchase plan, employee restricted stock plan or other employee
stock plan shall be established without the approval of the Compensation
Committee. The Company shall, in conjunction with the first Board of Directors
meeting following the Closing, establish and thereafter maintain an Audit
Committees which shall have as its functions the selection of independent
auditors and the oversight of the Company's internal accounting procedures.
SECTION 5.24 Garnett Option. The Company shall use its best efforts
to issue to Terence Garnett, in conjunction with the first meeting of the Board
of Directors of the Company following the Closing, an option to purchase up to
247,334 shares of Common Stock (as adjusted for stock splits, stock dividends
and the like) at a per share purchase of $.3032342. Such option shall vest in
three equal installments.
SECTION 5.25 Further Assurances. The Company shall use its best
efforts to take necessary action, in conjunction with the first meeting of the
Board of Directors of the Company following the Closing, to consider (a)
effecting a reverse stock split, (b) establishing other committees of the board
of Directors as is necessary or appropriate and (c) reviewing Piskiel's
employment agreements and arrangements in order to determine if any amendments
thereto would be necessary or appropriate.
SECTION 5.26 Termination of Covenants. The covenants set forth in
Sections 5.21 and 5.22 shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser no longer holds any shares of
capital stock of the Company. All of the other covenants set forth in this
Article V shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser is no longer a Qualified Purchaser. Each
Purchaser acknowledges that the covenants terminate with respect to such
Purchaser as set forth in the preceding sentence in the event that such
Purchaser's holdings of Preferred Shares are reduced via conversion of such
holdings into Common Stock, whether voluntarily or involuntarily.
SECTION 5.27 Qualified Small Business Stock. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and any related Treasury Regulations. In addition, within ten (10)
days after any Purchaser has delivered to the Company a written request
therefor, the Company shall deliver to such Purchaser a written statement
informing the Purchaser whether such Purchaser's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code (subject to the assumption set forth in Section 2.25). The Company's
obligation to furnish a written statement pursuant to this Section 5.27 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that assuming a
successful completion of such transactions, the Company shall pay the fees and
disbursements, not to exceed $20,000, of the Purchasers' special counsel,
Testa, Hurwitz & Thibeault, in connection with such transactions and any
subsequent amendment, waiver, consent or enforcement thereof.
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Amendment, the Restated Stock Restriction Agreement or any certificate or
instrument delivered to the Purchasers pursuant to or in connection with this
Agreement, the Registration Rights Amendment or the Restated Stock Restriction
Agreement, shall survive the execution and delivery of this Agreement, the
Registration Rights Amendment and the Restated Stock Restriction Agreement, the
issuance, sale and delivery of the Preferred Shares, and the issuance and
delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 7400 E. Orchard Road, Suite
230, Englewood, Colorado 80111, Attention: President, with a copy to
Mark L. Gordon, Esq., Gordon & Glickson, P.C., 444 North Michigan
Avenue, Suite 3600, Chicago, IL 60611-3903; and
(b) if to any Purchaser, at the address of such Purchaser
set forth in Schedule I, with a copy to Robin A. Painter, Esq., Testa,
Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston,
Massachusetts 02110;
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or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
SECTION 6.7 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 6.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.9 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent
of the Company and the holders of at least two-thirds of the outstanding shares
of Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Waiver and Termination of Certain Provisions of Series A
Convertible Preferred Stock Purchase Agreement. The Company and the holders of
a majority of the outstanding Common Stock issuable upon conversion of the
Series A Convertible Preferred stock hereby agree that (i) effective
immediately prior to the consummation of the Closing, the covenants of the
Company in Article V of the Series A Purchase Agreement shall be terminated in
their entirety, shall be of no further force or effect, and shall be replaced
in their entirety by Article V of this Agreement, and (ii) the provisions of
Section 5.2 of the Series A Purchase Agreement are hereby waived with respect
to the transactions contemplated herein. The parties hereto agree that solely
for purposes of Article V of this Agreement, (i) the term "Purchasers" shall be
deemed to mean the Purchasers and the holders of the Series A Convertible
Preferred Stock, (ii) the term "Preferred Shares" shall be deemed to mean the
Preferred Shares and shares of Series A Convertible Preferred Stock, and (iii)
the term "Conversion Shares" shall be deemed to mean the Conversion Shares and
shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock.
SECTION 6.13 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
-21-
<PAGE> 26
(a) "person" shall mean an individual, corporation,
trust, partnership, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or
other entity.
(b) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time stock of
any other 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 directly or indirectly owned by the Company, or by one or
more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
SECTION 6.14 Garnett's Shares. The parties hereby acknowledge that
the Company has permitted Terence Garnett to purchase 138,507 shares of the
total 468,285 shares purchased by him hereunder in consideration of his
services to the Company as a director.
-22-
<PAGE> 27
IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
------------------------------------
George F. Adam, Jr.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------
Managing Director
VENROCK ASSOCIATES
By:
------------------------------------
General Partner
-23-
<PAGE> 28
VENROCK ASSOCIATES II, L.P.
By:
------------------------------------
General Partner
---------------------------------------
Terence Garnett
For purposes of 6.12:
---------------------------------------
George F. Adam, Jr.
-24-
<PAGE> 29
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE PRICE
PREFERRED SHARES FOR PREFERRED
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED SHARES
- ----------------------------- ---------------- --------------
<S> <C> <C>
ARCH Venture Fund II, L.P.
1101 East 58th Street
Walker 213
Chicago, IL 60637 1,236,668 $ 375,000
Venrock Associates 3,080,714 $ 934,178
Venrock Associates II, L.P. 1,397,672 $ 423,822
Terence J. Garnett 468,285 $ 142,000
--------- -----------
Total 6,183,339 $ 1,875,000
========= ===========
</TABLE>
<PAGE> 30
SCHEDULE II
DISCLOSURE SCHEDULE
I. LITIGATION
A. The Company is currently in a dispute with MSI concerning an
invoice in the amount of approximately $35,000 owed.
B. There is a possibility that a claim may be made against the
Company by MasterChart, Incorporated, in connection with a
license permitting the Company to use certain computer
software in the development of its products and providing for
the issuance to MasterChart of Neon Common Stock, which
issuance Neon has not made and does not intend to make.
II. INTELLECTUAL PROPERTY
A. The Company has no registered patents, trademarks or
copyrights.
B. In 1993, the Company applied to the U.S. Patent and Trademark
Office for registration of the service mark "NEON Systems,
Inc." The registration was refused in October, 1993, and the
application was subsequently abandoned.
III. STOCK OPTIONS
A. The Company maintains a Management Stock Option Plan, the
terms of which have been previously provided to the purchasers
and which will be amended to conform with the terms of this
Agreement. The Plan provides the Company with a right of
first refusal and repurchase rights with respect to certain
transfers of stock by recipients of the Management Stock
Options as well. As of the date of this Agreement, the
Company has granted options to purchase 576,500 shares of
Common Stock pursuant to this Plan.
B. The Company has granted options to purchase a total 34,000
shares of common stock to certain consultants and suppliers.
IV. FINANCING
A. George F. Adam currently holds a revolving note from the
Company for an amount up to $500,000. As of August 31, 1995,
the principal amount outstanding under such note is
approximately $321,000 and accrued interest is $9,200.
B. The Company maintains a $150,000 line of credit with Guaranty
Bank.
V. LIST OF MATERIAL AGREEMENTS
A. Master Software License and Distribution Agreements
Strategic Marketing Information, Inc., dated April 14, 1994
Beth and Jerold Just, dated December 1, 1994
<PAGE> 31
B. United Western Medical Center, Software Development Agreement
dated April 6, 1994
C. Multimedia Systems Integration, Inc., Licensed Software and
Software Maintenance Agreement
D. CONNECT: The Knowledge Network Corp., Master Agreement dated
December 14, 1994
E. Software License Agreements
Bertelsmann Music Group, dated March 9, 1995
Froedtert Memorial Lutheran Hospital, dated July 28, 1995
Huron Regional Medical Center, dated June 29, 1995
Mercy Hospital, dated August 8, 1995
Northwest Texas Hospital, dated June 18, 1995
Provenant Health Partners, dated February 10, 1995
Rose Healthcare System, dated June 5, 1995
United Western Medical Centers, dated February 10, 1995
F. Merrill Lynch & Co., Consulting Agreement, Middleware
Agreement, Development Agreement, and Technical Agreement
dated March 29, 1995 (Proposed)
G. Northwest Texas Hospital, PRISM License Agreement and
Statement of Work dated March 30, 1995
H. CyData, Inc., Marketing Agreement dated February 23, 1995.
Dr. Robert E.H. Khoo, M.D., Processing Agreement with CyData,
Inc. dated February 23, 1995.
I. Dr. Robert E.H. Khoo, M.D., Lease Agreement dated December 15,
1994.
J. Lutheran Medical Center, Engagement Letter dated December 23,
1994.
K. Ingalls Health System, Development Contract for Universal
Medical Record Number System, dated June 17, 1995.
<PAGE> 32
SCHEDULE III
SECURITY HOLDERS
<TABLE>
<CAPTION>
NO. OF OPTIONS
NAME GRANTED
- ---- --------------
<S> <C>
A. COMMON STOCKHOLDERS
Adam, George F. 5,415,486
Piskiel, Harold 600,000
---------
Total 6,015,486
---------
B. SERIES A CONVERTIBLE PREFERRED STOCKHOLDERS
ARCH Venture Fund II, L.P. 2,292,257
Adam, Rick F. 6,876,771
---------
Total 9,169,028
---------
C. EMPLOYEE OPTIONS
Arner, Sally K. 6,000
Boyarsky, Donald M. 1,200
Brizendine, Donald C. 30,000
Carter, John A. 15,000
Coyle, John 30,000
Day-Budd, Jennifer 3,000
Fabrizio, Joseph 21,000
Fushimi, Colleen 600
Gentile, Salvatore 30,000
Groves-Scavo, Theresa 7,200
Haenke, Beth Just 37,800
Harding, Susan N. 15,000
Jamroz, Monica 2,000
Meyer, Thomas D. 9,000
Mui, Gerald 30,000
O'Keefe, Betty 27,000
Oliver, Jeffrey 21,000
Pelizzoli, Paolo 30,000
Piskiel, Harold 210,000
Preston, Christopher B. 30,000
Robinson, Gary H. 3,000
Sagara, Martin 3,600
Senn, David 6,000
Whalen, Ruth Shy 7,200
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
NO. OF OPTIONS
NAME GRANTED
- ---- --------------
<S> <C>
Whitley, Karen 900
---------
Total 576,500
---------
D. NON-EMPLOYEE OPTIONS
Gordon, Mark L. 9,000
Parks, Jim 15,000
Terry & Associates 10,000
---------
Total 34,000
---------
</TABLE>
<PAGE> 1
EXHIBIT 10.8
================================================================================
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
NEW ERA OF NETWORKS, INC.
AND
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
DATED AS OF JUNE 3, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares . . . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . 1
SECTION 2.1 Organization, Qualifications and Corporate Power . . . . . . . 2
SECTION 2.2 Authorization of Agreements, Etc . . . . . . . . . . . . . . . 2
SECTION 2.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.4 Authorized Capital Stock . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.6 Events Subsequent to the April 30, 1996 Balance Sheet . . . . . 4
SECTION 2.7 Litigation; Compliance with Law . . . . . . . . . . . . . . . . 5
SECTION 2.8 Third Party Approvals . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.9 Proprietary Information of Third Parties . . . . . . . . . . . 6
SECTION 2.11 Title to Properties . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.12 Leasehold Interests . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.15 Offering of the Preferred Shares . . . . . . . . . . . . . . . 8
SECTION 2.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.17 Transactions with Affiliates . . . . . . . . . . . . . . . . . 8
SECTION 2.18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.19 Non-Competition Agreement . . . . . . . . . . . . . . . . . . 8
SECTION 2.20 Material Contracts and Obligations . . . . . . . . . . . . . . 8
SECTION 2.21 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.22 Books and Records . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.23 U.S. Real Property Holding Corporation . . . . . . . . . . . . 9
SECTION 2.24 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.25 Qualified Small Business Stock . . . . . . . . . . . . . . . . 9
SECTION 2.26 Securities Laws . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . 10
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.1 Financial Statements, Reports, Etc. . . . . . . . . . . . 13
SECTION 5.2 Right of Participation . . . . . . . . . . . . . . . . . 14
SECTION 5.3 Reserve for Conversion Share . . . . . . . . . . . . . . 14
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . . . 15
SECTION 5.5 Properties, Business, Insurance . . . . . . . . . . . . . 15
SECTION 5.6 Inspection, Consultation and Advice . . . . . . . . . . . 15
SECTION 5.7 Restrictive Agreements Prohibited . . . . . . . . . . . . 15
SECTION 5.8 Transactions with Affiliates . . . . . . . . . . . . . . 15
SECTION 5.9 Expenses of Directors . . . . . . . . . . . . . . . . . . 16
SECTION 5.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11 Board of Directors Meetings . . . . . . . . . . . . . . 16
SECTION 5.13 Vesting of Reserved Employee Shares . . . . . . . . . . 16
SECTION 5.14 Employee Nondisclosure and Developments Agreements . . . 17
SECTION 5.15 Activities of Subsidiaries . . . . . . . . . . . . . . . 17
SECTION 5.16 Compliance with Laws . . . . . . . . . . . . . . . . . . 17
SECTION 5.17 Keeping of Records and Books of Account . . . . . . . . 17
SECTION 5.18 Change in Nature of Business . . . . . . . . . . . . . . 17
SECTION 5.19 U.S. Real Property Interest Statement . . . . . . . . . 17
SECTION 5.20 Rule 144A Information . . . . . . . . . . . . . . . . . 18
SECTION 5.21 Termination of Covenants . . . . . . . . . . . . . . . . 18
SECTION 5.22 Qualified Small Business Stock . . . . . . . . . . . . . 18
SECTION 5.23 Liens, Etc . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.2 Survival of Agreements . . . . . . . . . . . . . . . . . 19
SECTION 6.3 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.4 Parties in Interest . . . . . . . . . . . . . . . . . . . 19
SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.10 Severability . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.11 Titles and Subtitles . . . . . . . . . . . . . . . . . . 21
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.12 Waiver and Termination of Certain Provisions of
Series A Purchase Agreement and the Series B
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.13 Certain Defined Terms . . . . . . . . . . . . . . . . . 21
</TABLE>
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 2 to the Registration Rights
Agreement
EXHIBIT B Second Amended and Restated Stock Restriction Agreement
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D-1 Adam Nondisclosure and Developments Agreement
EXHIBIT D-2 Form of Employee Nondisclosure and Developments Agreement
EXHIBIT E Adam Non-Competition Agreement
EXHIBIT F Opinion Letter of Gordon & Glickson P.C.
-iii-
<PAGE> 5
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of June
3, 1996 between NEW ERA OF NETWORKS, INC., a Delaware corporation (the
"Company"), George F. Adam, Terence J. Garnett, and the several purchasers
named in the attached Schedule I (individually, a "Purchaser" and collectively,
the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 4,664,596 shares (the "Preferred Shares") of the authorized but
unissued Series C Convertible Preferred Stock, $.01 par value, of the Company
(the "Series C Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Aggregate Purchase
Price for Preferred Shares" on Schedule I.
SECTION 1.2 Closing. The closing shall take place at the offices of
Gordon & Glickson P.C., 444 North Michigan Avenue, Suite 3600, Chicago, IL
60611-3903, at 11:00 a.m., Chicago time, on June 3, 1996, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Preferred
Shares being purchased by it at the Closing. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall transfer to the account of the Company by
wire transfer the amount set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached hereto as Schedule II:
<PAGE> 6
SECTION 2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where failure to so qualify
would not have a material adverse effect on the business, affairs or prospects
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement,
Amendment No. 2 to the Registration Rights Agreement with the Purchasers in the
form attached as Exhibit A (the "Second Registration Rights Amendment") and the
Second Amended and Restated Stock Restriction Agreement with the Purchasers and
the other parties thereto named in paragraph (g) of Article V of this
Agreement, in the form attached as Exhibit B (the "Second Restated Stock
Restriction Agreement"), to issue, sell and deliver the Preferred Shares and to
issue and deliver the shares of Common Stock, $.001 par value, of the Company
("Common Stock") issuable upon conversion of the Preferred Shares (the
"Conversion Shares").
(b) Other than New Era Of Networks Limited, a U.K. company wholly
owned by the Company, the Company has no subsidiaries and the Company does not
(i) own of record or beneficially, directly or indirectly, (A) any shares of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement, the
Second Registration Rights Amendment and the Second Restated Stock Restriction
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Preferred Shares and the
issuance and delivery of the Conversion Shares have been duly authorized by all
requisite corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Certificate of Incorporation of
the Company, as amended (the "Charter") or the By-laws of the Company, as
amended, or any provision of any indenture, agreement or other instrument to
which the Company, any of its subsidiaries or any of their respective
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries. To the best of the Company's knowledge, no provision of the
Second Restated Stock Restriction Agreement violates, conflicts with, results
in a breach of or constitutes (with due notice or lapse of time or both) a
default by any other party under any other indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series C Preferred Stock
-2-
<PAGE> 7
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Second Registration Rights
Amendment and the Second Restated Stock Restriction Agreement. The Conversion
Shares have been duly reserved for issuance upon conversion of the Preferred
Shares and, when so issued, will be duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock with no personal liability attaching
to the ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in the Second Registration Rights Amendment and the Second
Restated Stock Restriction Agreement. Neither the issuance, sale or delivery
of the Preferred Shares nor the issuance or delivery of the Conversion Shares
is subject to any preemptive right of stockholders of the Company or to any
right of first refusal or other similar right in favor of any person, other
than the preemptive rights of certain holders of the outstanding shares of (i)
Series A Convertible Preferred Stock, $.0l par value, of the Company (the
"Series A Preferred Stock") or (ii) Series B Convertible Preferred Stock, $.01
par value, of the Company (the "Series B Preferred Stock"), which preemptive
rights have been either exercised or waived by such holders with respect to
such issuance, sale and delivery.
SECTION 2.3 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Second Registration Rights Amendment and the Second Restated Stock Restriction
Agreement, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms (subject in each case, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
SECTION 2.4 Authorized Capital Stock. The authorized capital stock of
the Company consists of (a) 20,016,963 shares of Preferred Stock, $.01 par
value (the "Preferred Stock"), of which (i) 9,169,028 shares have been
designated Series A Convertible Preferred Stock ("Series A Preferred Stock"),
(ii) 6,183,339 shares have been designated Series B Preferred Stock, (iii)
4,664,596 shares have been designated Series C Convertible Preferred Stock
("Series C Preferred Stock") and (b) 33,275,652 shares of Common Stock, $.001
par value (the "Common Shares"). Immediately prior to the Closing, 6,095,486
shares of Common Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
9,169,028 shares of Series A Preferred Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and 6,183,339 shares of Series B Preferred Stock will
be validly issued and outstanding. The stockholders of record and holders of
subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule III. The designations,
powers, preferences, rights, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company are
as set forth in the Charter, a copy of which is attached as Exhibit C, and all
such designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid,
-3-
<PAGE> 8
binding and enforceable and in accordance with all applicable laws. Except as
set forth in the attached Schedule III, (i) no person owns of record or is
known to the Company to own beneficially any share of Common Stock or Preferred
Stock, (ii) no subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire equity securities
of the Company is authorized or outstanding and (iii) there is no commitment by
the Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as provided
for in the Charter or as set forth in the attached Schedule III, the Company
has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. Except for the
Series A Preferred Stock Purchase Agreement dated as of May 9, 1995 by and
among the Company and the Purchasers named therein (the "Series A Purchase
Agreement"); the Series B Preferred Stock Purchase Agreement dated as of
September 20, 1995 (the "Series B Purchase Agreement"); the Second Amended and
Restated Stock Restriction Agreement; the Voting Agreement, dated May 9, 1995,
by and among George F. Adam and the holders of the Series A Preferred Stock
(the "Voting Agreement"); and the Company's 1995 Employee Stock Option Plan, to
the best of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.5 Financial Statements. The Company has furnished to the
Purchasers an audited balance sheet of the Company as of December 31, 1995 and
the unaudited balance sheet of the Company as of April 30, 1996 (the "Balance
Sheets") and the related audited statements of operations and cash flows for
the year ended December 31, 1995 and unaudited statements of operation and cash
flows of the Company for the 4 months ended April 30, 1996. All such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except that such unaudited financial
statements do not contain all of the required footnotes) and fairly present the
financial position of the Company as of December 31, 1995 and April 30, 1996
respectively, and the results of its operations and cash flows for the year
ended December 31, 1995 and the 4 months ended April 30, 1996 respectively.
Since April 30, 1996, (i) there has been no change in the assets, liabilities
or financial condition of the Company from that reflected in the April 30, 1996
Balance Sheet except for changes in the ordinary course of business which in
the aggregate have not been materially adverse and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Company
has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 2.6 Events Subsequent to the April 30, 1996 Balance Sheet.
Except as set forth on Schedule II attached hereto, since April 30, 1996, the
Company has not (i) issued any stock, bond or other corporate security (other
than employee stock options), (ii) borrowed an amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business,
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(iii) discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the April 30, 1996 Balance Sheet and current liabilities
incurred since April 30, 1996 in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged, pledged,
encumbered or subjected to lien any of its assets, tangible or intangible,
other than liens of current real property taxes not yet due and payable, (vi)
sold, assigned or transferred any of its tangible assets except in the ordinary
course of business, or canceled any debt or claim, (vii) sold, assigned,
transferred or granted any exclusive license with respect to any patent,
trademark, trade name, service mark, copyright, trade secret or other
intangible asset, (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business
and consistent with past practice, (x) made any material change in the manner
of business or operations of the Company, (xi) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby
or (xii) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 2.7 Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and to
the Company's actual knowledge there is no basis for any of the foregoing. The
Company has not received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The Company is not in
default with respect to any order, writ, injunction or decree known to or
served upon the Company of any court or of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the
Company pending or threatened against others. To its knowledge, the Company
has complied with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, the Company
has all necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted, and the
Company has been operating its business pursuant to and in compliance with the
terms of all such permits, licenses and other authorizations. To the Company's
actual knowledge, there is no existing law, rule, regulation or order, and the
Company after due inquiry is not aware of any proposed law, rule, regulation or
order, whether Federal, state, county or local, which would prohibit or
restrict the Company from, or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it is now conducting
business.
SECTION 2.8 Third Party Approvals. No registration or filing with, or
consent or approval of or other action by any third party, is or will be
necessary for the valid execution, delivery and
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performance by the Company of this Agreement, the Second Registration Rights
Amendment, the Second Restated Stock Restriction Agreement and the Voting
Agreement, the issuance, sale and delivery of the Preferred Shares or, upon
conversion thereof, the issuance and delivery of the Conversion Shares, other
than (i) filings pursuant to state securities laws (all of which filings have
been made by the Company, other than those which are required to be made after
the Closing and which will be duly made on a timely basis) in connection with
the sale of the Preferred Shares and (ii) with respect to the Registration
Rights Agreement as amended by Amendment No. 1 and Amendment No. 2 to the
Registration Rights Agreement, the registration of the shares covered thereby
with the Commission and filings pursuant to state securities laws.
SECTION 2.9 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may
be violating any of the terms or conditions of his employment, non-competition
or non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the
best of the Company's knowledge, no person employed by or affiliated with the
Company has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any such person is obligated.
SECTION 2.10 Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all domestic and foreign patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights, and all applications for such
which are in the process of being prepared, owned by or registered in the name
of the Company, or of which the Company is a licensor or licensee or in which
the Company has any right, and in each case a brief description of the nature
of such right. The Company owns or possesses adequate licenses or other rights
to use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulae, trade secrets, customer lists and know how
(collectively; "Intellectual Property") necessary or desirable to the conduct
of its business as conducted and as proposed to be conducted, and no claim is
pending or, to the best of the Company's knowledge, threatened to the effect
that the operations of the Company infringe upon or conflict with the asserted
rights of any other person under any Intellectual Property, and to the
Company's knowledge there is
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<PAGE> 11
no basis for any such claim (whether or not pending or threatened). To the
Company's knowledge, no claim is pending or threatened to the effect that any
such Intellectual Property owned or licensed by the Company, or which the
Company otherwise has the right to use, is invalid or unenforceable by the
Company, and there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential.
SECTION 2.11 Title to Properties. The Company has good and marketable
title to the properties and assets reflected on the Balance Sheet or acquired
by it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and, except as set forth in Schedule II, all such properties and assets
are free and clear of mortgages, pledges, security interests, liens, charges
and other encumbrances, except for liens for current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Company.
SECTION 2.12 Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or
personal, is a valid subsisting agreement, without any material default of the
Company thereunder and, to the knowledge of the Company, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default under any such lease or agreement. The Company's possession
of such property has not been disturbed nor has any claim been asserted against
the Company adverse to its rights in such leasehold interests.
SECTION 2.13 Insurance. The Company has policies of casualty and
comprehensive general liability insurance in respect of (i) the plants,
equipment and inventory of the Company with extended coverage against such
casualties and contingencies, in such amounts and of such types as is customary
for companies similarly situated and are deemed by the Company to be sufficient
and (ii) its products and services against such casualties and contingencies,
in such amounts and of such types as is customary for companies similarly
situated and are deemed by the Company to be sufficient. Valid policies in
such amounts will be outstanding and duly in force at the Closing Date.
SECTION 2.14 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made in accordance with generally accepted practice by the Company
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. Except for taxes for the payment of which an
adequate reserve has been established on the Balance Sheet, there is no tax
lien, whether imposed by the Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company.
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SECTION 2.15 Offering of the Preferred Shares. Neither the Company nor
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or
any such similar security of the Company has offered the Preferred Shares or
any such similar security for sale to, or solicited any offer to buy the
Preferred Shares or any similar security of the Company from, or otherwise
approached or negotiated with respect thereto with, any person or persons, and
neither the Company nor any person acting on its behalf has taken or will take
any action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Preferred Shares under the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of the Commission
thereunder), that might subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
SECTION 2.16 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.17 Transactions with Affiliates. Except as set forth in the
Schedule II, no officer of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with
the Company, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.18 Employees. George F. Adam, Jr. has executed a
Nondisclosure and Developments Agreement on May 9, 1995, attached hereto as
Exhibit D-1, and such agreement is in full force and effect. Each other key
employee of the Company has executed an Employee Nondisclosure and Developments
Agreement (the "Employee Agreement") substantially in the form of Exhibit D-2
attached hereto, and such agreements are in full force and effect. To the
Company's actual knowledge, the Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Securities and other taxes, and with the Employee
Retirement Income Security Act of 1974, as amended.
SECTION 2.19 Non-Competition Agreement. George F. Adam, Jr., has
entered into a Non-Competition Agreement with the Company substantially in the
form attached as Exhibit E (the "Non-Competition Agreement") and such agreement
is in full force and effect.
SECTION 2.20 Material Contracts and Obligations. Schedule II includes
a list of all material agreements of any nature to which the Company is a party
or by which it is bound, including without limitation (i) each agreement which
requires future expenditures by the Company in excess of $10,000, (ii) all
employment and consulting agreements, employee benefit, bonus, pensions, profit
sharing, stock option, stock purchase and similar plans and arrangements, and
distributor and sales representative agreements, and (iii) any agreement to
which the Company and any stockholder,
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officer, consultant, independent contractor or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), is presently a
party, including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity.
All of such agreements and contracts are valid and binding obligations of the
Company, enforceable in accordance with their respective terms, and in full
force and effect, and the Company is not in material breach or default under
any such agreement or contract.
SECTION 2.21 Compliance. There is no term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is
a party or by which it is bound, or, to the best of the Company's knowledge, of
any provision of any state or federal judgment, decree, order, statute, rule or
regulation applicable to or binding upon the Company, which materially
adversely affects or, so far as the Company may now foresee, in the future is
reasonably likely to materially adversely affect, the business, prospects,
condition, affairs or operations of the Company or any of its properties or
assets.
SECTION 2.22 Books and Records. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its board of directors and committees thereof.
The stock ledger of the Company is complete and accurate in all respects and
reflects all issuances, transfers, repurchases and cancellations of shares of
capital stock of the Company.
SECTION 2.23 U.S. Real Property Holding Corporation. The Company is
not now and has never been a "United States real property holding corporation",
as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended (the "Code") and Section 1.897-2(b) of the regulations promulgated
thereunder.
SECTION 2.24 Disclosures. Neither this Agreement, the Second
Registration Rights Amendment, the Second Restated Stock Restriction Agreement
nor any Schedule or Exhibit hereto or thereto, nor any report, certificate or
instrument furnished to any of the Purchasers or their special counsel in
connection with the transactions contemplated by this Agreement, the Second
Registration Rights Amendment, the Second Restated Stock Restriction Agreement
or the Charter, contains or will contain any material misstatement of fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein, in the light of the circumstances under which they
were made, not misleading. The Company knows of no information or fact which
has or would have a material adverse effect on the financial condition,
business or prospects of the Company which has not been disclosed to the
Purchasers or to their special counsel.
SECTION 2.25 Qualified Small Business Stock. The Preferred Shares
constitute "qualified small business stock" as defined in Section 1202(c) of
the Code (assuming that the exchange of 4,584,514 shares of Common Stock for
4,584,514 shares of the Series A Preferred Stock, no par value, of the Company
effected on May 9, 1995 effected by George F. Adam, Jr. does not disqualify the
Preferred Shares from such treatment).
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SECTION 2.26 Securities Laws. The issuance and sale of the Series C
Preferred Stock pursuant to this Agreement is exempt from registration under
Section 5 of the Securities Act of 1933, as amended.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it are being acquired for
its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof,
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares shall
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in order
to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
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ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Gordon & Glickson P.C., counsel for the Company, an opinion dated the
Closing Date, in form and scope as set forth in Exhibit F attached hereto.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President of the Company shall have certified to such effect to the Purchasers
in writing, provided, that if this agreement is executed on the Closing Date,
execution of this Agreement by such persons shall suffice.
(c) Performance. The Company shall have performed and complied with
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President of the Company shall have
certified to the Purchasers in writing to such effect and to the further effect
that all of the conditions set forth in this Article IV have been satisfied,
provided, that if this agreement is executed on the Closing Date, execution of
this Agreement by such persons shall suffice.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified
or other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the
Secretary of State of the State of Delaware, and (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation and good
standing of the Company, the payment of all franchise taxes by the Company and
listing all documents of the Company on file with said Secretary.
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached thereto
is a true and complete copy of the By-laws of the Company as in effect on the
date of such certification; (B) that attached thereto is a true and
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complete copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement, the Second Registration Rights Amendment and the Second
Restated Stock Restriction Agreement, the issuance, sale and delivery of the
Preferred Shares and the reservation, issuance and delivery of the Conversion
Shares, and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions contemplated by
this Agreement, the Second Registration Rights Amendment and the Second
Restated Stock Restriction Agreement; (C) that the Charter has not been amended
since the date of the last amendment referred to in the certificate delivered
pursuant to clause (i)(B) above; and (D) to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the Second
Registration Rights Amendment or the Second Restated Stock Restriction
Agreement, the stock certificates representing the Preferred Shares and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this clause (ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the Purchasers or
their counsel reasonably may request.
(f) Registration Rights Amendment. The Company shall have executed
and delivered the Second Registration Rights Amendment.
(g) Restated Stock Restriction Agreement. The Second Restated Stock
Restriction Agreement shall have been executed and delivered by the Company and
George F. Adam.
(h) Charter. The Charter shall read in its entirety as set forth in
Exhibit C. The Charter shall provide the number of shares of authorized Common
Stock of the Company may be increased or decreased (but not below the number
then outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon,
voting together as a single class.
(i) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Preferred Shares or the Conversion Shares shall have irrevocably waived the
same in writing.
(j) Fees of Purchasers' Counsel. The Company shall have paid in
accordance with Section 6.1 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
(k) Consents. All filings, consents or waiting periods required to
be obtained or imposed on the issuance and sale of the Series C Preferred Stock
have been obtained, expired, waived, or otherwise satisfied.
(l) Release of Lien on Intellectual Property. Contemporaneously with
the payment by the Purchasers of the Preferred Shares (i) the Company shall use
such amount of the proceeds of such purchase as shall be required by pay all
amounts then outstanding under the Company's line of credit
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with Silicon Valley Bank; and (ii) all such actions shall be taken, including
but not limited to the filing of all Uniform Commercial Code required documents
with the appropriate state and local authorities, to effect the release by the
Silicon Valley Bank of all mortgages, pledges, security interests, liens
charges or other encumbrances it has in the Company's Intellectual Property and
all other intellectual property, including but not limited to all software and
other technical information developed by and belonging to the Company.
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that for so
long as any Preferred Stock is outstanding:
SECTION 5.1 Financial Statements, Reports, Etc.. The Company shall
furnish to each Purchaser holding either (i) together with its affiliates
500,000 Preferred Shares (as adjusted for stock splits, stock dividends and the
like) or (ii) all of the Preferred Shares purchased by it on the date hereof
(in either case a "Qualified Purchaser"):
(a) within fifteen (15) days after the end of each fiscal year, but
in no case later than one hundred twenty (120) days after the end of each
fiscal year of the Company, an audited consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal year and the related
audited consolidated statements of income, stockholders' equity and cash flows
for the fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company;
(b) within fifteen (15) days after the end of each month, but in no
case later than ninety (90) days after the end of each month in each fiscal
year (other than the last month in each fiscal year) a consolidated balance
sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company but with no requirement
to provide the customary footnotes, such consolidated balance sheet to be as of
the end of such month and such consolidated statements of income, stockholders'
equity and cash flows to be for such month and for the period from the
beginning of the fiscal year to the end of such month, in each case with
comparative statements for the prior fiscal year, provided that the Company's
obligations under this Section 5.1(b) shall terminate upon the completion of a
firm commitment underwritten public offering of the Company's securities;
(c) at the time of delivery of each annual financial statement
pursuant to Section 5.1(a), a certificate executed by the Chief Executive
Officer of the Company stating that such officer has
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caused this Agreement and the Preferred Stock to be reviewed and has no
knowledge of any default by the Company in the performance or observance of any
of the provisions of this Agreement or the Preferred Stock or, if such officer
has such knowledge, specifying such default and the nature thereof;
(d) at the time of delivery of each monthly statement pursuant to
Section 5.1(b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a
monthly basis, and, promptly after preparation, any revisions to any of the
foregoing;
(f) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to
the Company by its independent public accountants in connection with an annual
or interim audit of the books of the Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Section 2.7 that could adversely affect the Company or any of its
subsidiaries;
(h) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or
makes available to its stockholders or directors or files with the Commission;
and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of
the Company and its subsidiaries as such Purchaser reasonably may request.
(j) notwithstanding the foregoing, each Purchaser may request certain
financial statements in less time in order to prepare partnership quarterly
reports or annual audits. The Company will make a good faith effort to comply
with these requests.
SECTION 5.2 Right of Participation. [Intentionally deleted.]
SECTION 5.3 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Shares or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such corporate action
as
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may be necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purposes. The Company
will obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
SECTION 5.4 Corporate Existence. The Company shall maintain and,
except as otherwise permitted by Section 5.15 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.5 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of George F. Adam, Jr., (so long as he remains an employee
of the Company), in the amount of $1,000,000 with the proceeds thereof payable
to the Company. The Company shall not cause or permit any assignment or change
in beneficiary and shall not borrow against any such policy. If requested by
Purchasers holding at least a majority of the outstanding Preferred Shares, the
Company will add one designee of such Purchasers as a notice party for each
such policy and shall request that the issuer of each policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any change is made
in the beneficiary thereof.
SECTION 5.6 Inspection, Consultation and Advice. The Company shall
permit and cause each of its subsidiaries to permit each Qualified Purchaser
and such persons as it may designate, at such Qualified Purchaser's expense, to
visit and inspect any of the properties of the Company and its subsidiaries,
examine their books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company and its subsidiaries with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Qualified Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the
management of the Company and its subsidiaries as to their affairs, finances
and accounts, all at reasonable times and upon reasonable notice.
SECTION 5.7 Restrictive Agreements Prohibited. Neither the Company nor
any of its subsidiaries shall become a party to any agreement which by its
terms restricts the Company's performance of this Agreement, the Second
Registration Rights Amendment, the Second Restated Stock Restriction Agreement
or the Charter.
SECTION 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or
-15-
<PAGE> 20
other entity in which any such person, or member of the family of any such
person, is a director, officer, trustee, partner or holder of more than 5% of
the outstanding capital stock thereof, except for transactions on customary
terms related to such person's employment.
SECTION 5.9 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected as a director solely or in part by the holders of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
(each a "Preferred Director"), for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors of the Company or
any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds from
the sale of the Preferred Shares first to pay off all amounts then outstanding
under the Company's line of credit with Silicon Valley Bank as set forth in
paragraph (1) of Article IV of this Agreement and the remainder solely for
working capital, sales and marketing development, software applications
technology and administration of the business as outlined in the Company's
business plan.
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
permit each Qualified Purchaser to have one representative reasonably
acceptable to the Company attend each meeting of the Board of Directors of the
Company and each meeting of any Committee thereof and to participate in all
discussions during each such meeting. The Company shall send to each Qualified
Purchaser and such designee the notice of the time and place of such meeting in
the same manner and at the same time as it shall send such notice to its
directors or committee members, as the case may be. The Company shall also
provide to each Qualified Purchaser and such designee copies of all notices,
reports, minutes and consents at the time and in the manner as they are
provided to the Board of Directors or committee, except for information
reasonably designated as proprietary information by the Board of Directors.
The Company may require each such representative, prior to attendance at his or
her first meeting of the Company's Board of Directors, to execute a
confidentiality agreement reasonably acceptable to the Company. Notwithstanding
the foregoing, the Company may require that all affiliated Qualified Purchasers
designate a single representative to attend meetings of the Company's Board of
Directors as long as such Qualified Purchasers remain affiliated with each
other.
SECTION 5.12 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employee Nondisclosure and Developments Agreements or the Non-Competition
Agreements without the written consent of two-thirds of the Preferred
Directors.
SECTION 5.13 Vesting of Reserved Employee Shares. The Company shall
not grant to any of its employees options to purchase Reserved Employee Shares
(as that term is defined in the Charter) which will become exercisable at a
rate in excess of 33-1/3% per annum from the date of such grant without the
unanimous written consent of the Preferred Directors; provided, however, that
options granted under the Company's Stock Option Plan will vest one-sixth in
year one, two-sixths in
-16-
<PAGE> 21
year two and three-sixths in year three and that the Company may grant fully
vested options to purchase up to an aggregate of 200,000 of the Reserved
Employee Shares under a program to reward its salespeople upon the completion
of certain customer contracts procured by them.
SECTION 5.14 Employee Nondisclosure and Developments Agreements. The
Company shall obtain, and shall cause its subsidiaries to obtain, an Employee
Nondisclosure and Developments Agreement in substantially the form of Exhibit E
from all future officers, key employees and other employees who will have
access to confidential information of the Company or any of its subsidiaries,
upon their employment by the Company or any of its subsidiaries.
SECTION 5.15 Activities of Subsidiaries. The Company shall not permit
any subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, or (ii)
merge into or sell or transfer assets to the Company. The Company shall not
sell or otherwise transfer any shares of capital stock of any subsidiary,
except to the Company or another subsidiary, or permit any subsidiary to issue,
sell or otherwise transfer any shares of its capital stock or the capital stock
of any subsidiary, except to the Company or another subsidiary. The Company
shall not permit any subsidiary to purchase or set aside any sums for the
purchase of, or pay any dividend or make any distribution on, any shares of its
stock, except for dividends or other distributions payable to the Company or
another subsidiary.
SECTION 5.16 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
SECTION 5.17 Keeping of Records and Books of Account. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.18 Change in Nature of Business. The Company shall remain in
the business of software development and consulting.
SECTION 5.19 U.S. Real Property Interest Statement. The Company shall
provide prompt written notice to each Purchaser following any "determination
date" (as defined in Treasury Regulation Section 1.897-2(c)(i)) on which the
Company becomes a United States real property holding corporation. In
addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.8972(h)(2) or any
-17-
<PAGE> 22
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.22 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.20 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of any Purchaser or a
prospective buyer of Preferred Shares or Conversion Shares from any Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.20 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of
any Preferred Shares or Conversion Shares.
SECTION 5.21 Termination of Covenants. The covenants set forth in
Sections 5.19 and 5.20 shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser no longer holds any shares of
capital stock of the Company. All of the other covenants set forth in this
Article V shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser is no longer a Qualified Purchaser. Each
Purchaser acknowledges that the covenants terminate with respect to such
Purchaser as set forth in the preceding sentence in the event that such
Purchaser's holdings of Preferred Shares are reduced via conversion of such
holdings into Common Stock, whether voluntarily or involuntarily.
SECTION 5.22 Qualified Small Business Stock. The Company shall submit
to its stockholders (including the Purchasers) and to the Internal Revenue
Service any reports that may be required under Section 1202(d)(1)(C) of the
Code and any related Treasury Regulations. In addition, within ten (10) days
after any Purchaser has delivered to the Company a written request therefor,
the Company shall deliver to such Purchaser a written statement informing the
Purchaser whether such Purchaser's interest in the Company constitutes
"qualified small business stock" as defined in Section 1202(c) of the Code
(subject to the assumption set forth in Section 2.25). The Company's obligation
to furnish a written statement pursuant to this Section 5.27 shall continue
notwithstanding the fact that a class of the Company's stock may be traded on
an established securities market.
SECTION 5.23 Liens, Etc. Except for (i) the liens on the Company's
property held by Silicon Valley Bank as indicated on Schedule II, after giving
effect to the requirements of paragraph (1) of Article IV, (ii) liens arising
by operation of law and in the ordinary course of
-18-
<PAGE> 23
business, and (iii) equipment leases or purchase money financing agreements
where any security agreement or financing statement applies only to the
specific property being leased or purchased, the Company shall not, and shall
not permit any of its subsidiaries to, create, incur, assume or suffer to
exist, any lien on or with respect to any of its properties of any character
whether now owned or hereafter acquired, or sign or file, or permit any of its
subsidiaries to sign or file, under the Uniform Commercial Code of any
jurisdiction of the United States or under the laws of any other jurisdiction,
a financial statement or other similar document that names the Company or such
subsidiary as debtor, or sign, or permit any subsidiary to sign, any security
agreement authorizing any secured party thereunder to file such financing
statement or other similar document, or assign, or permit any subsidiary to
assign, any accounts; provided that, except with respect to liens or other
encumbrances on, or security interests in, any of the Company's Intellectual
Property or other intellectual property including, but not limited to all
software and other technical information developed by and belonging to the
Company, the holders of a majority of the shares of Preferred Stock may consent
to any lien or action taken in respect thereof.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that assuming a
successful completion of such transactions, the Company shall pay the fees and
disbursements, not to exceed three thousand dollars ($3,000.00) to each of the
Purchasers' special counsel in connection with such transactions and any
subsequent amendment, waiver, consent or enforcement thereof
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Second Registration Rights
Amendment, the Second Restated Stock Restriction Agreement or any certificate
or instrument delivered to the Purchasers pursuant to or in connection with
this Agreement, the Second Registration Rights Amendment or the Second Restated
Stock Restriction Agreement, shall survive the execution and delivery of this
Agreement, Second Registration Rights Amendment and the Second Restated Stock
Restriction Agreement, the issuance, sale and delivery of the Preferred Shares,
and the issuance and delivery of the Conversion Shares, and all statements
contained in any certificate or other instrument delivered by the Company
hereunder or thereunder or in connection herewith or therewith shall be deemed
to constitute representations and warranties made by the Company.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the
-19-
<PAGE> 24
respective successors and assigns of the parties hereto whether so expressed or
not. Without limiting the generality of the foregoing, all representations,
covenants and agreements benefiting the Purchasers shall inure to the benefit
of any and all subsequent holders from time to time of Preferred Shares or
Conversion Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 7400 E. Orchard Road, Suite 230, Englewood,
Colorado 80111, Attention: Chief Executive Officer, with a copy to Mark L.
Gordon, Esq., Gordon & Glickson, P. C., 444 North Michigan Avenue, Suite 3600,
Chicago, IL 60611-3903;
(b) if to Merrill Lynch Group, Inc., at c/o Merrill, Lynch & Co.,
Inc., World Financial Center, North Tower, New York City, NY 10281, Attention:
William A. Bridy; and
(c) if to any Purchaser other than Merrill Lynch Group, Inc., at the
address of such Purchaser set forth in Schedule I, with, in the case of notices
to ARCH, Venrock or Garnett, a copy to Robin A. Painter, Esq., Testa, Hurwitz &
Thibeault, High Street Tower, 125 High Street, Boston, Massachusetts 02110;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
SECTION 6.7 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
SECTION 6.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.9 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding shares of
Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
-20-
<PAGE> 25
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Waiver and Termination of Certain Provisions of Series A
Purchase Agreement and the Series B Purchase Agreement. The Company, the
holders of a majority of the outstanding Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock and the holders of a majority of
the outstanding Common Stock issuable upon conversion of the Series B Preferred
Stock hereby agree that (i) effective immediately prior to the consummation of
the Closing, the covenants of the Company in Article V of the Series B Purchase
Agreement shall be terminated in their entirety, shall be of no further force
or effect, and shall be replaced in their entirety by Article V of this
Agreement, and (ii) the provisions of Section 5.2 of the Series B Purchase
Agreement are hereby waived with respect to the transactions contemplated
herein. The parties hereto agree that solely for purposes of Article V of this
Agreement. (i) the term "Purchasers" shall be deemed to mean the Purchasers,
the holders of the Series A Convertible Preferred Stock, the holders of the
Series B Preferred Stock, and the holders of the Series C Preferred Stock, (ii)
the term "Preferred Shares" shall be deemed to mean the Preferred Shares, the
shares of Series A Preferred Stock, the shares of Series B Preferred Stock, and
the shares of the Series C Preferred Stock, (iii) the term "Conversion Shares"
shall be deemed to mean the Conversion Shares and the shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock, the
Series B Preferred Stock, or the Series C Preferred Stock.
SECTION 6.13 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government
agency or any agency or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time stock of
any other 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 directly or indirectly owned by the Company, or by one or more of
its subsidiaries, or by the Company and one or more of its subsidiaries.
-21-
<PAGE> 26
IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
New Era Of Networks, Inc.
By:
---------------------------------
George F. Adam, Jr.
President
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P., a
Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation, its
General Partner
By:
---------------------------------
Managing Director
VENROCK ASSOCIATES
By:
---------------------------------
General Partner
[MORE SIGNATURES FOLLOW]
-22-
<PAGE> 27
VENROCK ASSOCIATES II, L.P.
By:
---------------------------------
General Partner
------------------------------------
Terence Garnett
MERRILL LYNCH GROUP, INC.,
a Delaware corporation
By:
--------------------------------
THE HAMILTON COMPANIES, L.L.C., a
Colorado limited liability company
By:
--------------------------------
For purposes of 6.12:
----------------------------------
George F. Adam, Jr.
SIGNATURE PAGE TO SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NEW ERA OF NETWORKS, INC.
-23-
<PAGE> 28
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE PRICE
PREFERRED SHARES FOR PREFERRED
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED SHARES
--------------------------------------- --------------------------- --------------------------
<S> <C> <C>
ARCH Venture Fund II, L.P.
135 S. LaSalle Street, Suite 3702
Chicago, IL 60637 745,342 $ 1,200,000
Venrock Associates, II, L.P.
30 Rockefeller Plaza, Rm 5508
New York, NY 10112 457,888 $ 737,199.68
Venrock Associates
755 Pace Mill Road Ste. A230
Palo Alto, CA 94304 747,081 $1,202,800.41
Terence J. Garnett
c/o Venrock Associates
755 Pace Mill Road Ste A230
Palo Alto, CA 94304 37,267 $ 59,999.87
Merrill Lynch Group, Inc.
World Financial Center
North Tower
New York, NY 10281 1,863,354 $ 3,000,000
The Hamilton Companies, L.L.C.
1560 Broadway, 22nd Fl
Denver, CO 80202 813,664 $ 1,310,000
--------- -------------
Total 4,664,596 $ 7,510,000
========= =============
</TABLE>
<PAGE> 29
SCHEDULE II
DISCLOSURE SCHEDULE
I. LITIGATION
A. None
II. INTELLECTUAL PROPERTY
A. The Company has patent applications in process for the NEONet
Rules Engine and NEONet Queuing.
B. The Company has applied to the U.S. Patent and Trademark
Office for trademarks for New Era of Networks, Inc., the NEON
logo, and NEONet.
III. STOCK OPTIONS AND WARRANTS
A. The Company maintains a Employee Stock Option Plan, the terms
of which have been previously provided to the purchasers and
which will be amended to conform with the terms of this
Agreement. The Plan provides the Company with a right of
first refusal and repurchase rights with respect to certain
transfers of stock by recipients of the Employee Stock Options
as well. As of the date of this Agreement, the Company has
granted options to purchase 3,032,300 shares of Common Stock
pursuant to this Plan.
B. The Company has granted options to purchase a total 398,334
shares of common stock to certain consultants and suppliers.
C. The Company issued 31,056 warrants to Silicon Valley Bank at
an exercise price of $1.61 per share.
IV. FINANCING
A. George F. Adam currently holds a revolving note from the
Company for an amount up to $500,000. As of May 31, 1996, the
principal amount outstanding under such note is approximately
$318,158, accrued interest is approximately $1,700.
B. The Company maintains a $1,000,000 line of credit with Silicon
Valley Bank.
C. The Company maintains a $150,000 line of credit with Guaranty
Bank.
V. MATERIAL AGREEMENTS (EXPECTED REVENUES OVER $100,000)
A. Froedtert Memorial Lutheran Hospital Agreement dated July 28,
1995.
<PAGE> 30
B. Merrill Lynch & Co., Master Agreement for Professional
Services dated February 7, 1996.
C. Thomson Financial Services Agreement dated February 13, 1996.
D. ADP Financial Information Services, Inc. Agreement dated April
4, 1996.
E. Fidelity Assets Services Group Agreement dated March 5, 1996.
F. Ingalls Health System, Development Contract for Universal
Medical Record Number System, dated June 17, 1995.
G. JP Morgan Agreement dated January 15, 1996.
VI. MATERIAL CONTRACTS AND OBLIGATIONS
A. At this time, the Company has three separate leases on 19,512
square feet for its administrative and development operations
in Denver. The aggregate monthly rent is $13,944 a month.
The leases run primarily to the year 2000.
B. The Company also holds a lease for a portion of the 29th floor
at One Liberty Plaza, New York, New York (4,300 square feet)
for its New York Operations. The month rent is $7,621 per
month. The lease runs to the year 1998.
C. The Company is a party to the agreements described in Section
2.4 of this Purchase Agreement and all agreements attached to
the Purchase Agreement as Exhibits.
D. The Company has entered into Employee Nondisclosure and
Developments Agreements with each of George F. Adam, Harold
Piskiel and all other employees of the Company. Additionally,
the Company has entered into a Non-Competition Agreement with
George F. Adam.
E. The Company is a party to Stock Option Agreements with all
parties listed on Schedule III hereof.
VII. LIENS
A. In connection with the $1,000,000 line of credit with Silicon
Valley Bank, the Bank holds a first security interest in
substantially all assets of the Company.
-2-
<PAGE> 31
SCHEDULE III
SECURITY HOLDERS
<TABLE>
<CAPTION>
No. Of Options
Name Granted
- ---- --------------
A. COMMON STOCKHOLDERS
-------------------
<S> <C>
Adam, George F. 5,495,486
Piskiel, Harold 600,000
----------
Total 6,095,486
---------
B. SERIES A CONVERTIBLE PREFERRED STOCKHOLDERS
-------------------------------------------
ARCH Venture Fund II, L.P. 2,292,257
Adam, Rick F. 6,876,771
---------
Total 9,169,028
---------
C. SERIES B CONVERTIBLE PREFERRED STOCKHOLDERS
-------------------------------------------
ARCH, Venture Fund II, L.P. 1,236,668
Garnett, Terrance 468,285
Venrock Associates 3,080,714
Venrock Associates II 1,397,672
---------
Total 6,183,339
---------
D. EMPLOYEE OPTIONS
----------------
Abramczyk, Jeffrey 48,000
Adam, Sheryl 27,000
Albuquerque, Ronald 7,500
Bachand, Michael 13,000
Bae, Kye 2,100
Berg, Erik 24,000
Bohm, Keith 1,200
Boyarsky, Donald M. 5,400
Bristol, Michael 4,200
Brizendine, Donald C. 30,000
Carroll, Sharon 12,000
Carter, John 15,000
Chaing, Leo 18,000
Cirino, John 30,000
Claussen, Courtney 27,300
Cobb, John 12,000
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
Coyle, Christina 21,000
Coyle, John 33,000
Craig, Sheri 24,000
Cranston, Brooke 2,400
Darby, David 30,000
Day-Budd, Jennifer 5,100
Degni, Janet 3,000
Duncan, Paula 2,100
Fabrizio, Joseph 42,000
Fitzpatrick, Brian 2,100
Foreman, Jay 27,000
Fushimi, Colleen 2,400
Ganora, Victor 3,600
Gentile, Salvatore 50,600
Giliotti, Angela 1,200
Goodlette, David 21,000
Groves-Scavo, Theresa 13,200
Habiger, Karen 3,000
Haugland, Gregg 72,300
Hayes, Troy 12,600
Jamroz, Monica 3,800
Jaroch, Michael 60,000
Just, Beth 8,400
Krieger, Mitch 111,000
Kroeker, Kevin 1,800
Lawrence, Diana 30,000
Lee, Ben 39,000
Long, Peter 24,000
Magee, John 90,000
Markey, Ronald 15,000
McDaniel, David 30,300
Mesa, Rebecca 4,800
Moore, Paul 1,500
Mui, Gerald 51,300
Napoli, John 36,000
O'Keefe, Betty 33,600
Olivas, Toni 1,200
Oliver, Jeffrey 21,000
Parks, James C. 210,000
Pascal, Connie 30,000
Pelizzoli, Paolo 51,000
Petronino, Mark 30,000
Piskiel, Harold 300,000
Plotkin, Leo 11,100
</TABLE>
-2-
<PAGE> 33
<TABLE>
<S> <C>
Preston, Christopher 57,600
Raffaghello, Dalan 2,400
Rasson, Don 10,200
Rego, Mark 15,300
Robinson, Gary 3,000
Rothe, Kirk 12,000
Russo, Frank 210,000
Sadim, Amir 15,000
Sagara, Martin 6,900
Schlachter, Larry 30,000
Schrichte, Reed 7,500
Scully, Kevin 213,600
Small, Michael 15,000
Smith, Barry 9,000
Speckman, Amber 12,000
Springer, Lou 36,000
Sterling, David 30,000
Travis, Carolyn 2,100
Truman, Terrance 24,000
Tzeng, Ted 2,100
Tzeng, Todd 66,600
Vandenburgh, Judy 2,100
Venis, James 3,600
Westenskow, Evan 210,000
Whalen, Ruth Shy 13,200
Wickenheiser, Kristal 12,000
Wilson, Cynthia 120,000
Wine, Stan 42,000
Wisdom, Don 2,400
Wu, Litao 3,600
---------
Total 3,032,300
---------
E. NON-EMPLOYEE OPTIONS
--------------------
Terry & Associates 10,000
Panther Beach Tech 7,000
Careers, Ltd. 12,000
Garnett, Terry 234,334
Gordon, Mark 60,000
Parks, Jim 15,000
Reep, Jim 60,000
---------
Total 398,334
---------
</TABLE>
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<PAGE> 34
F. WARRANTS
Silicon Valley Bank 31,056
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<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
May 9, 1995
To each of the Purchasers named in Schedule I to the
Series A Convertible Preferred Stock Purchase Agreement of
even date herewith
Dear Sirs:
This will confirm that in consideration of your agreement on the date
hereof to purchase an aggregate of 9,169,028 shares (the "Preferred Shares") of
Series A Convertible Preferred Stock, no par value ("Preferred Stock"), of Neon
Software, Inc., an Illinois corporation (the "Company"), pursuant to the Series
A Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement") between the Company and you and an additional agreement
between George F. Adam, Jr. and the Company, and as an inducement to you to
consummate the transactions contemplated by the Purchase Agreement, the Company
covenants and agrees with each of you as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
"Common Stock" shall mean the Common Stock, no par value, of
the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued
upon conversion of the Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described
in Section 7.
"Restricted Stock" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed
of in accordance with the registration statement covering them or (b) publicly
sold pursuant to Rule 144 under the Securities Act.
<PAGE> 2
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in
Section 7.
2. Restrictive Legend. Each certificate representing Preferred
Shares or Conversion Shares shall, except as otherwise provided in this Section
2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault
shall be satisfactory) the securities represented thereby may be publicly sold
without registration under the Securities Act and any applicable state
securities laws.
3. Notice of Proposed Transfer. Prior to any proposed transfer
of any Preferred Shares or Conversion Shares (other than under the
circumstances described in Sections 4 or 5), the holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if
requested by the Company, shall be accompanied by an opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault
shall be satisfactory) to the effect that the proposed transfer may be effected
without registration under the Securities Act and any applicable state
securities laws, whereupon the holder of such stock shall be entitled to
transfer such stock in accordance with the terms of its notice; provided,
however, that no such opinion of counsel shall be required for a transfer to
one or more partners of the transferor (in the case of a transferor that is a
partnership) or to an affiliated corporation (in the case of a transferor that
is a corporation). Each certificate for Preferred Shares or Conversion Shares
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration
under the Securities Act. The restrictions provided for in this Section 3
shall not apply to securities which are not required to bear the legend
prescribed by Section 2 in accordance with the provisions of that Section.
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<PAGE> 3
4. Incidental Registration. If the Company at any time (other
than pursuant to Section 5) proposes to register any of its securities under
the Securities Act for sale to the public, whether for its own account or for
the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it
will give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by
the Company within 30 days after the giving of any such notice by the Company,
to register any of its Restricted Stock, the Company will use its best efforts
to cause the Restricted Stock as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder of such Restricted Stock so
registered. In the event that any registration pursuant to this Section 4
shall be, in whole or in part, an underwritten public offering of Common Stock,
the number of shares of Restricted Stock to be included in such an underwriting
may be reduced (pro rata among the requesting holders based upon the number of
shares of Restricted Stock owned by such holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein, provided, however, that such number of shares of Restricted Stock
shall not be reduced if any shares are to be included in such underwriting for
the account of any person other than the Company or requesting holders of
Restricted Stock. Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section 4 without
thereby incurring any liability to the holders of Restricted Stock. For
purposes of this Section 4 and Sections 5, 12(a) and 12(d), the term
"Restricted Stock" shall be deemed to include the number of shares of
Restricted Stock which would be issuable to a holder of Preferred Shares upon
conversion of all Preferred Shares held by such holder at such time, provided,
however, that the only securities which the Company shall be required to
register pursuant hereto shall be shares of Common Stock, and provided,
further, however, that, in any underwritten public offering contemplated by
this Section 4 or Section 5, the holders of Preferred Shares shall be entitled
to sell such Preferred Shares to the underwriters for conversion and sale of
the shares of Common Stock issued upon conversion thereof.
5. Registration on Form S-3. (a) If at any time (i) a holder or
holders of Preferred Shares or Restricted Stock request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Restricted Stock held by such
requesting holder or holders, the reasonably anticipated aggregate price to the
public of which would exceed $1,000,000, and (ii) the Company is a registrant
entitled to use Form S-3 or any successor thereto to register such shares, then
the Company shall use its best efforts to register under the Securities Act on
Form S-3 or any successor thereto, for public sale in accordance with the
method of disposition specified in such notice, the number of shares of
Restricted Stock specified in such notice.
(b) Following receipt of any notice under this Section 5,
the Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method
-3-
<PAGE> 4
of disposition specified in such notice from requesting holders, the number of
shares of Restricted Stock specified in such notice (and in all notices
received by the Company from other holders within 30 days after the giving of
such notice by the Company). If such method of disposition shall be an
underwritten public offering, the holders of a majority of the shares of
Restricted Stock to be sold in such offering may designate the managing
underwriter of such offering, subject to the approval of the Company, which
approval shall not be unreasonably withheld or delayed. The Company shall be
obligated to register Restricted Stock pursuant to this Section 5 on four
occasions only, provided, however, that such obligation shall be deemed
satisfied only when a registration statement covering all shares of Restricted
Stock specified in notices received as aforesaid, for sale in accordance with
the method of disposition specified by the requesting holders, shall have
become effective.
6. Registration Procedures. If and whenever the Company is
required by the provisions of Sections 4 or 5 to use its best efforts to effect
the registration of any shares of Restricted Stock under the Securities Act,
the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of
the distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller of Restricted Stock and to
each underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock
covered by such registration statement with any securities exchange on which
the Common Stock of the Company is then listed;
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<PAGE> 5
(f) immediately notify each seller of Restricted Stock
and each underwriter under 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 of which the Company has knowledge as a
result of which the prospectus contained 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 light of the circumstances then existing;
(g) if the offering is underwritten and at the request of
any seller of Restricted Stock, use its best efforts to furnish on the date
that Restricted Stock is delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters
and to such seller, stating that such registration statement has become
effective under the Securities Act and that (A) to the best knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form
in all material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial statements
contained therein) and (C) to such other effects as reasonably may be requested
by counsel for the underwriters or by such seller or its counsel and (ii) a
letter dated such date from the independent public accountants retained by the
Company, addressed to the underwriters and to such seller, stating that they
are independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days prior to
the date of such letter) with respect to such registration as such underwriters
reasonably may request, and
(h) make available for inspection by each seller of
Restricted Stock, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
For purposes of Section 6(a) and 6(b), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed
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<PAGE> 6
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
In connection with each registration pursuant to Sections 4 or
5 covering an underwritten public offering, the Company and each seller agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Expenses. All expenses incurred by the Company in complying
with Sections 4 and 5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fees and disbursements of one counsel for the sellers of Restricted Stock, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses."
The Company will pay all Registration Expenses in connection
with each registration statement under Sections 4 or 5. All Selling Expenses
in connection with each registration statement under Sections 4 or 5 shall be
borne by the participating sellers in proportion to the number of shares sold
by each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree; provided, however,
that a participant seller who withdraws from any registration or fails to
complete its obligations in connection with the registration will bear its own
expenses.
8. Indemnification and Contribution. (a) In the event of a
registration of any of the Restricted Stock under the Securities Act pursuant
to Sections 4 or 5, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon 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, and will reimburse each such seller, each such underwriter and
each such controlling person for 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 Company will
not be liable in any such case if and to
-6-
<PAGE> 7
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the
Restricted Stock under the Securities Act pursuant to Sections 4 or 5, each
seller of such Restricted Stock thereunder, severally and not jointly, will
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint
or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Sections 4 or 5, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon 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, and will reimburse the Company and each such officer, director,
underwriter and controlling person for 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 such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with information pertaining to such seller, as such,
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of the shares sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds
received by such seller from the sale of Restricted Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 8 and shall only relieve it from any liability which it may have to
such indemnified party under this Section 8 if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice
-7-
<PAGE> 8
from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 8 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any holder of Restricted Stock exercising rights under this
Agreement, or any controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 8 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 8 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 8; then, and in each such case,
the Company and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Restricted
Stock offered by the registration statement bears to the public offering price
of all securities offered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the public offering price of all such Restricted Stock offered by it pursuant
to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
9. Changes in Common Stock or Preferred Stock. If, and as often
as, there is any change in the Common Stock or the Preferred Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock or the Preferred Stock as so changed.
10. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Stock to the
-8-
<PAGE> 9
public without registration, at all times after 90 days after any registration
statement covering a public offering of securities of the Company under the
Securities Act shall have become effective, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith
upon request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this
Agreement by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Charter or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any of
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
12. Miscellaneous.
(a) All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
(including without limitation transferees of any Preferred Shares or Restricted
Stock), whether so expressed or not, provided, however, that registration
rights conferred herein on the holders of Preferred Shares or Restricted Stock
shall only inure to the benefit of a transferee of Preferred Shares or
Restricted Stock if (i) there is transferred to such transferee at least 20% of
the total shares of Restricted Stock originally issued to the direct or
indirect transferor of such transferee or (ii) such transferee is a partner,
shareholder, family member or affiliate of a party hereto.
-9-
<PAGE> 10
(b) All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
if to the Company or any other party hereto, at the
address of such party set forth in the Purchase Agreement;
if to any subsequent holder of Preferred Shares or
Restricted Stock, to it at such address as may have been
furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Preferred
Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted
Stock (in the case of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least 80% of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) The obligations of the Company to register shares of
Restricted Stock under Sections 4 or 5 shall terminate on the tenth anniversary
of the date of this Agreement.
(g) If requested in writing by the underwriters for the
initial underwritten public offering of securities of the Company, each holder
of Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 120 days following the effective date of the
registration statement relating to such offering; provided, however, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering, all persons holding in excess of 1% of the
capital stock of the Company on a fully diluted basis and all executive
officers and directors of the Company shall also have agreed not to sell
publicly their Common Stock under the circumstances and pursuant to the terms
set forth in this Section 12(g).
(h) Notwithstanding the provisions of Section 6(a), the
Company's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
period not to exceed 90 days in any 24-month period if there exists at the
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<PAGE> 11
time material non-public information relating to the Company which, in the
reasonable opinion of the Company, should not be disclosed.
(i) The Company shall not grant to any third party any
registration rights more favorable than or inconsistent with any of those
contained herein, so long as any of the registration rights under this
Agreement remains in effect.
(j) If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provision
of this Agreement, and this Agreement shall be carried out as if any such
illegal, invalid or unenforceable provision were not contained herein.
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<PAGE> 12
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
NEON SOFTWARE, INC.
By:
------------------------------------
Title:
---------------------------------
AGREED TO AND ACCEPTED as of the date first above written.
Purchasers named in Schedule I to the Purchase Agreement:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
---------------------------------
Keith Crandell
Managing Director
----------------------------------------
George F. Adam, Jr.
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<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
September 20, 1995
To each of the Purchasers named in
Schedule I to the Series B Convertible
Preferred Stock Purchase Agreement
dated September 20, 1995 (the "Purchasers")
Ladies and Gentlemen:
On May 9,1995 Neon Software, Inc., an Illinois corporation (the
"Company"), and the purchasers listed on Schedule I to a Series A Convertible
Preferred Stock Purchase Agreement of even date therewith entered into a
Registration Rights Agreement (the "Agreement") of even date therewith. The
parties to the Agreement now wish to amend the Agreement to extend the rights
and benefits thereof to holders of Series B Convertible Preferred Stock, no par
value, of the Company (the "Series B Stock") issued pursuant to a Series B
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Series B Agreement") by and among the Company and the Purchasers and to make
certain other changes as hereinafter set forth. In consideration of and
pursuant to the foregoing, the Company covenants and agrees with each of you
that the Agreement is hereby amended as follows:
All of the shares of Series B Stock purchased pursuant to the Series B
Agreement shall be "Preferred Shares" for all purposes and to the same
extent as if they were originally included as "Preferred Shares" under
the Agreement, and all references in the Agreement to the "Preferred
Stock" and the "Purchase Agreement" shall include such Series B Stock
and the Series B Agreement, respectively.
This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE> 2
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
NEON SOFTWARE, INC.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 3
AGREED TO AND ACCEPTED as of the date first above written.
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------------
Managing Director
-----------------------------------------
George F. Adam, Jr.
VENROCK ASSOCIATES
By:
-------------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
-------------------------------------
General Partner
-----------------------------------------
Terence J. Garnett
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<PAGE> 1
EXHIBIT 10.11
AMENDMENT NO. 2 TO
REGISTRATION RIGHTS AGREEMENT
June 3, 1996
To each of the Purchasers named in
Schedule I to the Series C Convertible
Preferred Stock Purchase Agreement
dated June 3, 1996 (the "Purchasers")
Ladies and Gentlemen:
On September 20, 1995 Neon Software, Inc., an Illinois corporation,
now New Era of Networks, Inc., a Delaware corporation, (the "Company"), the
purchasers listed on Schedule I to the Series A Convertible Preferred Stock
Purchase Agreement dated May 9, 1995, and the purchasers listed on Schedule I
to the Series B Convertible Stock Purchase Agreement dated September 20, 1995,
amended the Registration Rights Agreement (the "Agreement") among the Company
and them, dated May 9, 1995. The parties to the Agreement and the amendment
now wish to further amend the Agreement to extend the rights and benefits
thereof to holders of Series C Convertible Preferred Stock, $.01 par value, of
the Company (the "Series C Preferred Stock") issued pursuant to a Series C
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Series C Purchase Agreement") by and among the Company and the Purchasers and
to make certain other changes as hereinafter set forth. In consideration of
and pursuant to the foregoing, the Company covenants and agrees with each of
you that the Agreement is hereby amended as follows:
All of the shares of Series C Preferred Stock purchased
pursuant to the Series C Purchase Agreement shall be
"Preferred Shares" for all purposes and to the same extent as
if they were originally included as "Preferred Shares" under
the Agreement, and all references in the Agreement to the
"Preferred Stock" and the "Purchase Agreement" shall include
such Series C Preferred Stock and the Series C Purchase
Agreement, respectively.
Further, Section 12(d) of the Agreement is hereby amended by inserting
at the end of the first sentence thereof, the following:
; provided, however, that no such amendment, modification, or
waiver shall adversely affect the rights of any of the holders
of Restricted Stock without the written consent of the holders
so affected.
This amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE> 2
Please indicate your acceptance of the foregoing, by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
NEW ERA OF NETWORKS, INC.
By:
-------------------------------------------
George F. Adam, Jr. Chief Executive Officer
-2-
<PAGE> 3
AGREED TO AND ACCEPTED as of the date first above written.
PURCHASERS NAMED IN SCHEDULE I TO THE PURCHASE AGREEMENT:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
---------------------------------
Managing Director
VENROCK ASSOCIATES
By:
-------------------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
-------------------------------------------
General Partner
-----------------------------------------------
Terence Garnett
MERRILL LYNCH GROUP, INC.,
a Delaware corporation
By:
-------------------------------------------
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<PAGE> 4
THE HAMILTON COMPANIES, L.L.C.,
a Colorado limited liability company
By:
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.12
Lease Agreement between Registrant and the State of California Public
Employee's Retirement System for the Property at 7400 East Orchard Rd
dated 10/12/94
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I - GRANT OF LEASE............................................................................................1
1.1 Grant...............................................................................................1
1.2 Quiet Enjoyment.....................................................................................1
1.3 Covenants of Landlord and Tenant....................................................................1
ARTICLE II - TERM AND POSSESSION......................................................................................1
2.1 Term................................................................................................1
2.2 Tenant Improvement Work.............................................................................2
2.3 Early Occupancy.....................................................................................2
2.4 Delayed Possession..................................................................................2
2.5 Acceptance of Premises..............................................................................3
ARTICLE III - RENT AND ADDITIONAL CHARGES.............................................................................3
3.1 Base Rent...........................................................................................3
3.2 Operating Costs.....................................................................................4
3.3 Payment of Operating Costs..........................................................................4
3.4 Payment of Rent and Additional Charges- General.....................................................5
3.5 Late Fees...........................................................................................5
3.6 Security Deposit....................................................................................6
ARTICLE IV - USE OF PREMISES..........................................................................................6
4.1 Designated Use......................................................................................6
4.2 Usage and Compliance With Law.......................................................................6
4.3 Abandonment.........................................................................................7
4.4 Nuisance............................................................................................7
4.5 Hazardous Materials.................................................................................7
ARTICLE V - SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD.................................................8
5.1 Services to Premises................................................................................8
5.2 Building Services...................................................................................8
5.3 Maintenance, Repair and Replacement.................................................................9
5.4 Additional Services.................................................................................9
5.5 Alterations by Landlord............................................................................10
5.6 Access by Landlord.................................................................................10
</TABLE>
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(CONTINUED)
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ARTICLE VI - MAINTENANCE, REPAIR, ALTERATIONS
AND IMPROVEMENTS BY TENANT...........................................................................................10
6.1 Condition of Premises..............................................................................10
6.2 Failure to Maintain Premises.......................................................................11
6.3 Alterations by Tenant..............................................................................11
6.4 Trade Fixtures and Personal Property...............................................................12
6.5 Mechanic's Liens...................................................................................12
6.6 Signs..............................................................................................12
ARTICLE VII - TAXES..................................................................................................13
7.1 Landlord's Taxes...................................................................................13
7.2 Tenant's Taxes.....................................................................................13
7.3 Right to Contest...................................................................................13
ARTICLE VIII - INSURANCE.............................................................................................14
8.1 Landlord's Property Insurance......................................................................14
8.2 Liability Insurance................................................................................14
8.3 Tenant's Insurance.................................................................................15
ARTICLE IX - INJURY TO PERSON OR PROPERTY............................................................................16
9.1 Indemnity and Exoneration..........................................................................16
9.2 Waiver of Subrogation..............................................................................16
ARTICLE X - ASSIGNMENT AND SUBLETTING................................................................................17
10.1 Assignment and Subleasing by Tenant................................................................17
10.2 First Offer to Landlord............................................................................17
10.3 Tenant's Obligations Continue......................................................................17
10.4 Rent or Other Premiums.............................................................................17
10.5 Subsequent Assignments.............................................................................18
ARTICLE XI - PARKING.................................................................................................18
11.1 License to Use Parking Area........................................................................18
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C>
ARTICLE XII - SURRENDER..............................................................................................18
12.1 Possession.........................................................................................18
12.2 Trade Fixtures, Personal Property and Improvements.................................................18
12.3 Merger.............................................................................................18
12.4 Payments After Termination.........................................................................19
ARTICLE XIII - HOLDING OVER..........................................................................................19
13.1 Month-to-Month Tenancy.............................................................................19
ARTICLE XIV - RULES AND REGULATIONS..................................................................................19
14.1 Purpose............................................................................................19
14.2 Observance.........................................................................................19
14.3 Modification.......................................................................................19
14.4 Non-Compliance.....................................................................................20
ARTICLE XV - EMINENT DOMAIN..........................................................................................20
15.1 Taking of Premises.................................................................................20
15.2 Partial Taking of Building.........................................................................20
15.3 Surrender..........................................................................................20
15.4 Partial Taking of Premises.........................................................................20
15.5 Awards.............................................................................................21
ARTICLE XVI - DAMAGE BY FIRE OR OTHER CASUALTY.......................................................................21
16.1 Limited Damage to Premises.........................................................................21
16.2 Major Damage to Premises...........................................................................21
16.3 Abatement..........................................................................................21
16.4 Major Damage to Building...........................................................................22
16.5 Failure to Rebuild.................................................................................22
16.6 Limitation on Landlord's Liability.................................................................22
ARTICLE XVII - TRANSFERS BY LANDLORD.................................................................................22
17.1 Sales, Conveyance and Assignment...................................................................22
17.2 Effect of Sale, Conveyance or Assignment...........................................................22
</TABLE>
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(CONTINUED)
<TABLE>
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17.3 Subordination......................................................................................22
17.4 Attornment.........................................................................................22
17.5 Nondisturbance.....................................................................................23
17.6 Effect to Attornment...............................................................................23
17.7 Execution of Instruments...........................................................................23
ARTICLE XVIII - NOTICES, ACKNOWLEDGMENT, AUTHORITIES FOR ACTION......................................................23
18.1 Notices............................................................................................23
18.2 Estoppel Certificates..............................................................................23
ARTICLE XIX - DEFAULT................................................................................................24
19.1 Interest and Costs.................................................................................24
19.2 Right of Landlord to Perform Covenant..............................................................24
19.3 Event of Default...................................................................................24
19.4 Landlord's Remedies Upon Default..................................................................25
19.5 Waiver of Exemption and Redemption.................................................................27
19.6 Remedies Cumulative................................................................................27
19.7 DELETED............................................................................................27
ARTICLE XX - DEFAULT BY LANDLORD; LIMITATION OF LIABILITY............................................................27
20.1 Landlord Default...................................................................................27
20.2 Satisfaction of Judgment...........................................................................27
ARTICLE XXI - MISCELLANEOUS..........................................................................................28
21.1 Relationship of Parties............................................................................28
21.2 Consent Not Unreasonably Withheld..................................................................28
21.3 Name of Building...................................................................................28
21.4 Applicable Law and Construction....................................................................28
21.5 Waiver of Conflicting Laws.........................................................................28
21.6 Entire Agreement...................................................................................28
21.7 Amendment or Modification..........................................................................28
21.8 Construed Covenants and Severability...............................................................28
21.9 No Implied Surrender or Waiver.....................................................................29
21.10 Light and Air......................................................................................29
21.11 Relocation Right...................................................................................29
</TABLE>
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(CONTINUED)
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<S> <C>
21.12 Authority..........................................................................................29
21.13 Successors Bound...................................................................................29
21.14 Tenant's Early Termination Right...................................................................30
21.15 Option to Renew....................................................................................30
21.16 Right of First Refusal.............................................................................30
21.17 Guaranty...........................................................................................30
</TABLE>
EXHIBIT "A" FLOOR PLAN OF PREMISES
EXHIBIT "B" LEGAL DESCRIPTION OF BUILDING
EXHIBIT "C" AGREEMENT FOR COMPLETION OF PREMISES
EXHIBIT "D" RULES AND REGULATIONS
EXHIBIT "E" GUARANTY
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<PAGE> 6
THE SOLARIUM BUILDING
OFFICE LEASE
THIS LEASE AGREEMENT is made and entered into as of the date set forth
below between STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, an
agency of the State of California, hereinafter referred to as Landlord, and
NEON HEALTHCARE AND SYSTEMS, INC., an Illinois corporation, hereinafter
referred to as Tenant.
Landlord and Tenant, in consideration of the covenants herein
contained, agree as follows:
ARTICLE I
GRANT OF LEASE
1.1 Grant. Landlord hereby demises and leases to Tenant, and Tenant
hereby leases and accepts from Landlord, to have and to hold during the Term,
those certain premises designated on the floor plan attached hereto as Exhibit
"A" (the "Premises") and numbered Suite 230, subject to the terms and
provisions of this Lease. The Premises consist of approximately 3,777 leasable
square feet of the Building located at 7400 East Orchard Road, Englewood,
Colorado 80111, including the north wing and south wing of the structure,
together with the atrium area and all parking areas, walkways, landscaped areas
and open spaces used in connection therewith (collectively, the "Building"), as
more particularly described in Exhibit "B". The leasable square footage of the
Premises set forth above represents the usable area granted for Tenant's
exclusive use plus, on a multiple tenancy floor, a proportionate amount of the
area on the floor which is of specific benefit to the tenants of that floor,
including restrooms, corridors, lobbies, telephone closets, electrical rooms,
janitorial closets and Common Areas on that floor, but excluding all central
core stairwells, elevator shafts, flues, stacks, pipe shafts and vertical
ducts, with their enclosing walls.
1.2 Quiet Enjoyment. Landlord agrees that Tenant. upon payment of Rent
and all other monetary sums due under this Lease and upon performing the
covenants and conditions of this Lease, may quietly have, hold and enjoy the
Premises during the Term hereof, subject, however, to the provisions for
condemnation hereinafter set forth.
1.3 Covenants of Landlord and Tenant. Landlord covenants to observe
and perform all of the terms and conditions to be observed and performed by
Landlord under this Lease. Tenant covenants to pay the Rent when due under this
Lease, and to observe and perform all of the terms and conditions to be
observed and performed by Tenant under this Lease.
ARTICLE II
TERM AND POSSESSION
2.1 Term. The Term of this Lease shall commence on the 1st day of
January, 1995 ("Commencement Date"), and end on the 31st day of December, 1999,
unless terminated earlier as provided in this Lease.
<PAGE> 7
2.2 Tenant Improvement Work. Prior to the Commencement Date, Landlord
shall cause the premises to be prepared for occupancy, as provided in the
Agreement for Completion of the Premises (the "Completion Agreement") attached
to this Lease as Exhibit "C". The cost of completion of the tenant improvement
work to the Premises shall be borne by the parties as provided in the
Completion Agreement. Except as expressly provided in the Completion Agreement,
any tenant improvements to the Premises for which Landlord shall be responsible
shall be subject to the following:
(a) Tenant may substitute different new material (except
exterior window coverings) or make changes to the final working drawings and
specifications only with Landlord's prior express approval, which may be
withheld in Landlord's sole discretion. Any substitutions or changes must be
shown on the working drawings and in the specifications and shall be of equal
or better quality than the items originally designated and must be deemed by
Landlord to be in conformance with the quality and design criteria established
within the Building. In the event Landlord shall approve of any requested
substitution or change, Tenant shall bear the cost of making any changes to the
working drawings and specifications as well as any additional costs occasioned
by the change or substitution, including costs of disruption and delay. Tenant
shall pay such additional costs to Landlord within ten (10) days of receipt of
Landlord's invoice for the same.
(b) It is agreed that notwithstanding the date provided in
this Lease for the commencement of the Term, Tenant's obligation to pay Rent
shall not commence until the tenant improvement work has been sufficiently
completed to enable issuance of a certificate of occupancy for the subject
space; provided, however, that if Landlord shall be delayed in sufficiently
completing said work as a result of Tenant's request for substitution of
materials, finishes, fixtures, equipment or installations or any other change
to the working drawings and specifications requested by Tenant and approved by
Landlord, or the failure of Tenant to provide timely approvals of working
drawings or other specifications necessary for completion of the work, then the
Commencement Date of the Term of this Lease and the payment of rent shall not
be extended.
2.3 Early Occupancy. If Tenant occupies or begins to conduct business
in all or any portion of the Premises before the Commencement Date, such
occupancy and conducting of its business by Tenant shall be subject to all
provisions of this Lease which reasonably and logically apply thereto, and
Tenant shall pay to Landlord upon demand, and not later than the Commencement
Date in the absence of such demand, a rental equal to that proportion of Rent
for one calendar year which the number of days of such early occupancy period
bears to 365.
2.4 Delayed Possession. If Landlord is delayed in delivering
possession of all or any portion of the Premises to Tenant on or before the
Commencement Date for reasons not attributable to Tenant's conduct or requests,
then Tenant shall take possession of the Premises on the date (not later than
six (6) months after the Commencement Date) when Landlord delivers possession
of all of the Premises, and the last day of the Term shall not be advanced but
the total length of the Term shall be reduced accordingly. This Lease shall not
be void or voidable nor shall Landlord be liable to Tenant for any loss or
damage resulting from any delay in delivering possession of the Premises to
Tenant, its servants, agents or independent contractors, no Rent shall be
payable by Tenant for the period prior to the date on which Landlord can so
deliver possession of all of the Premises.
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<PAGE> 8
2.5 Acceptance of Premises. Taking possession of all or any portion of
the Premises by Tenant shall constitute Tenant's acceptance of the Premises or
such portion thereof as being in satisfactory condition, subject only to latent
defects and deficiencies (if any) listed in writing in a notice delivered by
Tenant to Landlord not more than fifteen (15) days after the date of taking
possession or the Commencement Date, whichever later occurs.
ARTICLE III
RENT AND ADDITIONAL CHARGES
3.1 Base Rent. Tenant shall pay to Landlord for use of the Premises,
in lawful money of the United States, base Rent in accordance with the
following schedule:
January 1, 1995 through December 31, 1995:
------------------------------------------
Base Rent for Period Monthly Base Rent Sq. Foot Cost
-------------------- ----------------- --------------
$45,324.00 $3,777.00 $12.00
January 1, 1996 through December 31, 1996:
------------------------------------------
Base Rent for Period Monthly Base Rent Sq. Foot Cost
-------------------- ----------------- --------------
$47,212.50 $3,934.37 $12.50
January 1, 1997 through December 31, 1997:
------------------------------------------
Base Rent for Period Monthly Base Rent Sq. Foot Cost
-------------------- ----------------- --------------
$49,101.00 $4,091.75 $13.00
January 1, 1998 through December 31, 1998:
------------------------------------------
Base Rent for Period Monthly Base Rent Sq. Foot Cost
-------------------- ----------------- --------------
$50,989.50 $4,249.12 $13.50
January 1, 1999 through December 31, 1999:
------------------------------------------
Base Rent for Period Monthly Base Rent Sq. Foot Cost
-------------------- ----------------- --------------
$52,878.00 $4,406.50 $14.00
Base Rent shall be payable in advance and without notice in monthly
installments of the Monthly Base Rent as indicated above with the first such
installment due on the Commencement Date and each subsequent installment due on
the first day of each calendar month thereafter. If the Commencement
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<PAGE> 9
Date or the day immediately following the last day of the Term is other than
the first day of a calendar month, the Monthly base Rent set forth herein shall
be prorated for the portion of the Term included within the month in which such
day occurs.
3.2 Operating Costs. In addition to Base Rent, Tenant shall pay to
Landlord, at the times and in the manner hereinafter provided, its
proportionate share of Building Operating Costs which exceeds the "Expense
Stop," as hereinafter defined. Tenant's proportionate share shall be calculated
by dividing Tenant's leasable area by the total leasable area within the
Building, subject to adjustment as deemed necessary by Landlord to reflect
Tenant's proportionate share of the leasable area of the Building. The
resultant fraction shall be multiplied by the total Building Operating Costs.
Tenant's proportionate share is 2.288%. The total Operating Costs are defined
as follows:
(a) Inclusions: The Operating Costs for which the Tenant is
liable to the Landlord include all expenses incurred by Landlord with respect
to the maintenance and operation of the Building and land upon which the
Premises are a part, including, without limitation, maintenance and repair
costs of all systems and improvements, utilities, sewer, security, janitorial,
trash and snow removal, landscaping, pest control. management fees, wages and
fringe benefits payment to employees of Landlord whose duties are connected
with the operation and maintenance of the Building, janitorial fees, all
services, supplies, repairs. replacements or other expenses for maintaining, in
addition to the Building and land of which the leased Premises are a part, the
common and parking areas, and the Premises to the extent such items and
services are provided in general to office tenants of the Building. The term
Operating Costs also includes all real property taxes and installments of
special assessments, including special assessments due to deed restrictions
and/or owner's associations, which accrue against the Building of which the
leased Premises are a part during the term of this Lease and any nonprogressive
tax on or measured by gross rentals received from the rental of space in the
Building, all as may be elsewhere limited by virtue of Tenant's liability
therefor. If Landlord employs legal counsel in an effort to reduce or otherwise
obtain relief from taxes or assessments which, if successful would reduce the
total Operating Costs, the term Operating Costs shall include the fees of such
legal counsel. In addition, such insurance monies as are assessable to the
Tenant as elsewhere defined shall be includable within Operating Costs.
(b) Exclusions: The term Operating Costs shall not include
any capital improvement to the Building of which the leased Premises are a part
(unless such capital improvement is designed for and intended to reduce the
total amount of annual Operating Costs for which Tenant is responsible), nor
repair, restoration or other work occasioned by fire, wind storm or other
casualty, income and franchise taxes of Landlord, expenses incurred in leasing
to or procuring of tenants, advertising expenses, expenses for the renovating
of space to new tenant. Interest or principal payments on any mortgage or other
indebtedness of Landlord, compensation paid to an employee of Landlord above
the grade of building superintendent nor any depreciation allowance on the
Building.
3.3 Payment of Operating Costs.
(a) Prior to the Commencement Date and the beginning of each
calendar year thereafter, Landlord shall compute and deliver to Tenant a bona
fide estimate of Tenant's proportionate
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<PAGE> 10
share of Operating Costs for the appropriate calendar year and without further
notice tenant shall pay to Landlord monthly installments of Operating Costs
equal to one-twelfth (1/12) of such estimate simultaneously with Tenant's
payments of Base Rent. If at any time during the Term, Landlord has reason to
believe that the Operating Costs for the calendar year will exceed its prior
estimate, Landlord may by invoice direct Tenant to increase its monthly
installment by an amount which, when multiplied by the number of months
remaining in said calendar year, will equal Tenant's proportionate share of the
amount Landlord estimates the Operating Costs for the calendar year will exceed
its last estimate. Notwithstanding the foregoing, Tenant's obligation for
payment of Operating Costs during any calendar year shall be limited to the
amount by which the Tenant's proportionate share of Operating Costs exceed the
per square foot Operating Costs of the Building for the 1995 calendar year, and
the number of leasable square feet comprising the Premises ("Expense Stop");
provided, however, for the purpose of calculating Tenant's obligation for
Operating Costs for the first and last calendar years during the Term of this
Lease, the Expense Stop shall be prorated for the number of days of the Term
which occur within such calendar year. One-twelfth of the annual Expense Stop
shall be deducted from each monthly installment of Tenant's proportionate share
of Operating Costs.
(b) Within nine (9) months following the end of each calendar
year, Landlord shall deliver to Tenant a written statement (the "Statement")
setting out in reasonable detail the amount of Tenant's proportionate share of
Operating Costs for such calendar year in excess of the Expense Stop. If the
aggregate of monthly and quarterly installments of Operating Costs actually
paid by Tenant to Landlord during such calendar year is less than the amount of
Operating Costs payable for such calendar year as revealed in the Statement,
Tenant shall Pay such difference to Landlord, without interest, within ten (10)
days after the date of delivery of the Statement. If such aggregate
installments of Operating Costs paid by Tenant shall exceed the amount of
Operating Costs payable by Tenant as revealed in the Statement, such
overpayment by Tenant shall be refunded to Tenant's after Landlord's
calculation of the Operating Expenses for the prior year. Upon the expiration
or earlier termination of this Lease. any such overpayment due to Tenant shall
be paid to Tenant within a reasonable time after such expiration or
termination, minus any amounts due from Tenant to Landlord hereunder.
(c) Neither party may claim a readjustment in respect of
Operating Costs for any calendar year if based upon any error of computation or
allocation except by notice delivered to the other party within six (6) months
after the date of delivery of the Statement.
3.4 Payment of Rent and Additional Charges. All amounts payable by
Tenant to Landlord under this Lease, not limited to that payable under this
Article, shall be deemed to be Rent and shall be payable and recoverable as
Rent in the manner herein provided, and Landlord shall have all rights against
Tenant for default in any such payment as in the case of arrears of Rent. Rent
shall be paid to Landlord, without deduction or set-off, in legal tender of the
jurisdiction in which the Building is located, at the address of Landlord set
forth in this Lease, or to such other person or at such other address as
Landlord may from time to time designate in writing. Rent shall not be deemed
paid until actually received by Landlord. Tenant's obligation to pay Rent shall
survive the expiration or earlier termination of this Lease.
3.5 Late Fees.
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<PAGE> 11
(a) In addition to all other remedies provided Landlord, in
the event any amounts payable by Tenant to Landlord under this Lease,
including, without limitation, Base Rent and Additional Rent are not received
by Landlord on or before the fifth (5th) day of the month for which it is due
or such other due date as may be specifically provided herein, Landlord shall
be entitled to a ten percent (10%) service charge of such past due amount,
which shall be due and payable without notice; provided however that Tenant
shall be entitled to three (3) grace periods of five (5) days each during the
Term of this lease during which period Tenant shall not be charged a service
charge; provided further however if the grace period have been utilized or the
payment is made after the tenth (10th) day the service charge may be imposed.
3.6 Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord an amount equal to the first full
month's installment of Base Rent to be held by Landlord as security for the
faithful performance of every provision of this Lease to be performed by
Tenant. If Tenant defaults with respect to payment of Rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of Rent or any other sum in default, or for the payment
of any amount which Landlord may spend or become obligated to spend by reason
of Tenant's default or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default; provided, however,
that the security deposit shall not be used to repair ordinary wear and tear to
the Premises. If any portion of said deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its
original amount, and Tenant's failure to do so shall be deemed a material
breach of this Lease. Landlord shall not be required to keep this Security
Deposit separate from its general funds and Tenant shall not be entitled to
interest on said deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or Tenant's assignee) at the
expiration of the Term and after Tenant has vacated the premises; however, in
no event shall Landlord be under any obligation to return said deposit earlier
than sixty (60) days after the expiration of the Term, but Landlord shall
provide a written statement to Tenant specifying, in reasonable detail, the
reasons for Landlord's retaining any portion of the Security Deposit and shall
return any unretained portion thereof to tenant no later than sixty (60) days
after the expiration of the Term.
ARTICLE IV
USE OF PREMISES
4.1 Designated Use. The Premises shall be used and occupied only for
the purpose of general offices and for no other purpose.
4.2 Usage and Compliance With Law, The Premises shall be used and
occupied in a safe, careful and proper manner so as not to interfere with,
annoy or disturb any other tenant in its normal business operations or Landlord
in its management of the Building nor shall Tenant contravene any present or
future governmental or quasi-governmental laws, regulations or orders
applicable to Tenant or the Premises. If due to Tenant's use of the Premises,
improvements are necessary to comply with any of the foregoing or with the
requirements of insurance carriers, Tenant shall pay the entire cost thereof.
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4.3 Abandonment. Tenant shall not vacate or abandon the Premises at
any time during the Term without Landlord's written consent.
4.4 Nuisance. Tenant shall not cause or maintain any nuisance in or
about the Premises, and shall keep the Premises free of debris, rodents, vermin
and anything of a dangerous, noxious or offensive nature or which could create
a fire hazard (through undue load on electrical circuits or otherwise) or undue
vibration, heat, noise or weight upon or about the Premises. Landlord shall not
be liable to Tenant for the failure to enforce the terms of this Article upon
Tenant or other occupants of the Building.
4.5 Hazardous Materials.
(a) Tenant shall not cause or permit any Hazardous Material
(as defined in Subparagraph (c) below) to be brought, kept or used in or about
the Premises or the Building by Tenant, its agents, employees, contractors or
invitees. Tenant hereby indemnifies Landlord from and against any breach by
Tenant of the obligations stated in the preceding sentence, and agrees to
defend and hold Landlord harmless from and against any and all loss, damage,
cost and/or expense (including, without limitation, diminution in value of the
building, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Building, damages arising from any adverse
impact on marketing of space in the Building, and sums paid in settlement of
claims, attorneys' fees, consultant fees, and expert fees) which arise during
or after the term of this Lease as a result of breach. This indemnification of
Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Building which results from such a breach. Without
limiting the foregoing, if the presence of any Hazardous Material in the
Premises or the Building caused or permitted by Tenant results in any
contamination of the Premises or the Building, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Premises or the
Building, as appropriate, to the condition existing prior to the introduction
of such Hazardous Material; provided that Landlord's approval of such actions,
and the contractors to be used by Tenant in connection therewith, shall first
be obtained.
(b) It shall not be unreasonable for Landlord to withhold its
consent to any proposed transfer, assignment, or subletting of the Premises if
(i) the proposed transferee's anticipated use of the Premises involves the
generation, storage, use, treatment, or disposal of Hazardous Material; (ii)
the proposed transferee has been required by any prior landlord, lender, or
governmental authority to take remedial action in connection with Hazardous
Material contaminating a property if the contamination resulted from such
transferee's actions or use of the property in question; or (iii) the proposed
transferee is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal, or storage of a Hazardous
Material.
(c) As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material, or waste which is or becomes regulated
by any governmental authority or the United States Government. The term
"Hazardous Material" includes, without limitation, any material or substance
which is (i) defined as a "hazardous material", "extremely hazardous waste", or
"restricted hazardous waste" or similar term under the law of the jurisdiction
where the property is located or
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(ii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317), (iii) defined as
a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C.
Section 6903), or (iv) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), as all such
statutes may be amended from time to time, and including all successor statutes
thereto.
(d) As used herein, the terms "Laws" means any applicable
federal, state, or local laws, ordinances, or regulations relating to any
Hazardous Material affecting the Premises of the Building, including without
limitation, the laws, ordinances, and regulations referred to in Subparagraph
(c) above.
(e) Landlord and its employees, representatives and agents
shall have access to the Premises during reasonable hours and upon reasonable
notice to Tenant in order to conduct periodic environmental inspections and
tests of Hazardous Waste contamination hereof.
ARTICLE V
SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD
5.1 Services to Premises. Subject to Tenant's payment of its Base Rent
and such additional charges as are set forth in this Lease, including without
limitation, Tenant's percentage share of Operating Costs, Landlord shall
provide in the Premises:
(a) Heat, ventilation air cooling (subject to governmental
restrictions) as may be customary for comparable office buildings in the Denver
area, during normal business hours;
(b) Electrical power for normal lighting and customary small
business office equipment (but not including machines of high electrical
consumption which may cause overloading of the Building's electrical circuits
nor special meter installation and temperature control as may be directly
associated therewith);
(c) Replacement of Building standard fluorescent tubes, light
bulbs and ballasts as required from time to time as a result of normal usage.
5.2 Building Services. Landlord shall provide in the Building:
(a) Domestic running water in washrooms sufficient for the
normal and customary use thereof by occupants in the Building;
(b) Access to and egress from the Premises, subject to
reasonable rules and regulations and restrictions imposed by Landlord for the
orderly operation of the building and to safeguard the Building and its
occupants in emergencies; and
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(c) Heat, ventilation, cooling, lighting, electric power and
domestic running water in those areas of the Building as may from time to time
be designated by Landlord for use during normal business hours by Tenant in
common with all tenants in the Building but under the exclusive control of
Landlord.
5.3 Maintenance, Repair and Replacement. Landlord shall operate,
maintain, repair and replace the systems, facilities and equipment directly
necessary for the provision of Landlord services under this Article (except as
such may be installed by or be the property of Tenant), and shall be
responsible for and shall maintain and repair the foundations, structure,
supports and root of the Building and shall operate the Building to a standard
comparable to that of comparable office buildings in the Denver area, provided
that:
(a) If all or part of such systems, facilities and equipment
are destroyed, damaged or impaired, Landlord shall have a reasonable time
following notice in which to complete the necessary repair or replacement, and
during that time shall be required only to maintain such services as are
reasonably possible in the circumstances;
(b) Landlord may temporarily discontinue such services or any
of them at such times as may be necessary due to causes (except lack of funds)
beyond the reasonable control of Landlord or for the purposes of maintenance,
repair, replacement, testing or examination;
(c) Landlord shall use reasonable diligence in carrying out
its obligations under this Article but shall not be liable under any
circumstances for any consequential damage to any person or property for any
failure to do so;
(d) No reduction or discontinuance of such services under
this Article shall be construed as an eviction of Tenant or (except as
specifically provided in this Lease) release Tenant from any obligation of
Tenant under this Lease; and
(e) Nothing contained herein shall derogate from the
provisions of that Article entitled Damage by Fire or Other Casualty.
5.4 Additional Services.
(a) If from time to time requested in writing by Tenant and
to the extent that it is reasonably able to do so, Landlord may provide the
Premises services in addition to those set out in this Article, provided that
Tenant shall, within ten (10) days of receipt of any invoice for any such
additional service pay Landlord therefor at such reasonable rates as Landlord
may from time to time establish, plus twenty percent (20%) of such rates for
Landlord's overhead and supervision fee;
(b) Tenant shall not without Landlord's written consent
install in the Premises equipment (including telephone equipment) which
generates sufficient heat to affect the temperature otherwise maintained in the
Premises by the air conditioning system as normally operated. Landlord may
install supplementary air conditioning units, facilities or services in the
Premises, or modify its air
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conditioning system, as may in Landlord's reasonable opinion be required to
maintain proper temperature levels, and Tenant shall pay Landlord within ten
(10) days of receipt of any invoice for the cost thereof, including
installation, operation and maintenance expense;
(c) If Landlord shall from time to time reasonably determine
that the use of electricity or any other utility or service in the Premises is
disproportionate to the usage of other tenants, Landlord may separately charge
Tenant for the excess costs attributable to such disproportionate use. At
Landlord's request, Tenant shall install and maintain at Tenant's expense,
metering devices for checking the use of any such utility or services in the
Premises, subject to Landlord's approval of such metering devices and
supervision of Tenant's installation of such devices to prevent disruption of
or interference with the utilities and services of the Building supplied to
other tenants thereof.
5.5 Alterations by Landlord. Landlord may from time to time after
reasonable notice to Tenant (except in the case of emergencies):
(a) Make repairs, replacements, changes or additions to the
structure, systems, facilities and equipment in the Premises where necessary to
serve the Premises or other parts of the Building;
(b) Make changes in or additions to any part of the Building
not in or forming part of the Premises; and
(c) Change or alter the location of any areas of the Building
which may, from time to time, be designated by Landlord for use during normal
business hours by Tenant in common with all tenants in the Building but under
the exclusive control of Landlord.
5.6 Access by Landlord. Tenant shall permit Landlord and its
employees, managers, contractors, brokers, agents, and representatives to enter
the Premises outside normal business hours, and during normal business hours
where such entry will not unreasonably disturb or interfere with Tenant's use
of the Premises and operation of its business, to examine and inspect the same,
to provide services or make repairs, replacements, changes or alterations as
set out in this Lease, to show the Premises during final year of the Term of
this Lease to prospective purchasers and tenants and Landlord's lenders, and to
take such steps as Landlord may deem necessary for the safety, improvement and
preservation of the Premises or the Building. Landlord shall, whenever
possible, consult with or give reasonable notice to Tenant prior to such entry,
but no such entry shall constitute an eviction or entitle Tenant to any
abatement of Rent.
ARTICLE VI
MAINTENANCE, REPAIR, ALTERATIONS AND IMPROVEMENTS BY TENANT
6.1 Condition of Premises. Except to the extent that Landlord is
specifically responsible therefor under this Lease, Tenant shall maintain the
Premises and all improvements therein in good order and condition, at Tenant's
sole cost and expense, including:
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(a) Subject to reasonable and ordinary wear and tear,
repainting and redecorating the Premises and cleaning drapes and carpets at
reasonable intervals as needed; and
(b) Making repairs, replacements and alterations as needed,
including those necessary to comply with the requirements of any governmental
or quasi-governmental authority having jurisdiction.
6.2 Failure to Maintain Premises. If Tenant fails to perform any
obligation under Article 6.1 following ten (10) days' written notice from
Landlord, then Landlord may enter the Premises and perform such obligations
without liability to Tenant for any loss or damage to Tenant thereby incurred
(except damage due to willful misconduct or gross negligence), and Tenant shall
pay Landlord for the cost thereof, plus twenty percent (20%) of such cost for
overhead and supervision, within ten (10) days of receipt of Landlord's invoice
therefor.
6.3 Alterations by Tenant. Tenant may from time to time at its own
expense make changes, additions and improvements in the Premises to better
adapt the same to its business, provided that any such change, addition or
improvement shall:
(a) Comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction;
(b) Be made only with the prior written consent of Landlord;
(c) Equal or exceed the then current standard for the
Building:
(d) Be carried out only by persons selected by Tenant and
approved in writing by Landlord, who shall, if required by Landlord, deliver to
Landlord before commencement of the work performance and payment bonds as well
as proof of worker's compensation and public liability and property damage
insurance coverage, with Landlord named as an additional insured, in amounts,
with companies, and in form reasonably satisfactory to Landlord, which shall
remain in effect during the entire period in which the work will be carried
out;
(e) Be subject to Landlord's supervision and Tenant's
payment to Landlord of a reasonable supervision and overhead fee therefor; and
(f) Become the property of Landlord and be surrendered to
Landlord upon termination of the Lease. Landlord may, at its option, require
Tenant to remove any physical additions and/or repair any alterations in order
to restore the Premises to the condition existing at the time Tenant took
possession, all costs for which shall be borne by Tenant regardless whether
such removal and/or repair is undertaken by Tenant or Landlord, before or after
the termination of this Lease.
Any increase in property taxes or fire or casualty insurance
premiums for the Building attributable to such change, addition or improvement
shall be borne by Tenant.
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6.4 Trade Fixtures and Personal Property.
(a) Tenant may install in the Premises its usual trade fixtures
and personal property in a proper manner, provided that no such installation
shall interfere with or damage the mechanical or electrical systems or the
structure of the Building.
(b) DELETED.
(c) If Tenant is not then in default hereunder, trade
fixtures and personal property installed in the Premises by Tenant may be
removed from the Premises;
(i) From time to time in the ordinary course of
Tenant's business or in the course of
reconstruction, renovation, or alteration of the
Premises by Tenant; and
(ii) During a reasonable period prior to the
expiration of the Term, provided that Tenant
promptly repairs at its own expense any damage to
the Premises resulting from such installation and
removal.
6.5 Mechanic's Liens. Tenant shall pay before delinquency all costs
for work done or caused to be done in the Premises which could result in any
lien or encumbrance on Landlord's interest in the Building or any part thereof,
or the land on which it is situated, shall keep the title to the same free and
clear of any lien or encumbrance in respect of such work and shall indemnity
and hold harmless Landlord against any claim, loss, cost, demand and legal or
other expense, whether in respect of any lien or otherwise, arising out of the
supply of material, services or labor for such work. Tenant shall immediately
notify Landlord of any such lien, claim of lien or other action of which it has
or reasonably should have knowledge and which affects the title to the Building
or any part thereof, and shall cause the same to be removed within five (5)
days (or such additional time as Landlord may consent to in writing), failing
which Landlord may take such action as Landlord deems necessary to remove the
same and the entire cost thereof shall be immediately due and payable by Tenant
to Landlord. Tenant shall post such notices of non-liability of Landlord, in
form and substance satisfactory to Landlord, as are necessary to prevent any
such lien from attaching to Landlord's interest in the Premises or the
Building.
6.6 Signs. Any sign, lettering or design of Tenant which is visible
from the exterior of the Premises shall be at Tenant's expense and subject to
approval by Landlord, and shall conform to any uniform pattern of
identification signs for tenants in the Building as may, from time to time, be
prescribed by Landlord. Tenant shall not inscribe or affix any sign, lettering
or design in the Premises or building which is visible from the exterior of the
Building.
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ARTICLE VII
TAXES
7.1 Landlord's Taxes. Landlord shall pay before delinquency (subject
to payment by Tenant of its Base Rent and such additional charges as are set
forth in this Lease, including, without limitation, Operating Costs) every real
estate tax and assessment, excepting Tenant's Taxes under Article 7.2. which is
imposed, levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction, and which is payable in respect of the Term upon
or on account of the Building or the land on which it is situated. In the
manner set forth in this Lease for the payment of Operating Costs or, at
Landlord's election in such other fashion and manner as may by Landlord be
prescribed, Tenant shall reimburse to Landlord its proportionate share of that
portion of such taxes which are paid with respect to the calendar year.
7.2 Tenant's Taxes. Tenant shall pay before the delinquency every tax,
assessment, license fee, excise and other charge, however prescribed, which is
imposed, levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction and which is payable in respect to the Term upon
or on account of:
(a)Operations at, occupancy of, or conduct of business in or from
the Premises by or with the permission of Tenant;
(b)Fixtures or personal property in the Premises which do not
belong to the Landlord; or
(c)The Rent paid or payable by Tenant of Landlord for the Premises
or for the use and occupancy of all or any part thereof:
If Tenant fails to pay any such tax for which it is liable, and if
the non-payment thereof may result in the imposition of any lien against
the Building or any other property of Landlord (or the possibility of sale or
forfeiture thereof), then Landlord may, following ten (10) days' written notice
to tenant, pay such amount, which amount shall immediately be due and payable
to Landlord together with a surcharge of twenty percent (20%) of the amount
paid.
7.3 Right to Contest. Landlord and Tenant shall each have the right to
contest in good faith the validity or amount of any tax, assessment, license
fee, excise fee and other charge which it is responsible to pay, provided that
no contest by Tenant may involve the possibility of forfeiture, sale or
disturbance of Landlord's interest in the Premises and that upon the final
determination of any contest by Tenant, Tenant shall immediately pay and
satisfy the amount found to be due, together with any costs, penalties and
interest.
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ARTICLE VIII
INSURANCE
8.1 Landlord's Property Insurance. Landlord shall secure and maintain
"all risk" property insurance on the Building. Landlord shall not be obligated
to insure any furniture, equipment, trade fixtures, machinery, goods or
supplies which Tenant may lease or maintain in the Demised Premises, or any
addition or improvement which Tenant may make upon the Demised Premises. In
addition, Landlord shall secure and maintain rental income insurance. Landlord
may elect to self-insure for the coverages required under this Article. If the
annual cost to Landlord for such property or rental income insurance exceeds
the standard rates because of the nature of Tenant's operations, Tenant shall,
upon receipt of appropriate invoices, reimburse Landlord for such increases in
cost.
8.2 Liability Insurance.
a) Tenant (with respect to the Demised Premises and the Building)
shall secure and maintain, at its own expense, a policy or policies of
Commercial General Liability Insurance with the premiums thereon fully paid in
advance, protecting Tenant and naming Landlord and Landlord's representatives
(which term, whenever used in this Article 8. shall be deemed to include the
following: Landlord's agents, employees, trustees, officers, directors,
property manager, and advisors) as additional insureds against claims for
bodily injury, personal injury, advertising injury and property damaged based
upon, involving or arising out of the Tenant's use, occupancy or maintenance of
the Demised Premises and the Building. Such insurance shall afford a combined
single limit of not less than One Million Dollars ($1,000,000.00) per
occurrence and aggregate of Two Million Dollars ($2,000,000.00). Any general
aggregate shall apply on a per location basis. The coverage required to be
carried shall include blanket contractual liability, personal injury liability
(libel, slander, false arrest and wrongful eviction), and broad form property
damage liability and the policy shall contain an exception to any pollution
exclusion which insures damage or injury arising out of heat, smoke or fumes
from a hostile fire. Such insurance shall be written on an occurrence basis and
contain a standard separation of insureds provision. Tenant shall secure and
maintain at its expense business auto liability insurance which insures against
bodily injury and property damage claims arising out of the ownership,
maintenance and use of any auto with a minimum combined single limit per
accident of One Million Dollars ($1,000,000.00). In addition, Tenant shall
secure and maintain workers' compensation and employer's liability insurance
with limits of Five Hundred Thousand Dollars ($500,000.00) per accident, Five
Hundred Thousand Dollars ($500,000.00) per employee for bodily injury by
disease with a Five Hundred Thousand Dollar ($500,000.00) policy limit for
bodily injury by disease, and all such other insurance as may be required by
applicable law. Tenant shall also secure and maintain umbrella excess liability
insurance on an occurrence basis that applies in excess of the required
Commercial General Liability Insurance, business auto liability and employer's
liability policies, which insures against bodily injury, property damage,
personal injury and advertising injury claims, with a combined single limit of
not less than Five Million Dollars ($5,000,000.00) per occurrence and an annual
aggregate of Five Million Dollars ($5,000,000.00). Such insurance shall name
Landlord and its representatives as additional insureds. Tenant shall provide
Landlord with a certificate evidencing such insurance coverage. The certificate
shall indicate that the insurance provided specifically recognizes the
liability assumed by Tenant under this Lease and that Tenant's insurance is
primary to and not contributory with any other insurance available to Landlord,
whose insurance shall be considered
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excess insurance only. Not more frequently than every three years, if, in the
opinion of any mortgagee of Landlord or of the insurance broker retained by
Landlord, the amount of liability insurance coverage at that time is not
adequate, then Tenant shall increase its liability insurance coverage as
required by either any mortgagee of Landlord or Landlord's insurance broker.
(b) Landlord (with respect to the Building) shall secure and
maintain Commercial General Liability Insurance for at least the minimum
coverage described in Section 8.2(a). Such insurance shall be in addition to,
and not in lieu of, the insurance required to be maintained by Tenant. Landlord
may elect to self-insure for this coverage. Tenant shall not be named as an
additional insured on any policy of liability insurance maintained by Landlord.
8.3 Tenant's Insurance.
(a) Tenant shall secure and maintain, at Tenant's expense,
"all risk" property insurance on all of Tenant's fixtures and personal properly
in the Demised Premises and on any improvements or alterations, additions or
improvements made by Tenant, upon the Demised Premises, all for the full
replacement cost thereof. Tenant shall use the proceeds from such insurance for
the replacement of fixtures and personal property and for the restoration of
tenant improvements or alterations, additions or improvements to the Demised
Premises. Landlord shall be named as loss payee. In addition, Tenant shall
maintain business income and extra expense insurance with limits not less than
one hundred percent (100%) of tenant's gross revenue for the twelve (12) month
period. Tenant shall provide Landlord with certificates of all such insurance.
The property insurance certificate shall confirm that the waiver of subrogation
required to be obtained pursuant to Section 9.2 is permitted by the insurer.
Tenant shall, at least fifteen (15) days prior to the expiration of any policy
of insurance required to be maintained by Tenant under this Lease, furnish
Landlord with an "insurance binder' or other satisfactory evidence of renewal
thereof.
(b) All policies required to be carried by Tenant hereunder
shall be issued by and binding upon an insurance company licensed to do
business in the State of Colorado with a rating of at least A-:VIII, or such
other rating as may be required by a lender having a lien on the Building as
set forth in the then most current issue of "Best's Insurance Reports." Tenant
shall not do or permit anything to be done that would invalidate the insurance
policies referred to in this Article 8. Evidence of insurance provided to
Landlord shall include an endorsement showing that Landlord and its
representatives are included as additional insureds on general liability
insurance, and as loss payees for property insurance, and an endorsement
whereby the insurer agrees not to cancel, non-renew or reduce coverage of the
policy without at least thirty (30) days prior written notice to Landlord and
its representatives.
(c) In the event that Tenant fails to provide evidence of
insurance required to be provided by Tenant hereunder, prior to commencement of
the Term, and thereafter during the Term, within ten (10) days following
Landlord's request therefor, and thirty (30) days prior to the expiration date
of any such coverage, Landlord shall be authorized (but not required) to
procure such coverage in the amounts stated with all costs thereof (plus a
fifteen percent (15%) administrative fee) to be chargeable to Tenant and
payable upon written invoice therefor.
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(d) The limits of insurance required by this Lease, or as
carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant
of any obligation hereunder.
ARTICLE IX
INJURY TO PERSON OR PROPERTY
9.1 Indemnity and Exoneration.
(a) Landlord shall not be liable for any loss, injury or
damage to person or property of Tenant, Tenant's agents, employees,
contractors, invitees or any other person, whether caused by theft, fire, act
of God, acts of the public enemy, riot, strike, insurrection, war, court order,
requisition or order of governmental body or authority or which may arise
through repair or alteration of any part of the Building or failure to make any
such repair or from any other cause whatsoever except as expressly otherwise
provided in Articles 15 and 16. Landlord shall not be liable for any loss,
injury or damage arising from any act or omission of any other tenant or
occupant of the Building, nor shall Landlord be liable under any circumstances
for damage or inconvenience to Tenant's business or for any loss of income or
profit therefrom (other than Landlord's gross negligence or willful
misconduct).
(b) Tenant shall indemnify, protect, defend and hold the
Building, Landlord and its representatives, harmless of and from any and all
claims, liability, losses, costs, damages, injury or expenses (including costs,
expenses and attorneys fees) arising out of or in any way related to or
resulting directly or indirectly from the use or occupancy of the Demised
Premises, the actions of Tenant, its agents, employees, contractors or invitees
in or about the Demised Premises or the Building and any default or breach by
Tenant in the performance of any obligation of Tenant under this Lease;
provided, however, that the foregoing indemnity shall not be applicable to
claims arising as the result of the gross negligence or willful misconduct of
Landlord.
(c) Tenant shall indemnity, protect, defend and hold the
Building, Landlord and its representatives, harmless of and from any and all
claims, liability, losses, costs, damages, injury or expenses (including costs,
expenses and attorneys' fees) arising out of or in any way related to or
resulting directly or indirectly from work or labor performed, materials or
supplies furnished to or at the request of Tenant or in connection with
obligations incurred by or performance of any work done for the account of
Tenant in the Demised Premises or the Building.
9.2 Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant each waives all rights of recovery, claim,
action or cause of action against the other, its agents (including partners,
both general and limited), trustees, officers, directors, and employees, for
any loss or damage that may occur to the Demised Premises, or any improvements
thereto, or the Building or any personal property of such party therein, by
reason of any cause required to be insured against under this Lease, regardless
of cause or origin, including negligence of the other party hereto; and each
party covenants that, to the fullest extent permitted by law, no insurer shall
hold any right to subrogation against such other party. Tenant shall advise its
insurers of the foregoing and such waiver shall be a part
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<PAGE> 22
of each policy maintained by Tenant which applies to the Demised Premises, any
part of the Building or Tenant's use and occupancy of any part thereof.
ARTICLE X
ASSIGNMENT AND SUBLETTING
10.1 Assignment and Subleasing by Tenant. Tenant shall not have the
right to sublet, hypothecate, encumber or otherwise transfer its leasehold
interest in the Premises or any portion thereof under this Lease without
Landlord's prior written consent and any attempt to do so shall constitute a
material breach of this Lease. Landlord shall not unreasonably withhold its
consent to an assignment or subletting to an assignee who is a wholly owned
subsidiary company of Tenant or a company which on the date of execution of
this Lease owns substantially all of the outstanding stock of Tenant, or a
company which results from the reconstruction, consolidation, amalgamation or
merger of Tenant, or a general partnership in which Tenant has a substantial
interest (collectively called "Exempt Entities"), or to any other reputable
entity which in Landlord's opinion is financially secure and not inconsistent
with the character of the Building and the other tenants.
10.2 First Offer to Landlord. If tenant wishes to assign or sublet
this Lease (except to Exempt Entities) Tenant shall first offer in writing to
assign or sublet (as the case may be) to Landlord on the same terms and
conditions and for the same Rent as provided in this Lease. Any such first
offer shall be deemed to have been rejected unless within twenty (20) days of
receipt thereof Landlord delivers written notice of acceptance to Tenant.
10.3 Tenant's Obligations Continue. No assignments, transfer or
subletting (or use or occupation of the Premises by any other person) which is
permitted under this Article shall in any way release or relieve Tenant of its
obligations under this Lease unless such release or relief is specifically
granted by Landlord to Tenant in writing and executed with like formality as
this Lease, or except to the extent Landlord accepts the offer to sublease or
assign as set forth in Article 10.2.
10.4 Rent or Other Premiums. With respect to any assignment, sublease
or other transfer of any interest herein or in the Premises, Tenant shall,
notwithstanding any contrary provision herein, pay to Landlord, promptly
following Tenant's receipt thereof, one-half (1/2) of the amount by which all
rental and other payments (whether paid in installments, as lump sums or
otherwise) relating to the space in question received by Tenant exceed the Base
Rent, Additional Rent and other amounts payable pursuant to this Lease for the
subject period with respect to such space (with the rental and other amounts
payable by Tenant for the Premises allocated on the basis of leasable area).
Amounts payable under this Section by Tenant to Landlord shall be based on
gross figures of any reasonable costs incurred by Tenant in connection with the
transaction in question. The provisions of this Section shall apply regardless
of whether such assignment, sublease or other transfer is made in compliance
with the provisions of this Lease. Any payments made to Landlord pursuant to
this Section shall not cure any default under this Lease arising from such
assignment, sublease or transfer. Tenant shall not artificially structure any
assignment, sublease or other transfer in order to reduce the amount payable to
Landlord under this Section, nor shall Tenant take any steps for the purpose of
circumventing its obligation to pay amounts
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to Landlord under this Section; in the event Tenant does same, the amount
payable to Landlord under this Section shall be an amount that would have been
payable to Landlord had such circumvention not occurred.
10.5 Subsequent Assignments. Landlord's consent to an assignment,
transfer or subletting (or use or occupation of the Premises by any other
person) shall not be deemed to be consent to any subsequent assignment,
transfer, subletting, use or occupation.
ARTICLE XI
PARKING
11.1 License to Use Parking Area. During the Term of this Lease, and
so long as Tenant is not in default of any provision of this Lease, Tenant
shall have a license to use up to twenty-five (25) nonreserved automobile
parking stalls in or about the parking structure and parking areas adjacent to
the Building at such additional charge for parking as Landlord shall reasonably
determine, not to exceed charges for comparable parking in comparable office
buildings in the Denver area. Landlord reserves the right to designate the
location of usable parking stalls within the parking structure or in the
parking areas, and to change such designation from time to time; provided,
however, at least ten (10) of the designated parking stalls shall be in covered
areas. Tenant agrees to obey such rules and regulations as Landlord may deem
necessary for the safety and efficiency of operation of the parking garage and
shall not use or occupy (nor permit its employees and invitees to occupy)
spaces designated for the use of others, including without limitation, visitor
parking. No bailment shall be created by use of the designated parking stalls.
Under no circumstances may Tenant assign, lease or transfer the rights to the
use of parking spaces granted herein.
ARTICLE XII
SURRENDER
12.1 Possession. Upon the expiration or other termination of the Term
and without further notice, Tenant shall immediately quit and surrender
possession of the Premises in like condition as that which Tenant received the
same and was required to maintain the Premises excepting only reasonable wear
and tear. Upon such surrender, all right, title and interest of Tenant in the
premises shall cease.
12.2 Trade Fixtures, Personal Property and Improvements. Subject to
Tenant's rights under Article 6.4, after the expiration or other termination of
the Term, all of Tenant's trade fixtures, personal property and improvements
remaining on the Premises shall be deemed conclusively to have been abandoned
by Tenant and may be appropriated, sold, destroyed or otherwise disposed of by
Landlord without notice or obligation to compensate Tenant or to account
therefor, and Tenant shall pay to Landlord on written demand all costs Incurred
by Landlord in connection therewith.
12.3 Merger. The voluntary or other surrender of this Lease by
Tenant or the cancellation of this Lease by mutual agreement of Tenant and
Landlord shall not work a merger, and shall at Landlord's
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option terminate all or any subleases or subtenancies or operate as an
assignment to Landlord of all or any subleases or subtenancies. Landlord's
option hereunder shall be exercised by notice to Tenant and all known
subtenants in the Premises or any part thereof.
12.4 Payments After Termination. No payments of money by Tenant to
Landlord after the expiration or other termination of the Term or after the
giving of any notice by Landlord to Tenant, shall reinstate, continue or extend
the Term or make ineffective any notice given to Tenant prior to the payment of
such money. After the service of notice or the commencement of a suit, or after
final judgment granting Landlord possession of the Premises, Landlord may
receive and collect any sums of Rent due under the Lease, and the payment
thereof shall not make ineffective any notice, or in any manner affect any
pending suit or any judgment theretofore obtained.
ARTICLE XIII
HOLDING OVER
13.1 Month-to-Month Tenancy. If, with Landlord's consent, Tenant
remains in possession of the Premises after the expiration or other termination
of the Term, Tenant shall be deemed to be occupying the Premises on a
month-to-month tenancy only, at a monthly rental equal to two and one-half (2
1/2) times the Base Rent payable for the last month of the Term as set forth
herein, and such month-to-month tenancy may be terminated by Landlord or Tenant
on the last day of any calendar month by delivery of at least ten (10) days'
advance notice of termination to the other. During such tenancy all terms and
conditions of this Lease except, the Term and any right of renewal, shall
remain in full force and effect and nothing contained in this Article shall be
construed to limit or impair any of Landlord's rights of re-entry or eviction
or constitute a waiver thereof.
ARTICLE XIV
RULES AND REGULATIONS
14.1 Purpose. The Rules and Regulations in Exhibit "D" have been
adopted by Landlord for the safety, benefit and convenience of all tenants and
other persons in the Building.
14.2 Observance. Tenant shall at all times comply with, and shall
cause its employees, agents, licensees and invitees to comply with, the Rules
and Regulations front time to time in effect.
14.3 Modification. Landlord may from time to time, for the purposes
set out in this Article, amend, delete from, or add to the Rules and
Regulations, provided that any such modification:
(a) shall not be repugnant to any other provision of this Lease;
(b) shall be reasonable and have general application to all
tenants in the Building; and
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(c) shall be effective only upon delivery of a copy thereof
to Tenant at the Premises or posting the same upon a conspicuous place within
the Building or property upon which the Building is situated.
14.4 Non-Compliance. Landlord shall use reasonable efforts to secure
compliance by all tenants and other persons with the rules and Regulations from
time to time in effect, but shall not be responsible to Tenant for failure of
any person to comply with such Rules and Regulations.
ARTICLE XV
EMINENT DOMAIN
15.1 Taking of Premises. If during the Term all of the Premises shall
be taken for any public or quasi-public use under any statute or by right of
eminent domain, or purchased under threat of such taking, this Lease shall
automatically terminate on the date on which the condemning authority takes
possession of the Premises (hereinafter called the "date of such taking").
15.2 Partial Taking of Building. If during the Term only part of
the Building is so taken or purchased as set out in Article 15.1. then:
(a) If in the reasonable opinion of Landlord, substantial
alteration or reconstruction of the Building is necessary or desirable as a
result thereof, whether or not the Premises are or may be affected, Landlord
shall have the right to terminate this Lease by giving the Tenant at least
thirty (30) days' written notice of such termination; and
(b) If more than one-third (1/3) of the number of square feet
in the Premises is included in such taking or purchase and such reduction in
square footage of the Premises renders the Premises unusable, in the reasonable
estimation of Landlord, for the permitted use hereunder as conducted by Tenant,
Landlord and Tenant shall each have the right to terminate this Lease by giving
the other at least thirty (30) days' written notice thereof.
If either party exercises its right to termination hereunder,
this Lease shall terminate on the date stated in the notice; provided, however,
that no termination pursuant to notice hereunder may occur later than sixty
(60) days after the date of such taking.
15.3 Surrender. On any such date of termination under Article 15.1 or
15. Tenant shall immediately surrender to Landlord the Premises and all
interests therein under this Lease. Landlord may re-enter and take possession
of the Premises and remove Tenant therefrom, and the Rent shall abate on the
date of termination, except that if the date of such taking differs from the
date of termination. Rent shall abate on the former date in respect of the
portion taken. After such termination and on notice from Landlord stating the
Rent then owing, Tenant shall forthwith pay Landlord such Rent.
15.4 Partial Taking of Premises. If any portion of the Premises
(but less than the whole thereof) is so taken, and no rights of termination
herein conferred are timely exercised, the Term of this
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Lease shall expire with respect to the portion so taken on the date of such
taking. In such event the Rent payable hereunder with respect to such portion
so taken shall abate on such date, and the Rent thereafter payable with respect
to the remainder not so taken shall be adjusted pro rata by Landlord in order
to account for the resulting reduction in the number of square feet in the
Premises.
15.5 Awards. Upon any such taking or purchase, Landlord shall be
entitled to receive and retain the entire award or consideration for the
affected lands and improvements, and Tenant shall not have nor advance any
claim against Landlord for the value of its property or its leasehold estate or
the unexpired Term of the Lease, or for costs of removal or relocation, or
business interruption expense or any other damages arising out of such taking
or purchase. Nothing herein shall give Landlord any interest in or preclude
Tenant from seeking and recovering on its own account from the condemning
authority any award or compensation attributable to the taking or purchase of
Tenant's improvements, chattels or trade fixtures, or the removal; or
relocation of its business and effects, or the interruption of its business. If
any award made or compensation paid to either party specifically includes an
award or amount for the other, the party first receiving the same shall
promptly account thereof to the other.
ARTICLE XVI
DAMAGE BY FIRE OR OTHER CASUALTY
16.1 Limited Damage to Premises. If all or part of the Premises are
rendered unleaseable by damage from fire or other casualty which, in the
reasonable opinion of Landlord, can be substantially repaired under applicable
laws and governmental regulations within 180 days from the date of such
casualty (employing normal construction methods without overtime or other
premiums), Landlord shall forthwith and to the extent Insurance proceeds are
made available therefor, repair such damage other than damage to improvements,
furniture, chattels or trade fixtures which do not belong to Landlord.
16.2 Major Damage to Premises. If all or part of the Premises are
rendered unleaseable by damage from fire or other casualty which, in the
reasonable opinion of Landlord cannot be substantially repaired under
applicable laws and governmental regulation within 180 days from the date of
such casualty (employing normal construction methods without overtime or other
premiums), Landlord shall notify Tenant in writing within thirty (30) days
following such casualty, then either Landlord or Tenant may elect to terminate
this Lease as of the date of such casualty by written notice delivered to the
other not more than ten (10) days after receipt of such written notice, failing
which Landlord shall forthwith and to the extent insurance proceeds are made
available therefor, repair such damage other than damage to improvements,
furniture, chattels or trade fixtures which do not belong to Landlord.
16.3 Abatement. If Landlord is required to repair damage to all or
part of the Premises under article 16.1 or 16.2, the Rent payable by Tenant
hereunder shall be proportionately reduced to the extent that the Premises are
thereby rendered unusable by Tenant in its business, from the date of such
casualty until five (5) days after completion by Landlord of the repairs to the
Premises (or part thereof rendered unleaseable) (or until Tenant again uses the
Premises (or part thereof rendered unusable) in its business, whichever first
occurs.
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16.4 Major Damage to Building. If all or a substantial part (whether
or not including the Premises) of the Building is rendered unleaseable by
damage from fire or other casualty to such material extent that in the
reasonable opinion of Landlord the Building must be totally or partially
demolished, whether or not to be reconstructed in whole or in part, Landlord
may elect to terminate this Lease as of the date of such casualty (or on the
date of notice if the Premises are unaffected by such casualty) by written
notice delivered to Tenant not more than sixty (60) days after the date of such
casualty.
16.5 Failure to Rebuild. In the event this Lease is not terminated
following damage from fire or other casualty, but Landlord fails to
substantially complete repairs or rebuilding within 270 days from the date of
the casualty, Tenant may elect to terminate this Lease by providing Landlord
with written notice of termination within thirty (30) days following said 270th
day.
16.6 Limitation on Landlord's Liability. Except as specifically
provided in this Article XVI, there shall be no reduction of Rent and Landlord
shall have no liability to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty, however
caused, or from the making of any repairs resulting therefrom in or to any
portion of the Building or Premises. Notwithstanding anything contained herein,
Rent payable by Tenant hereunder shall not be abated if the damage is caused by
any act or omission of Tenant, its agents, servants, employees or any other
person entering upon the Premises under express or implied invitation or
Tenant.
ARTICLE XVII
TRANSFERS BY LANDLORD
17.1 Sales, Conveyance and Assignment. Nothing in this Lease shall
restrict the right of Landlord to sell, convey, assign or otherwise deal with
its interest in the Building subject only to the rights of Tenant under this
Lease.
17.2 Effect of Sale, Conveyance or Assignment. Provided that Tenant's
Security Deposit is transferred to Landlord's successor, a sale, conveyance or
assignment of the Landlord's interest in the Building shall operate to release
Landlord from liability from and after the effective date thereof upon all of
the covenants, terms and conditions of this Lease, express or implied, except
as such may relate to the period prior to such effective date, and Tenant shall
thereafter rook solely to Landlord's successor-in-interest in and to this
Lease. This Lease shall not be affected by any such sale, conveyance or
assignment, and Tenant shall attorn to Landlord's successor-in-interest
thereunder.
17.3 Subordination. This Lease is and shall be subject and subordinate
in all respects to any and all mortgages and deeds of trust now or hereafter
placed on the Building or the land on which it is situated, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
17.4 Attornment. Subject to Article 17.5, if the interest of Landlord
is transferred to any person (herein called ("Purchaser") by reason of
foreclosure or other proceedings for enforcement of any mortgage or deed of
trust, or by delivery of a deed in lieu of such foreclosure or other
proceedings, Tenant shall immediately and automatically attorn to Purchaser.
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17.5 Nondisturbance. No attornment by Tenant to the holder of any
mortgage or deed of trust which would be subordinate to this Lease but for the
provisions of Article 17.3 shall be effective unless Purchaser delivers to
Tenant written undertaking that this Lease and Tenant's rights hereunder shall
continue undisturbed while Tenant is not in default, despite such enforcement
proceedings and transfer.
17.6 Effect to Attornment. Upon attornment under Article 17.4. this
Lease shall continue in full force and effect as a direct Lease between
Purchaser and Tenant, upon all of the same terms, conditions and covenants as
are set forth in this Lease except that, after such attornment, Purchaser shall
not be:
(a) Liable for any act of omission of any previous Landlord; or
(b) Subject to any offsets or defenses which Tenant might
have against any previous Landlord; or
(c) Bound by any prepayment by Tenant of more than one
(1) month's installment of Rent.
17.7 Execution of Instruments. The subordination and attornment
provisions of this Article XVII shall be self-operating and except as set out
in Article 17.5, no further instrument shall be required. Nevertheless Tenant,
on request by and without cost to Landlord or any successor in interest, shall
execute and deliver any and all reasonable instruments further evidencing such
subordination and (where applicable hereunder) attornment. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver
and record any such documents and instruments in the name and on behalf of
Tenant if Tenant fails to do so.
ARTICLE XVIII
NOTICES, ACKNOWLEDGMENT, AUTHORITIES FOR ACTION
18.1 Notices. Any notice from any party to the other hereunder shall
be in writing and shall be deemed duly served if delivered personally to a
responsible employee of the party being served, or if mailed by registered or
certified mail, return receipt requested, addressed to Tenant at the Premises
(whether or not Tenant has departed from, vacated or abandoned the same) or to
Landlord at the place from time to time established for the payment of Rent.
Any notice shall be deemed to have been given at the time of personal delivery
or, if mailed, on the first to occur of the date of delivery set forth on the
return receipt, or the date delivery was refused by the addressee, or the date
such notice was returned by the post office due to failure of the addressee to
accept delivery. Either party shall have the right to designate by notice, in
the manner above set forth, a different address to which notices are to be
mailed.
18.2 Estoppel Certificates. Each of the parties hereto shall at any
time and from time to time upon not less than twenty (20) days prior notice
from the other execute, acknowledge and deliver a written statement certifying
that:
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(a) This Lease is in full force and effect, subject only to such
modifications (if any) as may be set out therein:
(b) Tenant is in possession of the Premises and paying
Rent as provided in this Lease, or if not, specifying any defects in possession
or defaults in the payment of Rent;
(c) The dates (if any) to which Rent is paid in advance; and
(d) That there are not, to such party's knowledge, any
uncured defaults on the part of the other party hereunder, or specifying such
defaults if any are claimed.
Any such statement may be relied upon by any prospective transferee or
encumbrancer of all or any portion of the Building, or any assignee of any such
persons. If Tenant fails to timely deliver such statement, Tenant shall be
deemed to have acknowledged that this Lease is in full force and effect,
without modification except as may be represented by Landlord, and that there
are no uncured defaults in Landlord's performance.
ARTICLE XIX
DEFAULT
19.1 Interest and Costs. Subject to the grace periods provided in
Section 3.5 hereof, Tenant shall pay to Landlord interest at a rate equal to
the less of one and one-half percent (1-1/2%) per month, or the maximum rate
permitted by applicable law, upon all Rent required to be paid hereunder from
and after the fifth day following the due date for payment thereof until the
same is fully paid and satisfied. Tenant shall indemnify Landlord against all
costs and charges (including legal fees) lawfully and reasonably incurred in
enforcing payment thereof, and in obtaining possession of the Premises after
default of Tenant or upon expiration or earlier termination of the Term of this
Lease, or in enforcing any covenant, proviso or agreement of Tenant herein
contained.
19.2 Right of Landlord to Perform Covenant. All covenants and
agreements to be performed by Tenant under any of the terms of this Lease shall
be performed by Tenant, at Tenant's sole cost and expense, and without any
abatement of Rent, if Tenant shall fail to perform any act on its part to be
performed hereunder, Landlord may (but shall not be obligated to) perform such
act without waiving or releasing Tenant from any of its obligations relative
thereto. All such paid or costs incurred by Landlord in so performing such acts
under this Article 19.2, together with interest thereon at the rate set out in
Article 19.1 from the date each such payment was made or each such cost
incurred by Landlord, shall be payable by Tenant to Landlord on demand.
19.3 Event of Default. At the option of Landlord, Tenant shall be in
default of this Lease and an event of default shall be deemed to have occurred,
if and whenever:
(a) Part or all of the Rent hereby reserved is not paid when due;
or
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(b) Any goods, chattels, security deposit or equipment of Tenant
is taken or eligible in execution or in attachment or if a writ of execution is
issued against Tenant; or
(c) Tenant becomes insolvent or commits an act of bankruptcy or
becomes bankrupt or takes the benefit of any statute that may be in force for
bankrupt or Insolvent debtors or becomes involved in voluntary or involuntary
winding-up proceedings; or
(d) If a receiver shall be appointed for the business, property,
affairs or revenues of Tenant; or
(e) Tenant fails to observe, perform and keep each and every one
of the covenants, agreements, provisions, stipulations and conditions
herein contained to be observed, performed and kept by Tenant (other than
payment of Rent) and persists in such failure after ten (10) days notice by
Landlord requiring that Tenant remedy, correct, desist or comply, or if any
such breach would reasonably require more than ten (10) days to rectify, unless
Tenant commences rectification within the 10-day notice period and cures the
subject failure within thirty (30) days from the date of notice; or
(f) Tenant abandons the Premises or any portion thereof; or
(g) Tenant does or permits anything to be done which creates a
lien upon the Premises, and fails to cause the lien to be removed
within thirty (30) days; or
(h) An assignment by Tenant for the benefit of creditors; or
(i) Any financial statement or any representation given to
Landlord by Tenant, or any assignee, sublessee, other transferee or
successor of Tenant or any guarantor of this Lease, proves to be materially
false or misleading; or
(j) Failure to pay the termination fee provided for in Section
21.14 after giving Landlord a termination notice.
19.4 Landlord's Remedies Upon Default. Upon the occurrence of any
event of default, Landlord shall have the option to pursue any one or more of
the following remedies without notice or demand whatsoever:
(a) Give Tenant written notice of intent to terminate this Lease
on the date of such notice or on any later date as may be specified herein,
whereupon tenant's right to possession of the Premises shall cease and this
Lease, except as to Tenant's liability, shall be terminated.
In the event this Lease is terminated in accordance with the
provisions of this paragraph, Tenant shall remain liable to Landlord for
damages in an amount equal to the Rent and other sums which would have been
owing by Tenant hereunder for the balance of the Term had this Lease not been
terminated, less the net proceeds, it any, of any reletting of the Premises by
Landlord subsequent to such termination, deducting all Landlord's expenses
including, without limitations, all repossession
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costs, brokerage commissions, legal expenses, attorneys' fees, expenses of
employees, alteration and repair costs and expenses of preparation for such
reletting. Landlord shall be entitled to collect such damages from Tenant
monthly on the days on which the Rent and other charges would have been payable
hereunder if this Lease had not been terminated. Alternatively, at the option
of the Landlord, in the event this Lease is so terminated, Landlord shall be
entitled to recover forthwith against Tenant as damages for loss of the bargain
and not as a penalty an aggregate sum, which at the time of such termination of
this Lease, represents the excess, if any, of the aggregate of the Rent and all
other charges payable by Tenant hereunder that would have accrued for the
balance of the Term over the aggregate fair market rental value of the Premises
(such rental value to be computed on the basis of Tenant paying not only a Rent
to Landlord for the use and occupation of the Premises, but also such other
charges as are required to be paid by Tenant under the terms of this Lease) for
the balance of such Term, both discounted to present worth at the rate of four
percent (4%) per annum.
(b) Reenter and take possession of the Premises or any part
thereof, and repossess the same as of Landlord's former estate and expel
Tenant and those claiming through and under Tenant, and remove the effects of
both or either, using such force for such purposes as may be necessary, without
being liable for prosecution thereof, without being deemed guilty of any manner
of trespass, and without prejudice to any remedies for arrears of Rent or
proceeding breach of covenants or conditions. Should Landlord elect to reenter
as provided in this subparagraph, or should Landlord take possession pursuant
to legal proceedings or pursuant to any notice provided for by law, Landlord
from time to time, without terminating this Lease, relet the Premises or any
part thereof in Landlord's or Tenant's name, but for the account of Tenant, for
such Term or Terms (which may be greater or less than the period which would
otherwise have constituted the balance of Term of this Lease) and on such
conditions and upon other Terms (which may include concessions of free Rent and
alteration and repair of the Premises) as Landlord. In its sole discretion, may
determine, and Landlord may collect and receive the Rents therefor. Landlord
shall in no way be responsible or liable for any failure to relet the Premises,
or any part thereof, or for any failure to collect any Rent due upon such
retailing. No such reentry or taking possession of the Premises by Landlord
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such intention is given to Tenant. No notice from
Landlord hereunder or under a forcible entry and detainer statute or similar
law shall constitute an election by Landlord to terminate this Lease unless
such notice specifically so states. Landlord reserves the right following any
such reentry and/or retailing to exercise its right to terminate this Lease by
giving Tenant such written notice, in which event the Lease will terminate as
specified in said notice.
In the event that Landlord does not elect to terminate this
Lease but takes possession as provided for in this subparagraph, Tenant shall
pay to Landlord (i) the Rent and other charges as herein provided which would
be payable hereunder if such repossession had not occurred, less (ii) the net
proceeds, if any, of any retailing of the Premises after deducting all
Landlord's reasonable expenses including, without limitation, all repossession
costs, brokerage commissions, legal expenses, attorneys' fees, expenses of
employees, alteration and repair costs and expense of preparation for such
retailing. Tenant shall pay such Rent and other sums to Landlord monthly on the
days on which the Rent would have been payable hereunder if possession had not
been retaken.
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19.5 Waiver of Exemption and Redemption. Notwithstanding anything
contained in any statute now or hereafter in force limiting or abrogating the
right of distress, none of Tenant's goods, chattels or trade fixtures on the
Premises at any time during the continuance of the Term shall be exempt from
levy by distress for Rent in arrears, and upon any claim being made for such
exemption by Tenant or on distress being made by Landlord this Agreement may be
pleaded as an estoppel against Tenant in any action brought to test the right
to the levying upon any such goods as are named as exempted in any such
statute, Tenant hereby waiving all and every benefit that could or might have
accrued to Tenant under and by virtue of any such statute but for this Lease.
Tenant hereby expressly waives any and all rights or redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord obtaining possession of
the Premises, by reason of the violation by Tenant of any of the terms or
conditions of this Lease or otherwise.
19.6 Remedies Cumulative. No reference to nor exercise of any,
specific right or remedy by Landlord shall prejudice or preclude Landlord from
exercising or invoking any other remedy in respect thereof, whether allowed at
law or in equity or expressly provided for herein. No such remedy shall be
exclusive or dependent upon any other such remedy, but Landlord may from time
to time exercise any one or more of such remedies independently or in
combination.
19.7 DELETED.
ARTICLE XX
DEFAULT BY LANDLORD; LIMITATION OF LIABILITY
20.1 Landlord Default. Landlord shall not be deemed to be in default
hereunder unless obligations required of Landlord hereunder are not performed
by Landlord, or by any beneficiary under any deed of trust, mortgagee, ground
lessor or other lienholder with rights in all or any portion of the Building,
within thirty (30) days after written notice thereof by Tenant to Landlord and
to such other parties whose names and addresses are furnished to Tenant in
writing, which notice specifies that there has been a failure to perform such
obligations; provided, however, that if the nature of such obligations is such
that more than thirty (30) days are reasonably required for their cure,
Landlord shall not be deemed to be in default hereunder if Landlord or any of
such other parties commences such cure within such thirty (30) day period and
thereafter diligently pursues such cure to completion.
20.2 Satisfaction of Judgment. If Landlord is in default hereunder,
and, as a consequence thereof, Tenant wins a judgment against Landlord, such
judgment may be satisfied only out of the right, title and interest of Landlord
in the Building and out of the rent or other revenue receivable by Landlord
from the Building, or out of the proceeds receivable by Landlord from the sale
or other disposition of all or any portion of Landlord's right, title and
interest in the Building. Neither Landlord nor any of Landlord's directors,
employees, agents or representatives shall be personally liable for any
deficiency or otherwise.
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ARTICLE XXI
MISCELLANEOUS
21.1 Relationship of Parties. Nothing contained in this Lease shall
create any relationship between the parties hereto other than that of landlord
and tenant, and it is acknowledged and agreed that Landlord does not in any way
or for any purpose become a partner of Tenant in the conduct of its business,
or a joint venturer or a member of a joint or common enterprise with Tenant.
21.2 Consent Not Unreasonably Withheld. Except as otherwise
specifically provided, whenever consent or approval of Landlord or Tenant is
required under the terms of this Lease, such consent or approval shall not be
unreasonably withheld or delayed. Tenant's sole remedy if Landlord unreasonably
withholds or delays consent or approval shall be an action for specific
performance, and Landlord shall not be liable for damages.
21.3 Name of Building. Landlord shall have the right, after thirty
(30) days notice to Tenant, to designate or change the name or number of the
Building during the Term without liability to Tenant.
21.4 Applicable Law and Construction. This Lease shall be governed by
and construed under the laws of the State of Colorado and its provisions shall
be construed as a whole according to their common meaning and not strictly for
or against Landlord or Tenant. The words Landlord and Tenant shall include the
plural as well as the singular. If this Lease is executed by more than one
Tenant, Tenant's obligations hereunder shall be joint and several obligations
of such executing Tenants. Time is of the essence of this Lease and each of its
provisions. The captions of the Articles are included for convenience only, and
shall have no effect upon the construction or interpretation of this Lease.
21.5 Waiver of Conflicting Laws. To the maximum extent permitted by
law, Tenant hereby waives all provisions of, and protection under, any
decisions, statutes, rules and regulations or other laws of the State of
Colorado to the extent same or inconsistent with the terms and provisions of
this Lease, including without limitation, all rights and remedies of Landlord
of Article XIX hereof.
21.6 Entire Agreement. This Lease, together with its Exhibits and such
Rules and regulations presently in effect, comprise the entire agreement
between the parties hereto with respect to the subject matter of this Lease.
Tenant acknowledges and agrees that it has not relied upon any statement,
representation, agreement or warranty except such as are set out in this Lease.
21.7 Amendment or Modification. Unless otherwise specifically provided
in this Lease, no amendment, modification, or supplement to this Lease shall be
valid or binding unless set out in writing and executed by the parties hereto
in the same formality and manner as the execution of this Lease.
21.8 Construed Covenants and Severability. All of the provisions of
this Lease are to be construed as independent covenants and agreements as
though the words importing such independent covenants and agreements were used
in each separate Article hereof. Should any provision of this Lease be or
become invalid, void, illegal or not enforceable, it shall be considered
separate and severable from
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<PAGE> 34
the Lease and the remaining provisions shall remain in force and be binding
upon the parties hereto as though such provision had not been included.
21.9 No Implied Surrender or Waiver. No provisions of this Lease shall
be deemed to have been waived by Landlord or Tenant unless such waiver is in
writing signed by Landlord or Tenant. Landlord's or Tenant's waiver of a breach
of any term or condition of this Lease shall not prevent a subsequent act,
which would have originally constituted a breach, from having all the force and
effect of any original breach. Landlord's receipt of Rent with knowledge of a
breach by Tenant or any term or condition of this Lease shall not be deemed a
waiver of such breach even in the absence of protest or reservation of rights.
Landlord's failure to enforce against Tenant or any other tenant in the
Building of any of the Rules and Regulations made hereunder shall not be deemed
a waiver of such Rules and Regulations. No act or thing done by Landlord, its
agents or employees during the Term shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid, unless in writing signed by Landlord. The delivery of
keys to any of Landlord's agents or employees shall not operate as a
termination of this Lease or a surrender of the Premises. No payment by Tenant,
or receipt by Landlord, of a lesser amount than the Rent due hereunder shall be
deemed to be other than on account of the earliest stipulated Rent, nor shall
any endorsement, or statement on any check or any letter accompanying any
check, or payment as Rent, be deemed an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such Rent or pursue any other remedy available to
Landlord.
21.10 Light and Air. Tenant covenants and agrees that no diminution of
light, air or view by any structure which may hereafter be erected (whether or
not by Landlord) shall entitle Tenant to any reduction of rent under this
Lease, result in any liability of Landlord to Tenant, or in any other way
affect this Lease or Tenant's obligations hereunder.
21.11 Relocation Right. Landlord may substitute for the Premises other
space in the Building equal or greater in area to the Premises, suitable for
Tenant's use and similar configuration, and this Lease shall be deemed modified
so as to eliminate the Premises hereby leased and to substitute therefore such
other premises; provided, that Tenant's Base Rent and share of Operating Costs
shall not be increased. The costs of preparing such premises for Tenant's use
shall be at Landlord's expense, and further, any of Tenant's reasonable costs
of moving shall be paid by Landlord. Furthermore, such substituted premises
shall be ready for occupancy within three (3) business days of the time Tenant
is required to move. In such event, in all other respects this Lease shall
remain in full force and effect according to its terms.
21.12 Authority. If Tenant is a corporation, trust or partnership,
each individual executing this Lease on behalf of Tenant represents and
warrants that he or she is duly authorized to so execute and deliver this
Lease. If Tenant is a corporation, trust or partnership, it shall, within ten
(10) days after execution of this Lease, deliver to Landlord satisfactory
evidence of such authority. If Tenant is a corporation, it shall, upon demand
by Landlord, also deliver to Landlord satisfactory evidence of (a) good
standing in Tenant's state of incorporation, and (b) qualification to do
business in the State of Colorado.
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<PAGE> 35
21.13 Successors Bound. Except as otherwise specifically provided,
the covenants, terms, and conditions contained in this Lease shall apply to and
bind the heirs, successors, executors, administrators and assigns of the
parties hereto.
21.14 Tenant's Early Termination Right. At Tenant's option and so long
as Tenant is not in default under any terms of the Lease, Tenant shall have a
one time right to terminate this Lease effective as of December 31, 1997. In
order to exercise this right to terminate, Tenant shall deliver written notice
of the exercise to Landlord on or before July 1, 1997, and as consideration for
this right to terminate, Tenant shall pay Landlord on or before November 30,
1997 a termination fee equal to three (3) months rent, plus Five Thousand Six
Hundred Sixty-Five and 50/100ths ($5,665.50) representing the difference
between the Base Rent paid for the first three (3) years of the Lease and the
net effective rate for the term, plus all of Landlord's unamortized costs of
the tenancy including, but not limited to, tenant improvements; leasing
commissions and attorney's fees. The costs shall be amortized on a straight
line basis over the Term of the Lease with interest at ten percent (10%) per
annum. If Tenant delivers the termination notice and fails to pay the
termination fee, Tenant shall be in default of the Lease and Landlord shall be
entitled to all the remedies set forth in Article 19.
21.15 Option to Renew. Landlord hereby grants to Tenant one (1) three
(3) year option to renew this Lease at the then current market rate for
comparable office space in the southeast suburban Denver, Colorado market area.
The option to renew shall be exercisable by Tenant only if Tenant is not in
default of any material provision under this Lease or in default of any
monetary provision of this Lease. In order to exercise the Option to Renew,
Tenant must give written notice to Landlord of its intent to exercise the
option at least six (6) months prior to the expiration of the Term. If Tenant
fails to provide such written notice this option shall laps and thereafter be
null and void.
21.16 Right of First Refusal. At all times during the Term of this
Lease (providing that Tenant is not in default of any material provision of
this Lease or in default of any monetary provision of this Lease), Landlord
shall grant to Tenant (subject to any prior rights or existing tenancies) a
First Right of Refusal on all space on the second floor, south wing of the
Building, as designated on the floor plan attached hereto as Exhibit "A". So
long as Tenant is not in default of any material or monetary provision of this
Lease, Tenant may exercise its First Right of Refusal on all of such space by
giving Landlord written notice within five (5) business days of Tenant's
receipt of notice from Landlord that such space is available. The parties agree
that the lease rate for such expansion space shall be the then current market
rate for comparable space in the southeast suburban Denver, Colorado market
area. Except for Base Rent, the terms of the Lease for the right of first
refusal space shall be substantially the same as those provided in this Lease.
In the event Tenant fails to exercise its Right of First Refusal or the parties
cannot agree on the terms thereof, this Right of First Refusal shall lapse and
thereafter be of no further force and effect.
21.17 Guaranty. As additional consideration and as a requirement of
Landlord executing this Lease, the Tenant's owner has agreed to deliver to
Landlord the Guaranty attached hereto as Exhibit "E". If after the expiration
of sixty (60) months from the Commencement Date the Tenant has not been in
default of any provisions of the Lease and the Tenant's financial condition is
determined to be creditworthy by the Landlord, the Landlord will consider
returning the Guaranty to the shareholders and
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<PAGE> 36
not requiring it as a condition to the Lease; provided, however, that such
decision shall be made in the sole and absolute discretion of Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have properly executed this
Lease as of the day of 1994.
LANDLORD: TENANT:
STATE OF CALIFORNIA PUBLIC NEON HEALTHCARE SYSTEM, INC.,
EMPLOYEES' RETIREMENT SYSTEM an Illinois corporation
a unit of the State and Consumer
Services Agency of the State of By:
---------------------------------
Date
By:
- -----------------------------------
Date Name:
-------------------------------
Name: Title:
------------------------------ ------------------------------
Title:
-----------------------------
BY:
--------------------------------
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<PAGE> 37
STATE OF CALIFORNIA )
)ss.
COUNTY OF SACRAMENTO )
On __________, 199__, before me, the undersigned, a Notary Public in
and for said State, personally appeared personally known to be (or proved to me
on the basis of satisfactory evidence) to be of agent for the State of
California Public Employees' Retirement System, a unit of the State and
Consumer Services Agency of the State of California, and acknowledged to be
that such State of California Public Employees' Retirement System executed the
same.
Witness my hand and official seal:
My commission expires:______________________.
[S E A L]
------------------------------------
Notary Public
STATE OF COLORADO )
)ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
199__ by ____________________, as ___________________ of NEON HEALTHCARE SYSTEM,
INC.
My commission expires:_______________________.
[S E A L]
------------------------------------
Notary Public
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<PAGE> 38
EXHIBIT "A"
FLOOR PLAN OF PREMISES
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<PAGE> 39
EXHIBIT "B"
LEGAL DESCRIPTION OF BUILDING
That certain land situated in ARAPAHOE County, Colorado and described as
follows:
THE NORTH 4/5THS OF TRACT 8, SUBDIVISION OF SECTION 21, TOWNSHIP 5 SOUTH, RANG
67 WEST, COUNTY OF ARAPAHOE, STATE OF COLORADO, EXCEPT PORTIONS CONVEYED TO THE
CITY OF GREENWOOD VILLAGE IN DEED RECORDED APRIL 24, 1981 IN BOOK 2402 AT PAGE
436, AND IN DEED RECORDED OCTOBER 29, 1981 IN BOOK 3520 AT PAGE 521.
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<PAGE> 40
EXHIBIT "C"
AGREEMENT FOR COMPLETION OF PREMISES
Tenant Finish Allowance. Landlord shall provide Tenant a tenant finish
allowance of Nine and No/100ths Dollars ($9.00) per rentable square foot of the
Premises (the "tenant improvement allowance") to be applied solely for the
purposes of space plans, designs, construction drawings, demolition and tenant
improvements in accordance with the space plan dated September 20, 1994 which
is attached hereto as Exhibit 1 (hereinafter collectively referred to as
"Tenant Improvements"). In the event the cost of Tenant Improvements as set
forth in the space plan exceeds the tenant improvement allowance or Tenant
modifies the space plans and the modifications result in the cost exceeding the
tenant improvement allowance, Tenant shall pay Landlord for such excess within
ten (10) days of the receipt of an invoice from Landlord for said excess. In
the event Landlord is aware prior to the commencement of construction of the
Tenant Improvements, that the cost of Tenant Improvements will exceed the
tenant improvement allowance, Landlord may request that Tenant pay Landlord the
estimated amount of said excess prior to the commencement of construction.
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<PAGE> 41
EXHIBIT 1 TO
AGREEMENT FOR COMPLETION OF PREMISES
SPACE PLAN
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<PAGE> 42
EXHIBIT "D"
RULES AND REGULATIONS
1. Security. Landlord may from time to time adopt appropriate systems
and procedures for the security or safety of the Building, any persons
occupying, using or entering the same, or any equipment, finishing or contents
thereof, and Tenant shall comply with Landlord's reasonable requirements
relative hereto.
2. Locks. Landlord may from time to time install and change locking
mechanisms on entrances to the Building, common areas thereof, and the
Premises, and (unless 24 hour security is provided by the Building) shall
provide to Tenant a reasonable number of keys and replacements therefor to meet
the bona fide requirements of Tenant. In these rules "keys" include any device
serving the same purpose. Tenant shall not add to or change existing locking
mechanisms on any door in or to the Premises without Landlord's prior written
consent. If without Landlord's consent, Tenant installs lock(s) incompatible
with the Building master locking system:
(a) Landlord, without abatement of Rent, shall be relieved of
any obligation under the Lease to provide any service to the affected areas
which requires access thereto;
(b) Tenant shall indemnify Landlord against any expense as a result
of forced entry thereto which may be required in an emergency; and
(c) Tenant shall at the end of the Term and at Landlord's request
remove such lock(s) at Tenant's expense.
3. Return of Keys. At the end of the Term, Tenant shall promptly
return to Landlord all keys for the Building and Premises which are in
possession of Tenant.
4. Windows. Tenant shall observe Landlord's rules with respect to
maintaining uniform drapes at all windows in the Premises so that the Building
presents a uniform exterior appearance, and shall not install any window
shades, screens, drapes, covers or other materials on or at any window in the
Premises without Landlord's prior written consent.
5. Repair, Maintenance, Alterations and Improvements. Tenant shall
carry out Tenant's repair, maintenance, alterations and improvements in the
Premises only during times agreed to in advance by Landlord and in a manner
which will not interfere with the rights of other tenants in the Building.
6. Water Fixtures. Tenant shall not use water fixtures for any purpose
for which they are not intended, nor shall water be wasted by tampering with
such fixtures. Any cost or damage resulting form such misuse by Tenant shall be
paid for by Tenant.
7. Personal Use of Premises. The Premises shall not be used or
permitted to be used for residential, lodging or sleeping purposes or for the
storage of personal effects or property not required for business purposes.
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<PAGE> 43
8. Heavy Articles. Tenant shall not place in or move about the
Premises without Landlord's prior written consent any safe or other heavy
article which in Landlord's reasonable opinion may damage the Building, and
Landlord, may designate the location of any heavy articles in the Premises.
9. Bicycles, Animals. Tenant shall not bring any animals or birds into
the Building, and shall not permit bicycles or other vehicles inside or on the
sidewalks outside the Building except in areas designated from time to time by
Landlord for such purposes.
10. Deliveries. Tenant shall ensure that deliveries to Tenant of
materials and supplies to the Premises are made through such entrances,
elevators and corridors and at such times as may from time to time be
designated by Landlord, and shall promptly pay or cause to be paid to Landlord
the cost of repairing any damage in the Building caused by any person making
such deliveries to Tenant; provided, however, that during Tenant's move into
the Premises, Tenant shall not be charged any additional amounts for the use of
elevators or other services of the Building.
11. Furniture and Equipment. Tenant shall ensure that furniture and
equipment being moved into or out of the Premises is moved through such
entrances, elevators and corridors and at such times as may from time to time
be designated by Landlord, and by movers or a moving company approved by
Landlord, and shall promptly pay or cause to be paid to Landlord the cost of
repairing any damage in the Building caused by Tenant's movers.
12. Solicitations. Landlord reserves the right to restrict or prohibit
canvassing, soliciting or peddling in the Building.
13. Food and Beverages. Only persons approved from time to time by
Landlord may prepare, solicit orders for, sell, serve or distribute foods or
beverages in the Building, or use the elevators, corridors or commons areas for
any such purposes. Except with Landlord's prior written consent and in
accordance with arrangements approved by Landlord, Tenant shall not permit on
the Premises the use of equipment for dispensing food or beverages or for the
preparation, solicitation of orders for, sale, serving, or distribution of food
or beverages. Microwave ovens and refrigerators are permissible in Tenant's
kitchen.
14. Refuse. Tenant shall place all refuse in proper receptacles
provided by Tenant at its expense in the Premises or in receptacles (if any)
provided by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts of
the Building, free of all refuse.
15. Obstructions. Tenant shall not obstruct or place anything in or on
the sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Premises without Landlord's prior
written consent. Tenant may remove at Tenant's expense any such obstruction or
thing (unauthorized by Landlord) without notice or obligation to Tenant.
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<PAGE> 44
16. Dangerous or Immoral Activities. Tenant shall not make any use of
the Premises which involves the danger or injury to any person, nor shall the
same be used for any immoral purpose.
17. Proper Conduct. Tenant shall not conduct itself in any manner
which is inconsistent with the character of the Building as a first quality
building or which will unreasonably impair the comfort and convenience of other
tenants in the Building.
18. Employees, Agents and Invitees. In these Rules and Regulations,
"Tenant" includes the employees, agents, invitees and licensees of Tenant and
others permitted by Tenant to use or occupy the Premises.
19. Normal Business Hours. Normal business hours for the Building and
the Premises shall be from 7:00 a.m. until 6:00 p.m., Monday through Friday,
and from 8:00 a.m. until 3:00 p.m. on Saturday, excepting in any event, legal
holidays. Tenant shall have twenty-four (24) hour access to the Building and
its Premises, subject to the Landlord's Rules and Regulations regarding
Building security and card key access.
20. Consent Required. Whenever the prior written consent or Landlord
is required, the same shall not be unreasonably withheld.
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<PAGE> 45
EXHIBIT "E"
GUARANTY
THIS GUARANTY is made and delivered as of __________, 199__ ,
by GEORGE F. ADAM, individually (the "Guarantor"), to and for the benefit of
THE STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM (the "Landlord"),
and is made with reference to the following:
WHEREAS, Landlord has agreed, pursuant to a lease dated , 199 , to
lease approximately 3,777 square feet of office space to Neon Healthcare and
Systems, Inc., an Illinois corporation, (the "Lease") at the Solarium Building
located at the Solarium Building, 7400 East Orchard Road, Englewood, Colorado
80111 (the "Building"):
WHEREAS, the Guarantor is the sole proprietor of Neon Healthcare and
Systems, Inc.; and
WHEREAS, as additional consideration and a condition for Landlord's
agreement to enter into the Lease with Neon Healthcare and Systems, Inc. and
contemporaneously with the execution of the Lease, Guarantor has agreed to
execute this Guaranty;
NOW, THEREFORE, for value received, the receipt and sufficiency of
which is hereby acknowledged, Guarantor hereby agrees as follows;
(a) Guarantor hereby unconditionally guarantees payment of all amounts
due under the Lease, including but not limited to, Base Rent and Operating
Expenses and the performance by Neon Healthcare and Systems, Inc. of its
obligations under the Lease.
(b) Guarantor hereby unconditionally agrees to pay any and all
reasonable expenses and attorneys' fees incurred by the Landlord in enforcing
any rights hereunder. The obligation of the Guarantor hereunder is direct,
immediate, absolute, and continuing until such time as all amounts set forth in
this Guaranty or under the Lease have been paid.
(c) Guarantor hereby expressly waives notice of acceptance of this
Guaranty, diligence, presentment, demand, notice of nonpayment, protest and
notice of protest, pursuit of any right or remedy against Neon Healthcare and
Systems, Inc. or others, or pursuit of any security, and any and all suretyship
defenses and defenses in the nature thereof and, without notice, consents to or
waives, as the case may be, any and all modifications of the Lease or the terms
of any documents or instruments securing the same, and any and all obligations
otherwise imposed upon the Landlord by suretyship principles.
(d) The liability of Guarantor hereunder shall not be affected or
impaired by any failure, neglect or omission on the Landlord's part to realize
upon any collateral or security for the Lease, nor by any act or failure to act
whatsoever (except payment) which, but for this provision, might or could in
law or equity act to release or reduce the Guarantor's liabilities hereunder.
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<PAGE> 46
(e) Guarantor agrees that possession of this Guaranty by the Landlord
shall be conclusive evidence of the delivery hereof by Guarantor.
(f) Guarantor shall not be subrogated to Landlord's rights with
respect to payment of any indebtedness under the Lease, paid by Guarantor
pursuant to this Guaranty, unless and until the Guaranty has been paid in full.
(g) The liability of Guarantor hereunder shall be reinstated and the
rights of the Landlord shall continue if and to the extent that any payment by
or on behalf of Neon Healthcare and Systems, Inc. is legally required to be
forfeited, rescinded or otherwise restored by the Landlord as a result of any
proceeding in bankruptcy or reorganization, all as though such amount had not
been paid. The determination as to whether any such payment is legally required
to be forfeited, rescinded or restored shall be made by the Landlord, acting in
good faith and shall not require a determination of a court.
(h) All notices and other communications provided for hereunder shall
be in writing (including telegraphic communication) and, if to the Guarantor,
mailed registered or certified mail, return receipt requested, telegraphed or
delivered to Guarantor at 7400 East Orchard Road, Suite 230, Englewood,
Colorado 80111, and if to the Landlord, mailed, telegraphed or delivered to it
at Alex. Brown Kleinwort Benson Realty Advisors Corp., Attention: Kenneth
Winters, 1601 Response Road, Suite 300, Sacramento, California 95815, or, as to
each party, at such address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section. All such notices and communications shall, when mailed or telegraphed,
respectively, be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid.
(i) This Guaranty shall be construed and interpreted in accordance with
and governed by the laws of the State of Colorado.
(j) This Guaranty shall be binding upon the Guarantor, the Guarantor's
successors and assigns, and it shall inure to the benefit of the Landlord and
its successors and assigns.
(k) Time is of the essence of this Guaranty.
(l) The rights and remedies of the Landlord, as contained in this
Guaranty, are not the exclusive rights and remedies available to the Landlord,
but are in addition to all other rights or remedies available to it at law or
in equity. The Landlord's decision to pursue any right or remedy hereunder
shall not be construed as an election of remedies. Guarantor agrees to pay all
reasonable attorneys' fees in any legal actions related to this Agreement.
(m) This Guaranty may be amended, supplemented or interpreted at any
time only by a written instrument duly executed by both parties.
(n) Any provision hereunder to the contrary notwithstanding, if any
provision of this Guaranty shall be determined to be unlawful or invalid under
the laws of any state, territory, county or other
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<PAGE> 47
political subdivision, and would thereby invalidate this Guaranty therein, this
Guaranty shall be construed as though it did not contain such provision.
-42-
<PAGE> 48
THIS GUARANTY has been executed as of the date and year first above
written.
GUARANTOR:
-------------------------------------
George F. Adam, individually
Date:
--------------------------------
STATE OF )
)ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this _____ day of
__________, 199 __, by George F. Adam as Guarantor.
Witness my hand and official seal.
[S E A L]
-------------------------------------
Notary Public
My commission expires:_____________________
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<PAGE> 49
COMMENCEMENT DATE AGREEMENT
This Commencement Date Agreement is entered into this 23rd day of
January, 1995 by STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, an
agency of the State of California ("Landlord") and NEON HEALTHCARE AND SYSTEMS,
INC. ("Tenant"), pursuant to the provisions of that certain Lease Agreement
(the "Lease") dated October 12, 1994, by and between Landlord and Tenant,
covering certain space in the building known as The Solarium located at 7400
East Orchard Road, Englewood, CO 80111. All terms used herein with their
initial letter capitalized shall have the meaning assigned to such terms in the
lease.
W I T N E S S E T H :
1. The Building, the Premises, the Parking Garage, and all other
improvements required to be constructed and furnished by Landlord in accordance
with the terms of the Lease have been satisfactorily completed by Landlord and
accepted by the Tenant.
2. The Premises has been delivered to, and accepted by the Tenant,
per the Solarium Building Office Lease dated October 12, 1994.
3. The Commencement Date of the Lease is the 23rd day of January,
1995 and the Expiration Date will be the 31st day of December, 1999.
4. The Net Rentable Area of the Building is agreed to be 165,064
square feet. The Premises is Suite 230 and consists of 3,777 square feet of the
Net Rentable Area on the 2nd floor of the South building.
5. The Base Rent is $45,324.00 per annum, payable in monthly
installments of $3,777.00 and Tenant's estimated shares of Operating Costs for
the first year is $-0- payable in monthly installments of $-0-. Tenant is
entitled to 0 months of fee rent; therefore, Tenant's obligation to pay rent
will commence on the 23rd day of January, 1995.
6. Remittance of the foregoing payments shall be made on the
first day of each month in accordance with the terms and conditions of the
Lease at the following address:
PERS/ABKB/SOLARIUM BUILDING
P.O. BOX 730402
DALLAS, TX 75373-0402
<PAGE> 50
IN WITNESS WHEREOF, this instrument has been fully executed by
Landlord as of the date first written above.
LANDLORD TENANT
STATE OF CALIFORNIA PUBLIC NEON HEALTHCARE AND SYSTEMS, INC.
RETIREMENT SYSTEM 7400 EAST ORCHARD ROAD, SUITE 230
GREENWOOD VILLAGE, CO 80111
By: LASALLE ADVISORS LIMITED
PARTNERSHIP
Its: Advisor and Duly Authorized Agent By:
------------------------------
By: Its:
--------------------------------------- -----------------------------
Its:
--------------------------------------
By:
---------------------------------------
Its:
--------------------------------------
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<PAGE> 1
EXHIBIT 10.13
MASTER AGREEMENT FOR
PROFESSIONAL SERVICES
THIS MASTER AGREEMENT FOR PROFESSIONAL SERVICES ("Agreement") is made and
entered into as of the 1st day of March, 1995, by and between MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED, a corporation of the State of Delaware
with offices at Merrill Lynch World Headquarters, North Tower, World Financial
Center, 250 Vesey Street, New York, N.Y. 10281 (hereinafter referred to as
"CUSTOMER"), and NEON SOFTWARE, INC., a corporation of the State of Illinois
with offices at 7400 East Orchard Road, Suite 230, Englewood, Co. 80111
(hereinafter referred to as "CONSULTANT").
W I T N E S S E T H
That, for and in consideration of the mutual promises and covenants
hereinafter contained, the parties hereto agree as follows:
ARTICLE 1
GENERAL DESCRIPTION OF OBJECTIVES
AND SCOPE OF SERVICES
1.1 CONSULTANT agrees to provide to CUSTOMER technical assistance and
assistance in design, programming, training, consulting, project
management, use of expertise and related services as are described on
such CONSULTANT Schedules as are executed from time to time by both
parties to this Agreement (the "Schedules"). Such services shall be
provided in accordance with the provisions of this Agreement and
within guidelines established by CUSTOMER. There shall be two types of
Schedules, one a time and materials Schedule substantially in the form
annexed hereto as Exhibit 1 and made a part hereof ("T&M Schedule"),
the other a fixed price Schedule substantially in the form annexed
hereto as Exhibit 2 and made a part hereof ("Fixed Price Schedule").
Each Schedule shall be consecutively numbered to facilitate
identification.
1.1.1 Each such Schedule, when executed by an authorized
representative of both parties, shall constitute a separate
agreement and except for any provisions herein which are
specifically excluded or modified in such Schedule, each such
Schedule shall incorporate therein all of the terms and
conditions of this Agreement. Each T&M Schedule will contain
the names of the CONSULTANT employees performing services
covered by that Schedule, their job classification, the daily
rate of payment applicable to each listed CONSULTANT employee
(the "Daily Rate"), the work location of each CONSULTANT
employee, the name of CUSTOMER's Project Manager and such
additional information, terms and conditions as the parties
may agree upon. Each Fixed Price Schedule will contain
<PAGE> 2
the fixed price of the work effort, the names of CONSULTANT's
and CUSTOMER's Project Managers and such additional
information, terms and conditions as the parties may agree
upon. In the event of any conflict between the terms and
conditions of this Agreement and the terms and conditions of
any Schedule, the terms and conditions of such Schedule shall
govern.
1.2 The scope of CONSULTANT's work effort must be coordinated with
appropriate personnel designated by CUSTOMER and shall at all times be
subject to the parameters established by CUSTOMER from time to time.
1.3 CONSULTANT agrees that CUSTOMER'S parent company or any subsidiary
and/or affiliated company of CUSTOMER may execute Schedules in
accordance with the provisions of this Agreement. In such event, the
applicable subsidiary or company of CUSTOMER executing any Schedule
shall be considered to be the "CUSTOMER" as that term is used in this
Agreement.
1.4 Unless otherwise mutually agreed to by the parties in writing,
CONSULTANT and CUSTOMER agree not to hire or to solicit the employment
of any personnel of the other party directly or indirectly associated
with CONSULTANT'S work effort under any Schedule during the term of
such Schedule and for a period of six (6) consecutive months
thereafter.
1.5 This Agreement shall commence on the date first above written and
shall continue in full force and effect thereafter unless and until
terminated in accordance with the provisions of this Agreement.
1.6 This Agreement shall apply to all work done by CONSULTANT and to all
products supplied by CONSULTANT to CUSTOMER from the date hereof,
whether or not a Schedule has been executed for such work or products.
ARTICLE 2
STATEMENT OF WORK
2.1 A statement of scope of work (the "Statement") shall be attached to
each Schedule as an Attachment A and shall be incorporated therein and
made a part thereof. Any Statement attached to a T&M Schedule will
contain a description of, and the schedule for, the tasks to be
performed by CONSULTANT, the documentation, if any, to be produced by
CONSULTANT, the maximum dollar amount (the "Maximum Dollar Amount")
billable under such T&M Schedule, and such additional information as
the parties may wish to include. Any Statement attached to a Fixed
Price Schedule will contain a full and complete description of the
tasks to be performed by CONSULTANT, a description of the deliverables
to be produced by CONSULTANT, a listing of the documentation to be
provided by CONSULTANT, the schedule for completion of each of the
foregoing (including, but not limited to, milestone dates and PERT
charts), a schedule of payments and
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such additional information as the parties may wish to include.
2.1.1 Each Schedule referred to herein shall be deemed to include
any such Statement.
ARTICLE 3
ORGANIZATION OF EMPLOYEES
SUPPLIED BY CONTRACTOR
3.1 CONSULTANT will appoint for each T&M Schedule, at no charge to
CUSTOMER, a qualified member of its staff who will operate as the
main interface between CUSTOMER and CONSULTANT, who will ensure that
CONSULTANT personnel coordinate and interface with CUSTOMER personnel
in a manner satisfactory to CUSTOMER, and who will assist CUSTOMER in
resolving any problems.
3.2 In order to establish a close working relationship with CUSTOMER on
fixed price work efforts and to ensure that CONSULTANT personnel
coordinate and interface with such CUSTOMER personnel as may be
designated by CUSTOMER, CONSULTANT agrees to appoint a qualified
member of its staff, at no charge to CUSTOMER, to function as
CONSULTANT's Project Manager for each Fixed Price Schedule. The
CONSULTANT Project Manager will be charged with the responsibility of
coordinating CONSULTANT's fixed price work effort with appropriate
CUSTOMER personnel and of ensuring that CONSULTANT's resources are
available to perform the tasks set forth on the applicable Fixed Price
Schedule. The CONSULTANT Project Manager will also prepare the monthly
status reports required under the terms of Article 5 hereof.
3.3 In the event that any CONSULTANT employee performing services under
any Schedule is found to be unacceptable to CUSTOMER for any cause,
including, but not limited to, demonstration that he or she is not
qualified to perform, CUSTOMER shall have the right to notify
CONSULTANT of such fact (without waiving any other rights or remedies
it may have hereunder) and CONSULTANT shall immediately remove said
employee from performing services under that Schedule and, if
requested by CUSTOMER, provide a qualified replacement.
3.3.1 In the event that any anticipated or actual delays in meeting
CUSTOMER's deadlines or scheduled completion dates for work
being performed under any Schedule are caused by the
unacceptable performance of any CONSULTANT employee,
CONSULTANT shall provide additional temporary personnel, as
requested by CUSTOMER and at no charge to CUSTOMER, in order
to complete the assignment involved in a timely manner.
3.4 CONSULTANT agrees to ensure the continuity of CONSULTANT employees
assigned to perform services under any Schedule. Any reassignment by
CONSULTANT of those of its employees assigned to perform services
under any Schedule must be with CUSTOMER's prior written consent and
with one (1) month's prior written notice to CUSTOMER. In the event
CONSULTANT
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<PAGE> 4
reassigns any of its employees assigned to perform services under any
Schedule, CONSULTANT will promptly provide a replacement acceptable to
CUSTOMER. In no event may CONSULTANT remove or replace personnel
provided hereunder for the purpose of reassignment to another customer
or elsewhere within CUSTOMER, unless otherwise agreed to in writing by
CUSTOMER.
3.5 There will be no charge to CUSTOMER for any replacement provided in
accordance with Sections 3.3 and/or 3.4 hereof for a reasonable
period of time (to be agreed upon between CUSTOMER and CONSULTANT)
while the replacement employee acquires the necessary orientation and
education to make a productive contribution substantially equal to
that of the employee replaced.
3.6 CONSULTANT, in performance of this Agreement, is acting as an
independent contractor. Personnel supplied by CONSULTANT hereunder are
not CUSTOMER's personnel or agents, and CONSULTANT assumes full
responsibility for their acts. CONSULTANT shall be solely responsible
for the payment of compensation of CONSULTANT employees assigned to
perform services hereunder, and such employees shall be informed that
they are not entitled to the provision of any CUSTOMER employee
benefits. CUSTOMER shall not be responsible for payment of workers'
compensation, disability benefits, unemployment insurance and for
withholding income taxes and social security for any CONSULTANT
employee, but such responsibility shall be that of CONSULTANT.
3.6.1 In the event that the Internal Revenue Service, any state or
local government agency or any other applicable entity
determines that the personnel provided by CONSULTANT under any
Schedule are employees of CUSTOMER for the purpose of
withholding tax liability, CONSULTANT agrees to indemnify
CUSTOMER against and release CUSTOMER from all liabilities,
costs, and expenses (including, but not limited to, attorneys'
fees) associated with the defense of such claim.
ARTICLE 4
ORGANIZATION OF PERSONNEL
SUPPLIED BY CUSTOMER
4.1 CUSTOMER shall designate an appropriate CUSTOMER representative as
CUSTOMER's Project Manager for each Schedule. The CUSTOMER's Project
Manager will be charged with the responsibility of acting as
CONSULTANT's principal point of interface with CUSTOMER for the
services covered by the Schedule involved, and, in the case of any T&M
Schedule, will direct, define, and schedule the tasks to be performed
by CONSULTANT employees contemplated by the applicable Statement.
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<PAGE> 5
ARTICLE 5
STATUS REPORTS; STATUS MEETINGS
5.1 Unless otherwise agreed to by CUSTOMER, in writing, CONSULTANT shall
submit to CUSTOMER's designated Project Manager every month during the
term of each Statement (commencing thirty (30) days from the
commencement date of such Statement) written status reports fully
describing CONSULTANT's activities and accomplishments during the
preceding month, in order to timely report CONSULTANT's continuous
involvement in the tasks contemplated by the applicable Statement and
in order to direct timely corrective action as necessary. The status
reports will include, but will not necessarily be limited to, the
following:
5.1.1 Current status of CONSULTANT activities together with an
explanatory narrative when appropriate.
5.1.2 Indication of the progress of the work being performed by
CONSULTANT, as that progress relates to the Statement
involved.
5.1.3 Resources used since the date of the last report, as well as a
cumulative total to date.
5.1.4 Identification of actual and anticipated problem areas, the
impact on CONSULTANT's work effort of said problem areas, and
present action being taken (or suggested alternative action
steps to be taken) in order to reduce the impact of such
problems.
5.2 If CUSTOMER so requests, CONSULTANT shall hold status meetings with
CUSTOMER management in order to review the status of CONSULTANT
activities.
ARTICLE 6
FEES AND EXPENSES; RECORDS; TAXES
6.1 CONSULTANT agrees to invoice CUSTOMER, monthly in arrears as of the
15th day of each month (or as otherwise mutually agreed to by the
parties in writing), for the technical assistance and assistance in
design, programming, consulting, training project management, use of
expertise and related services provided to CUSTOMER by CONSULTANT
personnel under any T&M Schedule in accordance with the Daily Rate set
forth opposite each CONSULTANT employee listed on that Schedule. Such
Daily Rate shall be in no event more than CONSULTANT's standard
published rate for an employee in that job classification. CONSULTANT
agrees to invoice CUSTOMER for any fixed price work effort in
accordance with the schedule of payments set forth on the Statement
attached to the applicable Fixed Price Schedule.
6.1.1 For work performed pursuant to any T&M Schedule, the normal
work week shall be five (5) days, seven (7) hours per day,
excluding one (1) hour for meals. Such days and hours shall be
as requested by CUSTOMER from time to time. In the event that
less than a
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seven (7) hour day is worked by a CONSULTANT employee on any
given day, the amount payable by CUSTOMER for that day will be
determined by applying a fraction whose numerator is the
actual number of hours worked by such CONSULTANT employee and
whose denominator is seven (7) to the appropriate Daily Rate
for that employee. Any hours worked by a CONSULTANT employee
under any T&M Schedule in excess of seven (7) in any one day,
or any days worked by a CONSULTANT employee under any T&M
Schedule in excess of five (5) days in any one week, shall be
at no additional expense to CUSTOMER unless prior written
approval is obtained from the applicable Project Manager, in
which case the amount payable for each such hour shall be 1/7
of the applicable Daily Rate.
6.1.2 For work performed pursuant to any T&M Schedule, CONSULTANT
will submit authorized time sheets to CUSTOMER each week
showing the number of hours worked by CONSULTANT employees.
6.2 In addition to the charges invoiced in accordance with Section 6.1
hereof, CONSULTANT shall invoice CUSTOMER, monthly in arrears as of
the 15th day of each month (or as otherwise mutually agreed to by the
parties in writing), for expenses incurred as a result of performing
services in accordance with any Schedule. Such expenses shall be
limited to the following:
6.2.1 Reasonable out-of-pocket expenses necessarily and actually
incurred by CONSULTANT in the performance of its services
hereunder, provided that: (i) CUSTOMER has given its prior
written consent for any such expenses; (ii) the expenses have
been detailed on a form acceptable to CUSTOMER and submitted
to the appropriate CUSTOMER Project Manager for review and
approval; and (iii) if requested by CUSTOMER, CONSULTANT
submits supporting documentation in addition to the approved
expense form. It is understood that CUSTOMER shall not
reimburse CONSULTANT for commutation expenses under any
circumstances or for travel and living expenses incurred by
any CONSULTANT employee in performing services at a CUSTOMER
facility located in the same metropolitan area as that of
employee's home base. It is also understood that any air
transportation reimbursable hereunder shall be coach-economy
and that entertainment by or on behalf of CONSULTANT shall be
at no cost to CUSTOMER.
6.3 CONSULTANT will submit the charges and/or expenses to be invoiced for
services performed under any Schedule to the CUSTOMER's Project
Manager for that Schedule for review and approval prior to actual
invoicing. The charges and/or expenses invoiced in accordance with
this Article 6, except for any amounts disputed by CUSTOMER, shall be
payable by CUSTOMER within thirty (30) days of CUSTOMER's receipt of
each invoice. Any disputed charges and/or expenses shall not affect
payment of non-disputed charges and/or expenses,
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<PAGE> 7
in accordance with the terms of this Agreement. Consultant agrees to
send duplicate copies of each invoice to Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Merrill Lynch World Headquarters, World
Financial Center, South Tower, New York, NY 10080-6105, Attn: Vice
President - Software & Professional Services, Technology Acquisitions.
6.4 Notwithstanding anything to the contrary contained herein, CUSTOMER
shall not be liable for any charges and/or expenses under any T&M
Schedule in excess of the Maximum Dollar Amount specified on such T&M
Schedule. In the event that CONSULTANT's charges and/or expenses
billable under any T&M Schedule approach the Maximum Dollar Amount,
CONSULTANT shall immediately notify CUSTOMER of such fact, in writing,
and if CUSTOMER agrees, at its discretion, in writing, a new Maximum
Dollar Amount shall be applicable to such T&M Schedule.
6.5 CONSULTANT shall maintain complete and accurate accounting records, in
a form in accordance with generally accepted accounting principles, to
substantiate CONSULTANT's charges and expenses hereunder. Such records
shall include, but not be limited to, payroll records, attendance
cards and job summaries, and CONSULTANT shall retain such records for
a period of one (1) year from the date of final payment under any
Schedule.
6.5.1 CUSTOMER shall have access to the records described in Section
6.5 for purposes of audit during normal business hours during
the period in which CONSULTANT is required by the terms of
Section 6.5. hereof to maintain such records.
6.6 The charges set forth herein do not include and CUSTOMER will pay, as
hereinafter stated, all sales or use taxes lawfully levied against or
upon the services provided hereunder, or arising out of this
Agreement.
ARTICLE 7
VERIFICATION OF ACCEPTABILITY
7.1 Each and every deliverable contemplated by any Schedule shall be
subject to a Verification of acceptability by CUSTOMER for the purpose
of demonstrating that the deliverable satisfies the criteria for
verification of acceptability mutually agreed to by CUSTOMER and
CONSULTANT for said deliverable, a copy of which shall be attached to
the applicable Schedule and made a part thereof.
7.2 The criteria for verification of acceptability for each deliverable
contemplated by any Schedule shall be jointly developed and mutually
agreed to in writing by CUSTOMER and, CONSULTANT at least thirty (30)
days in advance of the date identified in the Schedule for production
of the deliverable involved.
7.2.1 In the event the parties are unable to jointly develop and
mutually agree to the criteria for verification of
acceptability of software
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deliverables, then at a minimum, verification of acceptability
of such software deliverable shall be based on the conformance
of the software deliverables to the functional specifications
for same.
7.2.2 In the event the parties are unable to jointly develop and
mutually agree to the criteria for verification of
acceptability of requirements definition deliverables, design
deliverables or other non-software deliverables, then, at a
minimum verification of acceptability of such deliverables
shall be based, in the case of design deliverables, on the
conformance of the design deliverable to the applicable
statement of business requirements and, in the case of
requirements definition deliverables and other non-software
deliverables, on CUSTOMER's satisfaction or non-satisfaction
with the deliverable.
7.3 The verification of acceptability for any deliverable pursuant to any
Schedule shall commence on the date CONSULTANT notifies CUSTOMER's
Project Manager, in writing, that the deliverable involved has been
satisfactorily completed, in CONSULTANT's opinion, and is ready for
verification of acceptability by CUSTOMER. Such commencement date
shall be a date no later than ten (10) calendar days after the date on
which the deliverable is to be produced, as specified on the
applicable Statement (or such other date as may be mutually agreed to
by both parties in writing). Verification of acceptability shall
continue for the period of time specified in the criteria for
verification of acceptability or, if no such time period has been
agreed upon by the parties, for a period of thirty (30) consecutive
days.
7.4 In the event that any deliverable contemplated by any Schedule does
not conform to the criteria for verification of acceptability for same
within the verification of acceptability period described in Section
7.3 hereof, CUSTOMER shall notify CONSULTANT in writing of such fact.
CUSTOMER shall cooperate with CONSULTANT in identifying in what
respects the deliverable has failed to conform to the criteria.
CONSULTANT shall, at no cost to CUSTOMER, promptly correct any
deficiencies which prevent such deliverable from conforming to the
criteria. Upon completion of the corrective action by CONSULTANT, and
at no additional cost to CUSTOMER, the verification of acceptability
will be repeated until the deliverable has successfully conformed to
the criteria for verification of acceptability.
7.5 If the deliverable contemplated by any Schedule does not conform to
the criteria for verification of acceptability within thirty (30) days
after the initial verification of acceptability period described in
7.3, CUSTOMER may (i) immediately terminate the applicable schedule
without waiving any other rights or remedies it may have hereunder and
CONSULTANT shall immediately reimburse CUSTOMER any amounts paid; or
(ii) require CONSULTANT to continue to
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attempt to correct the differences, reserving the right to terminate
as aforesaid at anytime.
7.6 When any deliverable has successfully conformed to or satisfied the
criteria for verification of acceptability for same, CUSTOMER shall
promptly notify CONSULTANT of such fact in writing.
ARTICLE 8
PATENT AND COPYRIGHT INFRINGEMENT
8.1 CONSULTANT agrees to defend and/or handle at its own cost and expense
any claim or action against CUSTOMER, its parent company, and its or
their subsidiaries and/or affiliated companies, for actual or alleged
infringement of any patent, copyright or other property right
(including, but not limited to, misappropriation of trade secrets)
based on any software, program, service and/or other materials
furnished to CUSTOMER by CONSULTANT pursuant to the terms of this
Agreement or the use thereof by CUSTOMER.
8.1.1 CONSULTANT shall have the sole right to conduct the defense of
any such claim or action and all negotiations for its
settlement or compromise, unless otherwise mutually agreed to
in writing by the parties hereto.
8.2 CONSULTANT further agrees to indemnify and hold CUSTOMER, its parent
company, and its or their subsidiaries and/or affiliated companies,
harmless from and against any and all liabilities, losses, damages,
costs and expenses (including, but not limited to, attorneys' fees)
associated with any such claim or action.
8.3 CONSULTANT agrees to give to CUSTOMER, in reasonable detail, prompt
written notice of any threat, warning, or notice of any such claim or
action against CONSULTANT which could have an adverse impact on
CUSTOMER's use of said software, program, service and/or materials.
8.4 In addition to CUSTOMER'S other rights and CONSULTANT'S obligations
pursuant to Sections 8.1, 8.2 and 8.3 hereof CONSULTANT agrees, should
CUSTOMER'S use of any service, software, program, and/or other
material furnished to CUSTOMER by CONSULTANT be enjoined by any court,
to promptly obtain, at no expense to CUSTOMER, the right to continue
to use the items so enjoined or, at no expense to CUSTOMER, provide
CUSTOMER promptly with substitute items (which supply of such items
will not violate any third party's rights), that are qualitatively and
functionally at least the equal of the enjoined products and satisfy
CUSTOMER's needs to the same extent as the enjoined product.
ARTICLE 9
CONFIDENTIAL INFORMATION
9.1 Confidential information shall mean any information obtained by
CONSULTANT from, or disclosed to CONSULTANT by, CUSTOMER, its parent
company, its or their subsidiaries and/or
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affiliated companies, and/or any of their clients, which relates to
the past, present or future business activities of said entities,
and/or their clients, including, but not limited to, any information
relating to pricing, methods, processes, financial data, lists,
technical data, apparatus, statistics, programs, specifications,
documentation, research, development or related information, and the
results from the provision of the services performed by CONSULTANT
under this Agreement. CONSULTANT shall hold such confidential
information in trust and confidence for CUSTOMER and shall not
reproduce, disclose to any person, firm or enterprise, or use for its
own benefit, any such confidential information. Upon the completion
and/or termination of any Schedule, or sooner if so requested by
CUSTOMER, CONSULTANT shall deliver to CUSTOMER all items, including,
but not limited to, drawings, blueprints, descriptions, test data or
other papers or documents, which may contain any such confidential
information.
9.2 Unless otherwise specified in any Schedule, title to all materials,
products and/or deliverables, including, but not limited to, reports,
designs, programs, specifications, documentation, manuals, visual
aids, and any other materials developed and/or prepared for CUSTOMER
by CONSULTANT under any Schedule (whether or not such Schedule is
completed), and all interest therein shall vest in CUSTOMER and shall
be deemed to be a work made for hire and made in the course of the
services rendered hereunder. To the extent that title to any such
works may not, by operation of law, vest in CUSTOMER or such works may
not be considered works made for hire, all rights, title and interest
therein are hereby irrevocably assigned to CUSTOMER. All such
materials shall belong exclusively to CUSTOMER, with CUSTOMER having
the right to obtain and to hold in its own name, copyrights,
registrations or such other protection as may be appropriate to the
subject matter, and any extensions and renewals thereof. CONSULTANT
agrees to give CUSTOMER and any person designated by CUSTOMER,
reasonable assistance, at CUSTOMER's expense, required to perfect the
rights defined in this Section 9.2. Unless otherwise requested by
CUSTOMER, upon the completion of the services to be performed under
each Schedule or upon the earlier termination of such Schedule,
CONSULTANT shall immediately turn over to CUSTOMER all materials and
deliverables developed pursuant to such Schedule, including, but not
limited to, working papers, narrative descriptions, reports and data.
ARTICLE 10
WARRANTIES
10.1 CONSULTANT warrants and represents that each of its employees assigned
to perform services under any Schedule shall have the proper skill,
training and background so as to be able to perform in a competent and
professional manner and that all work will be performed in accordance
with the Schedules.
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10.2 Unless otherwise specified in any Schedule, all materials,
deliverables and products developed under each Schedule by CONSULTANT,
whether or not such Schedule is completed, are the property of
CUSTOMER, CONSULTANT warrants that CUSTOMER shall receive free, good
and clear title to all materials, deliveries and products developed
under this Agreement.
10.3 CONSULTANT warrants and represents that each and every software
deliverable contemplated by a Fixed Price Schedule shall conform to
the specifications for same as mutually agreed to in writing by
CUSTOMER and CONSULTANT.
10.4 CONSULTANT warrants and represents that for that period of time
specified in the applicable Schedule from the date CUSTOMER notifies
CONSULTANT of the fact that a deliverable has successfully conformed
to the criteria for verification of acceptability for same, in
accordance with Section 7.5 hereof CONSULTANT will, at no charge to
CUSTOMER, furnish such materials and services as shall be necessary to
correct any defects in the operation of the version of the software
deliverable or other products in CUSTOMER's possession and to maintain
them in good working order in accordance with the specifications for
same. Unless otherwise stated in the Schedule, the warranty period
shall be one hundred twenty (120) consecutive calendar days.
Article 11
INDEMNIFICATION; INSURANCE
11.1 CONSULTANT shall be liable for and shall defend, indemnify and hold
CUSTOMER harmless against any claims, losses, damage or expenses
(including reasonable attorney's fees) in connection with or arising
out of the acts or omissions of CONSULTANT; its officers, employees,
agents and representatives.
11.2 CONSULTANT shall procure and maintain for its benefit Comprehensive
General Liability coverage and Umbrella and/or Excess Liability
coverage with minimum total limits of $3,000,000 combined single limit
for property damage and bodily injury. CONSULTANT shall name CUSTOMER
and all parent companies of CUSTOMER as additional insureds, as
respects this particular contract on its Comprehensive General
Liability and Umbrella and/or Excess Liability coverage. CONSULTANT
shall also procure and maintain for its benefit Automobile Liability
coverage in an amount of not less than $500,000 combined single limit.
11.3 CONSULTANT shall procure and maintain a Fidelity Bond covering
CONSULTANT, its officers and employees with a limit of not less than
$2,000,000.
11.4 CONSULTANT shall procure and maintain for itself and its employees all
insurance coverage required by Federal, State or local law, including
Workers' Compensation insurance and a minimum of $100,000 in
Employer's Liability coverage.
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11.5 All insurance coverages maintained by CONSULTANT shall be written by
insurers acceptable to the CUSTOMER. CONSULTANT shall furnish to
CUSTOMER Certificates of Insurance evidencing all of the above
required coverages and naming CUSTOMER and all parent companies of
CUSTOMER as additional insureds as required. Said certificate(s) will
contain a provision whereby thirty (30) days notice must be received
by Group Manager, Technology Acquisitions Group of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Merrill Lynch World Headquarters,
World Financial Center, South Tower, New York, NY 10080-6105, prior
to cancellation or a material change in coverage by either CONSULTANT
or Insurer.
ARTICLE 12
EXCUSABLE DELAYS (FORCE MAJEURE)
12.1 In no event shall either party be liable to the other for any delay or
failure to perform hereunder, which delay or failure to perform is due
to causes beyond the control of said party including, but not limited
to, acts of God; acts of the public enemy; acts of the United States
of America, or any State, territory or political division of the
United States of America, or of the District of Columbia; fires;
floods; epidemics; quarantine restrictions; strikes; and freight
embargoes.
12.2 In every case the delay or failure to perform must be beyond the
control and without the fault or negligence of the party claiming
excusable delay, and the party claiming excusable delay must promptly
notify the other party of such delay.
12.3 Performance times under this Agreement or under any Schedule shall be
considered extended for a period of time equivalent to the time lost
because of any delay which is excusable under this Article 12;
provided, however, that if any such delay continues for a period of
more than sixty (60) calendar days, the party not claiming excusable
delay shall have the option of terminating this Agreement or the
applicable Schedule, upon notice to the party claiming excusable
delay.
ARTICLE 13
MATERIAL BREACH; TERMINATION
13.1 In the event of any material breach of, or material misrepresentation
relating to, any Schedule by either party, the other party may
terminate said Schedule by giving thirty (30) days' prior written
notice thereof and/or pursue any other remedies and rights at law or
in equity; provided, however, that such Schedule will not terminate at
the end of said thirty (30) days' notice period if the party in breach
has cured the misrepresentation or breach of which it has been
notified prior to the expiration of said thirty (30) days.
13.2 IN NO EVENT SHALL EITHER PARTY BE LIABLE, ONE TO THE OTHER, FOR
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF THE SERVICES OR
MATERIALS PROVIDED FOR IN THIS AGREEMENT,
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EXCEPT TO THE EXTENT SUCH DAMAGES ARE INCLUDED IN AN AWARD AGAINST
CUSTOMER RESULTING FROM A CLAIM FOR WHICH CUSTOMER IS INDEMNIFIED
HEREUNDER AND EXCEPT FOR PERSONAL INJURY OR DEATH, OR DAMAGE TO REAL
PROPERTY.
ARTICLE 14
TERMINATION FOR CONVENIENCE
14.1 Notwithstanding any other provision(s) of this Agreement to the
contrary, CUSTOMER may terminate this Agreement or any Schedule(s)
hereunder for its convenience by giving CONSULTANT two (2) weeks' prior
written notice of its election to terminate said Agreement or
Schedule. In such case, CUSTOMER agrees to pay CONSULTANT for all
costs incurred by CONSULTANT up to the effective date of termination
at the agreed upon rates and expenses set forth herein.
ARTICLE 15
CUSTOMER SECURITY REGULATIONS/WORK POLICY
15.1 CONSULTANT and each employee of CONSULTANT performing services covered
by any Schedule will safeguard the confidential information of
CUSTOMER to which he/she has access. Without limiting the generality
of the foregoing, neither CONSULTANT nor any employee or other
personnel provided by CONSULTANT will trespass into, destroy, modify,
or disclose any confidential information of CUSTOMER except as
otherwise provided herein. Without limiting any of CUSTOMER'S rights
or remedies hereunder, all of which are specifically reserved, any
unauthorized trespass into, destruction, modification, or disclosure
of confidential information by or caused by CONSULTANT or any employee
or other personnel provided by CONSULTANT will be grounds for
immediate termination of Services and, where appropriate, referral to
law enforcement agencies for criminal prosecution.
15.2 CONSULTANT'S personnel will comply with CUSTOMER'S security
regulations particular to each work location, including, but not
limited to, CUSTOMER'S internal security department's fingerprinting
and photographing screening process. CONSULTANT'S personnel, when
deemed appropriate by CUSTOMER, will be issued visitor identification
cards. Each such card will be surrendered by CONSULTANT'S personnel
upon demand by CUSTOMER or upon termination of this Agreement.
15.3 Unless otherwise agreed to by the parties, CONSULTANT'S personnel will
observe the working hours, working rules, and holiday schedules of
CUSTOMER while working on CUSTOMER'S premises. In addition, the
vacation time for CONSULTANT'S personnel will be scheduled so as not
to interfere with the deadlines or scheduled completion date for any
work being performed under any Schedule.
13
<PAGE> 14
ARTICLE 16
ASSIGNMENT
16.1 This Agreement shall be binding upon the parties' respective
successors and permitted assigns.
16.2 Neither party may assign this Agreement and/or any of its rights
and/or obligations hereunder without the prior written consent of the
other party, and any such attempted assignment shall be void, except
that CUSTOMER may assign this Agreement, and/or any of its rights
and/or obligations hereunder, upon written notice to CONSULTANT, to
its parent company, or to any of its or their subsidiaries or
affiliated companies, without the consent of CONSULTANT. Furthermore,
no work to be performed by CONSULTANT hereunder shall be subcontracted
to or performed on behalf of CONSULTANT by any third party, except
upon written permission by CUSTOMER.
ARTICLE 17
NOTICES
17.1 All notices and other official communications under this Agreement
shall be in writing and shall be sufficiently given if delivered
personally or mailed by first class mail, proper postage prepaid, to
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, Merrill Lynch
World Headquarters, World Financial Center, South Tower, New York, NY
10080-6105, Attention: Group Manager, Technology Acquisitions, and to
NEON SOFTWARE, INC., 7400 East Orchard Road, Suite 230, Englewood, Co.
80111, Attention: George F. Rick, President, or to such other address
or addressee as either party may from time to time designate to the
other by written notice.
17.2 Any such notice or other official communication shall be deemed to be
given as of the date it is personally delivered or when placed in the
mails in the manner specified.
ARTICLE 18
GOVERNING LAW
18.1 The validity of this Agreement, the construction and enforcement of
its terms, and the interpretation of the rights and duties of the
parties shall be governed by the laws of the State of New York.
ARTICLE 19
MODIFICATION, AMENDMENT, SUPPLEMENT OR WAIVER
19.1 No modification, amendment, supplement to or waiver of this Agreement
or any Schedule hereunder, or any of their provisions shall be binding
upon the parties hereto unless made in writing and duly signed by both
parties.
19.2 A failure or delay of either party to this Agreement to enforce at any
time any of the provisions hereof, or to exercise any option which is
herein provided, or to require at any time performance of any of the
provisions hereto
14
<PAGE> 15
shall in no way be construed to be a waiver of such provisions of this
Agreement.
ARTICLE 20
COMPLETE AGREEMENT
20.1 This Agreement, together with all Schedules, Exhibits and Attachments
hereto constitutes the entire agreement between the parties and
supersedes all prior agreements, promised, proposals, representations,
understandings and negotiations, whether written or oral, between the
parties respecting the subject matter hereof.
ARTICLE 21
SEVERABILITY
21.1 In the event any one or more of the provisions of this Agreement shall
for any reason be held to be invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall be unimpaired and the
invalid, illegal or unenforceable provisions shall be replaced by a
mutually acceptable provision which, being valid, legal and
enforceable, comes closest to the intention of the parties underlying
the invalid, illegal, or unenforceable provision.
ARTICLE 22
ADVERTISING OR PUBLICITY
22.1 Neither party shall use the name or symbol of the other in publicity
released or advertising without securing the prior written consent of
the other.
ARTICLE 23
EXHIBITS; ATTACHMENTS
23.1 The terms and conditions of any and all Exhibits and Attachments to
this Agreement are incorporated herein by this reference and shall
constitute part of this Agreement as if fully set forth herein.
ARTICLE 24
HEADINGS
24.1 The headings in this Agreement are for purposes of reference only and
shall not in any way limit or affect the meaning or interpretation of
any of the terms hereof.
ARTICLE 25
FAVORABLE PROVISIONS
25.1 CONSULTANT warrants that all of the provisions of this Agreement are
comparable to or better than the equivalent provisions being offered
by CONSULTANT to any of its present commercial customers. If
CONSULTANT offers more favorable provisions to commercial customers
during the terms of their
15
<PAGE> 16
contract periods under this Agreement, such provisions shall be made
available to CUSTOMER. CONSULTANT'S obligations pursuant to this
Article 25 may be limited by applicable law.
ARTICLE 26
COMPLIANCE WITH LAWS
26.1 CONSULTANT warrants that it will comply with all applicable U.S.,
state and local laws and regulations in its performance of its
obligations hereunder.
IN WITNESS WHEREOF, the parties hereto, each acting under due and proper
authority, have executed this Agreement as of the date first above written.
MERRILL LYNCH, PIERCE, FENNER NEON SOFTWARE, INC.
& SMITH INCORPORATED
By: /s/ THOMAS VERSEY By: /s/ GEORGE F. ADAMS JR.
------------------------------- -------------------------------
Name: Thomas Versey Name: George F. Adams Jr.
----------------------------- -----------------------------
Title: Vice President Title: President and CEO
---------------------------- ----------------------------
16
<PAGE> 17
EXHIBIT 1 (SAMPLE ONLY)
T&M SCHEDULE
This Schedule, dated as of ________, 19__, is issued pursuant to, and
incorporates herein, the Master Agreement for Professional Services dated as of
________, 19__, ("Agreement"), by and between Merrill Lynch; Pierce, Fenner &
Smith Incorporated ("Customer"), and ________________ ("Consultant"). Any term
not otherwise defined herein shall have the meaning ascribed to it in the
Agreement.
----------
(Number)
- ------------------------------------- -------------------------------------
(CUSTOMER Location) (CONSULTANT Location)
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- -------------------------------------
(CUSTOMER Project Manager)
<TABLE>
<CAPTION>
Scheduled
Name of CONSULTANT Job Daily Commencement Completion
Employee Classification Rate Date Date
- ------------------ -------------- ----- ------------ ----------
<S> <C> <C> <C> <C>
1.
2.
3.
</TABLE>
Maximum Dollar Amount
Warranty Period
See Attachment A for a description of, and the schedule for, the tasks to be
performed and the documentation, if any, to be produced.
IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have
executed this Schedule No.___ as of the day, month and year first above
written.
MERRILL LYNCH, PIERCE, FENNER
- ---------------------------------- & SMITH INCORPORATED
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
<PAGE> 18
EXHIBIT 2 (SAMPLE ONLY)
FIXED PRICE SCHEDULE
This Schedule, dated as of ________, 19__, is issued pursuant to, and
incorporates herein, the Master Agreement for Professional Services dated as of
________, 19__, ("Agreement"), by and between Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Customer"), and ________________ ("Consultant"). Any term
not otherwise defined herein shall have the meaning ascribed to it in the
Agreement.
----------
(Number)
Fixed Price Scheduled Start Date
Warranty Period Scheduled Completion Date
CUSTOMER Project Manager CONTRACTOR Project Manager
See Attachment A for a full and complete description of the tasks to be
performed, a description of the deliverables to be produced, a listing of the
documentation to be provided, the schedule for completion of each of the
foregoing (including, but not limited to, milestone dates and PERT charts) and
a schedule of payments.
MERRILL LYNCH, PIERCE, FENNER
- ---------------------------------- & SMITH INCORPORATED
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
<PAGE> 19
[MERRILL LYNCH LETTERHEAD]
February 15, 1996
Mr. Rick Adam, President
NEON Software, Inc.
7400 East Orchard Road, Suite 230
Englewood, Co. 80111
Subject: Schedule No. NTP501368 to the Master Agreement for Professional
Services
Dear Rick:
Enclosed for your files is a fully executed original of Schedule No. NTP501368
to the Master Agreement for Professional Services in place between NEON and
Merrill Lynch covering the products and services that your firm is providing to
Merrill Lynch in connection with our CICG initiative. Also enclosed is an
executed original of the Escrow Agreement among Neon, Merrill Lynch and Fort
Knox Escrow Services, Inc.
Thank you for your patience and cooperation in this matter. If you have any
questions, please feel free to contact me at (212) 236-0928.
Sincerely,
/s/ GLORIA R. GRECO
- ---------------------
Gloria R. Greco
enclosures
cc. (w/o enclosures)
L. Beauchesne
M. Bolella
W. Bridy
J. Freitas
L. Lane
F. Macioce
K. Martin
N. Ostrower
J. Randazzo
R. Rosenthal
D. Stein
A. Thomas
T. Vesely
C. Wilson
<PAGE> 20
ATTACHMENT A TO T&M SCHEDULE NO. NTP501368
Customer Project Manager: Cynthia Wilson
Consultant Project Manager: Harold Piskiel
GENERAL DESCRIPTION AND SCOPE OF BUSINESS
1 CONSULTANT shall create with the assistance of CUSTOMER, as described
in Section 3 below, detailed final functional specifications (the
"Functional Specifications") and technical specifications (the
"Technical Specifications") for that middleware software (the
"Software"), which Software is more fully described in Exhibit I
attached hereto and made a part of hereof, by May 1, 1996 (the
"Scheduled Completion Date"). Such Functional Specifications shall be
comprehensive in scope to a level where they could be used to create
technical specifications that could be relied on by a trained
technician other than CONSULTANT to develop the Software. The
Technical Specifications shall be comprehensive in scope to a level
where they could be used by CONSULTANT to develop the Software, should
CUSTOMER select CONSULTANT to perform such services pursuant to
Section 2 below. CONSULTANT shall create an initial functioning
release of the Software (the "Middleware Product"), which release
already exists in a preliminary form known as "Release 0 (zero),"
based upon the Preliminary Business Requirements contained in Exhibit
I (the "Preliminary Business Requirements") by December 31, 1995.
CONSULTANT shall also create an initial functioning release of the
System Management and Administration Tool (the "System Tool"), based
on the development of preliminary specifications to be provided by
CUSTOMER to CONSULTANT and which will be subject to CUSTOMER's
acceptance. (The Technical Specifications together with the Functional
Specifications, and the Preliminary Business Requirements will be
collectively referred to herein as the "Specifications.")
2 In May of 1996, CUSTOMER will issue a Request For Proposal (the "RFP")
to solicit bids for the development of the Software based on the
Specifications and for the maintenance and support of the same.
CONSULTANT will have the right, like any other bidder, to submit a
response to the RFP within the timeframes required by the RFP.
Notwithstanding any provisions set forth herein, in no event will
CUSTOMER be required to select CONSULTANT to provide the services
described in the RFP. If, however, CUSTOMER elects, in its sole
discretion, to select CONSULTANT to perform the services described in
the RFP, any agreements entered into between CONSULTANT and CUSTOMER
for the performance of the services described in the RFP will provide
that CONSULTANT shall credit CUSTOMER all amounts paid hereunder
against amounts that would otherwise be due and owing to CONSULTANT
under such contract.
<PAGE> 21
3 CUSTOMER will assist CONSULTANT in creating the Specifications,
Release 0 and the System Tool by making the following facilities and
personnel available commencing on December 1, 1995:
3.1 CUSTOMER shall assign and dedicate certain personnel, as set
forth in Exhibit II attached hereto and made a part hereof
(the "Requirements Team"), during the requirements phase of
the development and testing of the Specifications.
3.2 CUSTOMER shall provide CONSULTANT with (i) a receiving,
testing and quality assurance laboratory (the "Laboratory")
for the development and testing of Release 0 and the System
Tool, and (ii) such conference room(s) as is determined
necessary by the CUSTOMER Project Manager (as such term is
defined in Section 4.3 below).
3.3 CUSTOMER shall assign an alliance engineer who will act as an
on-site liaison at CONSULTANT's development location.
3.4 CUSTOMER shall provide CONSULTANT with access to Tandem, MVS,
and other required, mutually agreed upon platforms for the
development and testing of Release 0 and the System Tool.
3.5 CUSTOMER shall make available as deemed reasonably necessary
by CONSULTANT and CUSTOMER facilities for video conferencing.
3.6 CUSTOMER shall use Microsoft Project as a common project
management tool for planning and status tracking.
3.7 CUSTOMER shall provide CONSULTANT with modem access to
CUSTOMER's Laboratory.
4 In order to deliver the Specifications to CUSTOMER by the Scheduled
Completion Date, CONSULTANT shall take the following actions
commencing on December 1, 1995:
4.1 CONSULTANT shall provide CUSTOMER with requirements for the
establishment of a receiving, testing and quality assurance
testing facility in connection with Release 0 and the System
Tool.
4.2 At CUSTOMER's request, CONSULTANT shall provide CUSTOMER
migration support (including testing) and software to enable
the smooth transition from the existing Merrill Lynch Data
Propagation Utility ("DPU") to Release 0 at the time and
material rates set forth in Sections B, C and D of Exhibit IV
below.
4.3 Rick Adam, President of CONSULTANT (the "CONSULTANT Project
Manager") shall participate with Cynthia Wilson or any other
project manager designated by CUSTOMER (the "CUSTOMER Project
Manager," collectively
2
<PAGE> 22
with the CONSULTANT Project Manager, the "Project Managers")
in monthly executive update meetings and bi-weekly status
reviews.
4.4 Harold Piskiel, Chief Architect of CONSULTANT, shall be
available on-site at CUSTOMER's location during the
development, design, coding and testing phases of Release 0
and the System Tool at such times as deemed reasonably
necessary by the Project Managers; provided, however, that
such times of availability shall not be less than 50% of
CUSTOMER's normal business hours.
4.5 Commencing on December 1, 1995 CONSULTANT shall assign and
dedicate certain personnel to participate as members of (the
"Core Team"), as set forth in Exhibit II attached hereto and
made a part hereof, during the requirements, specifications,
design, coding and testing phases.
4.5.1 The Core Team shall consult with, interview and work
within the Requirements Team in translating and
incorporating the CUSTOMER's business requirements
into the Specifications, Release 0 and the System
Tool.
4.5.2 The Core Team shall participate in meetings with the
Project Managers to determine whether the
Specifications, Release 0 and the System Tool are
being developed on a timely basis and discuss any
problems arising in connection therewith.
4.5.3 In addition, CONSULTANT shall engage the following
individuals:
(a) at least one full-time dedicated technical
writer to assist in the completion of all
required documentation relating to the
development and testing of the
Specifications, Release 0 and the System
Tool; and
(b) a full-time dedicated development manager and
a full-time dedicated support manager, each
of whom shall be subject to CUSTOMER's prior
approval (which approval shall not be
unreasonably withheld).
4.5.4 Upon 30 calendar days' notice to the CONSULTANT
Project Manager, the CUSTOMER Project Manager may
instruct CONSULTANT to increase or decrease the size
of the Core Team by up to 20%.
4.5.5 On the Scheduled Completion Date, the Core Team shall
be reduced to three CONSULTANT personnel designated
by the Project Managers. Such CONSULTANT personnel
shall be dedicated on a full-time basis to provide
support (including testing) and maintenance for
Release 0 and the System Tool and migration support
to enable the smooth transition from DPUs to Release
0 for a six-month period following the Scheduled
3
<PAGE> 23
Completion Date, and thereafter on a month-to-month
basis. Such CONSULTANT personnel shall perform such
support and maintenance services on a time and
material basis at the rates set forth in Section D of
Exhibit IV attached hereto and made a part hereof.
4.5.6 CUSTOMER shall have the right to remove any
CONSULTANT personnel set forth in this Section 4.5 in
accordance with Article 3 of the Agreement.
4.6 CONSULTANT shall grant CUSTOMER priority over other customers
of CONSULTANT in the event that CUSTOMER determines in its
reasonable discretion that the creation and development of any
of the Specifications, Release 0 or System Tool is behind
schedule.
4.7 CONSULTANT shall make available as deemed reasonably necessary
by CONSULTANT and CUSTOMER facilities for video conferencing.
4.8 CONSULTANT shall use Microsoft Project as a common project
management tool for planning and status tracking.
4.9 During the term of this Schedule, CONSULTANT shall make
available to CUSTOMER any derivative works, enhancements,
upgrades, refinements or modifications of Release 0 that
CONSULTANT makes commercially available to third parties.
After the termination of this Schedule, CONSULTANT shall make
available to CUSTOMER any derivative works, enhancements or
upgrades which represent material changes to the existing
functionality of Release 0 and any new functionality developed
to meet the requirements of any customer of CONSULTANT under
the most favorable terms available to any CONSULTANT customer
for a period of two years from the date of CUSTOMER's
acceptance of the Specifications, Release 0 and the System
Tool.
5 Notwithstanding anything to the contrary set forth in Article 9 and
Section 10.2 of the Agreement, CUSTOMER and CONSULTANT agree that
CONSULTANT shall retain ownership of the Specifications, Release 0 and
the System Tool, including all copyright, patent, trade secret,
trademark and other proprietary rights relating thereto. At each stage
of development and testing of the Specifications, Release 0 and the
System Tool, CONSULTANT shall grant and CUSTOMER shall accept a
non-exclusive, perpetual, world-wide, royalty free, enterprise license
to use the Specifications, Release 0 and the System Tool in accordance
with the terms and conditions set forth in Exhibit III attached hereto
and made a part hereof.
6 Notwithstanding CONSULTANT's ownership rights set forth in Section 5
above, CUSTOMER shall retain ownership, including all copyright,
patent, trade secret, trademark and other proprietary rights, to any
and all portions of the Preliminary Business Requirements and
Functional Specifications that incorporate or utilize CUSTOMER
confidential information (as such term is defined in Article 9 of the
4
<PAGE> 24
Agreement), including without limitation, trade volumes, global
installation sites and deployment plans and all other information
obtained in connection with the requirements, specifications, design,
coding and testing of the Specifications, Release 0 and the System
Tool, and nothing hereunder grants CONSULTANT any right, title,
interest or license in or to such information. CONSULTANT shall
promptly, upon CUSTOMER's request, submit to CUSTOMER a copy of the
functional specifications it has developed for any CONSULTANT Product
to permit CUSTOMER to verify that such functional specifications
include only generic functionality descriptions derived from or based
upon the Functional Specifications and not functionality descriptions
that incorporate CUSTOMER confidential information.
7 Contemporaneously upon execution of this Schedule, CONSULTANT will
deposit the "Source Code" for Release 0 and the Specifications at
their then current stage of development (the "Escrow Deposit") into an
escrow account pursuant to the terms of an escrow agreement, a copy of
which is attached hereto as Exhibit V (the "Escrow Agreement"), by and
among CONSULTANT, CUSTOMER and Fort Knox Escrow Services, Inc., (the
"Escrow Agent") which will be executed concurrently with this
Schedule. The Escrow Agreement shall be executed concurrently with
this Schedule and shall authorize the Escrow Agent to release the
Escrow Deposit for use by CUSTOMER to complete the development of
Release 0 and create Middleware Software based upon the Specifications
in their then current stage of development upon the occurrence of a
material breach by CONSULTANT in accordance with Section 13.1 of this
Agreement (including without limitation any material breach of this
Schedule) that is not cured within the applicable cure period. In
addition, CUSTOMER shall have the right to receive a copy of the
Escrow Deposit from the Escrow Agent at any time during the term of
this Schedule if Rick Adam and/or Harold Piskiel are no longer
actively involved in the testing or development of Release 0, the
Specifications and the System Tool.
CONSULTANT represents and warrants to CUSTOMER, in addition to the
representations and warranties set forth in Section 10.1 of the
Agreement and Section 23 below, that the "Source Code" for Release 0
in the Escrow Deposit is human readable, fully narrated with logic
diagrams and can be used by a trained technician to further develop
and enhance Release 0 and can be compiled or interpreted by a computer
for execution as is in a form suitable for reproduction by computer
and photocopy equipment, and consisting of a full source code language
statement of the program or programs comprising the Software and
complete program maintenance documentation, including all flow charts,
schematics and annotations which comprise the precoding detail design
specifications and all other material necessary to allow a reasonably
skilled third party programmer or analyst to maintain or enhance the
Software and use the Specifications to develop middleware software
without the help of any other person or reference to any other
material. At each stage of development of Release 0 and the
Specifications and upon the creation of any updates or enhancements to
Release 0, CONSULTANT shall deposit the Source Code for such modified
Release 0 or such updates or enhancements thereto into the escrow
account pursuant to the terms of the Escrow Agreement.
5
<PAGE> 25
SPECIAL TERMS AND CONDITIONS
8 CONSULTANT shall perform the services described herein, excluding
those services described in Section 4.5.5 above, on a time and
materials basis at the rates set forth in Section B of Exhibit IV
attached hereto and made a part hereof. The parties agree that the
charges set forth in Exhibits IV represent all charges in connection
with the Specifications, Release 0 and the System Tool and in no event
shall CUSTOMER be liable for any other charges relating to the
development, testing, completion, maintenance or support of the
Specifications, the Data Propagation Utilities, Release 0 or the
System Tool.
9 Notwithstanding CONSULTANT's ownership of the Specifications, Release
0 and the System Tool, which ownership is subject to Section 6 above,
and the non-exclusive license granted herein, prior to CONSULTANT's
sale or licensing to any third party of any product derived from or
based upon the Specifications, or any part thereof (the "CONSULTANT
Product"), CONSULTANT shall promptly notify CUSTOMER prior to any
negotiations regarding such sale or licensing of (i) the name of such
third party, (ii) the product to be developed or licensed for such
third party and (iii) the fees to be paid to CONSULTANT by such third
party. CUSTOMER shall maintain such information in confidence and this
obligation shall continue in effect until CONSULTANT's obligation to
pay royalties under Section 10 below ceases.
10 In consideration of (i) CUSTOMER providing support as described
herein, and a testing environment for the development of the
Specifications, Release 0 and the System Tool, and (ii) CUSTOMER
transferring to CONSULTANT all ownership rights in the Specifications,
Release 0 and the System Tool that otherwise would have accrued to
CUSTOMER pursuant to Article 9 and Section 10.2 of the Agreement
(subject to Section 9 above), upon any development, sale or licensing
of CONSULTANT Products, CONSULTANT shall pay CUSTOMER a royalty
payment in the amount of 30% of all license, maintenance, support and
upgrade fees paid to CONSULTANT by any third party in connection with
any CONSULTANT Product, which royalty payment shall be made on a
calendar quarterly basis commencing upon the payment by any customer
to CONSULTANT of fees for any CONSULTANT Product. CONSULTANT will,
promptly upon CUSTOMER's request, submit a complete and accurate list
to CUSTOMER of all then current customers of CONSULTANT, together with
a description of the fees payable by such customer to CONSULTANT
relating to any CONSULTANT Product that is the subject of the royalty
payable to CUSTOMER under this Section 10. Upon any sale of all or
substantially all of the assets of CONSULTANT or upon the merger or
consolidation of CONSULTANT by operation of law or otherwise,
CONSULTANT will cause the successor in interest to agree in writing to
abide by the terms and conditions of this Section 10 and Section 11
below with respect to royalty payment obligations prior to or
contemporaneous with such merger, consolidation or sale of assets. The
obligations set forth in this Section 10 will survive the termination
of this Schedule after acceptance by CUSTOMER of the Specifications.
Notwithstanding the foregoing, CONSULTANT's royalty payment obligation
will
6
<PAGE> 26
continue in effect until CONSULTANT has paid CUSTOMER one and one-half
(1 1/2) times all fees and amounts payable by CUSTOMER to CONSULTANT
commencing on December 1, 1995 under this Schedule or under any
agreement entered into by the parties hereto as a result of this
Schedule or the RFP.
11 If royalties are payable by CONSULTANT to CUSTOMER pursuant to Section
10 above, CONSULTANT shall cooperate fully with CUSTOMER or its
auditors, upon reasonable prior notice, for the purpose of inspecting,
examining, and auditing all books and records of CONSULTANT relating
to the sale or licensing of any CONSULTANT Product; provided, however,
that any such inspection, examination and/or audit shall take place
only during normal business hours and in a manner that will not
disrupt CONSULTANT's business; provided, further that if CUSTOMER
discovers that the royalty payments made by CONSULTANT, if any, are
more than five percent (5%) less than the actual royalty payments due
and owing under this Schedule, CONSULTANT shall reimburse CUSTOMER for
the reasonable cost of such audit and shall pay CUSTOMER the unpaid
royalty payment, plus interest on such payment, calculated as of the
date such payment was due and owing, which interest shall accrue at
the lesser of (i) 1.5% per month or (ii) the highest rate allowed by
law.
12 In the event that at any time, CONSULTANT makes the CONSULTANT Product
available to or develops such product for any third party, CONSULTANT
shall make the CONSULTANT Product available to CUSTOMER for a mutually
agreed upon license fee, which license fee shall be negotiated in good
faith but in no event shall such fee be greater than the fee charged
to such third party. CONSULTANT shall calculate the upgrade,
maintenance and support fees which would be incurred for use by
CUSTOMER of such CONSULTANT Product under the most favorable terms
available to any CONSULTANT customer.
13 If, at any time during the term of the Agreement Harold Piskiel and/or
Rick Adam ceases to play an active role in CONSULTANT's development
and testing of the Specifications, Release 0 and the System Tool for
CUSTOMER, CUSTOMER shall have the right to terminate this Schedule
unless, within 30 days after receiving notice of CUSTOMER's intent to
terminate the Schedule, CONSULTANT shall provide CUSTOMER with
evidence of such person's active participation in such development and
testing of the Specifications, Release 0 and the System Tool for
CUSTOMER. In the event of such termination, CONSULTANT shall grant to
CUSTOMER the license to use each of the Specifications, Release 0 and
the System Tool at its then current stage of development and shall
have the right to receive the Escrow Deposit from the Escrow Agent by
CUSTOMER to complete the development of Release 0 and create
Middleware Software based upon the Specifications in their then
current stage of development upon the occurrence of a material breach
by CONSULTANT in accordance with Section 13.1 of this Agreement
(including without limitation any material breach of this Schedule)
that is not cured within the applicable cure period. CUSTOMER shall
pay CONSULTANT all amounts due and owing as of the effective date of
such termination.
7
<PAGE> 27
14 NOTWITHSTANDING SECTION 13.2 OF THE AGREEMENT, IN NO EVENT SHALL
CONSULTANT BE LIABLE FOR: (A) LOST PROFITS, LOSS OF DATA, LOSS OF USE
OF RELEASE 0, THE SYSTEM TOOL, OR ANY OTHER SOFTWARE DEVELOPED
PURSUANT TO THE SPECIFICATIONS OR THE COST OF RECREATING LOST DATA;
(B) ANY DAMAGES CAUSED BY CUSTOMER'S FAILURE TO PERFORM CUSTOMER'S
RESPONSIBILITIES; OR (C) EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES OR COSTS (INCLUDING ATTORNEYS' FEES)
ARISING OUT OF THE USE OR INABILITY TO USE RELEASE 0, SYSTEM TOOL, OR
SOFTWARE DEVELOPED PURSUANT TO THE SPECIFICATIONS, OR ANY COMPONENT
THEREOF, EVEN IF CONSULTANT HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
15 NOTWITHSTANDING SECTION 13.2 OF THE AGREEMENT, IN NO EVENT SHALL
CUSTOMER BE LIABLE FOR: (A) ANY LOST PROFITS, OR (B) EXEMPLARY,
PUNITIVE, INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR
COSTS (INCLUDING ATTORNEYS' FEES) ARISING OUT OF THIS SCHEDULE, EVEN
IF CUSTOMER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16 NOTWITHSTANDING ANYTHING IN THE AGREEMENT OR THIS SCHEDULE TO THE
CONTRARY, EACH PARTY'S ENTIRE LIABILITY TO THE OTHER PARTY FOR DAMAGES
UNDER THIS SCHEDULE SHALL NOT EXCEED THREE TIMES THE AMOUNT PAYABLE BY
CUSTOMER TO CONSULTANT UNDER THIS SCHEDULE. NOTWITHSTANDING THE
FOREGOING LIMITATION, THE LIMITATION OF LIABILITY OF THIS SECTION 16
SHALL NOT APPLY TO ANY THIRD PARTY CLAIMS, ARTICLE 8 OF THE AGREEMENT
(INTELLECTUAL PROPERTY INFRINGEMENT), FRAUD, ACTS OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT.
17 CUSTOMER shall not alter, remove, modify or suppress any proprietary
notices or copyright legends placed on or contained within the
Technical Specifications, Release 0, or the System Tool. CUSTOMER
shall reproduce all such proprietary notices and confidentiality
legends on all copies of the Technical Specifications, Release 0 and
the System Tool.
18 OTHER THAN AS SPECIFICALLY STATED IN THE AGREEMENT, CONSULTANT MAKES
NO WARRANTIES OF ANY KIND, AND DISCLAIMS ALL OTHER WARRANTIES, EITHER
WRITTEN OR ORAL, EXPRESS OR IMPLIED, OR FROM A COURSE OF PERFORMANCE
OR DEALING OR TRADE USAGE. THERE ARE NO IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8
<PAGE> 28
19 The Specifications, Release 0, the System Tool, and any software,
program, service and/or other materials furnished to CUSTOMER by
CONSULTANT hereunder, shall be subject to the infringement protections
and indemnification provisions set forth in Article 8 of the Agreement;
provided, however, that such indemnification provisions shall extend
to CUSTOMER's directors, officers, employees and agents.
20 Notwithstanding anything to the contrary in Section 11.2 of the
Agreement, for the purposes of this Schedule the requirement for
comprehensive general liability coverage in the amount of Three
Million Dollars ($3,000,000) is hereby reduced to Two Million Dollars
($2,000,000).
21 Notwithstanding anything to the contrary in Section 11.3 of the
Agreement, for the purposes of this Schedule the requirement for a
fidelity bond in the amount of Two Million Dollars ($2,000,000) is
hereby waived in its entirety.
22 Nothing in this Schedule or the Agreement shall be construed to
constitute or appoint either party as the agent, partner, joint
venturer, or representative of the other party for any purpose
whatsoever, or to grant to either party any right or authority to
assume or create any obligation or responsibility, express or implied,
for or on behalf of or in the name of any other party designated
herein, or to bind any such other party in any way or manner
whatsoever.
23 CONSULTANT represents, warrants and covenants to CUSTOMER that:
23.1 It is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation
and has all requisite power and authority to enter into and
perform its obligations under this Schedule;
23.2 This Schedule when executed will become the legal, valid and
binding obligation of it enforceable against it in accordance
with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws
relating to the rights of creditors generally;
23.3 There are no material actions, suits, proceedings or
investigations commenced or threatened against it, at this
time, which could adversely affect CUSTOMER's use of the
Specifications, Release 0, the System Tool and any
enhancements or updates thereto or the services provided
hereunder;
23.4 It owns all right, title and interest in and to the
Specifications, Release 0 and the System Tool at all stages of
development and testing and it has the right to grant to
CUSTOMER the license to use the Specifications, Release 0 and
the System Tool at all stages of development and testing as
set forth herein. CUSTOMER's use of the Specifications,
Release 0 and the System Tool will not be interrupted or
otherwise disturbed by any entity asserting a claim under or
through CONSULTANT. Further, it owns all right, title and
interest in and to each enhancement or update thereto at all
stages of development and testing and it has
9
<PAGE> 29
and will have the right to grant CUSTOMER the license to use
such enhancements or updates at all stages of development and
testing, and as of the execution date of this Schedule,
CUSTOMER's use of such enhancements or updates will not be
interrupted or otherwise disturbed by any entity asserting a
claim under or through CONSULTANT;
23.5 Its execution of and performance under this Schedule does not
and will not conflict with, cause a breach of, violate, or
constitute a default under any order, decree, judgment,
agreement, arrangement understanding or instrument to which it
is a party or is otherwise bound or is otherwise applicable to
it;
23.6 CONSULTANT will take reasonable and diligent precautions to
guard against, detect and alert CUSTOMER to, and remedy any
"virus" or "worm", as such terms are understood in the
computer industry, which may invade Release 0 or the System
Tool, any enhancements or updates thereto, the computer
systems on which they operate at CONSULTANT's facilities and
processing sites or which may invade the computer systems at
CUSTOMER's facilities as a result of the modem access provided
under Section 3.7 above
23.7 Release 0 and the System Tool and any enhancements or updates
thereto do not contain any routines, devices or lock out
mechanisms that are designed to interfere with CUSTOMER's full
use of such products as provided in this Schedule;
23.8 The Specifications, Release 0, the System Tool and any
enhancements or updates thereto do not and will not infringe
upon any copyrights or patents, or any other proprietary
rights, of any other person, firm or corporation and
CONSULTANT has no knowledge, at this time, of any such
threatened or pending claim of infringement by CONSULTANT;
23.9 CONSULTANT shall promptly correct malfunctions and errors in
Release 0 and the System Tool and all errors in the
Specifications and any enhancements or updates to Release 0
and the System Tool at no charge to CUSTOMER for a period of
one year following their delivery;
23.10 It complies, and will comply, with all applicable laws, rules
and regulations, in all material respects, with respect to
performing its obligations under this Schedule;
23.11 The Specifications, Release 0 and the System Tool, including
all enhancements or updates thereto, comply and will comply
with all applicable laws, rules and regulations, in all
material respects, pertaining to the creation, licensing and
use of such materials; and
10
<PAGE> 30
23.12 All employees and subcontractors engaged by CONSULTANT will
be controlled, directed, supervised and compensated
exclusively by CONSULTANT or its authorized agents or
representatives while performing its obligations hereunder and
will not be entitled to any benefits or compensation from
CUSTOMER while performing any such work and will be informed
by CONSULTANT that they are not so entitled.
24 CUSTOMER represents, warrants and covenants to CONSULTANT that:
24.1 It is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation
and has all requisite power and authority to enter into and
perform its obligations under this Schedule;
24.2 This Schedule when executed will become the legal, valid and
binding obligation of it enforceable against it in accordance
with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws
relating to the rights of creditors generally;
24.3 Its execution of and performance under this Schedule does not
and will not conflict with, cause a breach of, violate, or
constitute a default under any order, decree, judgment,
agreement, arrangement, understanding or instrument to which
it is a party or is otherwise bound or is otherwise applicable
to it; and
24.4 It complies, and will comply, with all applicable laws, rules
and regulations, in all material respects, with respect to
performing its obligations under this Schedule;
25 The parties hereto acknowledge and agree that time is of the essence
as to all obligations of the parties hereto and such obligations may
be extended or modified only as provided herein or as agreed to, in
writing, by CONSULTANT and CUSTOMER.
26 The parties hereto hereby amend the Agreement by deleting the title to
Article 8 in its entirety and inserting the following: "INTELLECTUAL
PROPERTY INFRINGEMENT."
***
11
<PAGE> 31
EXHIBIT I
PRELIMINARY BUSINESS REQUIREMENTS
DESCRIPTION OF THE COMPONENTS OF THE SOFTWARE
The Software will be comprised of three functional components and a set of
integrated GUI support tools. The functional components will be:
o MESSAGING AND QUEUING - providing asynchronous point-to-point cross-
platform guaranteed message delivery;
o DYNAMIC FORMATTER - providing message reformatting under the control of
input output message format specifications and/or self-describing
messages;
o RULES BASED MESSAGE EVALUATION - providing evaluation of messages by
testing message content against a set of Boolean expressions.
The MESSAGING AND QUEUING utility is an asynchronous message delivery system.
It enables application programs to send and receive messages without concern
for the underlying communications system and without establishing a connection
between the application programs. Messaging and Queuing provides guaranteed
message delivery by using the database management systems (DBMS) used by
sending and receiving applications for persistent storage and transaction
management. The messages delivered using this product consist of application
data bytes which may contain any possible bit configuration. Messaging and
Queuing is supported on multiple computer systems (i.e., combinations of
computer hardware, operating system, DBMS, and communications system) and
sending and receiving application programs which communicate using this system
may execute on unlike computer systems.
The Messaging and Queuing utility may be used in many ways, including 1-to-1
asynchronous message delivery and is part of a 1-to-many publish-subscribe
system.
The DYNAMIC FORMATTER is a message reformatting utility. This utility handles
multiple message formats and executes on multiple computer systems. The Dynamic
Formatter transforms messages according to message format specifications and/or
by interpreting self-describing messages. It also supports user written
routines which can transform, insert, or remove data from a message.
The Dynamic Formatter may be used in many ways, including formatting messages
delivered via the Messaging and Queuing utility and transforming messaging for
evaluation by Rules Based Message Evaluation.
RULES BASED MESSAGE EVALUATION is a message evaluation utility. It tests a
message against a set of Boolean expressions and determines if the expressions
are True or False, based on the message's content. Each expression is referred
to as a "rule" and the rule is said to "fire" when the evaluation is true.
Consequently, a message may cause zero to N rules to fire depending on the
message's content and the set of rules used for evaluation. Rules Based Message
Evaluation executes on multiple computer systems
I-1
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Rules Based Message Evaluation may be used in many ways, including as a routing
mechanism to select destinations for messages and as a transaction
decomposition mechanism to select processing for a transaction message.
The three components, Messaging and Queuing, Dynamic Formatter, and Rules Based
Message Evaluation, may be used in combination to provide several types of
functionality, including anonymous publish-subscribe and as part of database
replication. The Software will support publish-subscribe communications among
anonymous applications and will consist of these functional components and
associated tools.
USE OF INDIVIDUAL COMPONENTS: The functional components will be well
integrated, but they will also be capable of operating independently of each
other and will provide functionality which can be used outside the scope of
publish-subscribe. Some examples of these uses are:
o 1-to-1 messaging
o data conversion and reformatting
o program logic
o workflow management
o transaction decomposition
ADMINISTRATION: Administrative domains will be defined and managed using a
global directory for each domain. Centralized administration and operations
management will be supported. Access to the underlying administrative data and
functions will be available through a set of APIs.
MONITORING: There will be a facility to monitor the operation of the Software
components and domains. Notification of errors and outages will be sent to the
monitoring facility.
GUI TOOLS: There will be and integrated set of tools for the complete
configuration, administration, operation, and monitoring of the Software
components and domains. The tools will be layered, so that access to underlying
data and functions is available through a set of APIs and user presentation is
implemented as a set of integrated Graphical User Interfaces.
PLATFORMS SUPPORTED: The functional components will all operate in a number of
different computer system environments. A list of the required environments
appears on the last page of this Exhibit 1.
SECURITY: Access to repositories used by the Software, such as queue
configuration, formats, and rules, and to application data will be restricted.
The Software will include verification points ("hooks") which will access an
external security package to check authorization and authentication. Access
will be restricted on a user/group id basis both vertically (e.g., view
only, change, create/delete) and horizontally (e.g., view user's data, group's
data, system data).
I-2
<PAGE> 33
MESSAGING & QUEUING
An asynchronous guaranteed message delivery system which enables application
programs to send and receive messages under transaction, management.
o cross platform: sending and receiving application programs will be able
to execute in unlike computer environments
o simple application program interface (API): simple APIs will be
available in C, C++ and COBOL to enable application programs to send and
receive messages
o message sequence: messages will be delivered in the sequence in which
they are sent; no messages will ever be lost or duplicated
o transaction management: messages will be sent and received under
application program transaction management, meaning that only committed
messages will be sent and only messages received and committed will be
considered delivered
* logical unit of work (LUW): when multiple messages are
sent in one transaction, called an LUW, they will be
delivered to a receiver only if all the messages in the
LUW are available for delivery
* LUW identifier: an application will be able to mark
outgoing messages with an LUW identifier which will be
made available to the receiving program
o transparency: application message bytes may contain any bit
configuration
o dynamic queue expansion: it will be possible for a message queue to
expand at runtime; this will be an optional characteristic of a queue
o variable message length: messages of varying lengths will be stored on
sending and receiving nodes; the maximum message length will be expanded
to 1024K bytes
o multithreading support: it will be possible for application programs
which send or receive messages to be multithreaded (e.g., a sending
application can simultaneously execute multiple threads which all send
messages to the same receiving application)
o timeout: a sending or receiving application will be able to specify a
maximum time interval (message age) and messages which are not delivered
within that time interval will be routed to a timeout queue and not
delivered to their original destination
o error queue: messages which are undeliverable will be routed to an error
queue
o statistics gathering: statistics will be collected, such as messages
sent and/or received by an application, max/min/average queue depth,
traffic through a node, latency time for outgoing messages; it will be
possible to disable statistics gathering at runtime
o security: access to sending and receiving message queues and management
tools will be restricted
o GUI tool: one or more GUI tools will be built to support administration,
maintenance and performance monitoring. APIs will be provided to the
functions underlying these tools to enable developers to build their own
GUI tools to provide similar functionality. The APIs and GUI tools will
provide the following functionality:
o Configuration: create, modify, and view configuration
data, including communications settings
o Logical queue administration
* create, modify, and view queue definitions
I-3
<PAGE> 34
* disable and enable the read and/or write
capabilities of a queue
* disable and enable dynamic queue expansion
* set threshold queue size for dynamic queue
expansion
* reset queue pointers to the empty queue
state
* reset queue pointers to replay messages from
a specified message
* view the contents of a specific message in a
queue
o Performance monitoring
* disable and enable queue statistics
gathering
* view statistics
o Operations management
* view status of daemon processes and
logical communications links
* receive alerts such as queue depth exceeded
specified thresholds, communications
breakdowns, process execution failures
* start daemon processes
o The GUI tools will not contain SQL statements and will be
DBMS independent; they will use the provided APIs for
access to underlying data
o migration support: software will be provided to enable the smooth
transition from the existing Merrill Lynch Data Propagation Utility
("DPU") to Messaging and Queuing for application systems which are now
using the DPU in production. This software may include mapping modules
to enable existing application and DPU programs to access Messaging and
Queuing.
o integration with other components: facilities will be provided to assist
in the use of this component with the others in the suite. For example,
it will be possible to specify a format identifier for a logical queue
to indicate that all messages received from that queue should be
presented in a specified format.
The Messaging and Queuing component will use the Database Management System
(DBMS) employed by a sending or receiving application to provide persistent
storage and transaction management. In the same way, this component will
normally require the use of a communications system to provide data
communications between the computer systems where message sending and receiving
application programs execute. However, the component will be independent of any
specific DBMS or communications system and will be available and supported in
multiple computer system environments.
For the purpose of these specifications, a specific computer system environment
is a combination of computer hardware, operating system, DBMS, and
communications system.
DYNAMIC FORMATTER
A generalized message formatter which can be invoked to reformat a message
using table driven format definitions and handle complex message formats.
I-4
<PAGE> 35
o message formats: before and after message formats supported will include
fixed and variable length flat, delimited, tagged, multi-part recursive
(specifically SWIFT), and self-describing messages
o data types: character and native data formats on all supported
platforms; big and little Endian integer, ASCII and EBCDIC character,
and internal decimal (packed decimal) will be correctly interpreted
o encryption: "hooks" for tag and message level encryption
o calculations: calculations using data contained in the message to
compute new values
o user defined functions: user specified functions will be invoked
o SQL generation: the formatter will be able to generate valid SQL
statements using the tags in a self-describing message
o API for self-describing messages: the formatter will be able to create
and interpret self-describing messages
o trace facility: a developer trace facility will be available for testing
and debugging format specifications
o security: access to format specifications will be restricted
o error handling: formatting errors will cause alerts to be sent to the
management tool
o GUI tool: one or more GUI tools will be built to support administration,
maintenance, and operation
o create, modify, and view individual formats
o create, modify, and view groups of formats
o receive alerts such as formatting and user function errors
RULES BASED MESSAGE EVALUATION
A generalized message evaluation module which tests a set of Boolean
expressions against a message's content and indicates which Boolean expressions
have been met. For each message the Rules Based Message Evaluation returns a
set of 0 to N identifiers. When the Rules Based Message Evaluation is used in
the Software suite, these identifiers are the subscriber destination-format
pairs for a published message.
o multiple destination-format pairs on a rule firing
o case sensitivity optional in predicate evaluation
o API for self-describing messages: the Rules Based Message Evaluation
will be able to interpret and process self-describing messages
o trace facility: a developer trace facility will be available for testing
and debugging rules specifications
o security: access to rule specifications will be restricted
o error handling: rules errors will cause alerts to be sent to the
management tool
o GUI tool: one or more GUI tools will be built to support administration,
maintenance, monitoring, and operation
o create, modify, and view individual rules
o create, modify, and view groups of rules
o receive alerts such as rules and user function errors
I-5
<PAGE> 36
PLATFORMS THAT RELEASE 0 WILL SUPPORT:
<TABLE>
<CAPTION>
CUSTOMER Database Server
Hardware - OS Hardware - OS Communications
- ------------- ------------- --------------
<S> <C> <C>
Sun - SunOS 4.1.3 Sun - Sybase TCP/IP
Sun - SunOS 4.1.3 Sun - Sybase LU 6.2
Sun - Solaris 2.4 Sun - Sybase TCP/IP
Sun - Solaris 2.4 Sun - Sybase LU 6.2
Sun - Solaris 2.4 Sun - Oracle TCP/IP
Sun - Solaris 2.4 Sun - Oracle LU 6.2
</TABLE>
The System Management and Administration Tool will function in an Intel/Windows
NT environment.
During the term of this Schedule, at CUSTOMER's request, and at no additional
charge, CONSULTANT shall provide to CUSTOMER two additional operating system
environments that Release 0 will support. Furthermore, at no additional charge,
CONSULTANT shall make available to CUSTOMER such applications provided to other
customers which result in Release 0 supporting other operating system
environments.
I-6
<PAGE> 37
EXHIBIT II
REQUIREMENTS TEAM AND CORE TEAM
A. The Core Team shall consist of CUSTOMER personnel designated by
CUSTOMER and the following CONSULTANT personnel whose time shall be dedicated
on the basis set forth next to their respective names:
Full Time Equivalent ("FTE")
----------------------------
<TABLE>
<S> <C>
On-Site Support
---------------
1. Paolo Pelizzoli 1.0
2. Ben Lee 1.0
3. Gerald Mui 1.0
4. Harold Piskiel (See Section 4.4 of the Schedule)
Denver Engineering
------------------
5. Chris Preston 1.0
6. Erik Berg 1.0
7. Don Rasson 1.0
8. Jeff Oliver 1.0
Rotating Engineers
------------------
9. Todd Tzeng 1.0
10. [TBD] 1.0
Support Management
------------------
11. John Magee 0.5
12. Betty O'Keefe 0.5
13. Technical Writer 1.0
----
Total 11.8 FTE
====
</TABLE>
B. The Requirements Team shall consist of the members of the Core
Team as well as other CUSTOMER personnel, designated by the CUSTOMER Project
Manager in its sole discretion, who are associated with the following aspects
of CUSTOMER's business:
1. Client / Counterparty 6. Books and Records Added Value Overall
2. Global Funds Processing System 7. Corporation Action Strategic Event
3. Product Master Environment 8. Data Propagation Utilities Users
4. Trading 9. Application Architect
5. Global Information Services
In addition, CUSTOMER shall provide CONSULTANT with access to individuals
associated with Technical Risk Protection, Technical Strategy and Planning,
AUDIT, TBSG, as mutually agreed upon by the Project Managers.
II-1
<PAGE> 38
EXHIBIT III
LICENSE
A. Granting and Scope of License.
1. Commencing, upon the delivery of Release 0 and the System Tool to
CUSTOMER, and continuing thereafter until terminated in accordance with
the provisions of this Schedule or the Agreement, CONSULTANT hereby
grants to CUSTOMER a non-exclusive, perpetual, world-wide, royalty
free, enterprise license to Release 0 and the System Tool, any
components thereof and any enhancements or updates thereto.
2. Commencing upon the delivery to CUSTOMER of the Specifications,
Release 0 and the System Tool at each stage of their respective
development and testing, and continuing thereafter until terminated in
accordance with the provisions of this Schedule or the Agreement,
CONSULTANT hereby grants to CUSTOMER a non-exclusive, perpetual,
world-wide, royalty free, enterprise license to use the Specifications,
Release 0 and the System Tool and any enhancements or updates thereto.
3. Any license granted to CUSTOMER by CONSULTANT hereunder shall
entitle CUSTOMER and its Affiliates and their respective clients and
such third parties engaged by CUSTOMER to use Release 0, the System Tool
and the Specifications and any enhancements or updates thereto in
connection with the development and testing of any product related
thereto which will be used by CUSTOMER's clients only for purposes of
communicating with CUSTOMER. CUSTOMER may make additional copies of
Release 0, the System Tool, the Specifications and any enhancements or
updates thereto and shall be entitled to maintain such copies off
CUSTOMER's premises for the purposes of safekeeping, without payment of
any additional fees. "Affiliates" shall mean any entity in which
CUSTOMER owns 20% or more of equity stock.
4. The rights granted to CUSTOMER are intended to facilitate the
free and unrestricted use and enjoyment by CUSTOMER of the products
developed under this Schedule in the conduct of its own business.
Nothing in this Schedule will be interpreted as granting CUSTOMER, or
any unaffiliated third party engaged by CUSTOMER, in any capacity, the
right to sell, or give away, any products developed under this Schedule,
either individually, or packaged with other products for use by any
unaffiliated third party, other than temporary use by CUSTOMER
contractors, who shall abide by the confidentiality requirements set
forth in Section 9 of the Agreement, to facilitate development and
testing applications utilizing those products in support of CUSTOMER's
or its Affiliates' business.
III-1
<PAGE> 39
B. Confidentiality.
1. Subject to Section 6 above and Section A.3 of this Exhibit IV,
CUSTOMER acknowledges that CONSULTANT considers the Specifications,
Release 0 and the System Tool and any enhancements or updates thereto to
be proprietary to CONSULTANT. For as long as the Specifications, Release
0 and the System Tool and any enhancements or updates thereto are in
CUSTOMER's possession, CUSTOMER agrees that, subject to Section A.3 of
this Exhibit III, unless CUSTOMER has obtained CONSULTANT's prior
written consent, which consent shall not be unreasonably withheld,
CUSTOMER shall keep the Specifications, Release 0 and the System Tool
and any enhancements or updates thereto confidential and take reasonable
precautions to prevent disclosure of such deliverables to any person,
firm or enterprise other than CUSTOMER, its subsidiaries and affiliated
companies and its or their employees, agents, consultants, and clients.
2. Notwithstanding anything to the contrary set forth in Section B.1
of this Exhibit IV, CUSTOMER shall not be required to take any steps to
keep confidential and prevent disclosure of the Specifications, Release
0 and the System Tool and any enhancements or updates thereto, other
than those steps CUSTOMER normally takes to protect its own similar
confidential information. CUSTOMER's obligation of confidentiality shall
not apply to information which: (i) is obtained by CUSTOMER from a third
party without restrictions; (ii) is in the public domain; (iii) is
independently developed by CUSTOMER; or (iv) is required to be disclosed
by law or court order.
C. Installation.
As requested by CUSTOMER, CONSULTANT agrees to assist CUSTOMER, at no
additional charge to CUSTOMER, with the installation of Release 0, the
System Tool, and any enhancements or updates thereto for purposes of
verification of acceptability during the period covered by this
Schedule.
D. Training.
For Release 0, the System Tool, and any enhancements or updates
thereto, CONSULTANT shall provide the following training services to
CUSTOMER:
1. As requested by CUSTOMER, on-site training, orientation and
technical support (the "Training Services") sufficient to
familiarize CUSTOMER personnel with the function and use of
Release 0 and the System Tool, at no charge to CUSTOMER. Such
Training Services shall include, but will not be limited
to, familiarization with Release 0, the System Tool and any
enhancements or updates thereto, from the application, technical
and operational perspectives.
2. Additional training or orientation shall be furnished, at
CUSTOMER's request, at CONSULTANT's standard published charges
then in effect for same, unless otherwise mutually agreed upon.
III-2
<PAGE> 40
E. Further Assurances.
CONSULTANT shall execute such further license agreements, maintenance
agreements, instruments, or documents, and shall take such further
actions, as may be reasonably necessary or desirable to confirm
CUSTOMER's license to the Specifications, Release 0 and the System Tool
and any enhancements or updates thereto.
III-3
<PAGE> 41
EXHIBIT IV
TIME AND MATERIAL SCHEDULE
A. CUSTOMER and CONSULTANT acknowledge and agree that charges for
CONSULTANT personnel during the development and testing phases of the
Specifications and Release 0 from April 1, 1995 to December 1, 1995 equal to
$575,300.39, $391,550.39 of which has been paid by CUSTOMER and $183,750.00 of
which shall be paid by CUSTOMER within 30 days of the execution of this
Schedule. The parties acknowledge and agree that the charges set forth above
represent all charges due and owing to CONSULTANT in connection with the
Specifications, Release 0, the System Tool and any enhancements or updates
thereto arising from April 1, 1995 to December 1, 1995.
B. Commencing on December 1, 1995, CONSULTANT shall receive $15,000
per month for each member of the Core Team participating on a full-time
dedicated basis during the requirements, specifications, design, coding and
testing phases of the Specifications, Release 0 and System Tool; provided,
however, CONSULTANT shall be paid on a pro rata basis for CONSULTANT personnel
dedicated on a part-time basis.
C. Commencing on December 1, 1995 reasonable, documented
out-of-pocket expenses, which have been preapproved in writing by CUSTOMER,
incurred by CONSULTANT for travel and/or living expenses while CONSULTANT
personnel are travelling to or at CUSTOMER's facility shall be paid by
CUSTOMER, which expenses shall not exceed $20,000 per month for CONSULTANT
personnel in the aggregate and shall not exceed $250,000 in the aggregate.
D. CONSULTANT shall receive $15,000 per month for each of the three
CONSULTANT personnel dedicated to providing support and maintenance services on
a full-time basis as set forth in Section 4.5.5 of the Schedule. Reasonable,
documented out-of-pocket expenses, which have been preapproved in writing by
CUSTOMER, incurred by CONSULTANT for travel and/or living expenses while
CONSULTANT personnel are travelling to or at CUSTOMER's facility shall be paid
by CUSTOMER, which expenses shall not exceed $5,000 per month for such
personnel in the aggregate.
IV-1
<PAGE> 42
EXHIBIT V
FORM OF ESCROW AGREEMENT
V-1
<PAGE> 43
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") dated as of
February 6, 1996 by and among NEON SOFTWARE, INC., a corporation organized and
existing under the laws of the State of Illinois, and having its principal
offices at 7400 East Orchard Road, Suite 230, Englewood, CO 80111 (hereinafter
the "Consultant"); MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, a
corporation organized and existing under the laws of the State of Delaware and
having its principal offices at World Financial Center, North Tower, New York,
NY 10281 (hereinafter the "Customer"); and FORT KNOX ESCROW SERVICES, INC.,
organized and existing under the laws of the State of Georgia and having its
principal offices at 3539A Church Street, Clarkston, GA 30021-1717 (hereinafter
the "Escrow Agent").
RECITALS:
A Consultant and Customer have entered into a Master
Agreement for Professional Services dated as of March 1, 1995 and Fixed Price
Schedule No. NTP501368 (the "Schedule") of the Master Agreement dated April 1,
1995 (the Master Agreement and the Schedule as the same may be amended or
supplemented from time to time shall be referred to collectively herein as the
"Master Agreement") pursuant to which Consultant has licensed to Customer
Release 0, the System Tool and the Specifications, as defined in the Master
Agreement, including improvements, enhancements and updates from time to time
developed by Consultant, and such additional program changes as Customer may
order from Consultant from time to time, and all documentation therefor
developed by Consultant (hereinafter collectively referred to herein as the
"Software").
B It is the policy of Consultant not to disclose the
source codes and related documentation (hereinafter collectively referred to as
the "Source Code") for the Software to its customers, except as provided in an
applicable Escrow Agreement.
C Consultant and Customer agree that upon the
occurrence of certain events described in Section 3(a) hereof, Customer shall
be able to obtain the Source Code and all revisions, enhancements and Updates
thereof, and accordingly Consultant agrees to deliver said Source Code to
Escrow Agent. The Parties hereto intend this Agreement to be supplementary to
the Master Agreement pursuant to 11 United States Bankruptcy Code, Section
365(n).
NOW, THEREFORE, in consideration of the mutual covenants
exchanged herein and for other valuable consideration, the adequacy and receipt
of which are hereby acknowledged, Consultant, Customer and Escrow Agent hereby
agree as follows:
AGREEMENT
1. DEPOSITS
Escrow Agent, as a safekeeping (escrow) agent, agrees to
accept from Consultant the Source Code and all Updates thereof as provided in
Section (2) hereof. Promptly upon execution of this Agreement, Consultant will
deposit into escrow a copy of the latest version of the Source Code. Escrow
Agent will issue to Consultant a receipt for the Source Code upon delivery and
will notify Customer of such deposit and of each subsequent deposit thereafter.
The Source Code held by Escrow Agent shall remain the exclusive property of
Consultant, and Escrow Agent shall not use the Source Code or disclose the same
to any third party except as specifically provided for herein. Escrow Agent
will hold the Source Code in safekeeping at its offices herein above indicated
unless and until Escrow Agent receives notice pursuant to the terms of this
Agreement that Escrow Agent is to deliver the Source Code to Customer or
Consultant, in which case Escrow Agent shall deliver the Source Code to the
party identified therein, subject, however, to the provisions of this Escrow
Agreement.
2. REPRESENTATIONS OF CONSULTANT TO CUSTOMER
Consultant represents and warrants to Customer that (i) the
material delivered to Escrow Agent pursuant to this Escrow Agreement
constitutes, and shall continue to constitute, a complete and accurate copy of
the Source Code and documentation for the Software licensed to Customer
pursuant to the Master Agreement; (ii) the Source
<PAGE> 44
Code delivered to Escrow Agent is in a form suitable for reproduction by
computer and photocopy equipment, and consists of a full source code language
statement of the program or programs comprising the Software and complete
program maintenance documentation, including all flow charts, schematics and
annotations which comprise the precoding detail design specifications and all
other material necessary to allow a reasonably skilled third party programmer
or analyst to maintain or enhance the Software and use the Specifications to
develop middleware software without the help of any other person of reference
to any other material; (iii) Consultant will promptly at each stage of
development of the Software and the Specifications and upon the creation of any
updates or enhancements to Release 0 supplement the escrow deposit delivered
hereunder with all updates or other changes and all related documents so that
the Source Code constitutes, at all times, a human-readable program for the
current releases of the Software, so that the Specifications on deposit with
the Escrow Agent are at all times consistent with their then current stage of
development.
3. NOTICE OF DEFAULT
(a) Consultant shall be deemed to be in default of its
responsibilities to Customer if (i) Consultant fails, at any time, to correct
any malfunction, defect or nonconformity in the Software which prevents such
Software from functioning in accordance with the applicable specifications,
documentation, performance criteria and other warranties and descriptions
provided for in the Master Agreement, within ten (10) days after Customer's
notification to Consultant specifying in reasonable detail in what respect the
Software fails to conform; or (ii) Consultant fails to discharge any of its
obligations with respect to the Software in accordance with the warranties or
other standards for maintenance set forth in the Master Agreement and Schedule
or any maintenance agreement from time to time in effect between Consultant and
Customer, within ten (10) days after Customer's notification specifying in
reasonable detail in what respects the Software is not properly being
maintained; or (iii) the sale, assignment, or other transfer by Consultant,
without the prior written consent of Customer, of such of Consultant's rights
in the Software as would prevent Consultant from the discharge of its
obligations with respect to the performance of the Software under the Master
Agreement or the ability of Customer to use the Specifications to create
middleware software or from the discharge of its maintenance obligations with
respect to the Software unless such sale, assignment or transfer is expressly
permitted by the provisions of the Master Agreement and Schedule; or (iv)
Consultant becomes insolvent, makes a general assignment for the benefit of
creditors, files a voluntary petition of bankruptcy, suffers or permits the
appointment of a receiver for its business or assets, becomes, subject to any
proceeding under any bankruptcy or insolvency law, whether domestic or foreign,
or has wound up or liquidated its business voluntarily or otherwise; or (v) if
at any time during the term of the Schedule, Rick Adam and/or Harold Piskiel
ceases to play an active role in Consultant's development and testing of the
Specifications, Release 0 and the System Tool and such lack of active
involvement has not been cured in accordance with Section 13 of the Schedule.
Customer shall give written notice (the "Notice of Default") to Escrow Agent of
any default by Consultant. The Notice of Default shall, at a minimum (i) be
labeled "Notice of Default", (ii) identify the Master Agreement and this
Escrow Agreement, (iii) specify the nature of default, (iv) identify the
Source Code with specificity, and (v) demand the delivery of the Source Code
to Customer.
(b) Upon receipt of the Notice of Default, Escrow Agent
shall immediately send a copy thereof to Consultant by express courier delivery
or personal delivery. If Consultant desires to dispute the Notice of Default,
Consultant shall, within five (5) days after the date of the Notice of Default,
deliver to Escrow Agent a sworn statement (the "Affidavit") stating that no
default has occurred, whereupon the provisions of Paragraph 5 hereof will
become applicable. If Escrow Agent receives the Affidavit within said five (5)
day period, Escrow Agent shall send a copy thereof to Customer by hand delivery
or express courier (i.e. Federal Express) delivery, and Escrow Agent shall
continue to hold the Source Code in accordance with this Escrow Agreement. If
Escrow Agent does not receive the Affidavit within said five (5) day period,
Escrow Agent is authorized and directed to deliver the Source Code to Customer.
(c) Upon any release to Customer of the Source Code in
accordance with the terms of this Agreement, Customer shall be granted a
license to use the Source Code in a manner limited to maintaining or modifying
the Software as it deems necessary and to use the Specifications to create
middleware software. Such license shall be subject to (i) Customer's
obligations to any fees that are due and owing under the Master Agreement as
of the pay effective date of termination and (ii) compliance by Customer with
its covenants regarding confidentiality contained in the Schedule.
2
<PAGE> 45
4. NOTICE OF TERMINATION
Upon the termination of Customer's right to use the Software,
Consultant may obtain the return of the Source Code by furnishing written
notice of the termination, agreed to by an authorized officer of Customer,
whose signature has been notarized.
5. DISPUTES; GOVERNING LAW
(a) In the event that Consultant files the Affidavit with
Escrow Agent in the manner and within time period set forth in Paragraph 3(b)
hereof, and Customer shall fail to agree that the Master Agreement has been
terminated, Escrow Agent shall not release the Source Code to either party
except in accordance with (i) an order of a court of law, or (ii) receipt of an
agreement with the authorized and notarized signatures of authorized officers
of both Consultant and Customer, authorizing the release of the Source Code to
one of the parties hereto.
(b) Disputes arising under this Escrow Agreement shall be
settled by a court of law in New York City, New York. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to its conflicts of laws principles.
6. PAYMENTS TO ESCROW AGENT
As payment for its services rendered hereunder, Escrow Agent
shall receive a one-time Initialization Fee of $765 and a Maintenance Fee of
$900 per year to be paid by Consultant. Consultant shall also pay $150 for each
additional update. Consultant shall also pay Escrow Agent any increases in fees
imposed by Escrow Agent on an annual basis upon notice to Consultant. Escrow
Agent shall promptly advise Customer of Consultant's failure to pay such fees
in a timely manner. Customer shall have the right to pay Escrow Agent its fees,
and may offset such fees against any other fees due and owing to Consultant
under the Master Agreement or otherwise.
7. TERMINATION
The Escrow Agreement shall continue in effect until (i) the
expiration of all outstanding Schedules of the Master Agreement or (ii) the
termination of any disputes hereunder in accordance with Section 5 above.
8. WAIVER, AMENDMENT OR MODIFICATION; SEVERABILITY; ENTIRE
AGREEMENT
This Escrow Agreement shall not be waived, amended, or
modified except by the written agreement of all of the parties hereto. Any
invalidity, in whole or in part, of any provision of this Escrow Agreement
shall not affect the validity of any other of its provisions. The parties
hereto will substitute a new clause for the invalid, illegal or unenforceable
clause of like economic intent and effect. This Escrow Agreement, together with
the Master Agreement is the entire agreement between the parties hereto
relating to the subject matter hereof.
9. NOTICES
Except as otherwise provided herein all notices required to be
given hereunder shall be in writing and shall be given by certified registered
mail, return receipt requested, or by personal delivery or express mail, to the
parties at their respective address hereinabove written, or at such other
address as shall be specified herein above in writing to all other parties.
10. LIMITATIONS ON ESCROW AGENT'S RESPONSIBILITY AND LIABILITY
(a) Escrow Agent shall not be obligated or required to
examine or inspect the Source Code, or any of the additions thereto. Escrow
Agent's obligation for safekeeping shall be limited to providing the same
degree of care for the Source Code as it maintains for its valuable documents
and those of its clients lodged in the same location with appropriate
atmospheric or other safeguards. However, the parties agree and acknowledge
that Escrow Agent shall not be responsible for any loss or damage to any of the
Source Code due to changes in such atmospheric conditions (including, but not
limited to, failure of the air conditioning system), unless such changes are
proximately caused by the gross negligence or malfeasance of Escrow Agent.
3
<PAGE> 46
(b) Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document furnished
to it, not only in assuming its due execution and the validity and
effectiveness of its provisions but also as to the truth and acceptability of
any information therein contained, which it in good faith believes to be
genuine and what it purports to be.
(c) In no event shall Escrow Agent be liable for any act or
failure to act under the provisions of this Agreement except where its acts are
the result of its gross negligence or malfeasance. Escrow Agent shall not have
duties except those which are expressly set forth herein, and it shall not be
bound by any notice of a claim, or demand with respect thereto, or any waiver,
modification, amendment, termination or recision of this Escrow Agreement,
unless in writing and signed by both Customer and Consultant and, if its duties
are affected, unless it shall have given its prior written consent thereto.
(d) The parties to this Escrow Agreement hereby jointly and
severally indemnify Escrow Agent against any loss, liability, or damage (other
than any caused by the gross negligence or malfeasance of Escrow Agent),
including reasonable costs of litigation and counsel fees, arising from and in
connection with the performance of its duties under this Escrow Agreement.
11. INSPECTION
Customer shall have the right at any time to contact Escrow Agent
for purposes of confirming the existence of the Source Code and documentation
and all updates and enhancements thereto, and examining the Source Code and
other items in escrow.
12. SECTION 365(n) OF THE BANKRUPTCY CODE
Consultant expressly acknowledges that this Escrow Agreement
is supplementary to the Master Agreement pursuant to 11 United States
Bankruptcy Code, Section 365(n).
13. COUNTERPARTS
This Agreement may be signed in counterparts, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
duly executed as of the year and date first above written.
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By /s/ THOMAS VESELY
-------------------------------
Name Thomas Vesely
Title: Vice President
NEON SOFTWARE, INC.
By /s/ ILLEGIBLE
-------------------------------
Name: Illegible
Title: CEO
FORT KNOX ESCROW SERVICES, INC.
By /s/ JANE L. ELLIOTT
-------------------------------
Name: Jane L. Elliott
Title: Sr. Account Manager
4
<PAGE> 1
EXHIBIT 11.1
NEW ERA OF NETWORKS, INC.
Statement Re: Computation of Net Loss Per Common Share
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------
<S> <C>
Weighted average common shares
outstanding 8,054,375
Effect of common stock and common stock
equivalents issued within one year
prior to initial public offering pursuant
to Staff Accounting Bulletin No. 83 (1) 1,185,374
-----------
Total 9,239,749
===========
Net loss $(5,672,318)
===========
Net loss per common share $ (0.61)
===========
</TABLE>
(1) Common Stock and Common Stock Equivalents issued after January 1, 1996, at
prices substantially less than the assumed initial public offering price of
$8.00 per share, have been considered outstanding during all periods presented
using the treasury stock method.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY OF THE REGISTRANT
New Era of Networks Limited, UK
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from New ERA of
Networks, Inc. December 31, 1996 consolidated financial statements and is
qualified in its entirety by reference to such financial statements included in
the Company's Form S-1 Registration Statement.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,387,466
<SECURITIES> 0
<RECEIVABLES> 2,229,417
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,700,867
<PP&E> 1,528,819
<DEPRECIATION> 401,364
<TOTAL-ASSETS> 7,072,738
<CURRENT-LIABILITIES> 3,115,127
<BONDS> 442,277
0
11,385,000
<COMMON> 204
<OTHER-SE> (7,869,870)
<TOTAL-LIABILITY-AND-EQUITY> 7,072,738
<SALES> 0
<TOTAL-REVENUES> 7,144,687
<CGS> 0
<TOTAL-COSTS> 3,328,219
<OTHER-EXPENSES> 9,549,641
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 50,640
<INCOME-PRETAX> (5,672,318)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,672,318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,672,318)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
