<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NXTREND TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 84-1161649
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
5225 NORTH ACADEMY BOULEVARD
COLORADO SPRINGS, COLORADO 80918
(719) 590-8940
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GUY M. LAMMLE
CHIEF EXECUTIVE OFFICER
NXTREND TECHNOLOGY, INC.
5225 NORTH ACADEMY BOULEVARD
COLORADO SPRINGS, COLORADO 80918
(719) 590-8940
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES C. T. LINFIELD, ESQ. JEFFREY D. SAPER, ESQ.
JAMES H. CARROLL, ESQ. KURT J. BERNEY, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
2595 CANYON BOULEVARD, SUITE 250 PROFESSIONAL CORPORATION
BOULDER, COLORADO 80302-6737 650 PAGE MILL ROAD
(303) 546-4000 PALO ALTO, CALIFORNIA 94304
(415) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the 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 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... 4,945,000 shares $14.00 $69,230,000 $20,979
</TABLE>
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(1) Includes 645,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act
of 1933, as amended.
----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 14, 1997
4,300,000 SHARES
[NXTREND TECHNOLOGY, INC. LOGO]
COMMON STOCK
All of the 4,300,000 shares of Common Stock offered hereby are being sold by
NxTrend Technology, Inc. ("NxTrend" 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
$12.00 and $14.00 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 its Common Stock approved for quotation on the Nasdaq
National Market under the symbol "NXTT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $550,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 645,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total $
and Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
-----------
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
DAIN BOSWORTH
INCORPORATED
, 1997
<PAGE>
[DESCRIPTION OF ARTWORK TO BE FILED BY AMENDMENT.]
Trend(R) and SHIMS(R) are trademarks owned by the Company.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent certified public accountants and with quarterly reports for the
first three quarters of each fiscal year containing interim financial
information.
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 OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[DESCRIPTION OF ARTWORK TO BE FILED BY AMENDMENT.]
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. This Prospectus contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated in such forward-
looking statements. Except as otherwise indicated in this Prospectus or the
financial statements, all references to "NxTrend" and the "Company" refer to
NxTrend Technology, Inc. and its predecessors.
THE COMPANY
NxTrend is a leading provider of enterprise-wide software solutions that
address the critical business information requirements of durable goods
wholesale distributors. NxTrend offers wholesale distributors a single source
solution for information systems that are designed to enable the distributor to
increase profitability, enhance customer service and implement "best business
practices" in such critical areas as inventory management, order processing,
sales, customer service, warehouse logistics and strategic business analysis.
The Company seeks to serve as its customers' technology partner, helping them
respond to and anticipate the changing demands of the wholesale distribution
industry by designing, implementing and continuously improving their business
information systems. The Company's primary software products are open systems
based on the UNIX platform, and the Company's newest generation of products
utilize a Windows NT-based client/server architecture with Internet and
intranet capabilities. Over the course of its 17 year history of profitable
operations, the Company has established itself as the leading provider of
business information systems within its target market segments of the
distribution industry and as of February 28, 1997 had an installed base of over
1,000 customers.
Durable goods wholesale distributors are operating in a rapidly changing and
intensely competitive environment. Industry consolidation has resulted in fewer
and more powerful distributors competing for market share while new entrants
are targeting increasingly specialized market segments. The proliferation of
"big box" retailers and wholesale clubs has also significantly altered the
competitive landscape, as such new competitors typically bypass traditional
distributors and instead purchase directly from manufacturers. While the
competitive environment has intensified, demand for increased value and
improved service from both manufacturers and customers has placed additional
pressures on wholesale distributors. Manufacturers are seeking increased levels
of marketing support from wholesale distributors, more efficient ordering
procedures and better information on distributors' inventory levels to monitor
"sell through." Concurrently, customers are attempting to better manage their
inventory levels and costs by demanding that their distributors provide prompt
information on product availability and rapid and reliable product delivery.
Both manufacturers and customers are endeavoring to rationalize their selling
and purchasing efforts by concentrating their business with a smaller number of
distributors. As a result of these factors, many distributors have been forced
to lower their margins in order to remain competitive. The various pressures
facing wholesale distributors have created a growing need for enterprise-wide
software solutions that provide a broad range of accurate and current
information to wholesale distributors and enable them to respond more quickly
to the needs of their manufacturers and customers and to manage their
businesses more efficiently and profitably.
The Company's primary software packages, Trend, WDS-II and SHIMS, are
designed to automate key business processes and to integrate information among
customers and manufacturers. These products offer numerous modules in the areas
of (i) inventory management, (ii) warehouse logistics, (iii) electronic
commerce, (iv) business analysis, (v) sales, distribution and customer service,
and (vi) finance and administration, which can be configured to meet customers'
specific needs. The Company's Strategic Exchange client/server family of
4
<PAGE>
products, based on Windows NT, complements the Company's primary products by
allowing customers to access, organize and analyze the information collected by
such products and to integrate that information into Windows-based productivity
tools. The Company's recently introduced Distribution@Work family of products
adds Internet and intranet capabilities to NxTrend's other software products.
The Company's objective is to maintain and enhance its position as a leading
supplier of enterprise-wide software solutions for the durable goods wholesale
distribution market. The Company seeks to achieve this objective by (i)
leveraging its industry specific focus and industry reputation to further
penetrate its primary target market segments within the durable goods wholesale
distribution industry; (ii) providing a total solution to customers'
information technology needs; (iii) extending its solutions into additional
market segments within the durable goods distribution industry; (iv) enhancing
its technology leadership position through ongoing product development; (v)
continuing to offer products and services which generate significant recurring
and ongoing revenue; and (vi) increasing its product offerings, customer base,
skilled personnel and market segments by pursuing strategic acquisitions.
The Company was incorporated in Iowa in 1979, was reincorporated in Colorado
in 1991 and was reincorporated in Delaware in 1996. The Company's principal
executive offices are located at 5225 North Academy Boulevard, Colorado
Springs, Colorado 80918, and its telephone number is (719) 590-8940.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 4,300,000 shares
Common Stock to be outstanding after the offering.. 13,370,331 shares(1)
Use of proceeds.................................... For payments in connection
with the redemption of
preferred stock, repayment
of indebtedness, working
capital and other general
corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............. NXTT
</TABLE>
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(1) Based on shares outstanding as of February 28, 1997. Excludes (i) 1,335,932
shares of Common Stock reserved for issuance upon exercise of options
outstanding under the Company's 1996 Stock Option and Grant Plan as of
February 28, 1997 at a weighted average exercise price of $2.43 per share,
(ii) 1,393,294 additional shares reserved for issuance pursuant to the
Company's 1996 Stock Option and Grant Plan, and (iii) shares reserved
for issuance pursuant to the Company's Employee Stock Purchase Plan. See
"Capitalization," "Management--1996 Stock Option and Grant Plan," "--
Employee Stock Purchase Plan," "Description of Capital Stock" and Note 9 of
Notes to Financial Statements.
----------------
Except as otherwise specified, all information in this Prospectus assumes (i)
a 2.3-for-1 stock split of the Common Stock to be effected prior to the closing
of this offering, (ii) the conversion of each outstanding share of convertible
preferred stock into Common Stock upon the closing of this offering, and (iii)
no exercise of the Underwriters' over-allotment option.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Software license fees............... $ 5,585 $ 4,575 $ 6,446 $10,625 $12,429
Annual license and support fees..... 2,306 3,127 3,210 8,702 10,759
Services............................ 2,584 3,325 3,909 6,229 7,011
Hardware............................ 5,268 5,482 5,207 9,568 9,421
------- ------- ------- ------- ---------
Total revenue.................... 15,743 16,509 18,772 35,124 39,620
Gross profit......................... 9,298 6,830 8,886 17,998 21,417
Operating income..................... 2,396 88 2,785 3,834 5,819
Interest expense..................... -- 170 45 -- 1,757
Net income........................... 1,507 241 2,134 2,981 3,129
Unaudited pro forma net income per
common and common equivalent
share(2)............................ $ 0.32
Shares used to compute unaudited pro
forma net income per common and
common equivalent share(2).......... 9,919,287
UNAUDITED SUPPLEMENTAL DATA(3):
Adjusted operating income............ $ 7,030 $ 9,623
Adjusted net income.................. 5,013 5,595
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets....................................... $ 11,854 $21,791
Current liabilities (including current portion of
long-term bank and other debt)...................... 15,583 11,083
Total assets......................................... 16,596 26,146
Bank and other long-term debt........................ 15,500 500
Mandatorily redeemable, convertible preferred stock.. 32,500 --
Stockholders' equity (deficit)....................... (47,047) 14,503
</TABLE>
- --------
(1) Results of operations for 1992 reflect the Company's status as an S
corporation until December 31, 1992. Net income includes an unaudited, pro
forma tax provision, calculated as if the Company were a C corporation for
1992.
(2) Calculated on the basis described in Note 2 of Notes to Financial
Statements.
(3) Excludes nonrecurring compensation expense of $3.2 million and $3.8 million
incurred by the Company in 1995 and 1996, respectively, under the Company's
Unit Incentive Plan. In connection with the Company's recapitalization in
March 1996, this plan was settled and terminated. See "Recapitalization"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recapitalization."
(4) Adjusted to reflect (i) the conversion of all outstanding convertible
preferred stock into Common Stock and redeemable preferred stock, (ii) the
sale of the 4,300,000 shares of Common Stock offered by the Company hereby
at an assumed public offering price of $13.00, and (iii) the application of
the estimated net proceeds therefrom, including $22.0 million for the
immediate redemption of all redeemable preferred stock. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Common Stock being offered hereby involves a high
degree of risk. In addition to other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this
Prospectus.
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have fluctuated in the past and
are expected to continue to fluctuate in the future. These fluctuations may be
caused by many factors, including, among others: the size and timing of
individual orders; competitive pricing pressures; lengthy sales cycles;
budgeting cycles of customers; delays of customer installations due to delays
in delivery of hardware components by the Company's vendors; customer order
deferrals in anticipation of new products; the mix of products and services
sold; the variation of consulting, maintenance and other services as a
percentage of total revenue; the timing of introduction or enhancement of
products by the Company or its competitors; market acceptance of new products;
technological changes in platforms supporting the Company's products; changes
in networking or communication technology; changes in the Company's operating
expenses; personnel changes; the ability of the Company to increase its sales
and support personnel; software "bugs" and other product quality problems; and
general industry and economic conditions.
A significant portion of the Company's historical revenue has been derived
from initial license fees (and related hardware and service sales) to a
limited number of customers, and the Company currently anticipates that this
trend will continue. Accordingly, any significant cancellation or deferral of
customer orders could have a material adverse effect on the Company's
operating results in any particular quarter. Further, due in part to the time
required to implement the Company's products and the Company's revenue
recognition policy which generally requires that a product has been delivered
and installed, the Company has satisfied all significant performance
obligations and collection is probable before revenue from the sale can be
recognized, the Company may experience potentially significant delays in
recognizing revenue. The Company in the past has realized a substantial
portion of its revenue in the last month of a quarter. In addition, it is not
uncommon for software companies to experience strong fourth quarters followed
by weak first quarters, in some cases with quarter-to-quarter declines in
revenue or operating profit. Further, many of the Company's customers have
their most active business cycles in the third calendar quarter and,
therefore, often elect to defer installation of a new system during that
period of time. In addition, the timing of initial license fee revenue is
difficult to predict because of the length and variability of the Company's
sales cycle.
The Company's operating expense levels are relatively fixed and are based in
part on expectations as to future revenues. Compensation constitutes a
substantial portion of the Company's operating expenses and to a large degree
is fixed. Additionally, in their first year of employment by the Company, new
consulting personnel typically spend between eight and twelve weeks in
training, during which period they do not typically generate revenue. To the
extent anticipated revenue fails to materialize following the hiring and
training of new personnel, the Company's operating results would be adversely
affected. Consequently, any decline in revenues in any period, including a
decline due to delays in revenue recognition, could cause significant
variations in operating results from quarter to quarter and could result in
operating losses. To the extent that the Company's expectations regarding
future revenue are not realized, the Company's business, results of operations
and financial condition would be materially and adversely affected.
As a result of these and other factors, the Company believes that period-to-
period comparisons of its 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 will not meet the
7
<PAGE>
expectations of market analysts or investors, which would likely have an
adverse effect on the market price of the Company's Common Stock. In addition,
there can be no assurance that the Company will achieve or sustain
profitability on a quarterly or annual basis. See "--Lengthy Sales Cycle" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LENGTHY SALES CYCLE
The sales cycle associated with the purchase of the Company's products
typically ranges from five to seven months and is subject to a number of risks
over which the Company has little or no control. For example, licensing of the
Company's products by its customers may involve a significant technical
evaluation and commitment of capital and other resources, with the attendant
delays associated with the approval of large capital expenditures and the
testing, implementation and acceptance of new technologies that affect key
operations. This evaluation process subjects the sales cycle associated with
the licensing of the Company's products to a number of significant risks,
including customers' budgetary and capital spending constraints and the
internal purchase approval processes of the customer, each of which may cause
a lengthy sales process lasting over several months. The length of the
Company's sales cycle may also vary substantially from customer to customer,
particularly for customers within different market segments. Because of such
possible lengthy sales cycles and the size of typical initial license fees
(and associated hardware and service sales), if revenue forecasted by the
Company from a specific customer for a particular quarter is not realized in
that quarter, the Company's operating results for that quarter could be
materially and adversely affected. See "--Uncertainty of Future Operating
Results; Fluctuations in Quarterly Results" and "Business--Sales and
Marketing."
ABILITY TO ATTRACT AND RETAIN SALES, SERVICE AND IMPLEMENTATION PERSONNEL
The Company's future success is heavily dependent upon its ability to
attract, retain and motivate skilled technical and managerial personnel,
consulting personnel who assist in the implementation of the Company's
solutions, and sales personnel who are knowledgeable about enterprise-wide
software solutions and the wholesale distribution industry. The Company will
not be able to continue to increase its business at historical rates without
adding significant numbers of trained consulting personnel. Competition for
these types of personnel, in particular for technical, sales and
implementation personnel, is intense, and the Company competes in the market
for such personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company. The software industry is characterized by a high level of employee
mobility and aggressive recruitment of skilled personnel. There can be no
assurance that the Company will be able to retain its current personnel, or
that it will be able to attract, assimilate or retain other highly qualified
technical, managerial, consulting or sales personnel in the future. The
inability to attract, hire or retain the necessary personnel could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "--Dependence on Key Personnel" and "--Rapid
Technological Change and New Products."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends to a significant extent upon its
ability to retain certain key employees, including Guy M. Lammle, Chief
Executive Officer and President, Kathleen J. Cunningham, Chief Operating
Officer and Chief Financial Officer, and Ross J. Elliott, Executive Vice
President, Development. None of NxTrend's executive officers is bound by an
employment agreement, and Mr. Lammle is the only executive officer upon whom
the Company maintains "key-man" insurance. The loss of Mr. Lammle, Ms.
Cunningham, Mr. Elliott or certain other key employees or the Company's
inability to attract and retain other qualified employees could have a
material adverse effect on the Company's business and operations. See "--
Ability to Attract and Retain Sales, Service and Implementation Personnel,"
"--Rapid Technological Change and New Products," "Business--Employees" and
"Management--Executive Officers and Directors."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introductions and enhancements.
8
<PAGE>
The introduction of products embodying new technologies and the emergence of
new industry standards could render the Company's existing products and
products currently under development obsolete and unmarketable. Accordingly,
the Company's future success will depend upon its ability to enhance its
current products and develop and introduce new products that keep pace with
technological developments, satisfy varying end-user requirements and achieve
market acceptance. For example, the Company has modified certain modules of
its existing UNIX-based products and developed new products which can be
operated in an open client/server environment and on the Internet or an
intranet. Any failure by the Company to anticipate or respond adequately to
technological developments or end-user requirements, or any significant delays
in product development or introduction, could damage the Company's competitive
position and have a material adverse effect on revenues. There can be no
assurance that the Company will be successful in developing and marketing new
products or product enhancements on a timely basis or that the Company will
not experience significant delays in the future, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that new products or product
enhancements developed by the Company will achieve market acceptance. The
Company may need to increase the size of its product development staff in the
near term to meet these challenges. There can be no assurance that the Company
will be successful in hiring and training adequate product development
personnel to meet its needs. See "--Ability to Attract and Retain Sales,
Service and Implementation Personnel," "--Dependence on Key Personnel" and
"Business--Product Development."
DEPENDENCE ON TREND
The Company derives a majority of its revenue from the licensing of its
primary product, Trend, and associated service and hardware sales. The Company
anticipates that Trend will continue to account for a substantial portion of
revenue for the foreseeable future and that revenue from its SHIMS product
will continue to decrease as a percentage of total revenue. Accordingly, any
significant overall decline in revenue from Trend would have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future operating results are dependent upon continued
market acceptance of Trend and enhancements thereto. There can be no assurance
that Trend will continue to achieve market acceptance or that the Company will
be successful in marketing enhancements thereto. There can be no assurance
that current revenue or margin levels from this product will be sustained. The
Company anticipates that its existing and new competitors will introduce
additional products that compete with Trend, particularly if the demand for
wholesale distribution software products increases. 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
Trend, the Company's business, operating results and financial condition would
be materially and adversely affected. See "Business--Products" and "--Product
Development."
COMPETITION
Competition in the enterprise-wide software solutions market is, and is
expected to remain, intense. The Company competes on the basis of product
quality, reliability, performance, ease of use, quality of support and price.
The Company believes that its primary competitors are Daly & Walcott, Inc.,
J.D. Edwards, Inc., Mincron SBC Corporation, Prelude, Inc., Prophet 21, Inc.
and Trade Service System, Inc. Certain of the Company's existing competitors,
as well as a number of potential competitors, have more established and larger
marketing and sales organizations, significantly greater financial and
technical resources and a larger installed base of customers than the Company.
In addition, certain of these companies have greater name recognition, more
established positions in the market, and long standing relationships with
customers. There can be no assurance that such competitors will not offer or
develop products that are superior to the Company's products or that achieve
greater market acceptance. The Company also competes against internally
developed legacy solutions in which potential customers may have invested
significant sums and committed valuable management resources to develop. Such
potential customers may resist committing the time and resources necessary to
convert to a third party software product and may instead choose to develop
and enhance their own systems internally. As demand for distribution industry
technology solutions expands, additional companies, some with significantly
greater
9
<PAGE>
resources than the Company, may enter the market or increase their market
share by acquiring or entering into alliances with competitors of the Company.
There can be no assurance that the Company will be able to compete
successfully against its competitors or that the competitive pressures faced
by the Company will not adversely affect its business, results of operations
or financial condition. See "Business--Competition."
MANAGEMENT OF GROWTH
The growth in the size and complexity of the Company's business and
expansion of its product lines and its customer base have placed and are
expected to continue to place a strain on the Company's management and
operations. The Company anticipates that continued growth will require it to
recruit and hire many new employees, including sales, consulting and technical
personnel. The Company's ability to compete effectively and to manage future
growth, if any, also will depend on its ability to implement and improve
operational, financial and management information systems on a timely basis,
to expand, train, motivate and manage its work force, in particular its direct
sales force and consulting services organization, and to deal effectively with
third-party systems integrators and consultants. There can be no assurance
that the Company will be able to manage or continue to manage its recent or
any future growth, and any failure to do so would have a material adverse
effect on the Company's business, operating results and financial condition.
INTEGRATION OF POTENTIAL ACQUISITIONS AND JOINT VENTURES
As part of the Company's strategy, the Company seeks to acquire or enter
into business combinations with companies whose products or technologies will
complement or extend the Company's current products, services or target market
segments. In this regard, the Company completed the acquisition of certain of
the assets of Ultimate Data Systems, Inc. in 1995, and the acquisitions in
early 1997 of substantially all of the assets of each of Systemetrix
Corporation and an affiliated entity, Saber Systems, Inc. and Goretek Data
Systems, Inc. The most recent acquisitions, as well as any future
acquisitions, may 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 revenue from such acquisitions to
offset associated acquisition costs, or that the Company will maintain uniform
standards, 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 expense
associated with the amortization of acquired intangible assets or potential
dilution from additional stock issuances. 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 affect on the Company's
business, financial condition or operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisitions."
DEPENDENCE ON THIRD PARTY SOFTWARE AND HARDWARE; RELIANCE UPON HARDWARE SALES
Most of the Company's products incorporate and use software products and
computer hardware and equipment developed by other entities. The relational
database management systems ("RDBMS") currently used in the Company's products
are those which the Company believes are best suited for the particular
applications required by the wholesale distributors in the Company's targeted
markets. These RDBMS have been developed by Progress Software Corporation
("Progress") and VMark Software, Inc. ("VMark"), and the Company has entered
into agreements with each of Progress and VMark that permit NxTrend to resell
such companies' products in connection with the sale of NxTrend products. The
operating systems on which the Company's products can function (UNIX, SCO-
UNIX, UnixWare and Windows NT) have been developed or are owned by Santa Cruz
Operations ("SCO") and Microsoft Corporation ("Microsoft"). The computer
hardware and related equipment sold as part of the Company's total solutions
are manufactured by Hewlett-Packard Company
10
<PAGE>
("Hewlett-Packard"), International Business Machines Corporation ("IBM"),
Unisys Corporation, Data General Corporation ("Data General") and others.
There can be no assurance that all of these software or hardware providers
will remain in business, that such entities will continue to support these
product lines, that their product lines will remain viable or that these
products will otherwise continue to be available to the Company on a timely
basis in sufficient quantities or at all. For example, in the fourth quarter
of 1996 unavailability of certain hardware products resulted in delays in the
installation of Trend and the deferral of the revenue from outstanding
customer orders. If any of these entities ceases to do business or abandons or
fails to enhance or continue to support a particular product line, the Company
may need to seek other suppliers. In particular, if the Company was unable,
for any reason, to continue to incorporate Progress software into its Trend
and WDS-II products and to resell Progress software in connection with the
Trend and WDS-II products, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Further, for the year ended December 31, 1996, the Company derived
approximately 23.8% of its revenue and 7.9% of its gross profit from hardware
sales. Due to intense competition in the computer hardware market, and the
resulting declines in hardware prices, the Company's hardware revenue, as a
percentage of total revenue, as well as gross profit attributable to hardware
sales as a percentage of total gross profit, have also declined. The Company
expects these trends to continue. In addition, there can be no assurance that
the Company's current suppliers will not significantly alter their pricing in
a manner which could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Third Party
Products."
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
The Company has made a substantial investment in developing products which
utilize open systems technologies, such as client/server architectures, to
enable its customers to operate the Company's products on a variety of
operating systems, multiple hardware platforms and to integrate the Company's
products with third-party specialty software applications and legacy systems.
For example, the Company has developed the Distribution@Work family of
products to enable distributors, customers and manufacturers to access and
transmit information in a distributor's Trend or SHIMS database via the
Internet or an intranet. However, since the wholesale distribution industry
has been slow to adopt sophisticated business information technology, there
can be no assurance that the Company's new products will achieve or maintain
market acceptance. Further, there can be no assurance that the Company's
products will achieve and sustain advantages over other competitive
technologies. If the Company's enterprise network solutions do not achieve and
maintain significant and sustained market acceptance, the Company's business,
results of operations and financial condition could be materially and
adversely affected.
ABILITY TO EXPAND INTO NEW MARKETS
The Company's future operating results are dependent upon its ability to
penetrate new vertical wholesale distribution market segments, such as
electronics, medical equipment and automotive parts. In order to penetrate new
markets such as these, the Company must develop or acquire the industry-
specific knowledge which is necessary to enable it to customize its primary
software products to meet the needs of wholesale distributors in these
markets. In addition, since wholesale distributors prefer to purchase systems
from well-established suppliers, the Company will need to establish a
reputation in each new market as a reliable provider of enterprise-wide
software solutions. If the Company's products do not achieve and maintain
significant and sustained market acceptance, or if the customer's applications
which incorporate the Company's products do not achieve lasting market
acceptance, the Company's business, results of operations and financial
condition could be materially and adversely affected.
DEPENDENCE ON DURABLE GOODS WHOLESALE DISTRIBUTION INDUSTRY
The Company's business depends substantially upon the capital expenditures
of durable goods wholesale distributors in its targeted market segments, which
in part depend upon the demand for such distributors' products. A recession or
other adverse events broadly impacting the wholesale distribution industry in
the United States or other markets served by the Company could affect such
demand, forcing distributors in the Company's
11
<PAGE>
target markets to curtail or postpone capital expenditures on information
technology systems and business consulting services. Any such change in the
amount or timing of capital expenditures in its target markets could have a
material adverse effect on the Company's business, results of operations and
financial condition.
PRODUCT LIABILITY; RISK OF SOFTWARE ERRORS OR FAILURES
The Company may be subject to significant risks of professional and other
liability with respect to both its standard software products and its
consulting and support services. No assurance can be given that the
limitations of liability set forth in the Company's license agreements or
other contracts would be enforceable or would otherwise protect the Company
from liability for damages to a customer resulting from a defect in one of the
Company's products or arising as a result of professional services rendered by
the Company. Such a claim, if successful and of sufficient magnitude, could
have a material adverse effect on the Company's business, results of operation
and financial condition. In addition, software programs as complex as those
offered by the Company may contain undetected errors or "bugs" when first
introduced or as new versions are released that, despite testing by the
Company, are discovered only after a product has been installed and used by
customers. There can be no assurance that errors will not be found in future
releases of the Company's software, or that any such errors will not impair
the market acceptance of these products and adversely affect operating
results. Problems encountered by customers installing and implementing new
releases or with the performance of the Company's products could have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade secret
laws, employee and third-party nondisclosure agreements and other methods for
protecting ownership of its proprietary software. There can be no assurance,
however, that, in spite of these precautions, an unauthorized third party will
not copy or reverse-engineer certain portions of the Company's products or
obtain and use information that the Company regards as proprietary. The
Company provides source code to all SHIMS end-users and, in certain
circumstances may provide the source code for its Trend and WDS-II software
products, under licenses to its customers to enable them to customize the
software to meet particular requirements. Although the Company's source code
license contains confidentiality and nondisclosure provisions, there can be no
assurance that such customers will take adequate precautions to protect the
Company's source code or other confidential information. While the Company's
license agreements prohibit customers from exporting the product, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. There can be no assurance
that the mechanisms used by the Company to protect its software will be
adequate or that the Company's competitors will not independently develop
software products that are substantially equivalent to or superior to the
Company's software products.
NxTrend licenses products to end-users under license agreements which are
generally in standard form, although each license is individually negotiated
and may contain variations. The standard form agreement allows the licensee to
use the products solely on its computer equipment for its internal purposes,
and the licensee is generally not permitted to sublicense or transfer the
products. The Company's standard form license agreement includes a
confidentiality clause protecting the products. However, there can be no
assurance that such customers will take adequate precautions to protect the
Company's confidential information.
None of NxTrend's software is patented. The Company believes that it has all
necessary rights to market its products, although there can be no assurance
that third parties will not assert infringement claims in the future. The
Company expects that, as the number of software products in the wholesale
distribution industry increases and the functionality of these products
further overlaps, software products will increasingly be subject to such
claims. There can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted against the Company or that any such assertions will not materially
adversely affect the Company's business, operating results and financial
condition. Any such claim,
12
<PAGE>
with or without merit, could be time-consuming, result in costly litigation
and diversion of resources, cause product shipment delays or require the
Company to enter into royalty or licensing arrangements. Such royalty or
licensing arrangements, if required, may not be available on terms acceptable
to the Company or at all. In the event of a successful claim of product
infringement against the Company and the Company's failure or inability to
license the infringed or similar technology, the Company's business, operating
results and financial condition could be materially adversely affected.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; NO
DIVIDENDS
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
or, if one develops, that it will be maintained. The initial public offering
price of the Common Stock will be established by negotiation between the
Company and the representatives of the Underwriters. See "Underwriting" for
factors to be considered in determining the initial public offering price. The
market price of the shares of Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors,
including announcements by its competitors. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock. The
Company has never paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon completion of this offering, the Company will have
outstanding an aggregate of 13,370,331 shares of Common Stock assuming (i) no
exercise of the Underwriters' over-allotment option, (ii) no exercise of
outstanding options and (iii) the automatic conversion of all outstanding
shares of the Company's convertible preferred stock. Of these shares, the
4,300,000 shares of Common Stock sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are held by "affiliates" of the Company, as that term is defined
under the Securities Act and the Regulations promulgated thereunder.
The remaining 9,070,331 shares of Common Stock are "Restricted Shares" and
are subject to restrictions under the Securities Act. All of the Restricted
Shares are subject to lock-up agreements under which the holders have agreed
not to sell or otherwise dispose of any of their shares for a period of 180
days after the date of this Prospectus except with the prior written consent
of Montgomery Securities. Beginning 180 days after the date of the Prospectus,
8,422,535 Restricted Shares will become available for sale in the public
market pursuant to Rule 144 or Rule 701 under the Securities Act. By January
1998, up to an additional 318,791 shares will become eligible for sale in the
public market pursuant to Rule 144 or Rule 701 under the Securities Act.
During the period from March 1998 through March 2004, certain holders of the
Restricted Shares of Common Stock, or their transferees, will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradable without restriction under the
Securities Act (except for shares purchased by affiliates) immediately upon
effectiveness of such registration. See "Management--1996 Stock Option and
Grant Plan," "--Employee Stock Purchase Plan," "Shares Eligible for Future
Sale," and "Description of Capital Stock--Registration Rights."
ANTI-TAKEOVER CONSIDERATIONS
Upon completion of this offering, the Board of Directors will have authority
to issue up to 5,000,000 shares of Preferred Stock and to fix the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders. The rights of
the holders of Common Stock will
13
<PAGE>
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 may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect
the market price of and the voting and other rights of the holders of the
Common Stock. The Company has no present plans to issue shares of Preferred
Stock. In addition, certain provisions of the Company's bylaws and Delaware
law applicable to the Company could have the effect of discouraging certain
attempts to acquire the Company which could deprive the Company's stockholders
of the opportunities to sell their shares of Common Stock at prices higher
than prevailing market prices. See "Description of Capital Stock."
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Following completion of this offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately 66% of the outstanding shares of Common Stock.
Accordingly, these persons, individually and as a group, will be able to
effectively control the Company and direct its affairs and business, including
any determination with respect to the acquisition or disposition of assets by
the Company, future issuances of Common Stock or other securities by the
Company, declaration of dividends in the Common Stock and the election of
directors. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Principal Stockholders."
14
<PAGE>
RECAPITALIZATION
On March 14, 1996, the Company effected a recapitalization (the
"Recapitalization"), whereby, among other things, the Company: (i) sold 26,000
shares of Series A Convertible Participating Preferred Stock ("Series A
Preferred Stock") for an aggregate purchase price of $26.0 million; (ii)
obtained a $25.0 million five-year term loan and a $5.0 million revolving line
of credit, of which $1.0 million was drawn at that time; (iii) redeemed all of
the Common Stock owned by Guy M. Lammle, a co-founder of the Company, members
of his immediate family and trusts established for their benefit (the
"Lammles") for a cash payment of $17.5 million and the issuance of 6,500
shares of Series B Convertible Participating Preferred Stock ("Series B
Preferred Stock") valued at $1,000 per share; (iv) redeemed all of the Common
Stock held by Roger H. Linn, a co-founder of the Company, members of his
immediate family and trusts established for their benefit (the "Linns") for a
cash payment of $31.5 million; (v) paid $7.0 million (before withholding
taxes) to certain employees of the Company in connection with the termination
of the Company's Unit Incentive Plan (the "Unit Incentive Plan"); and (vi)
sold 1,473,943 shares of restricted Common Stock to Guy M. Lammle at a
purchase price of $0.217 per share, subject to a repurchase right in favor of
the Company. See "Certain Transactions."
Upon the closing of this offering, the outstanding Series A Preferred Stock
will automatically convert into 5,980,000 shares of Common Stock and 15,500
shares of Senior Redeemable Preferred Stock and the outstanding Series B
Preferred Stock will automatically convert into 1,495,000 shares of Common
Stock, 3,875 shares of Senior Redeemable Preferred Stock and 2,625 shares of
Junior Redeemable Preferred Stock. All shares of Senior Redeemable Preferred
Stock and Junior Redeemable Preferred Stock will be immediately redeemed upon
the consummation of this offering for total payments of approximately $19.4
million and $2.6 million, respectively. For the year ended December 31, 1996,
the Company incurred aggregate interest expense and amortization of debt
issuance costs of approximately $1.8 million relating to the term and
revolving debt incurred in connection with the Recapitalization. The Company
intends to use a portion of the net proceeds of this offering to repay the
term loan borrowing and any outstanding line of credit borrowing. See "Use of
Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,300,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$51.4 million ($59.2 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company. The Company intends to use approximately
$19.0 million to repay the outstanding term loan whose interest rate is based
upon the prime rate of interest or LIBOR, at the Company's option, plus 25 to
275 basis points depending upon certain borrowing ratios. The weighted average
interest rate for the term loan as of December 31, 1996 was 7.78% and such
loan matures on December 31, 2000. The Company intends to use approximately
$500,000 to repay all outstanding balances under its line of credit which has
an interest rate of 8.50% as of February 28, 1997 and approximately $22.0
million to redeem 19,375 shares of Senior Redeemable Preferred Stock and 2,625
shares of Junior Redeemable Stock which will be issued upon the conversion of
the outstanding Series A Preferred Stock and Series B Preferred Stock. A
portion of the proceeds may also be used to acquire or invest in businesses,
products or technologies that complement or extend the Company's current
products, services or target market segments. While the Company from time to
time evaluates potential acquisitions of such businesses, products or
technologies, there are no present undertakings, commitments or agreements
with respect to any such acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions." The
balance of the proceeds will be used for working capital and general corporate
purposes.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
DIVIDEND POLICY
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. In addition, the
Company's current loan agreement with its lenders contains a covenant
requiring the Company to obtain the lenders' consent before declaring
dividends. The payment of any future dividends will be at the discretion of
the Company's Board of Directors, will require consent of the Company's
lenders and will depend upon, among other things, the future earnings,
operations, capital requirements and financial condition of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996, the current debt and
lease obligations as well as the capitalization of the Company: (i) on an
actual basis and (ii) on a pro forma as adjusted basis to give effect to the
conversion of all outstanding convertible preferred stock into Common Stock
and redeemable preferred stock, the sale of the 4,300,000 shares of Common
Stock being offered by the Company hereby, at an assumed initial public
offering price of $13.00 per share, and the application of the net proceeds
therefrom, including $22.0 million for the immediate redemption of all
redeemable preferred stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current portion of bank and other debt................... $ 5,000 $ 500
======= =======
Long-term bank and other debt............................ $15,500 $ 500
Series A Mandatorily Redeemable, Convertible Preferred
Stock, $0.01 par value, 26,000 shares authorized, issued
and outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted...................... 26,000 --
------- -------
Series B Mandatorily Redeemable, Convertible Preferred
Stock, $0.01 par value, 6,500 shares authorized, issued
and outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted...................... 6,500 --
------- -------
Senior Mandatorily Redeemable Preferred Stock, $0.01 par
value, 19,375 shares authorized and no shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted...................... -- --
------- -------
Junior Mandatorily Redeemable Preferred Stock, $0.01 par
value, 2,625 shares authorized and no shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted...................... -- --
------- -------
Stockholders' equity(1):
Preferred stock, $0.01 par value, 50,000 shares
authorized and no shares issued and outstanding,
actual; 5,000,000 shares authorized and no shares
issued and outstanding, pro forma as adjusted......... -- --
Common stock, $0.01 par value, 31,895,500 shares
authorized, 1,473,943 shares issued and outstanding,
actual; 27,000,000 shares authorized, 13,248,943
shares issued and outstanding, pro forma as adjusted.. 15 132
Additional paid-in capital............................... 305 62,125
Retained earnings (deficit) (including at December 31,
1996 actual and pro forma as adjusted $48,999 paid to
purchase and retire founders' stock) (Note 1 of
Notes to Financial Statements).......................... (47,367) (47,754)
------- -------
Total stockholders' equity (deficit)................. (47,047) 14,503
------- -------
Total capitalization............................... $ 953 $15,003
======= =======
</TABLE>
- --------
(1) Excludes (i) 1,001,650 shares of Common Stock reserved for issuance upon
exercise of options outstanding under the Company's 1996 Stock Option and
Grant Plan as of December 31, 1996, at a weighted average exercise price
of $0.60 per share, (ii) 577,576 additional shares reserved for issuance
pursuant to the Company's 1996 Stock Option and Grant Plan, and (iii)
shares reserved for issuance pursuant to the Company's Employee Stock
Purchase Plan. See "Capitalization," "Management--1996 Stock Option and
Grant Plan," "--Employee Stock Purchase Plan," Description of Capital
Stock" and Note 9 of Notes to Financial Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company at December
31, 1996, was approximately $(39,522,000) or $(4.42) per share. "Net tangible
book value" per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding (which includes, as outstanding, 7,475,000 shares issuable upon
conversion of all outstanding shares of preferred stock upon the completion of
this offering). After giving effect to the sale by the Company of 4,300,000
shares of Common Stock offered hereby (at an assumed initial public offering
price of $13.00 per share), and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at December
31, 1996 would have been approximately $11,528,000, or $0.87 per share. This
represents an immediate increase in such net tangible book value of $5.29 per
share to existing stockholders and an immediate dilution of $12.13 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value (deficit) per share as of
December 31, 1996.......................................... $(4.42)
Increase per share attributable to new investors............ 5.29
------
Pro forma net tangible book value per share after this
offering................................................... .87
------
Dilution per share to new investors......................... $12.13
======
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1996,
the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average consideration paid
per share by the existing investors and by the investors purchasing shares of
Common Stock in this offering (based upon an assumed initial public offering
price of $13.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------
AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 8,948,943 67.5% $10,820,000 16.2% $ 1.21
New investors.............. 4,300,000 32.5 55,900,000 83.8 13.00
---------- ----- ----------- -----
Total.................... 13,248,943 100.0% $66,720,000 100.0%
========== ===== =========== =====
</TABLE>
The above tables and calculations assume no exercise of outstanding options
and no purchases of stock pursuant to the Company's Employee Stock Purchase
Plan. As of December 31, 1996, there were 1,001,650 shares of Common Stock
reserved for issuance upon exercise of outstanding options at a weighted
average exercise price of approximately $0.60 per share. Assuming that all of
these options were deemed to be exercised and proceeds were received
therefrom, dilution per share to new investors would be $12.15. See
"Management--1996 Stock Option and Grant Plan," "--Employee Stock Purchase
Plan" and "Description of Capital Stock."
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
statement of income data for each of the years ended December 31, 1994, 1995
and 1996 and the balance sheet data at December 31, 1995 and 1996 are derived
from, and are qualified by reference to, the Company's financial statements
and notes thereto included elsewhere in this Prospectus which have been
audited by Arthur Andersen LLP, independent public accountants. The statement
of income data for the years ended December 31, 1992 and 1993 and the balance
sheet data at December 31, 1992, 1993 and 1994 are derived from the Company's
audited financial statements not included herein. The data set forth below
should be read in conjunction with the financial statements, including notes
thereto, included elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Software license fees............. $ 5,585 $ 4,575 $ 6,446 $10,625 $12,429
Annual license and support fees... 2,306 3,127 3,210 8,702 10,759
Services.......................... 2,584 3,325 3,909 6,229 7,011
Hardware.......................... 5,268 5,482 5,207 9,568 9,421
------- ------- ------- ------- ---------
Total revenue..................... 15,743 16,509 18,772 35,124 39,620
------- ------- ------- ------- ---------
Cost of Revenue:
Software license fees............. 447 846 1,392 1,945 1,742
Annual license and support fees... 607 1,755 1,328 3,367 4,443
Services.......................... 1,453 2,645 2,819 3,852 4,287
Hardware.......................... 3,938 4,433 4,347 7,962 7,731
------- ------- ------- ------- ---------
Total cost of revenue............. 6,445 9,679 9,886 17,126 18,203
------- ------- ------- ------- ---------
Gross profit...................... 9,298 6,830 8,886 17,998 21,417
------- ------- ------- ------- ---------
Operating Expenses:
Research and development.......... 1,484 1,877 1,320 2,607 2,975
Sales and marketing............... 1,540 2,561 1,850 2,342 2,844
General and administrative........ 3,878 2,304 2,931 6,019 5,975
Unit Incentive Plan(2)............ -- -- -- 3,196 3,804
------- ------- ------- ------- ---------
Total operating expenses.......... 6,902 6,742 6,101 14,164 15,598
------- ------- ------- ------- ---------
Operating income.................. 2,396 88 2,785 3,834 5,819
Other income (expense), net........ (69) 256 724 855 (992)
------- ------- ------- ------- ---------
Income before income taxes........ 2,327 344 3,509 4,689 4,827
Provision for income taxes......... 820 103 1,375 1,708 1,698
------- ------- ------- ------- ---------
Net income........................ $ 1,507 $ 241 $ 2,134 $ 2,981 $ 3,129
======= ======= ======= ======= =========
Unaudited pro forma net income per
common and common equivalent
share(3).......................... $ 0.32
=========
Shares used to compute unaudited
pro forma net income per common
and common equivalent share(3).... 9,919,287
=========
SUPPLEMENTAL DATA(4):
Adjusted operating income.......... $ 7,030 $ 9,623
======= =========
Adjusted net income................ $ 5,013 $ 5,595
======= =========
<CAPTION>
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Current assets $ 7,289 $ 7,088 $ 8,534 $14,227 $11,854
Current liabilities (including
current portion of long-term bank
and other debt)................... 5,810 6,354 6,883 11,903 15,583
Total assets....................... 8,168 7,725 9,048 16,907 16,596
Bank and other long-term debt...... 2,584 1,336 -- -- 15,500
Mandatorily redeemable, convertible
preferred stock................... -- -- -- -- 32,500
Stockholders' equity (deficit)..... (226) 5 2,139 5,004 (47,047)
</TABLE>
- --------
(1) Results of operations for 1992 reflect the Company's status as an S
corporation until December 31, 1992. Net income includes an unaudited, pro
forma tax provision, calculated as if the Company were a C corporation for
1992.
(2) Reflects nonrecurring compensation expense incurred by the Company in 1995
and 1996 under the Company's Unit Incentive Plan. In connection with the
Company's Recapitalization in March 1996, such plan was settled and
terminated. See "Recapitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Recapitalization."
(3) Calculated on the basis described in Note 2 of Notes to Financial
Statements.
(4) Excludes nonrecurring compensation expense incurred in connection with the
Unit Incentive Plan.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NxTrend is a leading provider of enterprise-wide software solutions that
address the critical business information requirements of durable goods
wholesale distributors. NxTrend offers wholesale distributors a single source
solution for information systems that are designed to enable the distributor
to increase profitability, enhance customer service and implement "best
business practices" in such critical areas as inventory management, order
processing, sales, customer service, warehouse logistics and strategic
business analysis.
In 1990, the Company introduced Trend, its principal enterprise-wide
software solution, and since that time has continued to make enhancements,
revisions and upgrades to Trend, which is currently in release 7.0. In 1995,
the Company acquired its second enterprise-wide software solution, SHIMS,
which is currently in release 17.7, as a result of the purchase of certain
assets of Ultimate Data Systems, Inc. ("UDS") through an affiliated entity. In
early 1997, the Company acquired its third enterprise-wide solution, WDS-II,
as a result of the acquisition of certain assets of Goretek Data Systems, Inc.
("Goretek").
The Company's total revenue grew from $18.8 million in 1994 to $35.1 million
in 1995 and $39.6 million in 1996. The 87.1% increase from 1994 to 1995 was
primarily attributable to the acquisition of the SHIMS product line from UDS
in February 1995 and to the continued growth of Trend sales. The Company
experienced strong growth in Trend orders from 1995 to 1996, which was
partially reflected in the increase in revenue from 1995 to 1996. However,
delays in the availability of third party hardware in the fourth quarter of
1996 resulted in delays in installation of Trend software and deferral of the
revenue from such orders. The Company anticipates improved availability of
hardware in 1997 and has expanded its implementation staff to permit more
timely completion of outstanding orders.
The Company generates revenue from initial software license fees, annual
license and support fees, services (including software and hardware
implementation, enhancements, modifications and education), and from hardware
sold in conjunction with the Company's software products. The Company
ordinarily recognizes initial software license revenue when the Company is in
receipt of an executed license agreement, the product has been delivered and
installed, all significant performance obligations have been satisfied and
collection is probable. However, if the terms of the software license
arrangement provide for customer acceptance that is based on non-standard
criteria, revenue is recognized when the customer accepts the product pursuant
to those criteria or when the Company has performed all of its significant
performance obligations. Annual license fees and support agreements are
recognized ratably over the term of the license or support period.
Implementation and education services relating to the Company's software
products are performed and billed under separate agreements, and related
revenue are recorded when the services are performed.
The Company derives a majority of its revenue from the license of its
primary product, Trend, and associated service and hardware sales. The
Company's marketing efforts are focused primarily on increasing its Trend user
base. The Company anticipates that Trend will continue to account for a
substantial and growing portion of the Company's total revenue for the
foreseeable future and that revenue from SHIMS will continue to decrease as a
percentage of total revenue. The Company does not expect to make a significant
number of new sales of SHIMS, and over time some of the existing SHIMS
customers are expected to upgrade to Trend. Accordingly, any significant
overall decline in revenue from Trend would have a material adverse effect on
the Company's business, operating results and financial condition. See "Risk
Factors--Dependence on Trend."
For the year ended December 31, 1996, the Company derived 23.8% of its
revenues and 7.9% of its gross profit from hardware sales. In recent years,
hardware prices have been declining and consequently the Company's hardware
revenue, as a percentage of total revenue, as well as gross profit
attributable to hardware sales as a percentage of total gross profit, have
also declined. The Company expects these trends to continue. The Company acts
as a value added reseller or distributor for several third party software
companies, including Progress,
19
<PAGE>
VMark and Microsoft. In return, the Company earns a margin or a royalty on the
resale of such software to its customers. See "Business--Products."
The Company's gross profit has fluctuated significantly in the past and may
in the future, based on the mix of services and products licensed or sold by
the Company. The Company's software licenses have a substantially higher gross
profit than its services and hardware revenue. Therefore, to the extent the
Company's total revenue for any particular period includes a higher proportion
of lower margin services or hardware, the Company's overall gross profit will
be lower.
The Company's business has experienced and is expected to continue to
experience some degree of seasonality due in large part to its customers'
buying cycles. Revenues are generally lower during the summer months when the
Company's distribution customers have their busiest operating cycles and
typically elect to defer the installation of a new software system or the
modification of an existing system.
RECAPITALIZATION
On March 14, 1996, the Company effected the Recapitalization, whereby, among
other things, the Company (i) sold 26,000 shares of Series A Preferred Stock
for an aggregate purchase price of $26.0 million; (ii) obtained a $25.0
million five-year term loan and a $5.0 million revolving line of credit, of
which $1.0 million was drawn at that time; (iii) redeemed all of the Common
Stock held by the Lammles for a cash payment of $17.5 million and the issuance
of 6,500 shares of Series B Preferred Stock valued at $1,000 per share; (iv)
redeemed all of the Common Stock held by the Linns for a cash payment of $31.5
million; (v) paid $7.0 million (before withholding taxes) to certain employees
of the Company in connection with the termination of the Company's Unit
Incentive Plan; and (vi) sold 1,473,943 shares of Common Stock to Guy M.
Lammle at a purchase price of $0.217 per share, subject to a repurchase right
in favor of the Company. See "Recapitalization," "Certain Transactions" and
Note 1 of Notes to Financial Statements.
Upon the closing of this offering, the outstanding Series A Preferred Stock
will automatically convert into 5,980,000 shares of Common Stock and 15,500
shares of Senior Redeemable Preferred Stock and the outstanding Series B
Preferred Stock will automatically convert into 1,495,000 shares of Common
Stock, 3,875 shares of Senior Redeemable Preferred Stock and 2,625 shares of
Junior Redeemable Preferred Stock. All shares of Senior Redeemable Preferred
Stock and Junior Redeemable Preferred Stock will be immediately redeemed upon
the consummation of this offering for total payments of approximately $19.4
million and $2.6 million, respectively. For the year ended December 31, 1996,
the Company incurred aggregate interest expense and amortization of debt
issuance costs of approximately $1.8 million relating to the term and
revolving debt incurred in connection with the Recapitalization. The Company
intends to use a portion of the net proceeds of this offering to repay the
term loan borrowing and any outstanding line of credit borrowing. See "Use of
Proceeds."
ACQUISITIONS
As part of its business strategy, the Company intends to broaden its product
and service offerings and target market segments, as well as increase its
customer base and skilled personnel, in part through strategic acquisitions.
Such acquisitions may include software products and technologies intended to
complement or extend current product offerings in the Company's target market
segments. The Company believes that there will be opportunities to acquire
smaller enterprise software companies because wholesale distribution companies
are increasingly requiring that their long-term, enterprise-wide information
technology solutions be supplied by established companies, such as NxTrend.
The Company completed one acquisition in 1995 and three acquisitions in early
1997.
In 1995, the Company, through an affiliated entity, acquired the SHIMS
product line when it purchased certain of the assets of UDS for cash of
approximately $1.9 million and the assumption of certain liabilities (the "UDS
Acquisition"). In addition to the SHIMS product line, the Company acquired
from UDS a complementary customer base, an additional source of recurring
revenue and a number of skilled employees. The Company currently has an
installed base of approximately 400 SHIMS customers.
20
<PAGE>
Effective January 2, 1997, the Company purchased substantially all of the
assets of Systemetrix Corporation and an affiliated entity ("Systemetrix"),
the Company's primary independent reseller in Canada, for $250,000 in cash,
63,888 shares of Common Stock and the assumption of certain liabilities (the
"Systemetrix Acquisition"). The Systemetrix Acquisition provides the Company
with 36 skilled employees, direct access to the Canadian wholesale
distribution markets, 40 existing Trend customers and approximately 200 other
customers using general purpose and wholesale distribution software running on
the IBM AS/400 and other proprietary IBM platforms.
Effective January 2, 1997, the Company also purchased substantially all of
the assets of Saber Systems, Inc. ("Saber"), a Minneapolis based reseller of
Trend, for $1.3 million in cash, 57,500 shares of Common Stock and the
assumption of certain liabilities (the "Saber Acquisition"). The Saber
Acquisition provides NxTrend direct access to 20 existing Trend customers,
approximately 80 other customers running general purpose and wholesale
distribution software, and 35 additional skilled personnel. Additionally,
effective February 1, 1997, the Company purchased substantially all of the
assets of Goretek for $1.0 million in cash and the assumption of certain
liabilities (the "Goretek Acquisition"). Goretek is the Minneapolis-based
developer of WDS-II, a Progress-based wholesale distribution software product.
The Goretek Acquisition provides the Company with an additional wholesale
distribution software product, approximately 300 WDS-II customers and 26
skilled personnel (particularly in the area of Java-based development) and the
Company's initial point of entry into the electronics and medical equipment
market segments. Together, the Saber and Goretek Acquisitions also provide
NxTrend with a substantial direct presence in the Great Lakes/upper Midwest
region which was previously served only through Trend resellers.
The UDS Acquisition was recorded as a purchase transaction for accounting
purposes which resulted in, and will result in, annual amortization expense
(which is included in general and administrative expense) of approximately
$520,000, $567,000, $567,000 and $45,000 in the years ending December 31,
1995, 1996, 1997 and 1998, respectively. See Note 3 of Notes to Financial
Statements. The Systemetrix, Saber and Goretek Acquisitions were recorded as
purchase transactions for accounting purposes and will result in aggregate
annual amortization expense of approximately $1,020,000, $1,052,000,
$1,052,000, and $33,000 in each of the years ending December 31, 1997, 1998,
1999 and 2000, respectively. If the Company completes future acquisitions
which are recorded as purchase transactions for accounting purposes,
additional amortization expenses may result.
The Company may engage from time to time in discussions with respect to
potential acquisitions. The Company is not currently engaged in any
negotiations with respect to any potential acquisition and has no current or
pending contracts or commitments with respect to any acquisition. The
Company's recent acquisitions, as well as any future acquisitions, may 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. See
"Risk Factors--Integration of Potential Acquisitions and Joint Ventures."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of net revenue.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenue:
Software license fees.................................... 34.4% 30.3% 31.4%
Annual license and support fees.......................... 17.1 24.8 27.1
Services................................................. 20.8 17.7 17.7
Hardware................................................. 27.7 27.2 23.8
----- ----- -----
Total revenue.......................................... 100.0 100.0 100.0
----- ----- -----
Cost of Revenue:
Software license fees.................................... 7.4 5.5 4.4
Annual license and support fees.......................... 7.1 9.6 11.2
Services................................................. 15.0 11.0 10.8
Hardware................................................. 23.2 22.7 19.5
----- ----- -----
Total cost of revenue.................................. 52.7 48.8 45.9
----- ----- -----
Gross margin........................................... 47.3 51.2 54.1
----- ----- -----
Operating Expenses:
Research and development................................. 7.0 7.4 7.5
Sales and marketing...................................... 9.9 6.7 7.2
General and administrative............................... 15.6 17.1 15.1
Unit Incentive Plan(1)................................... -- 9.1 9.6
----- ----- -----
Total operating expenses............................... 32.5 40.3 39.4
----- ----- -----
Operating income....................................... 14.8 10.9 14.7
Other income (expense), net................................ 3.9 2.4 (2.5)
----- ----- -----
Income before income taxes............................... 18.7 13.3 12.2
Provision for income taxes................................. 7.3 4.8 4.3
----- ----- -----
Net income............................................. 11.4% 8.5% 7.9%
===== ===== =====
</TABLE>
- --------
(1) Reflects nonrecurring compensation expense incurred by the Company in 1995
and 1996 under the Company's Unit Incentive Plan. In connection with the
Company's Recapitalization in March 1996, such plan was terminated. See
"--Recapitalization" and "Recapitalization."
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Total Revenue
Total revenue was $18.8 million, $35.1 million and $39.6 million in 1994,
1995 and 1996, respectively, representing increases of 87.1% from 1994 to 1995
and 12.8% from 1995 to 1996. The increase from 1994 to 1995 was due to the UDS
Acquisition in February 1995, which accounted for $8.3 million in revenue, and
a significant growth in Trend-related revenue. The increase from 1995 to 1996
was primarily due to growth in software license fees and annual license and
support fees due to the increase in the number of Trend customers. This
increase was offset in part by decreases in revenue attributable to hardware
sales caused by declining hardware prices and delays in availability of third
party hardware in the fourth quarter of 1996, which resulted in delays in the
installation of the Trend software and the deferral of revenue from such
orders.
Software License Fees. Software license fee revenue was $6.4 million,
$10.6 million and $12.4 million in 1994, 1995 and 1996, respectively,
representing increases of 64.8% from 1994 to 1995 and 17.0% from 1995 to
1996. The increase in 1995 was due to the recognition of several large
Trend contracts, an overall increase in the average software license sale,
and sales of additional modules and license seats to existing Trend
customers. The increase in 1996 was primarily due to increases in the
number of Trend customers, sales of additional modules and the number of
seats for existing Trend customers.
22
<PAGE>
Annual License and Support Fees. Annual license and support fee revenue
was $3.2 million, $8.7 million and $10.8 million in 1994, 1995 and 1996,
respectively, representing increases of 171.1% from 1994 to 1995 and 23.6%
from 1995 to 1996. The increase in 1995 was primarily due to the UDS
Acquisition in February 1995 and its associated support revenue, which
accounted for $3.9 million, and to a lesser extent, an increase in the
installed base of Trend customers. The increase in 1996 was primarily due
to the increase in the Trend customer base resulting in an increase in both
annual license fee and support revenue.
Services. Service revenue was $3.9 million, $6.2 million and $7.0 million
in 1994, 1995 and 1996, respectively, representing increases of 59.4% from
1994 to 1995 and 12.6% from 1995 to 1996. The increase in 1995 was due to
an increase in the number of Trend customers resulting in an increase in
service revenue, an increase in billing rates and the UDS Acquisition. The
increase in 1996 was due to the increase in the Trend customer base
resulting in an increase in demand for services.
Hardware. Hardware revenue was $5.2 million, $9.6 million and $9.4
million in 1994, 1995 and 1996, respectively, representing an increase of
83.8% from 1994 to 1995 and a decrease of 1.5% from 1995 to 1996. The
increase in 1995 was primarily due to the UDS Acquisition and an increase
in the installed base of Trend customers resulting in an increase in add-on
orders and upgrades from all customers. The decrease in 1996 was primarily
due to a decrease in the average revenue from hardware sales for new
contracts as a result of decreasing hardware prices. The Company believes
that hardware prices will continue to decline.
Total Cost of Revenue
Total cost of revenue includes third party software product costs, costs of
maintenance and support, hardware product costs and the expenses (including
overhead) for personnel engaged in customer support and services. Total cost
of revenue was $9.9 million, $17.1 million and $18.2 million in 1994, 1995 and
1996, respectively, representing 52.7%, 48.8% and 45.9% of total revenue in
these periods. The dollar increase in 1995 cost of revenue was primarily due
to the UDS Acquisition. The dollar increase in 1996 was primarily due to costs
associated with the growth in annual license and support fees and services.
Decreases in cost of revenue as a percentage of total revenue in 1995 and 1996
were due to an increase in software license fees and annual license and
support fees as a percentage of total revenue, both of which have a
substantially lower cost of revenue than other products sold by the Company.
Cost of Software License Fees. Cost of software license fees includes
fees paid to third party software vendors. Cost of software license fees
were $1.4 million, $1.9 million and $1.7 million in 1994, 1995 and 1996,
respectively, representing 21.6%, 18.3% and 14.0% of software license
revenue in these periods. The dollar increase in 1995 was primarily due to
the increase in costs associated with the recognition of several large
Trend contracts and an overall increase in the average software license
sale. The dollar decrease in 1996 was primarily due to a decrease in the
costs associated with the resale of certain third party software as well as
an increase in add-on sales to existing customers. The cost of software
license fees as a percentage of software license fees revenue decreased in
1995 and 1996, primarily due to a decrease in third party software license
fee revenue as a percentage of total software license fee revenue.
Cost of Annual License and Support Fees. Cost of annual license and
support fees consist of fees paid to third party software and hardware
vendors and the expenses (including overhead) for personnel engaged in
customer support. Cost of annual license and support fees were $1.3
million, $3.4 million and $4.4 million in 1994, 1995 and 1996,
respectively, representing 41.4%, 38.7% and 41.3% of annual licensing fees
and support revenues in these periods. The dollar increase in 1995 was
primarily attributable to the UDS Acquisition and the corresponding
increase in support personnel.
Cost of Services. Cost of services consists primarily of expenses
(including overhead) for personnel engaged in implementation,
modifications, enhancements and education services. Cost of services were
$2.8 million, $3.9 million and $4.3 million in 1994, 1995 and 1996,
respectively, representing 72.1%, 61.8% and 61.1% of service revenue in
these periods. The dollar increase in 1995 was primarily attributable to
the UDS Acquisition and the corresponding increase in service personnel.
The decrease as a percentage of
23
<PAGE>
software services revenue in 1995 was due to an increase in billing rates
and a change in the billing structure. The cost of services as a percentage
of software services revenues decreased slightly in 1996, primarily because
the Company increased the billing rate for its consultants.
Cost of Hardware. Cost of hardware consists of fees paid to third party
hardware vendors. Cost of hardware was $4.3 million, $8.0 million and $7.7
million in 1994, 1995 and 1996, respectively, representing 83.5%, 83.2% and
82.1% of hardware revenues in these periods. The dollar increase in 1995
was primarily due to the UDS Acquisition, due to a large number of hardware
upgrades purchased by the SHIMS customer base. Hardware revenue declined
slightly in 1996 due to a decrease in hardware prices.
Gross Profit
Gross profit was $8.9 million, $18.0 million and $21.4 million in 1994, 1995
and 1996, respectively. Gross margin increased from 47.3% in the year ended
1994 to 51.2% in the year ended 1995 and to 54.1% in 1996. These increases
were attributable primarily to the increases, as a percentage of total
revenue, in software license fees and annual license and support fees, both of
which have a substantially lower cost of revenue than other products sold by
the Company.
Operating Expenses
Research and Development. Research and development expenses are comprised
primarily of the expenses (including overhead) for personnel engaged in the
evaluation of new technologies and the design, development and testing of
enhancements to existing software modules and products as well as new
software modules and products. Research and development expenses were $1.3
million, $2.6 million and $3.0 million in 1994, 1995 and 1996,
respectively, representing 7.0%, 7.4% and 7.5%, respectively, of total
revenue in these periods. The dollar and percentage increases in 1995 and
1996 were primarily due to the addition of research and development
personnel. The Company believes that it will continue to devote substantial
resources to product development and that research and development expenses
will continue to increase both in absolute dollars and as a percentage of
total revenue.
Sales and Marketing. Sales and marketing expenses are comprised primarily
of salaries, commissions and promotional and advertising activities. Sales
and marketing expenses were $1.9 million, $2.3 million and $2.8 million in
1994, 1995 and 1996, respectively, representing 9.9%, 6.7% and 7.2%,
respectively, of total revenue in these periods. The dollar increase in
1995 was due to continued additions to sales and marketing personnel and
related expenses, while the decrease as a percentage of revenue was due to
the UDS Acquisition, whose sales and marketing expenditures, as a
percentage of revenue, were considerably lower than those historically
experienced by the Company. The increase in 1996 as a percentage of revenue
was primarily due to an increase in sales and marketing personnel. The
Company believes that sales and marketing expenses will continue to
increase in absolute dollars and as a percentage of total revenue.
General and Administrative Expenses. General and administrative expenses
are comprised primarily of expenses (including overhead) for administrative
personnel and goodwill expenses. General and administrative expenses were
$2.9 million, $6.0 million and $6.0 million in 1994, 1995 and 1996,
respectively, representing 15.6%, 17.1% and 15.1%, respectively, of total
revenue in these periods. The increase in 1995 reflects the continued
addition of personnel, as well as additional expenses stemming from the UDS
Acquisition. The Company anticipates that general and administrative
expenses will increase in absolute dollars as the Company expands its
operations, adds additional personnel, amortizes goodwill from recent
acquisitions and incurs additional expenses related to being a public
company.
Unit Incentive Plan. Effective January 1, 1995, the Company's
stockholders approved the Unit Incentive Plan for the purpose of motivating
and retaining key employees of the Company. Under the terms of the Unit
Incentive Plan, the Company granted stock incentive units equal, in the
aggregate, to 10% of the Company's outstanding Common Stock. Upon vesting,
these units entitled the holders to cash payments equal to 100% of the fair
market value of shares representing 10% of the Company's outstanding Common
24
<PAGE>
Stock. As a result of the Recapitalization in March 1996, the Company paid
an aggregate of $7.0 million in cash to certain employees of the Company in
exchange for their units and terminated the Unit Incentive Plan.
Accordingly, the Company will not record any additional expenses in
connection therewith. In accordance with the generally accepted accounting
principles, the Company recorded compensation expense of $3.2 million in
1995, the year in which the Unit Incentive Plan was originally adopted, and
$3.8 million in 1996.
Other Income (Expense), Net
Other income (expense), net increased by 18.1% from $724,000 in 1994 to
$855,000 in 1995, and decreased to $(992,000) in 1996. The increase in 1995
was primarily due to the UDS Acquisition and associated commission income from
third party modification companies. The decrease in 1996 is primarily due to
the assumption by the Company of a term loan in connection with the
Recapitalization and the associated interest and fees due under the loan
agreement. See "--Liquidity and Capital Resources."
Provision for Income Taxes
The provisions for federal and state income taxes were $1.4 million, $1.7
million and $1.7 million for the years 1994, 1995 and 1996, respectively. The
effective tax rate was 39.2%, 36.4% and 35.2% for 1994, 1995 and 1996,
respectively.
SELECTED QUARTERLY RESULTS
The following tables set forth statement of operations data for the
Company's last eight quarters as well as the percentage of total revenue
represented by the line items presented for such quarters. The quarterly
statement of operations data were derived from unaudited financial statements
of NxTrend, which in the opinion of management contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. Such statement of operations data should be read in
conjunction with the Company's audited financial statement and notes thereto
appearing elsewhere in this Prospectus. The results of operations for any
quarter are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
DEC. DEC.
MARCH 31, JUNE 30, SEPT. 30, 31, MARCH 31, JUNE 30, SEPT. 30, 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- ------ --------- -------- --------- -------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license
fees................. $2,460 $2,263 $2,868 $3,034 $ 2,970 $ 3,386 $3,197 $ 2,876
Annual license and
support fees......... 1,674 2,176 2,351 2,501 2,427 2,685 2,717 2,930
Services.............. 1,348 1,467 1,591 1,823 1,901 1,746 1,551 1,813
Hardware.............. 1,920 2,797 2,521 2,330 2,452 2,255 2,136 2,578
------ ------ ------ ------ ------- ------- ------ -------
Total revenue....... 7,402 8,703 9,331 9,688 9,750 10,072 9,601 10,197
Cost of Revenue:
Software license
fees................. 455 368 495 627 421 549 378 394
Annual license and
support fees......... 638 835 848 1,046 1,083 1,102 1,001 1,257
Services.............. 812 950 1,063 1,027 1,055 1,018 988 1,226
Hardware.............. 1,622 2,164 2,105 2,071 2,059 1,797 1,729 2,146
------ ------ ------ ------ ------- ------- ------ -------
Total cost of
revenue............ 3,527 4,317 4,511 4,771 4,618 4,466 4,096 5,023
Gross profit........ 3,875 4,386 4,820 4,917 5,132 5,606 5,505 5,174
Operating Expenses:
Research and
development.......... 438 639 808 722 655 757 712 851
Sales and marketing... 512 625 612 593 616 683 680 865
General and
administrative....... 1,239 1,682 1,627 1,471 1,649 1,580 1,459 1,287
Unit incentive plan... 799 799 799 799 3,804 -- -- --
------ ------ ------ ------ ------- ------- ------ -------
Total operating
expenses........... 2,988 3,745 3,846 3,585 6,724 3,020 2,851 3,003
Operating income.... 887 641 974 1,332 (1,592) 2,586 2,654 2,171
Other income (expense),
net:................... 209 191 216 239 79 (422) (374) (275)
------ ------ ------ ------ ------- ------- ------ -------
Income before income
taxes................ 1,096 832 1,190 1,571 (1,513) 2,164 2,280 1,896
Provision for income
taxes.................. 399 303 434 572 (532) 761 802 667
------ ------ ------ ------ ------- ------- ------ -------
Net income.......... $ 697 $ 529 $ 756 $ 999 $ (981) $ 1,403 $1,478 $ 1,229
====== ====== ====== ====== ======= ======= ====== =======
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------------------
DEC. DEC.
MARCH 31, JUNE 30, SEPT. 30, 31, MARCH 31, JUNE 30, SEPT. 30, 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- ------ --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license
fees................. 33.2% 26.0% 30.7% 31.3% 30.5% 33.6% 33.3% 28.2%
Annual license and
support fees......... 22.6 25.0 25.2 25.8 24.9 26.7 28.3 28.7
Services.............. 18.2 16.9 17.1 18.8 19.5 17.3 16.2 17.8
Hardware.............. 26.0 32.1 27.0 24.1 25.1 22.4 22.2 25.3
------ ------ ------ ------ ------- ------ ------- -------
Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of Revenue:
Software license
fees................. 6.1 4.2 5.3 6.5 4.4 5.5 4.0 3.9
Annual license and
support fees......... 8.6 9.6 9.1 10.8 11.1 10.9 10.4 12.3
Services.............. 11.0 10.9 11.4 10.6 10.8 10.1 10.3 12.0
Hardware.............. 21.9 24.9 22.5 21.4 21.1 17.8 18.0 21.1
------ ------ ------ ------ ------- ------ ------- -------
Total cost of
revenue............ 47.6 49.6 48.3 49.3 47.4 44.3 42.7 49.3
Gross margin........ 52.4 50.4 51.7 50.7 52.6 55.7 57.3 50.7
Operating Expenses:
Research and
development.......... 5.9 7.3 8.6 7.5 6.7 7.5 7.4 8.3
Sales and marketing... 6.9 7.2 6.6 6.1 6.3 6.8 7.0 8.5
General and
administrative....... 16.8 19.3 17.4 15.2 16.9 15.7 15.2 12.6
Unit incentive plan... 10.8 9.2 8.6 8.2 39.0 0.0 0.0 0.0
------ ------ ------ ------ ------- ------ ------- -------
Total operating
expenses........... 40.4 43.0 41.2 37.0 68.9 30.0 29.6 29.4
Operating income.... 12.0 7.4 10.5 13.7 (16.3) 25.7 27.7 21.3
Other income (expense),
net: 2.8 2.2 2.3 2.5 0.8 (4.2) (3.9) (2.7)
------ ------ ------ ------ ------- ------ ------- -------
Income before income
taxes................ 14.8 9.6 12.8 16.2 (15.5) 21.5 23.8 18.6
Provision for income
taxes: 5.4 3.5 4.7 5.9 (5.4) 7.6 8.4 6.5
------ ------ ------ ------ ------- ------ ------- -------
Net income.......... 9.4% 6.1% 8.1% 10.3% (10.1)% 13.9% 15.4% 12.1%
====== ====== ====== ====== ======= ====== ======= =======
</TABLE>
The Company's revenue has increased in each quarter in 1995 and 1996, with
the exception of the third quarter of 1996, which was affected by seasonal
factors. Notwithstanding the unusually strong third quarter in 1995 when the
Company recognized a large initial license of Trend, revenue is generally
lower during the summer months when wholesale distributors have their busiest
operating cycles. Software license fees were higher in the third and fourth
quarters of 1995 and for all of 1996 primarily due to an increase in upgrades
by existing Trend customers as well as additional sales of licenses. Services
revenue decreased in the second and third quarters of 1996 due to delays by
SHIMS customers in upgrading their systems until the new version of SHIMS code
had been released. Software license fees decreased in the fourth quarter of
1996 due to delays in installing new Trend systems attributable to delays in
hardware shipments from vendors.
Gross margin ranged from 50.4% in the second quarter of 1995 to 57.3% in the
third quarter of 1996. Fluctuations in gross margin resulted from a varying
mix in a particular quarter by type of revenue, with higher margins from
software license revenue and lower margins from hardware revenue. Gross margin
in the fourth quarter of 1996 decreased to 50.7% due to an increase in
hardware upgrades to existing customers and a delay in the installation of
Trend software due to a delay in the availability of third party hardware.
General and administrative expenses ranged from 12.6% of total revenue in
the fourth quarter of 1996 to 19.3% of total revenue in the second quarter of
1995. While general and administrative expenses have generally increased in
terms of absolute dollars, fluctuations in these expenses as a percentage of
total revenue are primarily due to varying levels of revenue, management
bonuses, and acquisitions and divestitures.
26
<PAGE>
The Company's quarterly operating results have fluctuated and are expected
to continue to fluctuate in the future. These fluctuations may be caused by
many factors, including, among others: the size and timing of individual
orders; competitive pricing pressures; lengthy sales cycles; budgeting cycles
of cutomers; delays of customer installations due to delays in delivery of
hardware components by the Company's vendors; customer order deferrals in
anticipation of new products; the mix of products and services sold; variation
of consulting, maintenance and other services as a percentage of total
revenue; timing of introduction or enhancement of products by the Company or
its competitors; market acceptance of new products; technological changes in
platforms supporting the Company's products; changes in networking or
communication technology; changes in the Company's operating expenses;
personnel changes; the ability of the Company to increase its sales and
support personnel software "bugs" and other product quality problems and
general industry and economic conditions.
A significant portion of the Company's historical revenue has been derived
from relatively large initial license fees (and related hardware and service
sales) to a limited number of customers. Any significant cancellation or
deferral of customer orders, therefore, could have material adverse effect on
the Company's operating results in any particular quarter. The Company in the
past has realized a substantial portion of its revenue in the last month of a
quarter. It is not uncommon for software companies to experience strong fourth
quarters followed by weak first quarters, in some cases with quarter-to-
quarter declines in revenue or operating profit. Further, many of the
Company's customers have their most active business cycles in the third
calendar quarter and, therefore, often elect to defer installation of a new
system during that period of time.
License revenue is also difficult to forecast because the market for the
Company's next generation products is uncertain and evolving. The Company's
expense levels are based, in part, on its expectations as to future revenues
and to a large extent are fixed. In particular, the Company is required to
increase consulting services capacity, including hiring additional consulting
personnel, in advance of anticipated license revenue. Therefore, the Company
may be unable to adjust spending in a timely manner, to compensate for any
unexpected revenue shortfall and, accordingly, any significant shortfall of
demand in relation to the Company's expectations or any material delay of
customer orders would have an almost immediate adverse effect on the Company's
operating results.
As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price
of the shares of the Company's Common Stock. See "Risk Factors--Uncertainty of
Future Operating Results; Fluctuations in Quarterly Results."
LIQUIDITY AND CAPITAL RESOURCES
From inception through the beginning of March 1996, the Company financed its
operations primarily through cash generated from operations. On March 14, 1996
the Company effected the Recapitalization, which included a private placement
of preferred stock to certain investors and the establishment of new term and
revolving credit facilities. See "Recapitalization."
In connection with the Recapitalization, the Company obtained a $25.0
million five year term loan and a $5.0 million revolving line of credit, of
which $1.0 million was drawn at that time. As of December 31, 1996 the balance
of the term loan was $19.0 million and $500,000 was outstanding under the line
of credit. The term loan and line of credit have interest rates, at the
Company's option, based on the prime rate or LIBOR plus between 25 and 275
basis points depending upon certain financial ratios. The weighted average
interest rate as of December 31, 1996 was 7.78% under the term loan. The
interest rate on amounts outstanding under the line of credit as of February
28, 1997 was 8.50%. The term loan and line of credit are collateralized by
substantially all of the assets of the Company, and require the Company to
maintain certain financial ratios. See Note 7 of Notes to Financial
Statements. The Company intends to use a portion of the proceeds of this
offering to repay the term loan and all outstanding balances under the line of
credit. See "Use of Proceeds."
27
<PAGE>
Net cash provided by operating activities for the years ending December 31,
1994, 1995 and 1996 were $2.8 million, $4.3 million and $1.8 million,
respectively. Net cash provided by operating activities in 1996, excluding the
$7.0 million nonrecurring expense paid under the Unit Incentive Plan, was $8.8
million.
Cash provided by (used in) investing activities in 1994, 1995 and 1996 was
$92,000, $(2.6) million and $(2.0) million, respectively. Such investing
activities principally consisted in 1995 of the UDS Acquisition and in 1996 of
a $1.5 million noncompetition covenant payment made to Mr. Lammle in
connection with the Recapitalization and purchases of property and equipment.
See Note 3 of Notes to Financial Statements.
Cash used in financing activities in 1994, 1995 and 1996 was $2.3 million,
$17,000 and $3.7 million, respectively. Such financing activities in 1994
consisted of repayment of borrowings to stockholders. In 1996, such financing
activities related to the Company's Recapitalization.
Capital expenditures were approximately $108,000, $769,000 and $476,000 in
1994, 1995 and 1996, respectively. These expenditures were for property and
equipment, primarily computer hardware and furniture and fixtures. The Company
expects that capital expenditures in 1997 will not exceed the level of capital
expenditures in 1995. As of December 31, 1996 the Company had $730,000 in cash
and cash equivalents.
The Company believes that the net proceeds from this offering, together with
its current cash balances, available lines of credit and funds generated from
operations, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Thereafter, if the
Company's operating plans change, the Company may find it necessary to seek to
obtain additional sources of financing to support its capital needs, but there
can be no assurance that such financing will be available on commercially
reasonable terms, if at all.
28
<PAGE>
BUSINESS
GENERAL
NxTrend is a leading provider of enterprise-wide software solutions that
address the critical business information requirements of durable goods
wholesale distributors. NxTrend offers wholesale distributors a single source
solution for information systems that are designed to enable the distributor
to increase profitability, enhance customer service and implement "best
business practices" in such critical areas as inventory management, order
processing, sales, customer service, warehouse logistics and strategic
business analysis. The Company seeks to serve as its customers' technology
partner, helping them respond to and anticipate the changing demands of the
wholesale distribution industry by designing, implementing and continuously
improving their business information systems. The Company's primary software
products are open systems based on the UNIX platform, and the Company's newest
generation of products utilize a Windows NT-based client/server architecture
with Internet and intranet capabilities. Over the course of its 17 year
history of profitable operations, the Company has established itself as the
leading provider of business information systems within its target market
segments of the distribution industry and as of February 28, 1997 had an
installed base of over 1,000 customers.
INDUSTRY BACKGROUND
The durable goods wholesale distribution industry in the United States is
comprised of approximately 575,000 firms, which operate in a variety of market
segments and range from small, single location distributors having annual
revenues of less than $1.0 million dollars to large multi-location, multi-
national firms with annual revenue in excess of $1.0 billion dollars. The
Company's primary target market segments are wholesale distributors of
electrical supplies, plumbing, heating and air conditioning supplies, building
materials, and industrial supplies. There are approximately 60,000 firms in
these target market segments, with annual revenues ranging from under $5.0
million to more than $1.0 billion.
Durable goods wholesale distributors are operating in a rapidly changing and
intensely competitive environment. Industry consolidation has resulted in
fewer and more powerful distributors competing for market share while new
entrants are targeting increasingly specialized market segments. The
proliferation of "big box" retailers and wholesale clubs has also
significantly altered the competitive landscape, as such new competitors
typically bypass traditional distributors and instead purchase directly from
manufacturers. While the competitive environment has intensified, demand for
increased value and improved service from both manufacturers and customers has
placed additional pressures on wholesale distributors. Manufacturers are
seeking increased levels of marketing support from wholesale distributors,
more efficient ordering procedures and better information on distributors'
inventory levels to monitor "sell through." Concurrently, customers are
attempting to better manage their inventory levels and costs by demanding that
their distributors provide prompt information on product availability and
rapid and reliable product delivery. Both manufacturers and customers are
endeavoring to rationalize their selling and purchasing efforts by
concentrating their business with a smaller number of distributors. As a
result of these factors, many distributors have been forced to lower their
margins in order to remain competitive. The various pressures facing wholesale
distributors have created a growing need for enterprise-wide software
solutions that provide a broad range of accurate and current information to
wholesale distributors and enable them to respond more quickly to the needs of
their manufacturers and customers and to manage their businesses more
efficiently and profitably.
To compete effectively in this changing environment, wholesale distributors
must gather and process information on all phases of the product distribution
process, both to better understand their own businesses and to meet the
information and service requirements of the manufacturers and customers that
they serve. Historically, wholesale distributors have been slow to adopt new
business information technology, due primarily to cost concerns and limited
internal management information systems ("MIS") resources. Instead, they have
generally relied upon generic business software packages which are not fully
integrated throughout the business enterprise, do not provide the depth of
functionality and flexibility necessary to address the unique requirements
29
<PAGE>
of wholesale distributors and are not capable of electronically interfacing
with and capturing data from manufacturers and customers. The various
pressures facing wholesale distributors have created a growing need for
enterprise-wide software solutions that make available to wholesale
distributors a broad range of accurate and current information to enable them
to respond more quickly to the needs of their manufacturers and customers and
to manage their businesses more efficiently and profitably.
NXTREND SOLUTION
NxTrend offers durable goods wholesale distributors single source,
enterprise-wide software solutions that are designed to enable the distributor
to increase profitability, enhance customer service and implement "best
business practices" in all of the critical areas of the distributor's
business. The Company provides a total solution to the business information
systems needs of wholesale distributors by integrating the Company's
application software with system hardware and third party specialty software,
and providing an array of services including implementation, customer support,
and specialized training. The Company believes that its total solution
concept, combined with its 17 years of industry experience, provides it with a
significant competitive advantage in addressing the unique and rapidly
changing business information system requirements of durable goods
wholesalers.
The Company's primary software packages, Trend, WDS-II and SHIMS, are UNIX-
based and are designed to automate key business processes and to integrate
information among customers and manufacturers. These products offer numerous
modules in the areas of (i) inventory management, (ii) warehouse logistics,
(iii) electronic commerce, (iv) business analysis, (v) sales, distribution and
customer service, and (vi) finance and administration, which can be configured
to meet customers' specific needs. The Company's Strategic Exchange
client/server family of products, based on Microsoft Windows NT, complements
the Company's primary products by allowing customers to access, organize and
analyze the information collected by such products, and to integrate that
information into Windows-based productivity tools. The Company's recently
introduced Distribution@Work family of products add Internet and intranet
capabilities to NxTrend's other software products.
STRATEGY
The Company's objective is to maintain and enhance its position as a leading
supplier of enterprise-wide software solutions for the durable goods wholesale
distribution market. To achieve this objective, the Company is pursuing the
following strategies:
Further Penetrate Existing Vertical Market Segments. The Company intends to
continue to focus on providing enterprise-wide software solutions to its
primary target market segments: the electrical supply, plumbing, heating and
air conditioning, building materials, and industrial supply wholesale
distribution market segments. Although the Company believes that it has
established itself as the leading provider of business information systems to
these market segments, to date only a small portion of the firms operating in
these segments have adopted enterprise-wide systems. The Company believes that
it can increase its market share and generate additional sales from its
existing customer base by leveraging its total solution concept, industry
specific focus and long-standing industry reputation, enhancing current
products and introducing new modules and products designed to address the
specific needs of companies within its targeted market segments.
Provide a Total Solution to Customers. The Company seeks to build long-term
customer relationships by providing a total solution for the information
technology needs of durable goods wholesale distributors based upon its fully-
developed modular suite of software products. Given the limited MIS resources
and unique requirements of durable goods wholesale distributors, the Company
serves as the customers' technology partner, assisting them in designing,
selecting and implementing all elements of their business information systems,
providing ongoing training and support and addressing evolving information
technology needs through sales of hardware and software upgrades.
Pursue Additional Vertical Market Segments. NxTrend intends to expand into
additional vertical market segments within the durable goods wholesale
distribution industry by leveraging its proprietary technology, industry
knowledge and reputation. The Company believes that its products can be
readily adapted to address the information technology requirements of other
vertical market segments. The Company has identified the
30
<PAGE>
electronics, medical equipment and automotive parts market segments as its
primary candidates for near-term expansion, based upon, among other things,
the size and competitive landscape of these market segments, as well as the
adaptability of the Company's products to such market segments. NxTrend's
recent Goretek Acquisition provides the Company's initial point of entry into
the electronics and medical equipment market segments.
Enhance Technology Leadership Position. The Company seeks to enhance its
technology leadership position by increasing the functionality of existing
products, applying new technologies to extend the breadth of existing products
and developing new applications through innovative technologies. The Company
works closely with its customers to provide ongoing enhancements to their
existing applications. The Company's product development efforts also focus on
meeting evolving customer needs by incorporating into its products significant
advances in client/server architecture (including Internet and intranet
capabilities), advanced database systems and improved graphical user
interfaces. The Company's advanced research and development team evaluates new
technologies and applies them to develop innovative solutions that address
emerging needs and trends.
Continue Emphasis on Recurring and Ongoing Revenue. The Company continues to
pursue a business model that emphasizes generating significant recurring and
ongoing revenue from its installed customer base. Recurring revenue from
annual license and support fees were $3.2 million, $8.7 million and $10.8
million in 1994, 1995 and 1996, respectively, representing approximately 17%,
25% and 27%, respectively, of the Company's total revenue in such years. In
addition, the Company receives a steady stream of revenue from the sale of
upgrades, add-on modules and customized modifications to its installed
customer base.
Expand through Strategic Acquisitions. The Company intends to continue to
broaden its product and service offerings and target market segments, as well
as to increase its customer base and skilled personnel, in part through
strategic acquisitions. The Company completed the UDS Acquisition in 1995 and
the Systemetrix, Saber and Goretek Acquisitions in early 1997. Future
acquisitions may include software products and technologies intended to
complement or extend the Company's current products in its target market
segments. The Company believes that there will be opportunities to acquire
smaller enterprise software companies that serve the durable goods wholesale
distribution industry because distributors increasingly require that their
long-term, enterprise-wide information technology solutions be supplied by
established companies such as NxTrend.
PRODUCTS
NxTrend offers durable goods wholesale distributors enterprise-wide software
solutions specifically designed to improve a distributor's financial
performance, enhance customer service and enable the implementation of "best
business practices" in such critical areas as inventory management, order
processing, sales, customer service, warehouse logistics and strategic
business analysis. The Company provides a total solution to the business
information systems needs of wholesale distributors by integrating the
Company's fully-developed modular suite of software products with third party
system hardware and specialty software, and providing an array of services
including implementation, customer support, and specialized training. The
Company offers five product families: three primary software products, Trend,
WDS-II and SHIMS, and two recently introduced complementary client/server
software products, Strategic Exchange and Distribution@Work. In addition, the
Company has developed a comprehensive suite of multimedia edutainment tools,
the Learning Centers, that enable users to learn how to effectively and
efficiently use the Company's products while also providing valuable wholesale
distribution industry knowledge through an engaging and easy-to-use format.
Trend. The Company's principal product family, Trend, is a UNIX-based suite
of business software applications built around Progress' fourth generation
language ("4GL") and relational database. The Company's marketing efforts are
primarily focused on increasing its Trend user base among durable goods
wholesale distributors with annual revenues of $25 million and greater. Trend
is currently licensed to approximately 300 customers and, in 1996, the average
new Trend customer had annual revenues in excess of $50 million. Trend has a
modular design that allows a distributor to scale its investment by purchasing
the modules which satisfy its initial business information requirements and
adding new modules as its needs change.
31
<PAGE>
The following table describes the Trend family of products and the initial
release dates of each module.
<TABLE>
<CAPTION>
YEAR OF
ORIGINAL
TREND MODULE GROUPS RELEASE DESCRIPTION
- --------------------------------------------------------------------------------
<C> <C> <S>
DISTRIBUTION MANAGEMENT The Trend Distribution
Warehouse Logistics 1996 Management modules provide a
Kit Production 1991 comprehensive suite of software
Warehouse Manager 1991 solutions focused on managing
Inventory Control 1990 the sales, inventory management,
Order Entry 1990 purchasing and warehouse logistics
Purchase Order 1990 needs of the durable goods
Price/Discounting 1990 wholesale distributor.
Warehouse Transfer 1990
- ------------------------------------------------------------------------------
FINANCIAL MANAGEMENT The Trend Financial Management
Payroll 1993 modules assist the durable goods
Check Reconciliation 1991 wholesale distributor in the
General Ledger 1990 management of the assets
Accounts Payable 1990 and liabilities of the business,
Accounts Receivable 1990 in areas such as
accounts receivable, accounts
payable and general ledger.
- ------------------------------------------------------------------------------
SPECIALTY The Trend Specialty modules
The Learning Center 1997 offer solutions to a variety
Service Warranty 1996 of industry specific needs in
Expert Advice 1996 areas such as small parcel
Report Scheduler 1996 management, electronic commerce,
Supplier Link 1995 quote and bid management,
Trend Blueprint SDK 1995 automated product maintenance,
On-Line Operations Guide 1995 warranty management and billing,
Bid Preparation 1993 customer interactive/contact
Document Manager 1993 management, multimedia learning
MARC 1993 tools, system utilities and
Parcel Management 1991 software development kits.
EDI 1991
Warehouse Manager 1991
Office Interface 1990
Customer Mktg./Sales Manager 1990
- ------------------------------------------------------------------------------
</TABLE>
Initial Trend software license fees vary depending upon the performance
class of the hardware system, the initial selection of modules and the number
of users. The average initial software license fee for Trend in 1996 was
approximately $175,000, and generally ranges from $75,000 to $500,000, with
occasional license fees of up to $1.0 million. The initial Trend sale
(including software, hardware and services) in 1996 averaged approximately
$375,000. Customers also pay annual license fees equal to 10% of the initial
license fee in order to use the software after the warranty period and receive
Trend maintenance upgrades and new Trend releases. These annual license fees
are typically prepaid and may be increased each year. Virtually all Trend
customers also purchase the Company's annual support option which is mandatory
in the first year and is priced at 5% of the initial license fee and also may
be increased annually. In addition, many customers purchase the Company's
extended support services and operating environment support options.
SHIMS. The Company's SHIMS product family is a UNIX-based suite of business
software applications which runs on an IBM platform and is built around
VMark's uniVerse relational database. The Company's marketing efforts with
respect to SHIMS are primarily focused on maintaining its SHIMS user base
among
32
<PAGE>
durable goods wholesale distributors with annual revenues between $5 million
and $25 million in the plumbing, heating and air conditioning supplies and
electrical supplies market segments, and upgrading certain of those users to
Trend or WDS-II. SHIMS is currently licensed to approximately 400 customers.
SHIMS was acquired by NxTrend in early 1995 in connection with the UDS
Acquisition.
SHIMS is designed to automate the day-to-day tasks of a distribution
business and offers numerous standard reports to support the areas of
purchasing, sales, inventory management and accounting. SHIMS is an integrated
suite of products which can be supplemented by several Value Added modules
developed by the Company which allows the distributor to scale its investment
by purchasing the modules that satisfy its initial needs and adding new
modules as its needs change.
The following table describes the module groups incorporated into the SHIMS
product, as well as the Value Added modules which may be purchased separately.
<TABLE>
<CAPTION>
YEAR OF
ORIGINAL
SHIMS MODULE GROUPS RELEASE DESCRIPTION
- -------------------------------------------------------------------------------
<C> <C> <S>
SHIMS The SHIMS application offers an entry
level solution to the needs of the
Total Quality Management 1994 durable goods distributor. It includes
Returned Goods 1994 modules that address financial,
Retail Sales 1994 distribution and specialty areas within
Accounts Payable 1987 the distributor's business.
Bar Coding 1987
Accounts Receivable 1979
General Ledger 1979
Inventory Control 1979
Purchase Order 1979
Order Entry 1979
Pricing 1979
- -------------------------------------------------------------------------------
VALUE ADDED The SHIMS Value Added modules offer
solutions to a variety of industry
Learning Center 1997 specific needs in areas such as
Radio Frequency 1996 electronic commerce, radio frequency bar
EDI 1993 coding, office automation and total
Desqtop 1993 quality management.
</TABLE>
Initial software license fees for SHIMS vary depending upon the initial
selection of Value Added modules and the number of users. The initial software
license fees average approximately $35,000, and generally range from $20,000
to $50,000. The average initial SHIMS sale (including software, hardware and
services) in 1996 was approximately $125,000. SHIMS users receive perpetual
licenses and, accordingly, do not pay annual license fees. However, the
Company only provides software maintenance, support and software upgrades for
SHIMS customers who pay quarterly support fees.
WDS-II. In February 1997, NxTrend acquired the WDS-II product as part of the
Goretek Acquisition. Like Trend, the WDS-II product is a UNIX-based suite of
business software applications built around Progress' 4GL and relational
database. The Company's marketing efforts with respect to WDS-II will be
focused upon durable goods distributors with annual revenues between $2
million and $50 million. WDS-II is currently licensed to over 300 customers.
The current WDS-II customer base is concentrated in the electronics, medical
equipment and industrial supply segments of the durable goods distribution
industry. Because the WDS-II product is built around the same Progress
database as the Company's Trend product, NxTrend believes that the WDS-II
product will be compatible with the Company's Strategic Exchange and
Distribution@Work client/server products. The current suite of WDS-II modules
include Order Entry, Invoicing, Inventory Control, Purchasing, Inventory
Management, Accounts Receivable, Accounts Payable, General Ledger, Sales
Analysis, Contact Management,
33
<PAGE>
Demand Forecasting, EDI and Warehouse Management. Like Trend, WDS-II has a
modular design which allows a distributor to purchase the modules that it
requires to meet its initial business needs and increase their functionality
by adding new modules as those needs change.
Initial WDS-II license fees have historically ranged from $34,000 to
$500,000, depending upon the modules selected and the number of users. New
licenses of the WDS-II product will have an annual license and support fee
structure consistent with that used for the Trend, Strategic Exchange and
Distribution@Work products.
Strategic Exchange. Strategic Exchange software modules allow distribution
executives to quickly analyze their company's business data from their Trend
or SHIMS database via user-friendly graphical user interfaces. The Company's
Strategic Exchange product family uses a client/server architecture based on
Microsoft Windows NT and integrates into a customer's existing host-based
computing environment. Strategic Exchange was initially released in May 1995
and approximately 95% of the Company's new licensees in 1996 purchased
Strategic Exchange products as part of the initial license.
The Company's principal Strategic Exchange software module, Profit
Workbench, allows a distribution manager to rapidly monitor and analyze over
420 measures of business performance. Profit Workbench builds a strategic data
warehouse using Trend or SHIMS information and also provides sophisticated
query and analysis tools that allow the manager to identify business trends in
a graphical user environment. Profit Workbench includes components such as
First Glance and Financial Flowchart. First Glance graphically displays a
distributor's business performance as measured by eight key financial measures
selected by the user, such as sales, gross margin, accounts receivable and
inventory. Financial Flowchart permits the distribution executive to perform
financial analysis of his business using widely accepted financial formulas
and benchmarks. Other Strategic Exchange modules include (i) InVue, which
provides a graphical environment for Trend, WDS-II or SHIMS and allows
database information from these host-based systems to be downloaded into PC-
based applications such as spreadsheets and word processing programs, and (ii)
Parts Desk, which allows the user to navigate between Trend or SHIMS product-
related functions and CD-ROM product catalogs. InVue serves as a focal point
for all PC activity by allowing the user to access other programs such as
Trend, SHIMS, Strategic Exchange, Microsoft Office or an Internet browser. The
Company is currently in the process of integrating its recently acquired WDS-
II product with Strategic Exchange.
Initial software license fees for Strategic Exchange modules are based upon
the module sold and number of users. The initial license fees range from $49
for a single user InVue license to $180,000 for a 100 user Profit Workbench
license. Customers are also charged annual license fees equal to 10% of the
initial license fee in order to use the software after the warranty period and
receive upgrades and new releases. These annual license fees, which are
typically prepaid and may be increased each year. Strategic Exchange customers
generally also purchase annual support, which is mandatory in the first year,
is priced at 5% of the initial license fee and also may be increased annually.
Distribution@Work. NxTrend's Distribution@Work product family allows
wholesale distributors to incorporate the Internet into their daily business
activities. The Company has developed and intends to continue to focus upon
building Internet tools centered around information maintained in a
distributor's relational database. For example, the Company's Highway Hotel
product is a database driven management tool that enables a distributor to
easily establish, manage and automatically update its World Wide Web site.
Using the Company's proprietary interConnect middleware solution, the Company
has developed Trend@Work and SHIMS@Work, which permit wholesale distributors
to facilitate the flow of critical business information from their Trend or
SHIMS databases, such as pricing, product availability and order status, among
customers and manufacturers over the Internet and to engage in electronic
commerce. Highway Hotel was introduced in September 1996, and all other
Distribution@Work products are currently in beta release. License fees for
Distribution@Work will be server based and will vary depending upon the number
of database connections involved. The Company is currently in the process of
integrating its recently acquired WDS-II product with Distribution@Work.
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The initial software license fees are expected to range from $8,000 for a
single Highway Hotel license to approximately $100,000 for a 20 connection
interConnect license. These products will also have an annual license fee and
support fee structure similar to that used for Trend and Strategic Exchange.
PROFESSIONAL SERVICES
As part of its total solution, the Company offers a variety of professional
services to its customers. The Company believes that its professional services
facilitate a distributor's successful adoption of NxTrend products, strengthen
the Company's relationships with its customers, enhance the Company's
industry-specific knowledge and elicit valuable customer feedback.
Consulting. The Company's business consultants provide consulting, systems
analysis and technical services in order to assist distributors in planning,
designing, configuring and implementing new systems or in converting from
existing systems. These consultants typically have distribution industry
experience and training in both distribution operations and the Company's
products. The Company assists in the conversion of the customer's historical
databases to Trend, WDS-II or SHIMS and also assists distributors with the
initial installation of the new systems. The Company's business consultants
also conduct post-installation assessments in order to assure that the
customer's system is functioning properly, provide additional training and
education to increase the customer's use of the product and design and help
implement systems upgrades. As of February 28, 1997, there were 55 employees
within the Company's consulting group. The Company charges customers on an
hourly basis for the services provided by its consultants. Generally the
customer will prepay for a package of consulting hours for the planning,
design and the implementation of its system. In addition, the Company recently
started offering post-implementation consulting services to its customers on
an hourly basis.
Software Integration. The Company's software integration group designs
custom modifications and enhancements to the Company's fully-developed modular
suite of software products to extend the capabilities of the Company's
products for the customer's specific environment. Most modifications and
enhancements are identified by the customer after the software and hardware
have been delivered to the customer and implementation services have been
completed, and typically do not result in significant changes to the Company's
primary products. Other custom modifications and enhancements are made on an
as-requested basis. Most Trend customers will request one to three such custom
modifications and enhancements per year, at a cost of approximately $2,000 per
custom modification or enhancement. SHIMS users generally use outside
consultants to make custom software modifications. The Company maintains a
library of frequently requested modifications which can be reused and quickly
adapted to address particular customer needs. As of February 28, 1997, the
Company's integration group consisted of 51 software integrators.
Maintenance and Support. The Company offers its customers comprehensive
maintenance and support services. Under the Company's license agreements,
maintenance and support is mandatory for one year following the initial
license. Thereafter, virtually all Trend and SHIMS customers purchase
maintenance and support on a voluntary basis. The Company offers remote
accessibility to the customer's system in order to perform quick diagnostics
and provide on-line assistance, as well as telephone assistance. Support
services may be purchased either on an annual or on an hourly basis. A
customer can also purchase environmental support and seven days per week, 24
hours per day support on an hourly or pre-paid package basis. As of February
28, 1997, the Company's maintenance and support group consisted of 64
employees.
THIRD PARTY PRODUCTS
As a part of its total solution concept, the Company has entered into
agreements with certain third party suppliers to resell hardware and software
in connection with the license of Trend, WDS-II and SHIMS.
Third Party Hardware. The Company is a value added reseller of UNIX- and
Windows NT-based computer systems manufactured by IBM, Hewlett Packard, Unisys
and Data General that operate the NxTrend product families. Virtually every
customer that installs Trend, WDS-II or SHIMS purchases a computer system and
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<PAGE>
peripherals from the Company. As a value added reseller, the Company is able
to purchase the hardware at a discount for resale to its customers. See "Risk
Factors--Dependence on Third Party Software and Hardware; Reliance Upon
Hardware Sales."
Third Party Specialty Software. The Company acts as a value added reseller
for several third party software companies, including Progress and VMark. The
Company integrates the Progress products into its Trend and WDS-II
implementations and the VMark products into its SHIMS implementation. In
return, the Company earns a margin on the resale of such software to its
customers. In order to receive ongoing maintenance and support, Trend and WDS-
II customers typically pay an annual license fee, which is shared by the
Company and Progress. The Company has entered into a value added reseller
agreement through January 1, 1999 with Progress for the resale of Progress
software to the Company's Trend and WDS-II customers. The Company has a value
added reseller agreement with VMark for the resale of VMark software to the
Company's SHIMS customers, which agreement has no specified termination date
but may be terminated by either party upon 90 days' prior written notice. See
"Risk Factors--Dependence on Third Party Software and Hardware; Reliance Upon
Hardware Sales."
CUSTOMERS
As of February 28, 1997, the Company's products had been licensed to over
1,000 durable goods wholesale distributors within its targeted market
segments, of which approximately 300 are Trend users, approximately 300 are
WDS-II users and approximately 400 are SHIMS users. The Company's customers
range from small single-location distributors with annual sales of $2 million
to large, geographically dispersed within the United States multi-location
distributors with annual sales of over $1 billion. The Company markets Trend
to wholesale distributors with annual revenues of $25 million or more, WDS-II
to durable goods wholesale distributors with annual revenues of $2 million to
$50 million and SHIMS to wholesale distributors with annual revenues of $5
million to $25 million.
The following table is a listing of the Company's ten largest customers in
each of its target market segments:
ELECTRICAL SUPPLY PLUMBING, HEATING AND AIR
All-Phase Electric Supply Co. CONDITIONING
Electric Engineering & Equipment (3E) EMCO Distribution Group
Richards Electric Supply Co., Inc. Automatic Equipment Sales of VA,
Missouri Valley Electric Company Inc.
Ryall Electric Supply Company Century Air Services
McNaugton-McKay Electric Company Goodin Company
Vanyo, Inc. Automatic Rain Company
Hisco, Inc. Liberty Equipment & Supply
Hunzicker Brothers, Inc. Southern Pipe & Supply Company
Central Consolidated APEX Supply Company
United Refrigeration, Inc.
Johnstone Supply
BUILDING MATERIALS INDUSTRIAL SUPPLY
Rugby USA, Inc. Briggs Weaver
Gypsum Management & Supply Industrial Distribution Group
Lumbermen's Incorporated Stanley Works/Jensen Tools
Allied Plywood Corporation Biolab
Marjam Supply Sepco Industries, Inc.
JGA Corporation S.D.I. Operating Partners, L.P.
Laufen International, Inc. Midwest Sign & Screen Printing
Florence Building Materials Corp. Ohio Transmission Corporation
Mid South Building Supply Tube Light Company, Inc.
All Interior Supply, Inc. Inland Diesel, Inc.
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<PAGE>
SALES AND MARKETING
NxTrend markets and sells its products and services primarily through
regional sales representatives operating out of offices located in Atlanta;
Colorado Springs; Dallas; Green Bay; Houston; Minneapolis; St. Johns,
Newfoundland; Halifax, Nova Scotia; and Toronto, Ontario. This direct sales
force is segmented into regions and is responsible for developing new
customers and servicing existing accounts. The Company also has a network of
independent resellers located in Detroit, New York and Montreal, that sell,
implement, support and maintain NxTrend's products in their respective
territories. These resellers complement the Company's direct sales efforts,
broaden the customer base and strengthen the Company's market share by selling
to Trend and WDS-II customers with revenues under $25 million and/or in
ancillary markets or territories in which the Company does not have a direct
marketing effort.
The sales cycle associated with new Trend, WDS-II and SHIMS sales is
generally five to seven months from the generation of the sales lead to the
execution of a license agreement. The sales process is typically focused on
the technical aspects of the Company's products and usually requires
participation from the Company's sales, product development, product
implementation and product support groups. The Company believes that the
participation of personnel from each of these areas is critical to the success
of the Company's sales efforts because it highlights the depth of the
Company's enterprise network systems expertise and demonstrates the breadth of
the total solution which the Company offers. See "Risk Factors--Lengthy Sales
Cycle."
The Company's marketing activities are also focused on increasing industry
awareness of the Company's products, services and reputation for technological
leadership. Traditionally, the Company's marketing activities have included
issuing press releases, advertising in trade periodicals, attending trade
shows, and participating on technology committees within industry trade
associations. The Company also has active relationships with a number of
industry experts and leading universities which focus on the wholesale
distribution industry. In addition, the Company hosts an annual users
conference which, in 1996, attracted over 1,000 individuals from its customer
base. The users conference is both an opportunity to educate the Company's
user base and to introduce new products and services. As part of its strategy
of maximizing its customers' utilization of the Company's products, the
Company encourages certain of its SHIMS customers to consider Trend or WDS-II
solutions when appropriate to meet the specific business information needs of
such customers.
As of February 28, 1997, the Company's sales and marketing organizations
consisted of 37 sales and 10 marketing personnel. The Company currently has
six resellers located in the United States and one reseller located in Canada.
PRODUCT DEVELOPMENT
The Company seeks to strengthen its technology leadership position by
enhancing the functionality of existing products, applying new technologies to
extend the breadth of existing products and developing new applications
through innovative technologies. The Company seeks to design products with
enterprise-wide functionality applicable to most of its customers' needs. The
Company also develops multimedia, edutainment product interfaces to help
customers better use the Company's software products. The Company is currently
in the process of integrating its recently acquired WDS-II product with
Strategic Exchange and Distribution@Work.
The Company continues to devote substantial development resources to
improving and enhancing the functionality of its Trend, WDS-II and SHIMS
solutions and to taking advantage of recent enhancements to the UNIX computing
platform and to the Progress and VMark databases. For example, the Company
recently added and will continue to add functionality which enables its
customers to better communicate, using electronic commerce and other methods,
with manufacturers and customers. The Company's product enhancement strategy
is developed based on feedback from its customers, various wholesale
distribution advisory councils and analysis of competitive products. Product
enhancements are delivered to customers through a combination of annual
releases and new modules. The Company's next product enhancement, Trend 8.0,
is scheduled to be released in the second half of 1997.
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The Company also focuses on meeting evolving customer needs by incorporating
into its products significant advances in client/server architecture
(including Internet and intranet capabilities), advanced database systems and
improved graphical user interfaces. The Company continues to enhance its
Strategic Exchange product family to make relevant business information
accessible to a broader range of its customers' employees. The Company also
continues to leverage the underlying Distribution@Work technology to enable
broader use of Internet and intranet capabilities by Trend and SHIMS
customers. These product extensions enable customers to take advantage of
their investment in and knowledge of Trend and SHIMS as well as the customer's
existing databases, while protecting this investment and information from
changes in underlying technology and front-end interfaces.
In order to address emerging needs and trends within the wholesale
distribution industry, the Company maintains an advanced research and
development team that evaluates new technologies to be used in the development
of innovative solutions. Consisting of 12 individuals, this team has developed
products such as Profit Workbench, InVue, Parts Desk, Highway Hotel, Learning
Center, Manager's Handbook, Expert Advice, interConnect and interChannel. The
team is currently designing a new multi-layer architecture blending Java-based
user interfaces with reusable business objects and industry standard
databases, such as Microsoft SQL Server, Oracle, Progress and uniVerse. In
addition, the team is building products that enable more effective product
education and training through the use of Inter/intranet-based multimedia and
streaming video products.
The computer software industry is subject to rapid technological change,
changing customer requirements, frequent new product introductions and
evolving industry standards that may render existing products and services
obsolete. As a result, the Company's position in its existing markets or other
markets that it may enter could be eroded rapidly by technology advancements
not embraced by the Company. The life cycles of the Company's products are
difficult to estimate. The products must keep pace with technological
developments, conform to evolving industry standards and address increasingly
sophisticated customer needs. There can be no assurance that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products or that new products
or product enhancements will meet the requirements of the marketplace and
achieve market acceptance. If the Company is unable to develop and introduce
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially adversely affected. See "Risk Factors--Rapid
Technological Change and New Products."
As of February 28, 1997, there were 65 employees in the Company's product
development organization. For the years ended December 31, 1994, 1995 and
1996, the Company's research and development expenses were $1.3 million, $2.6
million and $3.0 million, respectively.
COMPETITION
Competition in the enterprise network software solutions market is, and is
expected to remain, intense. The Company competes on the basis of product
quality, reliability, performance, ease of use, quality of support and price.
The Company believes that its primary competitors are Daly & Wolcott, Inc.,
J.D. Edwards, Inc., Mincron SBC Corporation, Prelude, Inc., Prophet 21, Inc.
and Trade Service System, Inc. Certain of the Company's existing competitors,
as well as a number of potential competitors, have more established and larger
marketing and sales organizations, significantly greater financial and
technical resources and a larger installed base of customers than the Company.
In addition, certain of these companies have greater name recognition, more
established positions in the market, and long standing relationships with
customers. There can be no assurance that such competitors will not offer or
develop products that are superior to the Company's products or that achieve
greater market acceptance. The Company also competes against internally
developed legacy solutions in which potential customers may have invested
significant sums and committed valuable management resources to develop. Such
potential customers may resist committing the time and resources necessary to
convert to a third party software product and may instead choose to develop
and enhance their own systems internally. As demand for distribution industry
technology solutions expands, additional companies, some with significantly
greater
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resources than the Company, may enter the market or increase their market
share by acquiring or entering into alliances with competitors of the Company.
There can be no assurance that the Company will be able to compete
successfully against its competitors or that the competitive pressures faced
by the Company will not adversely affect its business, results of operations
and financial condition.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright, trademark and trade secret
laws, employee and third-party nondisclosure agreements and other industry
standard methods for protecting ownership of its proprietary software. There
can be no assurance, however, that, in spite of these precautions, an
unauthorized third party will not copy or reverse-engineer certain portions of
the Company's products or obtain and use information that the Company regards
as proprietary. The Company provides source code to all SHIMS end-users and,
in certain circumstances, may provide the source code for its Trend and WDS-II
software products under licenses to its customers to enable them to customize
the software to meet particular requirements. Although the Company's source
code license contains confidentiality and nondisclosure provisions, there can
be no assurance that such customers will take adequate precautions to protect
the Company's source code or other confidential information. While the
Company's license agreements prohibit customers from exporting the product,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that the mechanisms used by the Company to protect its software will
be adequate or that the Company's competitors will not independently develop
software products that are substantially equivalent or superior to the
Company's software products.
NxTrend licenses products to end-users under license agreements which are
generally in standard form, although each license is individually negotiated
and may contain variations. The standard form agreement allows the licensee to
use the products solely on its computer equipment for its internal purposes,
and the licensee is generally not permitted to sublicense or transfer the
products. The Company's standard form license agreement includes a
confidentiality clause protecting the products. However, there can be no
assurance that such customers will take adequate precautions to protect the
Company's confidential information.
None of NxTrend's software is patented. The Company believes that it has all
necessary rights to market its products, although there can be no assurance
that third parties will not assert infringement claims in the future. The
Company expects that, as the number of software products in the wholesale
distribution industry increases and the functionality of these products
further overlaps, software products will increasingly be subject to such
claims. There can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted against the Company or that any such assertions will not materially
adversely affect the Company's business, operating results and financial
condition. Any such claim, with or without merit, could be time-consuming,
result in costly litigation and diversion or resources, cause product shipment
delays or require the Company to enter into royalty or licensing arrangements.
Such royalty or license arrangements, if required, may not be available on
terms acceptable to the Company or at all. In the event of a successful claim
of product infringement against the Company and failure or inability of the
Company to license the infringed or similar technology, the Company's
business, operating results and financial condition could be materially
adversely affected. See "Risk Factors--Intellectual Property and Proprietary
Rights."
EMPLOYEES
As of February 28, 1997, NxTrend had 323 full-time employees, including 47
in sales and marketing, 65 in product development, 51 in software integration,
55 in consulting services, 41 in finance and administration and 64 in
maintenance and support services. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company
experienced any work stoppage. The Company considers that its relations with
its employees are good. The loss of certain key employees or the Company's
inability to attract and retain other qualified employees could have a
material adverse effect on the Company's business and operations. See "Risk
Factors--Ability to Attract and Retain Sales, Service and Implementation
Personnel."
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PROPERTIES
The Company's principal facility occupies approximately 45,000 square feet
in Colorado Springs, Colorado. The term of the lease extends through October
10, 1998; however, the Company has an option to extend the lease term by an
additional three or five years. The Company also leases office space in
Atlanta; Dallas; Green Bay; Houston; Minneapolis; St. Johns, Newfoundland;
Halifax, Nova Scotia; and Toronto, Ontario. The Company believes that its
facilities are adequate for its current needs and that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
The Company is subject to various claims and business disputes in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management anticipates that the ultimate outcome of
these issues will not have a material adverse effect on the Company's
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
February 28, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Guy M. Lammle........... 45 President, Chief Executive Officer and Chairman of the Board
Kathleen J. Cunningham.. 50 Chief Operating Officer, Chief Financial Officer and Secretary
Ross J. Elliott......... 44 Executive Vice President, Development
Patrick J. Becker....... 45 Senior Vice President, Sales and Marketing
Timothy J. Watson....... 38 Senior Vice President, Development
C. Jeff Dekker.......... 32 Controller
Jacqueline C. Morby(2).. 59 Director
Gregory M. Avis(1)...... 38 Director
Peter J. Smith(2)....... 52 Director
Frank A. Rossi(1)....... 59 Director
Gerald A. Quintana(2)... 59 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Guy M. Lammle, a co-founder of the Company, has served as Chairman of the
Board, Chief Executive Officer and director of the Company since February 1980
and assumed the additional title of President in October 1996. From 1974 to
1980, Mr. Lammle was employed with The Burroughs Corporation, a computer
hardware company, progressing from Sales Representative to Zone Manager and
finally District Product Manager. Mr. Lammle received his BS degree in Math
and Business Administration with a minor in Computer Science from Peru State
College in Peru, Nebraska. Mr. Lammle has also attended the Executive
Management Programs at The Wharton School, University of Pennsylvania.
Kathleen J. Cunningham has served as the Company's Chief Operating Officer
and Secretary since March 1996, and as Chief Financial Officer since April
1992. Between 1987 and 1991, Ms. Cunningham was Chief Financial Officer of
Spatial Technology Inc., a computer software company. Immediately prior to
that position, Ms. Cunningham was employed by US West, Inc., a
telecommunications company, in various capacities including Chief Financial
Officer of US West Information Systems, Inc., President of US West Financial
Services and Director of Financial Planning (Corporate Finance) at US West,
Inc. Ms. Cunningham received BA degrees in Political Science and Economics
from the University of Wisconsin, and an MBA from the University of Denver.
Ross J. Elliott has served as Executive Vice President, Development of the
Company since November 1996. From February 1995 until November 1996, Mr.
Elliott was President of the Intellex Division, an advanced research and
development division of the Company. Mr. Elliott served as Vice President of
Sales and Marketing of Intellex, Inc., from October 1993 until February 1995,
prior to the sale of substantially all of Intellex's operating assets to the
Company. From 1989 to 1993, Mr. Elliott held several different marketing and
sales positions in the Company. Mr. Elliott received a BSBA degree from the
University of Florida.
Patrick J. Becker has served as Senior Vice President of Sales and Marketing
of the Company since November 1996. From June 1995 to November 1996, Mr.
Becker served as President of the Trend division of the Company. Mr. Becker
was Vice President of Sales from August 1994 to June 1995 and was Vice
President of Marketing and Indirect Channels from 1993 to August 1994. Mr.
Becker joined the Company in January 1993 as the Trend division's Director of
Indirect Channel Marketing. From 1989 through 1992, Mr. Becker was President
of R&D Hardware Systems Company, an entity formerly affiliated with the
Company. Mr. Becker received his BS degree in Marketing from the University of
Minnesota.
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Timothy J. Watson has served as Senior Vice President of Development of the
Company since October 1996. From November 1993 to October 1996, Mr. Watson was
Vice President of the Trend division's Development Group. Mr. Watson served as
Director of Indirect Channel Marketing of the Company in 1993. Prior to 1993,
Mr. Watson served the Company in various support and development capacities
within the Company's Trend division. Mr. Watson received a BS degree from
Central College in Pella, Iowa.
C. Jeff Dekker has served as Controller of the Company since March 1996 and,
prior to such appointment, held the position of Assistant Controller since
joining the Company in July 1993. Between July, 1989 and July, 1993, Mr.
Dekker was Manager of General Accounting at ITT Rayonier, Port Angeles Pulp
Division. Prior to July, 1989 he was employed by KPMG Peat Marwick, Los
Angeles. Mr. Dekker is a Certified Public Accountant and is a graduate of Utah
State University in Logan, Utah with a BS degree in Accounting.
Jacqueline C. Morby has served as a director of the Company since March
1996. She has been a Managing Director and Member of the Executive Committee
since 1994 and was a Partner from 1982 to 1994 of TA Associates, Inc. (and its
predecessor), a venture capital management firm. Ms. Morby is also a director
of Ansys, Inc., Axent Technologies, Inc., BLP Group Companies, Ontrack Data
International, Inc. and Pacific Mutual Life Insurance Co.
Gregory M. Avis has served as a director of the Company since March 1996.
Mr. Avis is Managing Partner of Summit Partners, a private equity firm, and
has been with the firm since 1984. Mr. Avis manages Summit Partners' Palo Alto
office and serves as a Director of CMG Information Services, Inc., Digital
Link Corporation, Powerwave Technologies, Inc. and Splash Technology Holdings,
Inc.
Peter J. Smith has served as a director of the Company since October 1996.
Mr. Smith has been employed by Ansys, Inc., a computer software company, as
President and Chief Executive Officer and a member of the Board of Directors
since March 1994 and as Chairman of the Board of Directors since July 1995.
From November 1991 to March 1994, Mr. Smith was Vice President of European
Operations for Digital Equipment Corporation, a computer company. Previously
he managed Digital's worldwide applications development and marketing
activities.
Frank A. Rossi has served as a director of the Company since May 1996. Since
February 1994, Mr. Rossi has been Chairman of the Board of FAR Holdings
Company, L.L.C., a private investment company he formed after retiring from
Arthur Andersen LLP, a public accounting firm. Prior to his retirement in
February 1994, Mr. Rossi held the positions of Managing Partner of the San
Jose and Dallas/Forth Worth office and Managing Partner-Operations at Arthur
Andersen. Mr. Rossi joined Arthur Andersen in 1959 and was admitted as a
Partner in 1969. Mr. Rossi currently serves on the Board of Directors of
Affiliated Computer Services, Inc. and Allwaste, Inc.
Gerald A. Quintana has served as a director of the Company since May 1996.
From 1962 to 1992, Mr. Quintana was employed by Unisys Corporation, a computer
hardware company, where he served in a variety of positions. Between 1962 and
1985, Mr. Quintana progressed from account manager to Vice President of the
European region, a position which included responsibility for 10 subsidiaries.
Upon the merger of Burroughs and Sperry into Unisys Corporation, Mr. Quintana
became Vice President Marketing Services and was subsequently appointed Vice
President Marketing-US division in 1989, the position he held until his
retirement in 1992. Mr. Quintana currently serves as a Regent of Eastern New
Mexico University, Portales, New Mexico.
The Company currently has six directors. Ms. Morby and Mr. Avis were elected
to the Board of Directors as representatives of the holders of the Series A
Preferred Stock pursuant to certain arrangements entered into at the time such
stock was purchased. All such arrangements regarding the election of directors
shall terminate upon the consummation of this offering. In January 1997, the
Company's Board of Directors approved, subject to stockholder approval, the
amendment and restatement of the Company's Certificate of Incorporation to
provide for, among other things, a classified Board of Directors. In
accordance with the terms of such Amended and Restated Certificate of
Incorporation, the terms of office of the Board of Directors will be divided
into three
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classes: Class I, which term will expire at the annual meeting of stockholders
to be held in 1998 and which will initially be Guy M. Lammle and Frank A.
Rossi; Class II, which term will expire at the annual meeting of stockholders
to be held in 1999 and which will initially be Gregory M. Avis and Peter J.
Smith; and Class III, which term will expire at the annual meeting of
stockholders to be held in 2000 and which will initially be Jacqueline C.
Morby and Gerald A. Quintana. At each annual meeting of stockholders beginning
with the 1998 annual meeting, the successors to directors whose terms will
then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election or until their
successors have been duly elected and qualified. Officers are appointed to
serve, subject to the discretion of the Board of Directors, until their
successors are appointed. There are no family relationships between the
directors and officers of the Company.
BOARD COMMITTEES
The Audit Committee consists of Gregory M. Avis and Frank A. Rossi. The
Audit Committee reviews the Company's financial statements and accounting
practices, makes recommendations to the Board of Directors regarding the
selection of independent auditors and reviews the results and scope of the
audit and other services provided by the Company's independent auditors.
The Compensation Committee consists of Gerald A. Quintana, Peter J. Smith
and Jacqueline C. Morby. The Compensation Committee makes recommendations
regarding the Company's 1996 Stock Option and Grant Plan and Employee Stock
Purchase Plan and makes decisions concerning salaries and incentive
compensation for employees and consultants of the Company.
DIRECTOR COMPENSATION
Directors are entitled to receive cash compensation of $5,000 per year as an
annual retainer, $1,000 per Board meeting and $500 per Committee meeting. Each
of the Company's non-employee directors is entitled to be reimbursed for
reasonable out-of-pocket expenses incurred in connection with attendance at
each regular or special meeting of the Board of Directors. Under the 1996
Stock Option and Grant Plan, non-employee directors are entitled to receive an
option to purchase 28,750 shares of Common Stock at the time of their initial
election to the Board of Directors. Each of Gerald A. Quintana, Peter J. Smith
and Frank A. Rossi received non-qualified stock options to purchase 28,750
shares of Common Stock at the time of their initial election to the Board of
Directors. Such options have an exercise price equal to the fair market value
of the underlying Common Stock on the date of grant and vest in equal
installments over a four-year period commencing on the first anniversary of
the option grant date. Mr. Avis and Ms. Morby did not receive options in
connection with their election to the Board of Directors in 1996. See "--1996
Stock Option and Grant Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Company's Compensation Committee on May 9,
1996, the Board of Directors made all determinations with respect to executive
officer compensation. During 1996, except for Guy M. Lammle, no member of the
Compensation Committee served as an officer of the Company. The Company has
been a party to certain transactions involving the Company's executive
officers, directors and stockholders. See "Certain Transactions." None of the
Company's executive officers has served on the board of directors or
compensation committee of another entity that has had one or more of its
executive officers serving on the Board of Directors or Compensation Committee
of the Company.
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EXECUTIVE COMPENSATION
The following table summarizes compensation earned by or paid to the
Company's President and Chief Executive Officer and to each of the Company's
four next most highly compensated executive officers (collectively, the "Named
Executive Officers") for services rendered in 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
1996 ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Guy M. Lammle............... $222,000 $42,826 -- (1) --
Chief Executive Officer,
President and Chairman of
the Board
Kathleen J. Cunningham...... 118,750 18,043 115,000 $500,000(2)
Chief Operating Officer,
Chief Financial Officer and
Secretary
Ross J. Elliott............. 105,875 15,571 80,500 250,000(2)
Executive Vice President,
Development
Patrick J. Becker........... 125,908 19,306 115,000 1,000,000(2)
Senior Vice President,
Sales and Marketing
Timothy J. Watson........... 121,250 16,073 80,500 750,000(2)
Senior Vice President,
Development
</TABLE>
- --------
(1) In connection with the Recapitalization in March 1996, the Company sold
Mr. Lammle 1,473,943 shares of restricted Common Stock at a purchase price
of $0.217 per share, the fair market value of the Common Stock as
determined by the Board of Directors at the time of the transaction. These
shares are subject to a repurchase right in favor of the Company and vest
over a nine-year period, subject to adjustment for the achievement of
certain financial performance targets and the redemption of the Company's
redeemable preferred stock. Upon redemption of the Company's redeemable
preferred stock in connection with this offering, 105,281 of these shares
will vest. See "Certain Transactions."
(2) Reflects amounts paid in connection with the settlement and termination of
the Unit Incentive Plan. See "Recapitalization."
44
<PAGE>
OPTION GRANTS
The following table sets forth each grant of stock options and stock
appreciation rights made during the fiscal year ended December 31, 1996 to
each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------ REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERMS(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------
NAME GRANTED (#) FISCAL YEAR ($/SH)(1) DATE 5% ($) 10% ($)
- ---- ----------- ------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Guy M. Lammle........... -- -- -- -- -- --
Kathleen J. Cunningham.. 115,000 11.5% $0.53 3/14/06 $38,331 $97,139
Ross J. Elliott......... 80,500 8.0 0.53 3/14/06 26,832 67,997
Patrick J. Becker....... 115,000 11.5 0.53 3/14/06 38,331 97,139
Timothy J. Watson....... 80,500 8.0 0.53 3/14/06 26,832 67,997
</TABLE>
- --------
(1) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors on the date of grant.
(2) In accordance with the rules of the Securities and Exchange Commission,
shown are the hypothetical gains or "option spreads" that would exist for
the respective options. These gains are based upon 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% rates are mandated
by such rules and do not represent the Company's estimate or projection of
future increases in the price of its Common Stock.
45
<PAGE>
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth, as of December 31, 1996, (i) the number of
unexercised options and (ii) the value of unexercised in-the-money options
(i.e., options for which the fair market value of the Common Stock exceeds the
exercise price) held by each of the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS(1)(3) OPTIONS(2)(3)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Guy M. Lammle........... -- -- -- -- -- --
Kathleen J. Cunningham.. -- -- -- 115,000 -- $1,434,050
Ross J. Elliott......... -- -- -- 80,500 -- 1,003,835
Patrick J. Becker....... -- -- -- 115,000 -- 1,434,050
Timothy J. Watson....... -- -- -- 80,500 -- 1,003,835
</TABLE>
- --------
(1) Twelve and one half percent of these options vest on March 14, 1997; 37.5%
vest in quarterly installments thereafter through March 14, 2000. The
remaining 50% of these options vest over a five-year period beginning on
March 14, 2001, subject to acceleration for the Company's achievement of
certain performance goals and for redemption of the Company's redeemable
preferred stock. Upon redemption of the Company's redeemable preferred
stock in connection with this offering, 10% of the options listed in the
table above will vest.
(2) There was no public trading market for the Common Stock as of December 31,
1996. Accordingly, these values have been calculated based upon the
difference between an assumed initial public offering price of $13.00 per
share and the exercise price.
(3) In January 1997, Ms. Cunningham and Mr. Elliott each received grants of
stock options to purchase 23,000 shares. Twelve and one half percent of
these options vest on the first anniversary of the option grant date;
37.5% vest in quarterly installments thereafter through January 2001. The
remaining 50% of these options vest over a five-year period beginning on
the fifth anniversary of the option grant date, subject to acceleration
upon the Company's achievement of certain performance goals and upon
redemption of the Company's redeemable preferred stock. Options to
purchase 13,800 shares will vest for Ms. Cunningham and 10,350 shares for
Mr. Elliott upon the Company's redemption of its redeemable preferred
stock in connection with this offering.
1996 STOCK OPTION AND GRANT PLAN
The Company's 1996 Stock Option and Grant Plan (as amended, the "Stock
Option Plan") was adopted by the Board of Directors on March 14, 1996 and
approved by the Company's stockholders on March 14, 1996. In January, 1997,
the Board of Directors and the Company's stockholders approved an amendment to
the Stock Option Plan. As of February 28, 1997, there were 4,203,169 shares of
Common Stock reserved for issuance under the Stock Option Plan.
The Stock Option Plan provides for the grant of incentive stock options to
employees (including officers and employee-directors) and nonstatutory stock
options and restricted stock awards or issuances to employees, directors and
consultants. The Stock Option Plan is administered by the Compensation
Committee, which has the authority to select the persons to whom options,
stock grants and stock issuances (collectively, "Stock Awards") may be
awarded; to determine whether a Stock Award will be an incentive stock option
(within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")), a nonqualified stock option, a stock grant, a stock
issuance or a combination of the foregoing; to set the vesting schedules of
Stock Awards; to determine the number of shares subject to an option; and to
specify the type and amount of consideration to be paid to the Company upon
exercise of an option.
46
<PAGE>
Generally an incentive stock option granted under the Stock Option Plan must
have a term that expires no later than the tenth anniversary of the option's
grant date and must have an exercise price equal to at least 100% of the fair
market value of the Company's Common Stock on the date of option grant. With
respect to an incentive stock option granted to a person who beneficially owns
securities representing more than 10% of the voting power of all outstanding
capital stock of the Company (or a parent or subsidiary of the Company), the
exercise price of the option must equal at least 110% of the fair market value
of the Company's Common Stock on the option grant date and the term of the
option may not exceed five years. The aggregate fair market value, determined
at the time of grant, of shares of Common Stock with respect to which
incentive stock options are first exercisable by an optionee (under all plans
of the Company and a parent or subsidiary of the Company) in any calendar year
may not exceed $100,000. If an optionee's employment or service as a director
with the Company or a subsidiary of the Company terminates, the Compensation
Committee may in its discretion provide, at any time, that any outstanding
option granted to such optionee under the Stock Option Plan shall be
exercisable for three months following termination of employment or service as
a director, subject to the expiration date of such option. An option granted
under the Stock Option Plan is not transferable by the optionee except by will
or by the laws of descent and distribution and may be exercised during the
optionee's lifetime only by the optionee or by his or her guardian or legal
representative.
Upon certain changes in control of the Company, the Stock Option Plan and
all outstanding awards under the Stock Option Plan shall be terminated unless
provision is made in connection with such transaction for the assumption of
options theretofore granted or the substitution for such options of new
options of the successor entity or parent thereof. The Stock Option Plan will
terminate in March 2006 unless sooner terminated by the Board of Directors.
Under the Stock Option Plan, as of February 28, 1997, no shares of Common
Stock had been issued upon the exercise of options granted, options to
purchase 1,335,932 shares of Common Stock at a weighted average exercise price
of $2.43 were outstanding, restricted stock awards for 1,473,943 shares had
been granted and 1,393,294 shares remained available for grant. As
compensation for service on the Board of Directors, the Company grants options
to purchase 28,750 shares of Common Stock upon a director's initial election
to the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
[To be filed by amendment]
401(K) PLAN
The Company originally established a Profit Sharing Plan on February 1, 1982
as a defined contribution plan under the provisions of Section 401(a) of the
Internal Revenue Code for the benefit of eligible employees. Under the terms
of such plan, the Company was allowed to contribute up to 15% of all eligible
compensation, as defined in the plan document, for all eligible employees.
During some years, such payments were made in the form of cash bonuses rather
than as contributions directly to such plan. The plan was restated on April
15, 1993 to include a tax qualified deferred plan as described in Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). Pursuant to the
401(k) Plan, as amended to date, eligible employees may elect to reduce their
compensation by up to the lesser of 15% of their eligible compensation or the
statutorily prescribed limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The trustee of the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in
designated investment options. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code so that contributions to the 401(k)
Plan, and income earned on the 401(k) contributions are not taxable until
withdrawn, and so that the contributions of the Company will be deductible
when made. Additional discretionary contributions may be made by the Company
to the 401(k) Plan. Such discretionary contributions to participants are
allocated based on the percentage of the participant's compensation to the
total compensation of all participants eligible to share in the contribution.
No such discretionary contributions were made by the Company during 1996.
47
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Bylaws, to be adopted prior to the
closing of this offering, will provide that the Company shall indemnify its
directors and executive officers and may indemnify its other officers,
employees and other agents to the fullest extent not prohibited by Delaware
law. The Company is also empowered under its Amended and Restated Bylaws to
enter into indemnification contracts with its directors, officers, employees
or agents, and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered
into indemnity agreements with each of its directors. In addition, the Company
has purchased directors and officers insurance on behalf of all of its
directors and executive officers.
The Company's Amended and Restated Certificate of Incorporation, to be
adopted prior to the closing of this offering, will additionally provide that,
to the fullest extent permitted by Delaware law, the Company's directors will
not be personally liable to the Company or its stockholders for monetary
damages for breach of their fiduciary duties as directors, except (i) for any
breach of their duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, or (iii) for any transactions from which the
director derives an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
48
<PAGE>
CERTAIN TRANSACTIONS
In October 1993, the Company sold all rights with respect to its initial
software product, GAP, to Intellex, Inc. ("Intellex"), a corporation wholly
owned by Guy M. Lammle and Roger H. Linn, for a purchase price of $200,000.
The purchase price was paid by delivery to the Company of a promissory note,
which was paid in full in November 1994.
On April 1, 1995, the Company acquired certain assets relating to the Profit
Workbench and Handbook programs and assumed certain liabilities from Intellex
in exchange for the cancellation of a $117,237 note payable by Intellex to the
Company, which arose from various intercompany transactions. The assets
acquired and liabilities assumed were recorded at their historical net book
value. The amount by which assets exceeded the liabilities assumed ($115,375)
was treated as a reduction of stockholders' equity due to the fact that the
entities were related through substantially common ownership on the date of
the transaction. The Company has incorporated the operations of Intellex into
its statement of operations from the date of acquisition, April 1, 1995. The
methodology for recording this transaction was made in accordance with
generally accepted accounting principles.
During the period from February 1, 1992 through October 10, 1994, the
Company leased its principal offices from Plumtree of Colorado Springs LLC
("Plumtree LLC"), which members consist of Guy M. Lammle and Roger H. Linn and
their immediate family members. During the period from January 1, 1994 through
October 10, 1994, the lease payments made by the Company to Plumtree LLC
aggregated $378,601. On October 11, 1994, the property was sold by Plumtree
LLC to Plumtree Office Investors, Ltd. ("Plumtree Ltd."), an unaffiliated
entity, at which time the Company entered into a new lease agreement with
Plumtree Ltd. The lease agreement permitted the Company to offset against its
lease payments to Plumtree Ltd. any amounts not paid by Plumtree Ltd. to
Plumtree LLC when due under the promissory note relating to Plumtree Ltd.'s
acquisition of the property. Such promissory note has been repaid and no
offsets against such note were made. The term of the current lease expires in
October 1998; however, the Company has an option to renew the lease for either
a three year or a five year period thereafter.
In February 1995, R&D Hardware Systems Company ("R&D Hardware"), the
shareholders of which are Guy M. Lammle, Roger H. Linn, various members of
each of their families and Patrick J. Becker, acquired certain assets of UDS
in exchange for $2,126,583 in cash and the assumption of liabilities of
$839,190. R&D Hardware immediately sold substantially all of the operating
assets of UDS that it had purchased to the Company for $1,869,757 cash and the
assumption of certain liabilities totalling $839,190. Among the operating
assets of UDS sold to R&D Hardware, and which R&D Hardware subsequently sold
to the Company, were rights to the SHIMS software product.
During the period from January 1, 1993 through January 1, 1996, the Company
engaged in a series of ongoing transactions with R&D Hardware. These
transactions included purchases by the Company from R&D Hardware of computer
equipment for resale (aggregating $4,237,000 during the period from January 1,
1994 through January 1, 1996), equipment procurement services (aggregating
$483,000 during the period from January 1, 1994 through January 1, 1996), and
the provision by the Company to R&D Hardware of administrative services in
exchange for management fees and reimbursement of expenses (aggregating
$360,000 during the period from January 1, 1994 through January 1, 1996). The
shareholders of R&D Hardware sold substantially all of the assets of R&D
Hardware to Western Micro Technology, Inc. ("Western Micro"), a hardware
reseller, on January 2, 1996 for an aggregate purchase price of $1,000,000,
plus 125,000 shares of the common stock of Western Micro. The Company
simultaneously entered into a Value Added Reseller Agreement with Western
Micro which enables the Company to purchase hardware for resale at discounts
that vary dependent upon the aggregate volume purchased.
On August 16, 1995, the Company licensed the program Manager's Handbook to
The Distribution Team, Inc. ("DT"), a corporation whose majority stockholder
is Guy M. Lammle and whose other stockholders are Gordon Graham and Scott
Stratman (who operates DT without involvement from Messrs. Graham and Lammle).
An agreement is in place which permits Mr. Stratman to acquire over time Mr.
Lammle's majority interest in DT. In exchange, DT licensed the GG Handbook, a
program developed from the Manager's Handbook, to the Company. The Company
additionally agreed to pay a royalty to DT of $2,000 per GG Handbook sold. The
Company received the right to buy out its royalty payment obligations to DT
for a payment of $500,000
49
<PAGE>
less any prior $2,000 royalty payments made to DT (the "Buy-Out Right"). On
August 14, 1996, the Company exercised its Buy-Out Right on the GG Handbook.
On March 14, 1996, the Company effected the Recapitalization. See
"Recapitalization." Pursuant to the Recapitalization, the Company sold 26,000
shares of its Series A Preferred Stock to a group of investors, including a
total of 15,000 shares to entities affiliated with TA Associates, Inc. and
10,000 shares to entities affiliated with Summit Partners, at an aggregate
purchase price of $26,000,000. Jacqueline C. Morby, a general partner of TA
Associates, Inc., and Gregory M. Avis, a general partner of Stamps, Woodsum &
Co., IV, the general partner of Summit Partners IV, L.P., are both directors
of the Company.
As part of the Recapitalization, the Company paid $17,500,000 in cash and
issued 6,500 shares of its Series B Preferred Stock to Guy M. Lammle, the
Company's Chief Executive Officer, President and Chairman of the Board, and
persons or entities with whom he is affiliated, in exchange for all of Mr.
Lammle's previous holdings of the Company's Common Stock.
Upon the closing of this offering, the outstanding Series A Preferred Stock
will automatically convert into 5,980,000 shares of Common Stock and 15,500
shares of Senior Redeemable Preferred Stock and the outstanding Series B
Preferred Stock will automatically convert into 1,495,000 shares of Common
Stock, 3,875 shares of Senior Redeemable Preferred Stock and 2,625 shares of
Junior Redeemable Preferred Stock. All shares of Senior Redeemable Preferred
Stock and Junior Redeemable Preferred Stock will be redeemed upon the closing
of this offering for total payments of $19,375,000 and $2,625,000,
respectively. See "Use of Proceeds."
In connection with the Recapitalization, the Company made payments in an
aggregate amount of $7,000,000 (before withholding taxes) to certain employees
of the Company pursuant to the Company's Unit Incentive Plan, a compensation
plan under which the Company had previously made awards. The following
payments were made under the Unit Incentive Plan to executive officers of the
Company: Ms. Cunningham--$500,000; Mr. Elliott--$250,000; Mr. Becker--
$1,000,000; Mr. Watson--$750,000; and Mr. Dekker--$33,333. After receipt of
the Unit Incentive Plan payments from the Company, all recipients released the
Company from any further obligations to them under the Unit Incentive Plan and
the Company terminated the Unit Incentive Plan. The Company recognized
compensation expense of $3,196,379 and $3,803,621 in 1995 and 1996,
respectively, in connection with the Unit Incentive Plan.
In connection with the Recapitalization, Guy M. Lammle entered into a non-
competition agreement with the Company (the "Non-Competition Agreement"). The
Non-Competition Agreement provides that Mr. Lammle (i) shall not disclose any
confidential information of the Company; (ii) shall return all documents
belonging to the Company upon termination of employment; (iii) shall assign
any and all proprietary rights in Company-related developments and inventions
to the Company; and (iv) until the later of March 14, 2000 or two years after
Mr. Lammle's employment with the Company is terminated, shall not engage in
any business activity the result of which is the development, manufacturing or
marketing of products or services in competition with the Company and shall
not solicit any person to leave the employment of the Company. In addition,
the Non-Competition Agreement requires the Company to pay a total of
$2,500,000 to Mr. Lammle in consideration for his execution of such agreement,
of which $1,500,000 was paid during 1996, $500,000 is required to be paid on
March 14, 1997 and $500,000 is required to be paid on March 14, 1998.
As part of the Recapitalization, the Company sold 1,473,943 shares of the
Company's Common Stock (the "Lammle Shares") to Guy M. Lammle at a purchase
price of $0.217 per share, under the Stock Option Plan. The Company has a
repurchase option, which terminates entirely on March 31, 2006 (subject to
earlier termination for the Company's achievement of certain performance
targets and the redemption of the Company's redeemable preferred stock), with
respect to the Lammle Shares. Subject to adjustment for the Company's
achievement of certain performance targets and the redemption of the Company's
redeemable preferred stock, the Company's repurchase option with respect to
the Lammle Shares will lapse at a rate of 131,602 shares per quarter through
March 31, 1998, and thereafter at a rate of 13,160 shares per quarter through
March 31, 2006. Upon redemption of the Company's redeemable preferred stock in
connection with this offering, 105,281 of the Lammle Shares will vest.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 28, 1997, as
adjusted to reflect the sale of the Common Stock being offered hereby, by (i)
each person (or group of affiliated persons) who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers of the Company as a group. This table assumes the
conversion of all outstanding preferred stock into Common Stock upon the
closing of this offering and reflects the 2.3-for-1 stock split to be effected
prior to the closing of this offering.
<TABLE>
<CAPTION>
PERCENT OF SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY --------------------------------------
NAME OWNED (#)(1) PRIOR TO OFFERING(2) AFTER OFFERING(2)
- ---- ------------------- -------------------- -----------------
<S> <C> <C> <C>
Executive Officers and
Directors
Guy M. Lammle........... 2,968,943(3) 32.7% 22.2%
Kathleen J. Cunningham.. 43,268(4) * *
Ross J. Elliott......... 30,978(4) * *
Patrick J. Becker....... 40,968(4) * *
Timothy J. Watson....... 28,678(4) * *
C. Jeff Dekker.......... 9,343(4) * *
Jacqueline C. Morby..... 3,437,580(7) 37.9% 25.7%
Gregory M. Avis......... 2,291,720(5) 25.3% 17.1%
Frank A. Rossi.......... 7,187(4) * *
Gerald A. Quintana...... 7,187(4) * *
Peter J. Smith.......... -- -- --
All directors and 8,865,852(6) 96.0% 65.5%
executive officers and
directors as a group
(11 persons)...........
Greater than 5%
Stockholders
TA Associates Group..... 3,437,580(7) 37.9% 25.7%
High Street Tower,
Suite 2500
125 High Street
Boston, MA 02110
Summit Partners......... 2,291,720(8) 25.3% 17.1%
499 Hamilton Avenue,
Suite 200
Palo Alto, CA 94301
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants and convertible securities currently
exercisable or convertible, or exercisable or convertible within 60 days
of the date of this Prospectus, are deemed outstanding for computing the
percentage of the person or entity holding such securities but are not
outstanding for computing the percentage of any other person or entity.
Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Percentage of ownership is based on 9,070,331 shares of Common Stock
outstanding before the offering and 13,370,331 shares of Common Stock
outstanding after the offering, assuming no exercise of the Underwriters'
over-allotment option.
(3) Includes 1,997,193 shares owned of record by Mr. Lammle, of which
1,473,943 shares are subject to a repurchase option in favor of the
Company that expires in several installments through March 2006, 523,250
shares owned of record by Rita L. Lammle, 112,125 shares owned of record
by Amy Lammle
51
<PAGE>
Trust, 112,125 shares owned of record by Daina Lammle Trust and 224,250
shares owned of record by Lacey Lammle Trust.
(4) Comprised of options exercisable within 60 days of the date of this
Prospectus to purchase shares of Common Stock.
(5) Includes 2,194,890 shares owned of record by Summit Ventures IV, L.P. and
96,830 shares owned of record by Summit Investors III, L.P. Mr. Avis is a
general partner of Summit Investors III, L.P. and of Stamps, Woodsum &
Co., IV, the general partner of the general partner of Summit Ventures IV,
L.P., and may be deemed to share voting and investment power with respect
to such shares. Mr. Avis disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(6) Includes options exercisable within 60 days of the date of this Prospectus
to purchase 167,609 shares of Common Stock.
(7) Includes 1,725,000 shares owned of record by Advent VII L.P., 646,530
shares owned of record by Advent Atlantic and Pacific II L.P., 862,500
shares owned of record by Advent Atlantic and Pacific III, L.P., 172,500
shares owned of record by Advent New York L.P. and 31,050 shares owned of
record by TA Venture Investors Limited Partnership. Advent VII L.P.,
Advent Atlantic and Pacific II L.P., Advent Atlantic and Pacific III,
L.P., Advent New York L.P. and TA Venture Investors Limited Partnership
are part of an affiliated group of investment partnerships referred to,
collectively, as the TA Group. The general partner of Advent VII L.P. is
TA Associates VII L.P. The general partner of Advent Atlantic and Pacific
II L.P. is TA Associates AAP II Partners L.P. The general partner of
Advent Atlantic and Pacific III, L.P. is TA Associates AAP III Partners,
L.P. The general partner of Advent New York L.P. is TA Associates VI L.P.
The general partner of each of TA Associates VII L.P., TA Associates AAP
II Partners L.P., TA Associates AAP III Partners, L.P. and TA Associates
VI L.P. is TA Associates, Inc. Ms. Morby is a principal of TA Associates,
Inc. In such capacity, TA Associates, Inc. exercises sole voting and
investment power with respect to all of the shares held of record by the
named investment partnerships, with the exception of those shares held by
TA Venture Investors Limited Partnership. Principals and employees of TA
Associates, Inc. (including Ms. Morby, a director of the Company) comprise
the general partners of TA Venture Investors Limited Partnership. As
general partner of TA Venture Investors Limited Partnership and principal
of TA Associates, Inc., Ms. Morby may be deemed to share voting and
investment power with respect to the 3,437,580 shares of Common Stock held
of record by the TA Group. Ms. Morby disclaims beneficial ownership of
such shares, except to the extent of her pecuniary interest therein,
including 4,212 of the shares held by TA Venture Investors Limited
Partnership.
(8) Includes 2,194,890 shares owned of record by Summit Ventures IV, L.P. and
96,830 shares owned of record by Summit Investors III, L.P.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws is a summary and is qualified in its entirety by the provisions of
the Amended and Restated Certificate of Incorporation and Bylaws, which have
been filed as exhibits to the Company's Registration Statement, of which this
Prospectus is a part.
Upon the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding convertible
preferred stock into Common Stock and redeemable preferred stock (and the
immediate redemption of all redeemable preferred stock), will consist of
27,000,000 shares of Common Stock, $0.01 par value per share, and 5,000,000
shares of Preferred Stock, $0.01 par value per share.
COMMON STOCK
As of February 28, 1997, there were 9,070,331 shares of Common Stock
outstanding and held of record by 18 stockholders, assuming the conversion of
all outstanding shares of convertible preferred stock into Common Stock that
will occur upon the consummation of the offering contemplated hereby. Based
upon such number of shares deemed outstanding as of that date and giving
effect to the issuance of 4,300,000 shares of Common Stock offered hereby,
there will be 13,370,331 shares of Common Stock outstanding upon consummation
of this offering. The holder of each share of Common Stock has the right to
one vote on such matters and in such manner as may be provided by law. Holders
of Common Stock are not entitled to cumulative voting rights with respect to
the election of directors, and as a consequence, minority stockholders will
not be able to elect directors on the basis of their votes alone. Subject to
the prior rights of holders of all classes of stock at the time outstanding
having prior rights as to dividends, the holders of Common Stock are entitled
to receive, when and as declared by the Board of Directors, out of any assets
of the Company legally available therefor, such dividends as may be declared
from time to time by the Board of Directors. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of the Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All presently outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or
more series and to determine or alter the designations, preferences, and
relative, participating, optional or other rights, and such qualifications,
limitations or restrictions thereof, as shall be stated in resolutions adopted
by the Board of Directors and as may be permitted by the Delaware General
Corporation Law. The issuance of Preferred Stock could adversely affect the
voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have
the effect of delaying, deferring or preventing a change in control of the
Company. No shares of Preferred Stock will be outstanding immediately
following the closing of this offering. The Company has no present plan to
issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Holders of 7,475,000 shares of Common Stock to be issued upon conversion of
the Series A Preferred Stock and the Series B Preferred Stock have certain
rights to have the Company register shares of the Company's capital stock
owned by them ("Registrable Shares") with the Securities and Exchange
Commission. If at any time, the Company shall determine to register under the
Securities Act any shares of its Common Stock or securities convertible into
or exchangeable or exercisable for shares of Common Stock, holders of
Registrable
53
<PAGE>
Shares may request (such rights may be referred to hereinafter as "Piggyback
Registration Rights") that the Company include in such registration any
Registrable Shares that they hold. In such a case, the Company will use its
best efforts to include the Registrable Shares so requested to be included in
the registration. On any two occasions (not less than six months apart), if
holders of at least 40% of the Registrable Shares so request, the Company will
use its best efforts to cause the shares so requested to be registered under
the Securities Act. If the Company becomes eligible to use Form S-3 under the
Securities Act and the holders of 20% of the Registrable Shares request that
their shares be registered, the Company will use its best efforts to register
such shares on a Form S-3 registration statement. The Company is not required
to effect more than one such Form S-3 registration in any twelve month period.
The Company's obligation to register Registrable Shares will terminate seven
years following the consummation of this offering or, commencing on the first
anniversary of the consummation of this offering, with respect to any such
holder, whenever such holder's shares can be fully transferred under
Rule 144(k) of the Securities Act. Generally, the Company is required to bear
all registration and selling expenses incurred in connection with any such
registrations. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration. In addition, holders of the 57,500
shares of Common Stock issued by the Company in connection with the Saber
Acquisition will, following this offering, have Piggyback Registration Rights
substantially identical to those provided to the holders of the Registrable
Shares issued upon conversion of the Series A Preferred Stock and Series B
Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of a corporation's voting stock.
Upon the closing of this offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") will provide that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. 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 the holders of shares
entitled to cast not less than 50% of the votes at such a meeting. The
Company's Certificate will also provide that the authorized number of
directors may be changed only by resolution of the Board of Directors, and
that directors can only be removed for cause by a majority vote of the
stockholders. In addition, the Company's Certificate will provide for the
classification of the Board of Directors into three classes, only one of which
shall be elected at any given annual meeting. These provisions may have the
effect of delaying, deterring or preventing a change in control of the Company
or depressing the market price of Common Stock or discouraging hostile
takeover bids in which stockholders of the Company could receive a premium for
their shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston has been appointed as the transfer agent
and registrar for the Company's Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon completion of this offering, the Company will have
outstanding an aggregate of 13,370,331 shares of Common Stock assuming (i) no
exercise of the Underwriters' over-allotment option, (ii) no exercise of
outstanding options and (iii) the automatic conversion of all outstanding
shares of the Company's convertible preferred stock. Of these shares, the
4,300,000 shares of Common Stock sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are held by "affiliates" of the Company, as that term is defined
under the Securities Act and the Regulations promulgated thereunder.
The remaining 9,070,331 shares of Common Stock are "Restricted Shares" and
are subject to restrictions under the Securities Act. All of the Restricted
Shares are subject to lock-up agreements under which the holders have agreed
not to sell or otherwise dispose of any of their shares for a period of 180
days after the date of this Prospectus except in connection with the exercise
of the Underwriters' over-allotment option relating to this offering or with
the prior written consent of Montgomery Securities. Beginning 180 days after
the date of the Prospectus, approximately 8,422,535 Restricted Shares will
become available for sale in the public market pursuant to Rule 144 or Rule
701 under the Securities Act. By January 1998, up to an additional 318,791
shares will become eligible for sale in the public market pursuant to Rule 144
or Rule 701 under the Securities Act. The remaining Restricted Shares will
become eligible for resale pursuant to Rule 144 or Rule 701 under the
Securities Act at various times starting in March 1998 as the Company's
repurchase option for the Restricted Shares lapses. During the period from
March 1998 through March 2004, certain holders of the Restricted Shares of
Common Stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by affiliates) immediately upon effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the effective date of this
registration statement (the "Effective Date"), a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 133,703 shares immediately after this offering) or (ii)
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale, subject to the filing of a Form 144 with respect to
such sale and 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 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations described
above.
Any employee, officer, director or consultant of the Company who purchased
his or her shares pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permit non-
affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permit affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the Effective Date.
Promptly after the Effective Date, the Company intends to file a
registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under the Stock Option Plan and the Purchase Plan,
thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. Such registration
statement will become effective immediately upon filing. Shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available
55
<PAGE>
for sale in the public market, unless such shares are subject to vesting
restrictions with the Company or the lock-up agreements described above. At
February 28, 1997, options to purchase 1,335,932 shares of Common Stock were
outstanding under the Stock Option Plan; no shares of Common Stock had been
purchased under the Purchase Plan.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and any sale of substantial amounts in the open market may
adversely affect the market price of the Common Stock offered hereby.
56
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, J.P. Morgan Securities Inc. and Dain Bosworth Incorporated (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of such
shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities............................................
J.P. Morgan Securities Inc. .....................................
Dain Bosworth Incorporated.......................................
---------
Total.......................................................... 4,300,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After this offering, the offering
price and other selling terms may be changed by the Representatives. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 645,000 additional shares of Common Stock to cover over-allotment
options, if any, at the same price per share as the initial 4,300,000 shares
to be purchased by the Underwriters. To the extent the Underwriters exercise
this over-allotment option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company and the holders of all of its outstanding securities have agreed
that, for a period of 180 days following the date of this Prospectus, they
will not, except in connection with the exercise of the Underwriters' over-
allotment option relating to this offering or with the prior written consent
of Montgomery Securities, offer, sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for any shares of Common Stock, except that the Company, without such consent,
may grant options or issue stock upon exercise of new or outstanding options
pursuant to the Stock Option Plan and the Purchase Plan. Montgomery Securities
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements.
The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
57
<PAGE>
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, its past and present
financial performance, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of this offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward llp, Boulder, Colorado. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of NxTrend as of December 31, 1996 and
December 31, 1995 and for each year in the three-year period ended December
31, 1996 included in this Prospectus have been so included in reliance on the
reports of Arthur Andersen LLP, independent public accountants, given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and the schedules and exhibits filed as a
part thereof. Statements contained in this Prospectus regarding the contents
of any contract or any other document are not necessarily complete and, in
each instance, reference is hereby made to the copy of such contract or
document filed as an exhibit to the Registration Statement. The Registration
Statement, including exhibits thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, on payment of the prescribed fees. The Securities and
Exchange Commission also maintains a site on the World Wide Web that contains
reports, proxy and information statements, and other information regarding the
Company. The address for such site is http://www.sec.gov.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-4
Statements of Income..................................................... F-6
Statements of Mandatorily Redeemable Preferred Stock and Stockholders'
Equity (Deficit)........................................................ F-7
Statements of Cash Flows................................................. F-8
Notes to Financial Statements............................................ F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NxTrend Technology, Inc.:
We have audited the accompanying balance sheets of NxTrend Technology, Inc.
(formerly R&D Systems Company), a Delaware corporation, as of December 31,
1995 and 1996, and the related statements of income; mandatorily redeemable
preferred stock and stockholders' equity (deficit); and cash flows for each
year in the three-year 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 financial statements referred to above present fairly,
in all material respects, the financial position of NxTrend Technology, Inc.,
as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each year in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
January 15, 1997
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
NXTREND TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
(UNAUDITED,
NOTE 2)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 4,653 $ 730 $ 730
Accounts receivable, net of allowance for
doubtful accounts of $270, $128 and $128....... 8,138 10,148 10,148
Income taxes receivable......................... 952 283 283
Inventories..................................... 424 580 580
Prepaid expenses and other current assets....... 37 17 17
Deferred income taxes (Note 10)................. 23 96 96
------- ------- -------
Total current assets.......................... 14,227 11,854 11,854
PROPERTY AND EQUIPMENT--Net (Note 5).............. 1,295 1,251 1,251
OTHER ASSETS--Net................................. 1,238 3,491 3,491
DEFERRED INCOME TAXES--NONCURRENT (Note 10)....... 147 -- --
------- ------- -------
Total assets.................................. $16,907 $16,596 $16,596
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-4
<PAGE>
NXTREND TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- DECEMBER 31,
1995 1996 1996
------- -------- ------------
(UNAUDITED,
NOTE 2)
<S> <C> <C> <C>
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................. $ 1,554 $ 2,247 $ 2,247
Accrued payroll and related costs................. 902 995 995
Other accrued liabilities......................... 640 632 632
Accrued compensation under the Unit Incentive Plan
(Note 12)........................................ 3,196 -- --
Customer deposits................................. 261 542 542
Deferred revenue (Note 2)......................... 5,350 6,167 6,167
Bank debt--current portion (Note 7)............... -- 4,500 4,500
Payable to stockholder under non-compete agree-
ment--current portion (Note 4)................... -- 500 500
------- -------- --------
Total current liabilities....................... 11,903 15,583 15,583
------- -------- --------
DEFERRED INCOME TAXES.............................. -- 60 60
PAYABLE TO STOCKHOLDER UNDER NON-COMPETE AGREEMENT,
net of current portion (Note 4)................... -- 500 500
BANK DEBT, net of current portion (Note 7)......... -- 15,000 15,000
COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 13).....
SERIES A AND B MANDATORILY REDEEMABLE, CONVERTIBLE
PREFERRED STOCK, $0.01 par value; aggregate
liquidation and redemption preference of $0,
$32,500 and $0 as of December 31, 1995 and 1996
(actual) and December 31, 1996 (pro forma),
respectively; 0, 32,500 and 32,500 shares
authorized at December 31, 1995 and 1996 (actual)
and December 31, 1996 (pro forma), respectively;
0, 32,500 and 0 issued and outstanding as of
December 31, 1995 and 1996 (actual) and December
31, 1996 (pro forma), respectively (Notes 2 and
8)................................................ -- 32,500 --
SENIOR AND JUNIOR MANDATORILY REDEEMABLE PREFERRED
STOCK, $0.01 par value; aggregate liquidation and
redemption preference of $0 at December 31, 1995
and 1996 (actual) and $22,000 at December 31, 1996
(pro forma), respectively; 0, 22,000 and 22,000
authorized at December 31, 1995 and 1996 (actual)
and December 31, 1996 (pro forma), respectively;
0, 0 and 22,000 shares issued and outstanding as
of December 31, 1995 and 1996 (actual) and
December 31, 1996 (pro forma), respectively (Notes
2 and 8).......................................... -- -- 22,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value; 100,000, 50,000,
and 50,000 shares authorized as of December 31,
1995 and 1996 (actual) and December 31, 1996 (pro
forma), respectively; no shares issued or
outstanding...................................... -- -- --
Common stock, $0.001 and $0.01 par value at
December 31, 1995 and 1996, respectively;
500,000, 31,895,500 and 31,895,500 shares
authorized as of December 31, 1995 and 1996
(actual) and December 31, 1996 (pro forma),
respectively; 23,000, 1,473,943 and 8,948,943
shares issued and outstanding as of December 31,
1995 and 1996 (actual) and December 31, 1996 (pro
forma), respectively............................. -- 15 89
Additional paid-in capital........................ 1 305 10,731
Retained earnings (deficit) (including, at Decem-
ber 31, 1996 actual and pro forma, $48,999 paid
to purchase and retire founders' stock--Note 1).. 5,003 (47,367) (47,367)
------- -------- --------
Total stockholders' equity (deficit)............ 5,004 (47,047) (36,547)
------- -------- --------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity
(deficit)...................................... $16,907 $ 16,596 $ 16,596
======= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-5
<PAGE>
NXTREND TECHNOLOGY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
REVENUE:
Software license fees............................ $ 6,446 $10,625 $12,429
Annual license and support fees.................. 3,210 8,702 10,759
Services......................................... 3,909 6,229 7,011
Hardware......................................... 5,207 9,568 9,421
------- ------- ---------
Total revenue.................................. 18,772 35,124 39,620
------- ------- ---------
COST OF REVENUE:
Software license fees............................ 1,392 1,945 1,742
Annual license and support fees.................. 1,328 3,367 4,443
Services......................................... 2,819 3,852 4,287
Hardware......................................... 4,347 7,962 7,731
------- ------- ---------
Total cost of revenue.......................... 9,886 17,126 18,203
------- ------- ---------
Gross profit................................... 8,886 17,998 21,417
------- ------- ---------
OPERATING EXPENSES:
Research and development......................... 1,320 2,607 2,975
Sales and marketing.............................. 1,850 2,342 2,844
General and administrative....................... 2,931 6,019 5,975
Unit Incentive Plan (Note 12).................... -- 3,196 3,804
------- ------- ---------
Total operating expenses....................... 6,101 14,164 15,598
------- ------- ---------
Operating income............................... 2,785 3,834 5,819
OTHER INCOME (EXPENSE):
Interest income.................................. 129 237 216
Interest expense................................. (45) -- (1,757)
Other, net....................................... 640 618 549
------- ------- ---------
724 855 (992)
------- ------- ---------
Income before income taxes..................... 3,509 4,689 4,827
PROVISION FOR INCOME TAXES......................... 1,375 1,708 1,698
------- ------- ---------
Net income....................................... $ 2,134 $ 2,981 $ 3,129
======= ======= =========
PRO FORMA NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
(Note 2) (Unaudited).............................. $ 0.32
=========
SHARES USED TO COMPUTE PRO FORMA NET INCOME PER
COMMON AND COMMON EQUIVALENT SHARE (Note 2)
(Unaudited)....................................... 9,919,287
=========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
NXTREND TECHNOLOGY, INC.
STATEMENTS OF MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE
PREFERRED STOCK STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------- ---------------------------------
SERIES A AND B, SENIOR AND ADDI-
CONVERTIBLE JUNIOR COMMON STOCK TIONAL RETAINED
---------------- -------------- -------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------ -------- ------ ------- ------ ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1993................... -- $ -- -- $ -- 23 $ -- $ 1 $ 3
Net income............. -- -- -- -- -- -- -- 2,134
----- -------- --- ------- ----- ----- ------- --------
BALANCES, December 31,
1994................... -- -- -- -- 23 -- 1 2,137
Distribution (Note 4).. -- -- -- -- -- -- -- (115)
Net income............. -- -- -- -- -- -- -- 2,981
----- -------- --- ------- ----- ----- ------- --------
BALANCES, December 31,
1995................... -- -- -- -- 23 -- 1 5,003
Issuance of Series A
Mandatorily
Redeemable,
Convertible Preferred
Stock for $1,000 per
share in March in
connection with the
Recapitalization...... 26.0 26,000 -- -- -- -- -- --
Purchase and retirement
of shares from
stockholders in March
in connection with the
Recapitalization...... -- -- -- -- (18.4) -- (1) (48,999)
Exchange of common
stock for Series B
Mandatorily
Redeemable,
Convertible Preferred
Stock in connection
with the
Recapitalization in
March, stated at
redemption value...... 6.5 6,500 -- -- (4.6) -- -- (6,500)
Issuance of restricted
common stock in March
at $0.217 per share... -- -- -- -- 1,474 15 305 --
Net income............. -- -- -- -- -- -- -- 3,129
----- -------- --- ------- ----- ----- ------- --------
BALANCES, December 31,
1996................... 32.5 32,500 -- -- 1,474 15 305 (47,367)
Pro forma adjustments
(unaudited) (Note 2).. (32.5) (32,500) 22 22,000 7,475 74 10,426 --
----- -------- --- ------- ----- ----- ------- --------
PRO FORMA BALANCES,
December 31, 1996
(unaudited) (Note 2)... -- $ -- 22 $22,000 8,949 $ 89 $10,731 $(47,367)
===== ======== === ======= ===== ===== ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE>
NXTREND TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 2,134 $ 2,981 $ 3,129
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization.................. 212 905 1,836
Deferred income tax (benefit) provision (Note
10)........................................... 69 (138) 134
Deferred income recognized..................... (100) (75) --
Other.......................................... (162) --
Changes in operating assets and liabilities--
Accounts receivable.......................... (1,461) (2,475) (2,010)
Income taxes receivable...................... -- (952) 669
Inventories.................................. 108 (207) (156)
Prepaid expenses and other current assets.... 237 24 20
Other assets................................. (24) (20) (524)
Accounts payable............................. 265 537 693
Accrued liabilities.......................... 545 378 85
Accrued compensation under Unit Incentive
Plan (Note 12).............................. -- 3,196 (3,196)
Customer deposits............................ (566) (293) 281
Deferred revenue............................. 1,515 414 817
------- ------- --------
Net cash provided by operating activities.. 2,772 4,275 1,778
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............. (108) (769) (476)
Payments received on note receivable from related
party........................................... 200 -- --
Payment for acquisition of certain assets........ -- (1,870) --
Payments for covenant not to compete............. -- -- (1,500)
Other............................................ -- 24 --
------- ------- --------
Net cash provided by (used in) investing
activities................................ 92 (2,615) (1,976)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable........................ (2,261) (17) --
Purchase of common stock from shareholders....... -- -- (49,000)
Proceeds from term loan.......................... -- -- 25,000
Proceeds from revolving line of credit........... -- -- 1,500
Payments of term loan............................ -- -- (6,000)
Payments of revolving line of credit............. -- -- (1,000)
Proceeds from issuance of Series A Mandatorily
Redeemable, Convertible Preferred Stock......... -- -- 26,000
Debt issuance costs.............................. -- -- (545)
Proceeds from issuance of restricted common
stock........................................... -- -- 320
------- ------- --------
Net cash used in financing activities...... (2,261) (17) (3,725)
------- ------- --------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-8
<PAGE>
NXTREND TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS.............................................. $ 603 $ 1,643 $ (3,923)
CASH AND CASH EQUIVALENTS, beginning of period...... 2,407 3,010 4,653
------- ------- --------
CASH AND CASH EQUIVALENTS, end of period............ $ 3,010 $ 4,653 $ 730
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............ $ -- $ -- $ 1,757
======= ======= ========
Cash paid during the year for income taxes........ $ 615 $ 2,688 $ 895
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Series B Mandatorily Redeemable, Convertible
Preferred Stock issued in exchange for common
stock............................................ $ -- $ -- $ 6,500
======= ======= ========
Accrued covenant not to compete................... $ -- $ -- $ 1,000
======= ======= ========
Allocation of asset purchase price to acquired
assets and liabilities in 1995 (Note 3):
Current assets.................................. $ 586
Property and equipment.......................... 435
Purchase price in excess of tangible assets ac-
quired......................................... 1,669
Other assets.................................... 19
Current liabilities............................. (839)
-------
Cash paid for acquisition....................... $ 1,870
=======
</TABLE>
In March 1996, the Company recorded $2,500 of debt related to a non-compete
agreement, of which $1,500 was paid in 1996 and the remainder is payable in
future periods (Note 4).
The accompanying notes to financial statements are an integral part of these
statements.
F-9
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
NxTrend Technology, Inc. (formerly known as R&D Systems Company), a Delaware
corporation (the "Company"), is a leading provider of enterprise-wide software
solutions that address the critical business information requirements of
durable goods wholesale distributors. The Company develops, licenses, and
supports proprietary management and accounting software products, which are
marketed under the names "Trend" and "SHIMS." The Company also provides
business consulting services, implementation services, modification services,
and training for its customers. In connection with its software license
arrangements, the Company also sells, installs, and supports third-party
software and computer equipment. The Company operates primarily in the United
States. The Company's products and services are marketed primarily through the
Company's direct sales force and, to a significantly lesser degree,
independent resellers. In March 1996, the Company changed its state of
organization from Colorado to Delaware.
On March 14, 1996, the Company completed a recapitalization (the
"Recapitalization") whereby the following transactions occurred:
. The Company issued 26,000 shares of Series A Mandatorily Redeemable,
Convertible Preferred Stock for $26,000,000 in cash ($1,000 per share).
. The Company borrowed $26,000,000 under a financing facility (see Note 7).
. 18,400 shares of the Company's common stock were purchased by the Company
from its founders for $49,000,000 in cash, and retired.
. 4,600 shares of the Company's common stock owned by a founder were
exchanged for 6,500 shares of the Company's Series B Mandatorily
Redeemable, Convertible Preferred Stock, with a redemption value of
$6,500,000 ($1,000 per share).
. 1,473,943 shares of common stock to a founder for $320,000 in cash. This
stock is subject to certain restrictions (see Note 9).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company generates revenue from four sources: (i) fees for the initial
license of the Company's proprietary software products and software products
developed by third parties, (ii) annual license fees which give the customer
the right to the continued use of the software and to updates of the Company's
software when issued by the Company and telephone support fees paid by the
customer, in advance, generally on an annual basis, (iii) implementation,
training and consulting services, and (iv) sales of third party hardware.
Revenue from the initial license fees of the Company's software products and
third party software, and related sales of hardware, are recognized upon
receipt of an executed license agreement and delivery and installation of the
software and hardware to the customer, provided that the collection of the
license fee is probable and the Company has satisfied all significant
performance obligations, unless the terms of the license agreement contains
non-standard customer acceptance criteria. Until all such significant
performance obligations and all significant customer acceptance criteria are
satisfied, software and hardware revenue and the costs of the related third-
party software and hardware are deferred. Deferred third-party software and
hardware costs totaled approximately $1,037,000 and $52,000 at December 31,
1995 and 1996, respectively, and are presented as a reduction of deferred
revenue in the accompanying balance sheets.
Revenue from annual license fees and maintenance and support agreements are
deferred and recognized ratably over the term of the agreements, which are
typically one year. Implementation, training, consulting and
F-10
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
other services revenue is generally recognized as the services are performed.
Consulting and implementation services are typically performed under separate
service agreements and are performed on a time and materials basis.
If hardware is sold apart from software, hardware revenue is recognized when
delivered to the customer.
Agreements with distributors of the Company's products typically do not
include any rights of return, commitments to provide updates to the
distributor or provisions for the future adjustment of the selling price. The
Company recognizes revenue from these transactions at the time the products
are shipped to the distributor for installation of the software products at
the end-user site. Telephone support is provided directly to the end-user by
the distributor. The Company receives a portion of the annual license fees
charged to the end-user by the distributor for the continued use and
enhancement of the software, and recognizes such annual license fees ratably
over the appropriate period, typically one year.
The Company typically requires minimum deposits of approximately 25% of the
contract value upon execution of the software license arrangement, which are
recorded as deposit liabilities until significant performance has commenced on
the contract.
Cost of Revenue
Cost of software license fee revenue includes the cost of media, product
packaging, third-party software license fees and other production costs.
Costs of annual licenses, support fees and services consists primarily of
salaries, benefits and allocated overhead costs related to consulting,
training and customer support personnel.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company's customers generally operate as wholesale
distributors of durable goods; accordingly, the Company's accounts receivable
are concentrated in wholesale distributors. The Company performs initial and
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral, except deposits as discussed above. The Company
retains title or a security interest in all third party hardware until the
full purchase price of the hardware has been paid. For the years ended
December 31, 1996 and 1995, no single customer accounted for more than 10% of
the Company's revenue. For the year ended December 31, 1994, one customer
accounted for 12% of the Company's revenue. The Company's cash equivalents are
primarily invested in money market securities. The Company maintains the
majority of its cash balances with financial institutions in the form of
demand deposits and money market accounts.
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, option contracts or other foreign
currency hedging arrangements.
Cash Equivalents
For purposes of reporting cash flows, the Company considers cash on hand,
demand deposits in banks, and all highly liquid investments with original
maturities of three months or less to be cash and cash equivalents.
Inventories
Inventories consist primarily of computer equipment and third-party software
and are stated at the lower of cost (average cost method) or market.
F-11
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Software Development Costs
Research and development costs are expensed as incurred and consist of
salaries and other direct costs. Capitalization of software development costs
commences upon the establishment of technological feasibility of the product.
The Company's software products are deemed to be technologically feasible at
the point a working model of the software product is developed, which is
generally at or near the point the Company commences field testing of the
software. Through December 31, 1996, for the products developed by the
Company, the period from field testing to the general customer release of the
software has been brief and, accordingly, the Company has not capitalized any
qualifying software development costs in the accompanying financial
statements.
Other Assets
Other assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Purchase price over net tangible assets ac-
quired....................................... $1,669,000 $ 1,669,000
Non-compete payments to a stockholder (Note
4)........................................... -- 2,500,000
Deferred debt issuance costs.................. -- 545,000
Licensed software............................. -- 456,000
Other......................................... 84,000 152,000
---------- -----------
1,753,000 5,322,000
Less: Accumulated amortization................ (515,000) (1,831,000)
---------- -----------
$1,238,000 $ 3,491,000
========== ===========
</TABLE>
The excess of the purchase price paid over net tangible assets acquired and
non-compete payments to a stockholder are being amortized using the straight-
line method over periods of three and four years, respectively. The deferred
debt issuance costs are being amortized using the effective interest rate
method over the term of the debt. Licensed software is being amortized using
the straight-line method over a period of three years.
Fair Market Value of Financial Instruments
Financial instruments include cash and cash equivalents, accounts receivable
and long-term obligations. The carrying amounts for the cash and cash
equivalents and accounts receivable approximate fair market value because of
the short maturity of these instruments. The carrying amount of the long-term
obligation approximates their fair market value because the variable interest
rates under the debt agreement are short-term in nature.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax
basis of assets, liabilities and carryforwards. SFAS No. 109 requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not, based on current circumstances, are not expected to be realized. Income
tax provision is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
F-12
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Unaudited Pro Forma Net Income Per Common Share
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
mandatorily redeemable, convertible preferred stock into mandatorily
redeemable preferred stock and common stock concurrent with the closing of the
Company's anticipated initial public offering. Accordingly, historical net
income per common share is not considered meaningful as it would differ
materially from the pro forma net income per common share and common stock
equivalent shares given the contemplated changes in the capital structure of
the Company.
Pro forma net income per common share and equivalents has been computed
using the sum of the weighted average number of shares of common stock and
common stock equivalent shares from convertible preferred stock and options.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock and common stock equivalent shares issued by the Company
(including the common stock equivalents of securities issued in the
Recapitalization) at prices significantly below the assumed public offering
during the twelve month period prior to the filing of the registration
statement related to the Company's proposed initial public offering (using the
treasury stock method and an assumed offering price of $13 per share, which
may not be reflective of the actual offering price) have been included in the
calculation as if they were outstanding for all periods.
As a portion of the proceeds of the offering contemplated by this Prospectus
will be used to repay approximately $19,500,000 in bank debt related to the
Facility (Note 7) and to redeem $22,000,000 of Senior and Junior Mandatorily
Redeemable Preferred Stock (Note 8), the following pro forma information for
the year ended December 31, 1996, is presented, assuming that bank debt was
repaid at the inception of the facility:
<TABLE>
<S> <C>
Audited net income........................................... $ 3,129,000
Pro forma adjustment to reflect repayment of the Facility
from proceeds............................................... 1,241,000
-----------
Pro forma net income......................................... $ 4,370,000
===========
Pro forma weighted average shares outstanding................ 9,919,287
Add: Additional pro forma shares required to retire the
Facility and redeem Senior and Junior preferred stock
(assuming $13 per share).................................... 3,192,308
-----------
Total pro forma common and common equivalent shares.......... 13,111,595
===========
Pro forma net income per common and common equivalent share.. $ 0.33
===========
</TABLE>
Unaudited Pro Forma Information
If the offering contemplated by the Prospectus is consummated, all of the
outstanding shares of Series A and B Mandatorily Redeemable, Convertible
Preferred Stock will be automatically converted into shares of common stock
and immediately redeemable Senior and Junior Mandatorily Redeemable Preferred
Stock, based on conversion factors stated in the Company's Amended and
Restated Certificate of Incorporation. The unaudited pro forma balance sheet
as of December 31, 1996 reflects only the conversion of Mandatorily
Redeemable,
F-13
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Convertible Preferred Stock into 7,475,000 shares of common stock, 15,500
shares of Senior Redeemable Preferred Stock and 6,500 shares of Junior
Mandatorily Redeemable Preferred Stock. Shares of Senior and Junior
Mandatorily Redeemable Preferred Stock must be immediately redeemed for
$22,000,000 in cash in the event of a qualified initial public offering, such
as that contemplated by this Prospectus. Such redemption has not been
reflected in the unaudited, pro forma balance sheet as of December 31, 1996.
Stock Split and Changes In Authorized Shares
The Company has approved a 2.3-for-1 share common stock split to be
effective upon the effective date of the Registration Statement on Form S-1
filed by the Company with the Securities and Exchange Commission. Common stock
and equivalent amounts, and per share amounts have been adjusted retroactively
to reflect such stock split. The Company has also approved an increase in the
number of authorized shares of common stock to 31,895,500, effective as of the
Registration Statement effective date. Subsequently, the Company intends to
decrease the number of common shares authorized to 27,000,000 effective upon
the closing of the offering contemplated by such Registration Statement.
Stock Compensation Plans
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock option and other stock-based plans for
employees and directors. The Company has adopted the disclosure provisions of
SFAS No. 123, Accounting for Stock-Based Compensation for such options and
stock-based plans for employees and directors (Note 9).
Other, Net
For the years ended December 31, 1994, 1995 and 1996, other income was
primarily comprised of referral fees paid by third-party software vendors.
Other income was also comprised of a gain on a legal settlement for the year
ended December 31, 1994.
Adoption of New Accounting Standard
The Company has adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. Such adoption did not have a material effect on the
Company's financial position or results of operations.
(3) ACQUISITIONS
In February 1995, an affiliate at that time (through substantially common
ownership) of the Company acquired certain assets (including SHIMS) in the
bankruptcy proceeding of Ultimate Data Systems, Inc. ("UDS"), a developer of
management and accounting software used by wholesale distributors, in exchange
for cash of $2,127,000 and the assumption of certain liabilities totaling
$839,000. This affiliate immediately sold substantially all of the operating
assets purchased from UDS to the Company for $1,870,000 in cash and assumption
of $839,000 of related operating liabilities. The Company has included the
operations of UDS in its statement of operations from February 1995.
The acquisition was recorded in accordance with the purchase method of
accounting for business combinations. The tangible assets acquired and
liabilities assumed were recorded at their estimated fair values at the date
of acquisition and the remainder of the purchase price, $1,669,000, was
assigned to intangibles. Intangibles acquired in the transaction, primarily
software and customer lists, are being amortized over three years.
F-14
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following summarized pro forma (unaudited) information assumes that the
UDS acquisition had occurred on the first day of the period presented. These
pro forma results have been prepared for comparative purposes and do not
purport to be indicative of results of operations which actually would have
resulted had the combination been in effect on the date indicated, or which
may result in the future.
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Net revenue.......................... $29,423,000
===========
Net income........................... $ 3,629,000
===========
</TABLE>
The above amounts reflect adjustments for amortization of goodwill and
depreciation on revalued fixtures and equipment.
In December 1996 and January 1997, the Company signed letters of intent to
acquire three companies. The Company entered into letters of intent to acquire
substantially all of the assets and assume certain liabilities of the
Company's primary independent reseller in Canada for $250,000 in cash and
63,888 shares of the Company's common stock, to acquire certain assets of an
independent reseller in Minnesota for approximately $1,300,000 in cash plus
the assumption of certain liabilities and 57,500 shares of the Company's
common stock, and to acquire certain assets of Goretek Data Systems, Inc. for
approximately $1,000,000 in cash and the assumption of certain liabilities.
(4) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1994 and 1995, the Company purchased
computer equipment for resale of approximately $1,642,000 and $2,595,000,
respectively, from a computer equipment dealer then related through
substantially common ownership. In 1994 and 1995, this related entity also
provided equipment procurement services for which the Company paid the related
entity $200,000 and $283,000, respectively. Additionally, at December 31, 1995
the Company had accounts receivable of approximately $14,000, and accounts
payable of approximately $232,000, respectively, with this related entity.
Management fees and expense reimbursements received from this entity amounted
to approximately $170,000 and $190,000 for 1994 and 1995, respectively. As of
January 1996, this entity was sold to an unrelated third party.
In connection with the Recapitalization, the two Founders of the Company
entered into non-competition agreements with the Company. As part of one such
agreement, the Company paid $1,500,000 to one of the Founders who remains a
stockholder of the Company and, contingent on his continued employment with
the Company after the Recapitalization, agreed to pay him an additional
$500,000 on March 14, 1997 and 1998, respectively.
In August 1996, the Company exercised its buy-out right on a cross license
agreement that provided for royalty payments to an entity partially owned by
one of the Founders. The buy-out right payment of $456,000 was net of previous
royalties paid under the cross license of $44,000. The buy-out amount is
included in other assets and is being amortized over three years.
In early 1995, Intellex, Inc. ("Intellex"), an entity then affiliated
through substantially common ownership, sold its principal operating assets
and ceased operations shortly thereafter. Effective April 1, 1995, the Company
acquired the remaining operating assets and assumed certain liabilities, which
were recorded by the Company at their historical net book value. The amount by
which assets acquired were exceeded by the liabilities assumed ($115,000), was
treated as an effective distribution to the Company's stockholders, and
charged to retained earnings. The Company has incorporated the operations of
Intellex into its statements of operations from April 1, 1995.
F-15
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method based on estimated useful lives ranging from three to
seven years. Maintenance and repairs are expensed as incurred.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Office furniture, fixtures and equipment........ $ 2,772,000 $ 3,190,000
Less: accumulated depreciation.................. (1,477,000) (1,939,000)
----------- -----------
Property and equipment--net..................... $ 1,295,000 $ 1,251,000
=========== ===========
</TABLE>
(6) LEASES
The Company leased space from a related party through mid-October 1994, at
which time the building was sold by the related party to an unrelated third
party. The Company entered into a new lease for the building with the third
party which expires in October 1998. The Company also leases space under
various leases that expire in 1998. Future minimum annual rental payments due
under these leases and other non-related party noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31--
------------------------
<S> <C>
1997................................ $ 868,000
1998................................ 674,000
----------
Total rental payments............. $1,542,000
==========
</TABLE>
Rent expense totaled $581,000, $953,000 and $1,011,000 during 1994, 1995 and
1996, respectively. In 1994, $379,000 of the total amount of rent expense was
paid to the affiliated entity.
(7) FINANCING FACILITIES
On March 14, 1996, the Company entered into a financing facility (the
"Facility") including a secured term loan ("Term Loan") of $25,000,000 and a
secured revolving credit line ("Revolving Loan"). The Revolving Loan provides
for a maximum outstanding balance of $5,000,000. The Facility expires on
December 31, 2000, or earlier based on certain provisions included in the
Facility. Additionally, the principal balance may be prepaid, without penalty.
Interest accrues on the Term Loan and the outstanding balance of the Revolving
Loan at variable rates based on the terms of the Facility. At December 31,
1996, the weighted average interest rate was 7.78 percent and 8.75 percent on
the Term Loan and the outstanding balance of the Revolving Loan, respectively.
Principal and interest payments are due quarterly. As of December 31, 1996,
$19,000,000 and $500,000 were outstanding under the Term Loan and the
Revolving Loan, respectively. Borrowings under the Facility are secured by
substantially all of the assets of the Company.
The Facility requires the Company to maintain, among other restrictions, a
minimum interest coverage ratio, a minimum debt service coverage ratio, and a
maximum ratio of total indebtedness for borrowed money to earnings. The
Company was in compliance with the covenants as of December 31, 1996.
F-16
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996, future principal payments under the Facility and
other obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997............................... $ 4,500,000
1998............................... 5,000,000
1999............................... 5,000,000
2000............................... 5,000,000
-----------
$19,500,000
===========
</TABLE>
(8) MANDATORILY REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 54,500 shares of designated preferred
stock, par value of $0.01 per share, consisting of 26,000 shares of Series A
Mandatorily Redeemable, Convertible Preferred Stock ("Series A Preferred"),
6,500 shares of Series B Mandatorily Redeemable, Convertible Preferred Stock
("Series B Preferred"), 19,375 shares of Senior Mandatorily Redeemable
Preferred Stock ("Senior Redeemable Preferred"), and 2,625 shares of Junior
Mandatorily Redeemable Preferred Stock ("Junior Redeemable Preferred"). The
Company is also authorized to issue 50,000 shares of undesignated preferred
stock.
The relative rights and privileges of each class of preferred stock are
summarized as follows:
Series A Mandatorily Redeemable, Convertible Preferred Stock
Holders of Series A Preferred vote together with holders of Series B
Preferred as a single class on an as-if-converted to common stock basis. In
addition, the holders of Series A Preferred, voting as a separate class, are
entitled to elect two directors to the Company's Board of Directors. Dividends
are payable only when, if, and in amounts approved by the Board of Directors
in the same amounts as are available to holders of common stock, on an as-if-
converted basis. Upon a liquidation, merger, sale, change in control of the
Company or redemption or repurchase of shares representing a majority of the
voting power of the outstanding shares of capital stock of the Company, the
holders of Series A Preferred are entitled to a senior liquidation preference,
in parity with holders of Series B Preferred and Senior Redeemable Preferred,
and in priority to holders of Junior Redeemable Preferred and common stock, in
the amount of $596 per share ($15,500,000 at December 31, 1996), or if
proceeds are insufficient, to share ratably with holders of Series B Preferred
and the Senior Redeemable Preferred. If the liquidation preferences due to
Series A and B Preferred and Senior Redeemable Preferred are paid in full, the
holders of Series A Preferred receive a junior liquidation preference of the
greater of $404 per share ($10,500,000 at December 31, 1996) or the ratable
share of amounts payable to holders of all shares of the Company's capital
stock, on an as-if-converted to common stock basis, once the holders of Series
B Preferred have received in full certain amounts, as discussed below. Holders
of Series A Preferred can convert their shares of Series A Preferred into
5,980,000 shares of common stock and 15,500 shares of Senior Redeemable
Preferred. All shares of Series A Preferred are automatically converted upon
the election of two-thirds of the shares of Series A Preferred to convert or
the closing of a qualified initial public offering. In the case of conversion
upon such an initial public offering, the holders of Series A Preferred would
not receive shares of Senior Redeemable Preferred, but rather would receive an
aggregate of $15,500,000 in cash. The Series A Preferred is redeemable at the
election of the holders of Series A Preferred and Series B Preferred, voting
together as a single class on an as-if-converted to common stock basis, if
two-thirds of such class so elect. The redemption amount of $26,000,000 is
payable in three equal installments on March 31, 2001, 2002 and 2003. Until
such redemption is made, no dividends may be paid on any other class of stock,
nor can shares of any other class be repurchased or redeemed. If funds are
insufficient to redeem the Series A Preferred, the unpaid redemption amount
bears interest at the greater of 12% or 5% over a prime rate. Holders of
Series A Preferred are also entitled to share in residual distributions, if
any, on an as-if-converted basis.
F-17
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Series B Mandatorily Redeemable, Convertible Preferred Stock
Holders of Series B Preferred vote together with holders of Series A
Preferred as a single class on an as-if-converted to common stock basis.
Dividends are payable only when, if, and in amounts approved by the Board of
Directors in the same amounts as are available to holders of common stock, on
an as-if-converted basis. Upon a liquidation, merger, sale, change in control
of the Company or redemption or repurchase of shares representing a majority
of the voting power of the outstanding shares of capital stock of the Company,
the holders of Series B Preferred are entitled to liquidation preferences, in
parity with holders of Series A Preferred and Senior Redeemable Preferred, and
in priority to holders of Junior Redeemable Preferred and common stock, in the
amount of $596 per share ($3,875,000 at December 31, 1996), or if proceeds are
insufficient, to share ratably with holders of Series A Preferred and the
Senior Redeemable Preferred. If the senior liquidation preferences due to
Series A ($15,500,000 at December 31, 1996) and Series B ($3,875,000 at
December 31, 1996) Preferred and Senior Redeemable Preferred ($0 at
December 31, 1996), are paid in full and the junior liquidation preference due
the holders of Series A Preferred ($10,500,000 at December 31, 1996) is paid
in full, the holders of Series B Preferred receive the greater of $404 per
share ($2,625,000 at December 31, 1996) or the ratable share of amounts
payable to holders of Series A Preferred, Series B Preferred, and common stock
on an as-if-converted to common stock basis. Holders of Series B Preferred are
also entitled to share in residual distributions, if any, on an as-if-
converted to common stock basis. Holders of Series B Preferred can convert
their shares of Series B Preferred into 1,495,000 shares of common stock,
3,875 shares of Senior Redeemable Preferred and 2,625 shares of Junior
Redeemable Preferred. All shares of Series B Preferred are automatically
converted upon the election of a majority of the shares of Series B Preferred
to convert, the election of two-thirds of the shares of Series A Preferred to
convert their shares of Series A Preferred into common stock or the closing of
a qualified initial public offering. In the case of conversion upon such an
initial public offering, the holder of Series B Preferred would not receive
shares of Senior and Junior Redeemable Preferred, but rather would receive
$6,500,000 of cash. The Series B Preferred is redeemable at the election of
the holders of Series A Preferred and Series B Preferred, voting together as a
single class on an as-if-converted basis, if two-thirds of such class so
elect. The redemption amount of $6,500,000 is payable in three equal
installments on March 31, 2001, 2002 and 2003. Until such redemption is made,
no dividends may be paid on any other class of stock, nor can shares of any
other class be repurchased or redeemed, except with regard to payments
required for Series A Preferred. If funds are insufficient to redeem the
Series B Preferred, the unpaid redemption amount bears interest at the greater
of 12% or 5% over a prime rate.
Senior Mandatorily Redeemable Preferred Stock
Senior Redeemable Preferred has no voting rights. Dividends will accrue at
the rate of $50 per share per annum, cumulatively, from and after the date
upon which two-thirds of the shares of Series A Preferred have been converted.
Upon liquidation, holders of Senior Redeemable Preferred are entitled to
$1,000 per share on parity with senior liquidation amounts due to holders of
Series A and B Preferred. Senior Redeemable Preferred must be redeemed in the
amount of $19,375,000 immediately upon a qualified initial public offering, or
in equal installments on March 31, 2001, 2002 and 2003. If funds are
insufficient to redeem the Senior Redeemable Preferred, the unpaid redemption
amount bears interest at the greater of 12% or 5% over a prime rate.
Junior Mandatorily Redeemable Preferred Stock
Junior Redeemable Preferred has no voting rights. Dividends will accrue at
the rate of $50 per share, cumulatively, from and after the date upon which
two-thirds of the shares of Series A Preferred have been converted. Upon
liquidation, holders of Junior Redeemable Preferred are entitled to $1,000 per
share after holders of Series A and B Preferred and Senior Redeemable
Preferred have received their total liquidation preference. Junior Redeemable
Preferred must be redeemed in the amount of $2,625,000 immediately upon a
F-18
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
qualified initial public offering which meets certain criteria or in equal
installments on March 31, 2004, 2005 and 2006. However, no redemption can be
made of Junior Redeemable Preferred until all amounts due Series A Preferred
and Series B Preferred and Senior Redeemable Preferred have been paid by the
Company. If funds are insufficient to redeem the Junior Redeemable Preferred,
the unpaid redemption amount bears interest at the greater of 12% or 5% over a
prime rate.
(9) COMMON STOCKHOLDERS' EQUITY (DEFICIT)
1996 Stock Option and Grant Plan
On March 14, 1996, the Company's 1996 Stock Option and Grant Plan (as
amended, the "Plan") was adopted by the Board of Directors. The Plan provides
for the grant of incentive stock options to employees (including officers and
employee--directors) nonstatutory stock options (as defined by the Internal
Revenue Code and regulations), and restricted stock awards or issuances to
employees, directors and consultants. The purchase price of shares subject to
an incentive stock option or nonqualified stock option will be the fair market
value of the Company's common stock on the date the option is granted. If the
grantee owns more than 10% of the total combined voting power of all classes
of stock on the date of grant, the purchase price of the shares subject to a
nonqualified stock option shall be at least 110% of the fair market value at
the date of grant and the exercise term will be up to five years from the date
of grant. All incentive options granted under the Plan are exercisable up to
10 years from the date of grant. As of December 31, 1996, there were 3,053,169
shares of common stock reserved for issuance under the Plan, of which
1,473,943 had been issued as restricted common stock and 1,002,800 had been
issued as options to purchase shares of common stock.
All outstanding options vest over a four to nine year period. The vesting of
a portion of these options can be accelerated if certain conditions are met.
Restricted Stock
In March, 1996, the Company granted 1,473,943 shares of restricted common
stock under the Plan. The holder of such shares of restricted common stock,
who is an executive of the Company, has entered into a stock restriction and
repurchase agreement under which the Company has the right to repurchase
unvested common stock at the original issuance price upon termination of this
individual's business relationship with the Company. Restrictions on these
common stock lapse over a nine-year period, which period is subject to
acceleration under certain conditions. At December 31, 1996, restrictions had
lapsed with regard to 394,806 of such shares.
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
employee and director compensation plans under APB 25 and related
interpretations. For purposes of the pro forma disclosures presented below,
the Company has computed the fair values of all options granted under the Plan
during 1996, using the Black-Scholes pricing model and the following weighted
average assumptions:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Risk-free interest rate................. 6.68%
Expected dividend yield................. 0.00%
Expected lives outstanding.............. 6.1 years
Expected volatility..................... 69.11%
</TABLE>
F-19
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
To estimate lives of options for this valuation, it was assumed that options
will be exercised upon becoming fully vested and the Company had completed an
initial public offering of its common stock. All options are initially assumed
to vest. Cumulative compensation costs 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 one other company deemed to have
characteristics similar to the Company for periods subsequent to their initial
public offering. 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 under the Plan was computed to be
approximately $367,000 for the year ended December 31, 1996. These amounts are
amortized ratably over the vesting periods of the options or recognized at
date of grant if no vesting period is required. Pro forma stock-based
compensation, net of the effect of forfeitures, was $46,000 for 1996.
A summary of stock options under the Plan as of December 31, 1996 and
changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at beginning of year...................... -- --
Granted............................................. 1,002,800 $0.60
Canceled............................................ (1,150) $0.87
Exercised........................................... -- --
---------
Outstanding at end of year............................ 1,001,650 $0.60
=========
Weighted average fair value of options granted........ $ 0.36
=========
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.53 903,900 9.3 years $0.53 -- $0.53
0.87 69,000 9.6 years 0.87 -- 0.87
2.09 28,750 9.8 years 2.09 -- 2.09
--------- --
1,001,650 9.3 years 0.60 -- --
========= ===
</TABLE>
F-20
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
No compensation expense, as determined in accordance with APB No. 25 and
related interpretations, was recorded in 1996 related to grants under the
Company's stock option plan or restricted stock. If the Company had accounted
for its stock option plan in accordance with SFAS 123, the Company's net income
and pro forma net income per common share would have been reported as follows:
<TABLE>
<CAPTION>
1996
-----------
<C> <S> <C>
Net income: As reported.............. $ 3,129,000
Pro forma................ $ 3,085,000
EPS: As reported.............. $ 0.32
Pro forma................ $ 0.31
</TABLE>
Weighted average shares used to calculate pro forma net income per share were
determined as described in Note 2.
(10) INCOME TAXES
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- ---------
<S> <C> <C>
Difference between financial reporting and tax
amortization of goodwill and organization costs.. $183,000 $ 330,000
Portion of deferred revenue taxable............... 8,000 17,000
Expenses not yet deductible for tax purposes...... 15,000 77,000
-------- ---------
Deferred tax asset.............................. 206,000 424,000
-------- ---------
Accelerated tax depreciation...................... (36,000) (16,000)
Difference between financial reporting and tax ba-
sis of non-compete agreement -- (372,000)
-------- ---------
Deferred tax liabilities........................ (36,000) (388,000)
-------- ---------
Net deferred tax asset.......................... $170,000 $ 36,000
======== =========
</TABLE>
The net deferred tax asset has been presented as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Current deferred tax asset............................. $ 23,000 $ 96,000
Noncurrent deferred tax asset (liability).............. 147,000 (60,000)
-------- --------
$170,000 $ 36,000
======== ========
</TABLE>
F-21
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Components of the Company's income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current provision:
Federal.............................. $1,135,000 $1,601,000 $1,334,000
State................................ 171,000 245,000 230,000
---------- ---------- ----------
1,306,000 1,846,000 1,564,000
---------- ---------- ----------
Deferred (benefit) provision:
Federal.............................. 60,000 (120,000) 116,000
State................................ 9,000 (18,000) 18,000
---------- ---------- ----------
69,000 (138,000) 134,000
---------- ---------- ----------
Income tax provision............... $1,375,000 $1,708,000 $1,698,000
========== ========== ==========
</TABLE>
The following is a reconciliation of the statutory U.S. federal income tax
rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Provision at statutory rate............... 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefits................................. 3.2 3.4 3.5
Non-deductible goodwill amortization...... 1.2 -- --
Expenses not deductible................... 0.8 1.5 1.4
Tax credits and other..................... -- (2.5) (3.7)
-------- -------- --------
39.2% 36.4% 35.2%
======== ======== ========
</TABLE>
(11) PROFIT SHARING PLAN
The Company maintains a profit sharing plan, including a qualified deferral
arrangement as described in Section 401(k) of the Internal Revenue Code,
covering substantially all full-time employees who meet certain minimum age
and employment requirements. Under the plan, the Company may declare a profit
sharing contribution of up to 15% of a participant's compensation, and/or a
discretionary match of a percentage of participant deferrals. Profit sharing
contributions of $302,000, $640,000 and $0 were authorized for the years ended
December 31, 1994, 1995 and 1996, respectively.
(12) UNIT INCENTIVE PLAN
Effective January 1, 1995, the Company's stockholders approved a Unit
Incentive Plan (the "UIP") for the purpose of motivating and retaining key
employees of the Company. Under the terms of the UIP, the Company granted
stock incentive units equal, in the aggregate, to 10% of the Company's
outstanding common stock. Upon vesting, these units entitled the holders to
cash payments equal to 100% of the fair market value of shares representing
10% of the Company's outstanding common stock. At each reporting date, the
Company recorded a noncash charge to operations over the vesting period of the
units for the difference between the grant price (which was zero) and the
estimated fair market value of the Company's common stock at the reporting
date. The units vested ratably over five years and accelerated if certain
events occur, including 100% vesting if more than 50% change of the ownership
of the Company's common stock occurred. At December 31, 1995, based on the
Company's estimates of the fair market value of the Company's common stock,
the Company recorded an
F-22
<PAGE>
NXTREND TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amount payable related to this plan of $3,196,000. On March 14, 1996, as a
result of the Recapitalization, 100% of the UIP units vested and $7,000,000
was paid to the participants of the UIP based on units held by each
participant. The Company had recorded compensation expense related to the UIP
of $3,196,000 at December 31, 1995 and on March 14, 1996, recorded the
remaining $3,804,000. Because this plan has been terminated, it was not
considered for the pro forma SFAS 123 disclosures presented in Note 9.
(13) CONTINGENCIES
The Company is subject to various claims and business disputes in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management anticipates that the ultimate outcome of
these issues will not have a material impact on the financial statements.
(14) SUBSEQUENT EVENT
On January 21, 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission which, once effective, may permit the Company to sell shares of its
common stock to the public.
F-23
<PAGE>
[DESCRIPTION OF ARTWORK TO COME.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this of-
fering other than those contained in this Prospectus, and if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or
solicitation of, any person in any jurisdiction where such an offer or solici-
tation would be unlawful. 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 or that information con-
tained herein is correct as of any time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Recapitalization......................................................... 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 29
Management............................................................... 41
Certain Transactions..................................................... 49
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Financial Statements............................................ F-1
</TABLE>
--------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,300,000 SHARES
[NXTREND TECHNOLOGY, INC. LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
DAIN BOSWORTH
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the SEC registration fee, the NASD filing fee and the Nasdaq
application fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 20,979
NASD filing fee................................................. 7,423
Nasdaq application fee.......................................... 29,725
Blue sky qualification fee and expenses......................... 500
Printing and engraving expenses................................. 125,000
Legal fees and expenses......................................... 200,000
Accounting fees and expenses.................................... 100,000
Transfer agent and registrar fees............................... 7,000
Miscellaneous................................................... 59,373
--------
Total....................................................... $550,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Registrant has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). The
Registrant's Bylaws provide that the Registrant will indemnify each of its
directors and executive officers to the fullest extent not prohibited by
Delaware law, provided that such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Registrant and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Registrant's
Bylaws also provide that the Company may indemnify other officers, employees
and other agents of the Company as set forth in the Delaware Law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty
of care to the Registrant and its stockholders. These provisions do not
eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such an injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law and for any
transaction from which the director derived an improper personal benefit. The
provision does not affect a director's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.
In addition, each of the Registrant's directors and executive officers will
be indemnified by the Registrant, to the fullest extent permitted by the
Delaware Law and the Registrant's Bylaws, pursuant to indemnification
agreements with the Registrant.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors in the offering for certain liabilities arising
under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1994, the Company has issued and/or sold unregistered
securities as set forth below.
(1) During the period, the Registrant granted stock options to employees,
consultants, directors, officers and affiliates of the Registrant as
provided below. From May 9, 1996 to February 28, 1997, the
II-1
<PAGE>
Registrant granted stock options under the 1996 Stock Option and Grant Plan
covering an aggregate of 1,338,807 shares of Common Stock at a weighted
average exercise price of $2.42 per share. Unless canceled in accordance
with its terms, each of these options vests over a period of time following
its date of grant.
(2) On March 14, 1996, the Company sold 26,000 shares of its Series A
Convertible Participating Preferred Stock to a group of investors for an
aggregate purchase price of $26.0 million.
(3) On March 14, 1996, the Company effected a recapitalization. Pursuant
to that recapitalization, the Company issued an aggregate of 6,500 shares
of its Series B Convertible Participating Preferred Stock to Guy M. Lammle,
the Company's Chief Executive Officer, President and Chairman of the Board,
Rita L. Lammle, Amy Lammle Trust, Daina Lammle Trust and Lacey Lammle Trust
(the "Lammles") in partial consideration for 60% of the Lammles' previous
holdings of the Company's capital stock.
(4) On March 14, 1996, the Company sold 1,473,943 shares of the Company's
Common Stock (the "Lammle Shares") to Guy M. Lammle at a purchase price per
share of $0.217 under the Company's 1996 Stock Option and Grant Plan. The
Company has a repurchase option, which terminates entirely on March 31,
2006 (subject to earlier termination for the Company's achievement of
certain performance targets and the redemption of the Company's redeemable
preferred stock), with respect to the Lammle Shares. Subject to adjustment
for the Company's achievement of certain performance targets and the
redemption of the Company's redeemable preferred stock, the Company's
repurchase option with respect to the Lammle Shares will lapse at a rate of
131,602 shares per quarter through March 31, 1998, and thereafter at a rate
of 13,160 shares per quarter through March 31, 2006. Upon redemption of the
Company's redeemable preferred stock in connection with this offering,
105,281 of the Lammle Shares will vest.
(5) The Company completed its acquisition of substantially all of the
assets of Systemetrix Corporation and an affiliated entity effective
January 2, 1997 for $250,000 in cash, assumption of certain liabilities and
63,888 shares of Common Stock.
(6) The Company completed its acquisition of substantially all of the
assets of Saber Systems, Inc. effective January 2, 1997 for $1.3 million in
cash, assumption of certain liabilities and 57,500 shares of Common Stock.
The sales and issuance of securities in the transactions described in
paragraphs (1) and (4) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (2), (3), (5) and (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 Amended and Restated Certificate of Incorporation, as amended, of the
Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of the offering.
3.3 Bylaws of the Registrant.
3.4* Form of Amended and Restated Bylaws of the Registrant, to be effective
upon the closing of the offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen certificate representing shares of Common Stock of the
Registrant.
5.1* Opinion of Cooley Godward LLP.
10.1 Stock Purchase Agreement, dated as of March 14, 1996, among the
Registrant and the individuals and entities listed in the signature
pages thereto.
10.2 Stockholders' Agreement, dated as of March 14, 1996, as amended, among
the Registrant and the individuals and entities listed in the
signature pages thereto.
10.3 Stock Redemption and Exchange Agreement, dated as of March 14, 1996,
among the Registrant and the individuals and entities listed in the
signature pages thereto.
10.4+ Value Added Reseller Agreement, effective August 15, 1989, as amended,
between the Registrant and Progress Software Corporation.
10.5 Distributor Agreement, effective March 30, 1995, between the
Registrant and VMark Software, Inc.
10.6 Cross License Agreement, dated August 16, 1995, as amended, between
the Registrant and The Distribution Team, Inc.
10.7 Loan Agreement, dated as of March 14, 1996, between the Registrant and
the financial institutions named therein.
10.8 Net Master Lease, dated October 11, 1994, between the Registrant and
Plumtree Office Investors, Ltd.
10.9* Amended and Restated 1996 Stock Option and Grant Plan of the
Registrant.
10.10* Form of Incentive Stock Option Agreement with four-year vesting.
10.11* Form of Incentive Stock Option Agreement with ten-year vesting and
acceleration upon performance and stock redemption.
10.12* Form of Incentive Stock Option Agreement with nine-year vesting and
acceleration upon performance and stock redemption.
10.13* Form of Non-Qualified Stock Option Agreement with ten-year vesting and
acceleration upon performance and stock redemption.
10.14* Form of Directors' Non-Qualified Stock Option Agreement.
10.15 Stock Purchase and Restriction Agreement, dated as of March 14, 1996,
between the Registrant and Guy M. Lammle.
10.16* Employee Stock Purchase Plan of the Registrant.
10.17 Form of Indemnification Agreement between the Registrant and each of
Guy M. Lammle, Jacqueline C. Morby, Gregory M. Avis, Frank A. Rossi,
Gerald A. Quintana and Peter J. Smith.
10.18 Non-Competition Agreement, dated as of March 14, 1996, between the
Registrant and Guy M. Lammle.
10.19 Form of Non-Competition Agreement between the Registrant and each of
its executive officers other than Guy M. Lammle.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included on pages II-5 and II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ The Registrant has applied for confidential treatment with respect to
portions of this exhibit.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
Schedules are omitted because they are not required, are not applicable, or
the information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form
of prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLORADO SPRINGS,
COUNTY OF EL PASO, STATE OF COLORADO, ON THE 14TH DAY OF MARCH, 1997.
NxTrend Technology, Inc.
/s/ Guy M. Lammle
By: _________________________________
Guy M. Lammle
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Guy M.
Lammle and Kathleen J. Cunningham his or her true and lawful attorneys-in-fact
and agents, each acting alone, 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 sign any or all amendments (including post-effective
amendments) to the Registration Statement, any amendments thereto, filed
pursuant to Rule 462(b) increasing the amount of securities for which
registration is being sought, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Guy M. Lammle President, Chief March 14, 1997
- ------------------------------------- Executive Officer
GUY M. LAMMLE and Chairman of the
Board
/s/ Kathleen J. Cunningham Chief Operating March 14, 1997
- ------------------------------------- Officer, Chief
KATHLEEN J. CUNNINGHAM Financial Officer
and Secretary
/s/ C. Jeff Dekker Controller (chief March 14, 1997
- ------------------------------------- accounting officer)
C. JEFF DEKKER
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Jacqueline C. Morby Director March 14, 1997
- -------------------------------------
JACQUELINE C. MORBY
/s/ Gregory M. Avis Director March 14, 1997
- -------------------------------------
GREGORY M. AVIS
/s/ Peter J. Smith Director March 14, 1997
- -------------------------------------
PETER J. SMITH
/s/ Frank A. Rossi Director March 14, 1997
- -------------------------------------
FRANK A. ROSSI
/s/ Gerald A. Quintana Director March 14, 1997
- -------------------------------------
GERALD A. QUINTANA
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as amended,
of the Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of the offering.
3.3 Bylaws of the Registrant.
3.4* Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen certificate representing shares of Common Stock of the
Registrant.
5.1* Opinion of Cooley Godward LLP.
10.1 Stock Purchase Agreement, dated as of March 14, 1996, among the
Registrant and the individuals and entities listed in the
signature pages thereto.
10.2 Stockholders' Agreement, dated as of March 14, 1996, as amended,
among the Registrant and the individuals and entities listed in
the signature pages thereto.
10.3 Stock Redemption and Exchange Agreement, dated as of March 14,
1996, among the Registrant and the individuals and entities
listed in the signature pages thereto.
10.4+ Value Added Reseller Agreement, effective August 15, 1989, as
amended, between the Registrant and Progress Software
Corporation.
10.5 Distributor Agreement, effective March 30, 1995, between the
Registrant and VMark Software, Inc.
10.6 Cross License Agreement, dated August 16, 1995, as amended,
between the Registrant and The Distribution Team, Inc.
10.7 Loan Agreement, dated as of March 14, 1996, between the
Registrant and the financial institutions named therein.
10.8 Net Master Lease, dated October 11, 1994, between the Registrant
and Plumtree Office Investors, Ltd.
10.9* Amended and Restated 1996 Stock Option and Grant Plan of the
Registrant.
10.10* Form of Incentive Stock Option Agreement with four-year vesting.
10.11* Form of Incentive Stock Option Agreement with ten-year vesting
and acceleration upon performance and stock redemption.
10.12* Form of Incentive Stock Option Agreement with nine-year vesting
and acceleration upon performance and stock redemption.
10.13* Form of Non-Qualified Stock Option Agreement with ten-year
vesting and acceleration upon performance and stock redemption.
10.14* Form of Directors' Non-Qualified Stock Option Agreement.
10.15 Stock Purchase and Restriction Agreement, dated as of March 14,
1996, between the Registrant and Guy M. Lammle.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
10.16* Employee Stock Purchase Plan of the Registrant.
10.17 Form of Indemnification Agreement between the Registrant and
each of Guy M. Lammle, Jacqueline C. Morby, Gregory M. Avis,
Frank A. Rossi, Gerald A. Quintana and Peter J. Smith.
10.18 Non-Competition Agreement, dated as of March 14, 1996, between
the Registrant and Guy M. Lammle.
10.19 Form of Non-Competition Agreement between the Registrant and
each of its executive officers other than Guy M. Lammle.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included on pages II-5 and II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+The Registrant has applied for confidential treatment with respect to portions
of this exhibit.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
R&D SYSTEMS COMPANY
An original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware. This Amended and Restated Certificate
of Incorporation has been duly adopted by the Corporation in accordance with
Sections 242 and 245 of the General Corporation Law of the State of Delaware.
ARTICLE I
The name of the Corporation is R&D Systems Company.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
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 the State of Delaware.
ARTICLE IV
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Ten Million One Hundred Four
Thousand Five Hundred (10,104,500), of which (a) Fifty-Four Thousand Five
Hundred (54,500) shares shall be designated preferred stock, par value $.01 per
share, consisting of Twenty-Six Thousand (26,000) shares designated as Series A
Convertible Participating Preferred Stock, par value $.01 per share (the "Series
A Convertible Preferred Stock"), Six Thousand Five Hundred (6,500) shares
designated as Series B Convertible Participating Preferred Stock, par value $.01
per share (the "Series B Convertible Preferred Stock"), Nineteen Thousand Three
Hundred Seventy-Five (19,375) shares designated as Senior Redeemable Preferred
Stock, par value $.01 per share (the "Senior Redeemable Preferred Stock"), and
Two Thousand Six Hundred Twenty-Five (2,625) shares designated as Junior
Redeemable Preferred Stock, par value $.01 per share (the "Junior Redeemable
Preferred Stock"), (b) Fifty Thousand (50,000) shares shall be undesignated
preferred stock, par value $.01 per share (the "Undesignated Preferred Stock,"
and, collectively with the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Senior Redeemable Preferred Stock and the
Junior Redeemable Preferred Stock, the "Preferred Stock"), and (c) Ten Million
(10,000,000) shares shall be designated common stock, par value $.01 per share
(the "Common Stock").
<PAGE>
The voting powers, designations, preferences, privileges and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions of each class of capital stock of the Corporation,
shall be as provided in this Article IV.
A. SERIES A CONVERTIBLE PREFERRED STOCK
1. ELECTION OF DIRECTORS: VOTING.
a. ELECTION OF DIRECTORS. The holders of outstanding shares of
Series A Convertible Preferred Stock shall, voting separately as a separate
class, be entitled to elect two (2) Directors (the "Director Designees"), with
votes cast against such candidates and votes withheld having no legal effect.
The election of the Director Designees by the holders of the Series A
Convertible Preferred Stock shall occur (i) at the annual meeting of holders of
capital stock, (ii) at any special meeting of holders of capital stock, (iii) at
any special meeting of holders of Series A Convertible Preferred Stock called by
holders of two-thirds of the outstanding shares of Series A Convertible
Preferred Stock, or (iv) by the unanimous written consent of holders of the
outstanding shares of Series A Convertible Preferred Stock. If at any time when
any share of Series A Convertible Preferred Stock is outstanding a Director
Designee should cease to be a Director for any reason, the vacancy shall only be
filled by the vote or written consent of the holders of the outstanding shares
of Series A Convertible Preferred Stock, voting separately as a separate class,
in the manner and on the basis specified above. The holders of outstanding
shares of Series A Convertible Preferred Stock shall also be entitled to vote
for all other Directors of the Corporation together with holders of all other
shares of the Corporation's outstanding capital stock entitled to vote thereon,
voting together as a single class, with each outstanding share entitled to the
same number of votes specified in Section A.1(b). The holders of outstanding
shares of Series A Convertible Preferred Stock may, in their sole discretion,
determine to elect less than two Director Designees from time to time, and
during any such period the Board of Directors nonetheless shall be deemed duly
constituted.
b. VOTING GENERALLY. The holder of each share of Series A
Convertible Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of the Corporation and shall vote with
holders of Series B Convertible Preferred Stock and holders of the Common Stock,
voting together as single class, upon all matters submitted to a vote of
stockholders. The holder of each share of Series A Convertible Preferred Stock
shall be entitled to the number of votes equal to the largest number of full
shares of Common Stock into which each share of Series A Convertible Preferred
Stock could be converted pursuant to Section A.4 hereof on the record date for
the vote or for written consent of stockholders, if applicable. In addition,
the holders of the Series A Convertible Preferred Stock shall also be entitled
to vote separately as a class with respect to those matters required to be
submitted to a class or series vote pursuant to the terms hereof (including,
without limitation, Section A.7) or by law. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the above
formula (after aggregating all shares of Common Stock into which shares of
Series A Convertible Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half rounded upward to
one).
2
<PAGE>
2. DIVIDENDS. In the event the Board of Directors of the
Corporation shall declare a dividend payable upon outstanding shares of the
Common Stock, the holders of the Series A Convertible Preferred Stock shall be
entitled to the same amount of dividends per share of the Series A Convertible
Preferred Stock as such holders would have been entitled had such holders'
shares of Series A Convertible Preferred Stock been fully converted into shares
of Common Stock pursuant to the provisions of Section A.4 hereof as of the
record date for the determination of holders of shares of the Common Stock
entitled to receive such dividend.
3. LIQUIDATION AND OTHER EXTRAORDINARY TRANSACTIONS.
a. LIQUIDATION PREFERENCE. Upon (i) any liquidation,
dissolution or winding up of the Corporation and its subsidiaries, whether
voluntary or involuntary (a "Liquidation Event"), or (ii) (w) a merger or
consolidation of the Corporation with or into another corporation (with respect
to which less than a majority of the outstanding voting power of such surviving
corporation is held by stockholders of the Corporation immediately prior to such
event), (x) the sale or transfer of all or substantially all of the properties
and assets of the Corporation and its subsidiaries, (y) any purchase by any
party (other than one of the Investors (as such term is defined in that certain
Stockholders' Agreement dated as of March 14, 1996 among the Corporation and
certain stockholders of the Corporation)) of shares of capital stock of the
Corporation (either through a negotiated stock purchase or a tender for such
shares), the effect of which is that such party that did not beneficially own a
majority of the voting power of the outstanding shares of capital stock of the
Corporation immediately prior to such purchase beneficially owns at least a
majority of such voting power immediately after such purchase, or (z) the
redemption or repurchase of shares representing a majority of the voting power
of the outstanding shares of capital stock of the Corporation (each an
"Extraordinary Transaction"), each holder of outstanding shares of Series A
Convertible Preferred Stock shall be entitled to be paid out of the assets of
the Corporation available for distribution to stockholders, whether such assets
are capital, surplus or earnings:
(i) on a parity with the payment of the Senior Series B
Convertible Liquidation Amount (as defined in Section B.3) due on any
outstanding Series B Convertible Preferred Stock and the Senior Redeemable
Liquidation Amount (as defined in Section C.3) due on any outstanding Senior
Redeemable Preferred Stock, and before any amount shall be paid or distributed
to the holders of Common Stock or of any other stock ranking on liquidation
junior to the Series A Convertible Preferred Stock (including, without
limitation, the Junior Redeemable Preferred Stock), an amount in cash equal to
$596.15384 per share (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Series A Convertible
Preferred Stock) (the "Senior Series A Convertible Liquidation Amount");
provided, however, that if, upon any Liquidation Event or Extraordinary
Transaction, the amounts payable with respect to the Senior Series A Convertible
Liquidation Amount, the Senior Series B Convertible Liquidation Amount and the
Senior Redeemable Liquidation Amount are not paid in full, the holders of the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
and the Senior Redeemable Preferred Stock, if any, shall share ratably in any
distribution of assets in proportion to such respective preferential amounts;
and
3
<PAGE>
(ii) after the payment of the Senior Series A Convertible
Liquidation Amount, the Senior Series B Convertible Liquidation Amount and the
Senior Redeemable Liquidation Amount, and (except for payments contemplated by
clause (B) below which shall be made on a parity with payments to the holders
of Common Stock) before any amount shall be paid or distributed to the holders
of Common Stock or of any other stock ranking on liquidation junior to the
Series A Convertible Preferred Stock (including, without limitation, the Junior
Redeemable Preferred Stock or with respect to the Series B Convertible Preferred
Stock, the Junior Series B Convertible Liquidation Amount and the Residual
Series B Convertible Liquidation Amount (as such terms are defined in Section
B.3)), an amount equal to the greater of: (A) $403.84616 per share (adjusted
appropriately for stock splits, stock dividends, recapitalizations and the like
with respect to the Series A Convertible Preferred Stock); or (B) the amount
such holder would have received as a result of such Liquidation Event or
Extraordinary Transaction after the Senior Series A Convertible Liquidation
Amount shall have been paid in full, the Senior Series B Convertible Liquidation
Amount and the Junior Series B Convertible Liquidation Amount shall have been
paid in full, the Senior Redeemable Liquidation Amount, if any, shall have been
paid in full and the Junior Redeemable Liquidation Amount (as defined in Section
D.3) shall have been paid in full to the holders of the Junior Redeemable
Preferred Stock and any assets remaining available for distribution shall be
distributed ratably among the holders of the Common Stock, the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock based
upon the number of shares of Common Stock (i) then held by each holder of Common
Stock, (ii) issuable upon conversion of the shares of Series A Convertible
Preferred Stock held by a holder of Series A Convertible Preferred Stock
pursuant to Section A.4 immediately prior to the occurrence of any such
Liquidation Event or Extraordinary Transaction or (iii) issuable upon conversion
of the shares of Series B Convertible Preferred Stock held by a holder of Series
B Convertible Preferred Stock pursuant to Section B.4 immediately prior to the
occurrence of any such Liquidation Event or Extraordinary Transaction (the
"Residual Series A Convertible Liquidation Amount" and, together with the Senior
Series A Convertible Liquidation Amount, the "Total Series A Convertible
Liquidation Amount"); provided, however, that if, upon any Liquidation Event or
Extraordinary Transaction, the Residual Series A Convertible Liquidation Amount
is not paid in full, the holders of the Series A Convertible Preferred Stock
shall share ratably in any distribution of assets in proportion to the full
respective preferential amounts to which they are entitled. Upon payment in full
of the Total Series A Convertible Liquidation Amount in accordance with the
terms hereof, the holders of the Series A Convertible Preferred Stock shall not
have any conversion rights hereunder.
b. CONVERSION RIGHTS NOT IMPAIRED. Except to the extent that
the holders of Series A Convertible Preferred Stock shall have been paid in full
under Section A.3(a), nothing in this Section A.3 shall in any way limit the
right of conversion of the holders of the Series A Convertible Preferred Stock
under Section A.4.
c. NON-CASH CONSIDERATION. Notwithstanding the provisions of
Section A.3(a), in connection with any Extraordinary Transaction, the holders of
Series A Convertible Preferred Stock shall, on the effective date of such
Extraordinary Transaction, be paid by the Corporation, in cash solely to the
extent that cash is paid in such Extraordinary Transaction and then (or
alternatively if no cash payments are involved, as applicable) in such
4
<PAGE>
other consideration (valued as provided below) as is delivered in such
Extraordinary Transaction in an amount equal to the Total Series A Convertible
Liquidation Amount.
Any securities or other consideration to be delivered to the holders
of the Series A Convertible Preferred Stock upon any Extraordinary Transaction
shall be valued as follows: (i) if traded on a nationally recognized securities
exchange or inter-dealer quotation system, the value shall be deemed to be the
average of the closing prices of the securities on such exchange or system over
the 30-day period ending three (3) business days prior to the closing; (ii) if
traded over-the-counter, the value shall be deemed to be the average of the
closing bid prices over the 30-day period ending three (3) business days prior
to the closing; and (iii) if there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of not less than a majority in voting power of the outstanding
shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock (voting together as a single class on an as-converted basis),
provided that if the Corporation and the holders of a majority in voting power
of the outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock (voting together as a single class on an as-
converted basis) are unable to reach agreement, then by independent appraisal by
an investment banker hired and paid by the Corporation, but reasonably
acceptable to the holders of a majority in voting power of the outstanding
shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock (voting together as a single class on an as-converted basis).
d. SURRENDER OF CERTIFICATES. On the effective date of any
Extraordinary Transaction, the Corporation shall pay all cash and other
consideration to which the holders of Series A Convertible Preferred Stock shall
be entitled under this Section A.3. Upon receipt of such payment, each holder of
shares of Series A Convertible Preferred Stock shall surrender the certificate
or certificates representing such shares, duly assigned or endorsed for transfer
to the Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the offices of
the transfer agent for the Series A Convertible Preferred Stock, or shall notify
the Corporation or any transfer agent that such certificates have been lost,
stolen or destroyed and shall execute an affidavit or agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith (an "Affidavit of Loss"), and each surrendered certificate
shall be canceled and retired.
e. NOTICE. Prior to the occurrence of any Liquidation Event or
Extraordinary Transaction, the Corporation will furnish each holder of Series A
Convertible Preferred Stock notice in accordance with Section A.8 hereof,
together with a certificate prepared by the chief financial officer of the
Corporation describing in detail the facts of such Liquidation Event or
Extraordinary Transaction, stating in reasonable detail the amount(s) per share
of Series A Convertible Preferred Stock each holder of Series A Convertible
Preferred Stock would receive pursuant to the provisions of Section A.3(a)
hereof and stating in reasonable detail the facts upon which such amount was
determined and, in connection with any Extraordinary Transaction, describing in
reasonable detail all material terms of such Extraordinary Transaction,
including without limitation the consideration to be delivered in connection
with such
5
<PAGE>
Extraordinary Transaction, the valuation of the Corporation at the time of such
Extraordinary Transaction and the identities of the parties to the Extraordinary
Transaction.
4. CONVERSION. The holders of the Series A Convertible Preferred
Stock shall have the following conversion rights:
a. VOLUNTARY CONVERSION. At any time, each holder of shares of
Series A Convertible Preferred Stock shall be entitled, without the payment of
any additional consideration, to cause each outstanding share of Series A
Convertible Preferred Stock held by such holder to be converted into (i) the
number of fully paid and nonassessable shares of Common Stock which results from
dividing the Series A Conversion Price (as defined in this Section A.4(a)) then
in effect at the time of conversion into the Conversion Value of the Series A
Convertible Preferred Stock, which shall initially be $1.000 per share, and (ii)
.59615384 of a fully paid and nonassessable share of Senior Redeemable Preferred
Stock. The "Series A Conversion Price" shall be $10.00 per share of Common
Stock, subject to adjustment from time to time as provided in Section A.5
hereof. If a holder of shares of Series A Convertible Preferred Stock elects to
convert the outstanding shares of Series A Convertible Preferred Stock at a time
when there are any declared but unpaid dividends or other amounts due on or in
respect of such shares, such dividends and other amounts shall be paid in full
in cash by the Corporation in connection with such conversion. If a holder of
Series A Convertible Preferred Stock elects to convert under this Section
A.4(a), such holder shall deliver to the Corporation a written notice of
conversion specifying (i) the number of shares of Series A Convertible Preferred
Stock to be converted, (ii) the name or names in which such holder wishes the
certificate or certificates for Common Stock and Senior Redeemable Preferred
Stock and for any Series A Convertible Preferred Stock not to be so converted to
be issued and (iii) the address to which such holder wishes delivery to be made
of such new certificates to be issued upon such conversion.
b. AUTOMATIC CONVERSION. Each share of Series A Convertible
Preferred Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock and Senior Redeemable
Preferred Stock on the basis provided in Section A.4(a) above upon (i) the
written election of the holder or holders of not less than two-thirds in voting
power of the outstanding shares of Series A Convertible Preferred Stock or (ii)
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock of the Corporation to the public at an
initial public offering price of not less than $20.00 per share (subject to
adjustment for stock splits, stock dividends, recapitalizations and the like)
and resulting in proceeds received by the Corporation, net of underwriting
discounts and commissions, of at least $30,000,000 (a "Qualified Public
Offering"); provided that, in connection with any conversion resulting from a
Qualified Public Offering, each holder of Series A Convertible Preferred Stock
shall receive in lieu of shares of Senior Redeemable Preferred Stock and
notwithstanding anything herein to the contrary, payment in full of the
redemption price for each share of Senior Redeemable Preferred Stock to which
such holder is entitled under Section C.4.
c. CONVERSION PROCEDURES. Any holder of Series A Convertible
Preferred Stock converting such shares into shares of Common Stock and Senior
Redeemable
6
<PAGE>
Preferred Stock, or whose shares are automatically converted pursuant to Section
A.4(b), shall surrender the certificate or certificates representing the Series
A Convertible Preferred Stock being converted, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock powers
relating thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Series A Convertible Preferred Stock or
such office or offices in the continental United States of an agent for
conversion as may from time to time be designated by notice to the holders of
the Series A Convertible Preferred Stock by the Corporation, or shall deliver an
Affidavit of Loss with respect to such certificates. Upon surrender of a
certificate representing Series A Convertible Preferred Stock for conversion,
the Corporation shall issue and send by hand delivery, by courier or by first
class mail (postage prepaid) to the holder thereof or to such holder's designee,
at the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock and Senior Redeemable Preferred Stock to which
such holder shall be entitled upon conversion. In the event that there shall
have been surrendered a certificate or certificates representing Series A
Convertible Preferred Stock, only part of which are to be converted, the
Corporation shall issue and send to such holder or such holder's designee, in
the manner set forth in the preceding sentence, a new certificate or
certificates representing the number of shares of Series A Convertible Preferred
Stock which shall not have been converted. The issuance of certificates for
Common Stock and Senior Redeemable Preferred Stock upon conversion of Series A
Convertible Preferred Stock will be made without charge to the holders of such
shares for any issuance tax in respect thereof or other costs incurred by the
Corporation in connection with such conversion and the related issuance of such
stock. Notwithstanding anything to the contrary set forth in this Section
A.4(c), in the event that the holders of shares of Series A Convertible
Preferred Stock elect to convert such shares in connection with any Liquidation
Event or Extraordinary Transaction, the holders shall deliver notice of such
conversion no later than five (5) days before the occurrence of such Liquidation
Event or the closing of such Extraordinary Transaction and such notice shall be
effective as of, and shall in all cases be subject to, the occurrence of such
Liquidation Event or closing of such Extraordinary Transaction. If such
Liquidation Event or Extraordinary Transaction occurs, all outstanding shares of
Series A Convertible Preferred Stock elected to be converted shall be deemed to
have been converted into shares of Common Stock and Senior Redeemable Preferred
Stock immediately prior thereto, and the Corporation shall make appropriate
provisions (i) for the Common Stock issued upon such conversion to be treated on
the same basis as all other Common Stock in such Liquidation Event or
Extraordinary Transaction and (ii) for the payment of the Senior Redeemable
Liquidation Amount in connection with any Liquidation Event or the redemption of
the Senior Redeemable Preferred Stock (issued upon such conversion) upon
election of such redemption in connection with any Extraordinary Transaction, if
applicable, as provided herein.
d. EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock and Senior Redeemable Preferred Stock upon
a conversion of Series A Convertible Preferred Stock into shares of Common Stock
and Senior Redeemable Preferred Stock at the option of the holder(s) thereof
pursuant to Section A.4(a) or A.4(b) hereof shall be effective as of the
surrender of the certificate or certificates for the Series A Convertible
Preferred Stock to be converted, duly assigned or endorsed for transfer to the
Corporation (or
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accompanied by duly executed stock powers relating thereto) or delivery of an
Affidavit of Loss with respect to such certificates. The issuance by the
Corporation of shares of Common Stock and Senior Redeemable Preferred Stock upon
a conversion of Series A Convertible Preferred Stock into Common Stock and
Senior Redeemable Preferred Stock pursuant to Section A.4(b) hereof upon a
Qualified Public Offering shall be deemed to be effective immediately prior to
the closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock and
Senior Redeemable Preferred Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
and Senior Redeemable Preferred Stock.
e. NO IMPAIRMENT. The Corporation shall not, by amendment of
this Amended and Restated Certificate of Incorporation or through any
Extraordinary Transaction or other reorganization, transfer of assets,
consolidation, merger, dissolution, 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 hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section A.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion and other rights of the holders
of the Series A Convertible Preferred Stock and the Senior Redeemable Preferred
Stock against impairment.
f. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock and Senior Redeemable Preferred Stock solely
for the purpose of effecting the conversion of the shares of Series A
Convertible Preferred Stock such number of its shares of Common Stock and Senior
Redeemable Preferred Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series A Convertible Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock and Senior Redeemable Preferred Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Convertible Preferred
Stock, the Corporation will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock and Senior
Redeemable Preferred Stock to such number of shares as shall be sufficient for
such purpose.
g. NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Series A Convertible Preferred
Stock in any manner which would interfere with the timely conversion of any
shares of Series A Convertible Preferred Stock.
5. ADJUSTMENTS.
a. If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Series A
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of any shares of Series A
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Convertible Preferred Stock shall be increased in proportion to such increase of
outstanding shares of Common Stock.
b. If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination or reverse split of the
outstanding shares of Common Stock, then, on the effective date of such
combination or reverse split, the Series A Conversion Price of the Series A
Convertible Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of any shares of Series A
Convertible Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares of Common Stock.
c. In case, at any time after the date hereof, of any capital
reorganization (other than a reorganization constituting an Extraordinary
Transaction), or any reclassification of the stock of the Corporation (other
than as a result of a stock dividend payable on shares of Common Stock in the
form of Common Stock or subdivision, split-up or combination involving the
Common Stock), the shares of Series A Convertible Preferred Stock shall, after
such capital reorganization or reclassification, be convertible into the kind
and number of shares of stock or other securities or property of the Corporation
or otherwise to which such holder would have been entitled if immediately prior
to such capital reorganization or reclassification he or it had converted his or
its shares of Series A Convertible Preferred Stock into Common Stock and Senior
Redeemable Preferred Stock. The provisions of this clause (c) shall similarly
apply to successive capital reorganizations or reclassifications.
d. All calculations under this Section A.5 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the case may
be.
e. Upon the occurrence of each adjustment or readjustment
pursuant to this Section A.5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon written request at any time of any holder of Series A Convertible
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price before and after such adjustment or readjustment, and
(iii) the number of shares of Common Stock and Senior Redeemable Preferred Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of such holder's shares of Series A Convertible Preferred
Stock.
6. REDEMPTION.
a. MANDATORY REDEMPTION. Upon the election of the holder or
holders of two-thirds in voting power of the outstanding Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock (voting together as a
single class on an as-converted basis) made at any time on or before March 1,
2001, the Corporation shall, to the extent it may do so under applicable law,
redeem all of the outstanding shares of Series A Convertible Preferred Stock
pursuant to this Section A.6 in three equal installments on March 31, 2001,
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March 31, 2002 and March 31, 2003 (each, a "Redemption Date") and the Series B
Convertible Preferred Stock pursuant to Section B.6. The foregoing election
shall be made by such holders giving written notice on or before March 1, 2001
to the Corporation and each of the other holders of Series A Convertible
Preferred Stock.
b. REDEMPTION PRICE. Upon the election to cause the Corporation
to redeem the Series A Convertible Preferred Stock pursuant to Section A.6(a),
all holders of Series A Convertible Preferred Stock shall be deemed to have
elected to cause the Series A Convertible Preferred Stock to be so redeemed. The
redemption price for each share of Series A Convertible Preferred Stock redeemed
pursuant to this Section A.6 shall be the sum of (x) the Total Series A
Convertible Liquidation Amount, plus (y) any unpaid dividends to which such
holder of outstanding shares of Series A Convertible Preferred Stock is entitled
under Section A.2 and Section A.6(d) hereof (the "Series A Convertible Preferred
Redemption Price"); provided, however, that if at a Redemption Date shares of
Series A Convertible Preferred Stock are unable to be redeemed (as contemplated
by Section A.6(c) below), in addition to the Series A Convertible Preferred
Redemption Price the holders of Series A Convertible Preferred Stock shall be
entitled to any interest accrued pursuant to Section A.6(c). The Series A
Convertible Preferred Redemption Price shall be payable in cash in immediately
available funds on the Redemption Date. Until the full Series A Convertible
Preferred Redemption Price, including any interest thereon, has been paid in
cash for all shares of Series A Convertible Preferred Stock redeemed as of the
applicable Redemption Date: (A) no dividend whatsoever shall be paid or
declared, and no distribution shall be made, on any capital stock of the
Corporation (other than the dividends accruing on the Senior Redeemable
Preferred Stock); and (B) no shares of capital stock of the Corporation (other
than the Series A Convertible Preferred Stock in accordance with this Section
A.6 and, with respect to the Senior Series B Convertible Liquidation Amount, the
Series B Convertible Preferred Stock in accordance with Section B.6) shall be
purchased, redeemed or acquired by the Corporation and no monies shall be paid
into or set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof, other than pursuant to vesting, first refusal
or repurchase provisions of agreements with employees, officers, directors or
consultants of the Corporation in which the Corporation repurchases shares of
capital stock of the Corporation at the original purchase price paid therefor by
the applicable individual.
c. INSUFFICIENT FUNDS FOR REDEMPTION. If, at a Redemption Date,
the Corporation is prohibited under the General Corporation Law of the State of
Delaware from redeeming all shares of Series A Convertible Preferred Stock for
which redemption is required hereunder, then it shall redeem such shares on a
pro-rata basis among the holders of Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock (and, if applicable, the Senior Redeemable
Preferred Stock) in proportion to the full respective redemption amounts to
which they are entitled hereunder to the extent possible and shall redeem the
remaining shares to be redeemed as soon as the Corporation is not prohibited
from redeeming some or all of such shares under the General Corporation Law of
the State of Delaware. The shares of Series A Convertible Preferred Stock not
redeemed shall remain outstanding and entitled to all of the rights and
preferences provided in this Article IV. In the event that the Corporation fails
for any reason to redeem shares for which redemption is required pursuant to
Section A.6, then during the period from the applicable Redemption Date through
the date on which such unredeemed shares are redeemed, the applicable Series A
Convertible Preferred Redemption Price of such shares
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shall bear interest at the greater of twelve percent (12%) per annum or five
percent (5%) over the then prevailing prime rate, which interest shall be
compounded annually.
d. DIVIDEND AFTER REDEMPTION DATE. From and after a Redemption
Date, no shares of Series A Convertible Preferred Stock subject to redemption
shall be entitled to any further dividends pursuant to Section A.2 hereof;
provided, however, that in the event that shares of Series A Convertible
Preferred Stock are unable to be redeemed and continue to be outstanding in
accordance with Section A.6(c), such shares shall continue to be entitled to
dividends and interest thereon as provided in Sections A.6(b) and A.6(c) until
the date on which such shares are actually redeemed by the Corporation.
e. SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Series A Convertible Preferred Redemption Price by certified check or wire
transfer, each holder of shares of Series A Convertible Preferred Stock to be
redeemed shall surrender the certificate or certificates representing such
shares to the Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto), or shall deliver an
Affidavit of Loss with respect to such certificates at the principal executive
office of the Corporation or the office of the transfer agent for the Series A
Convertible Preferred Stock or such office or offices in the continental United
States of an agent for redemption as may from time to time be designated by
notice to the holders of Series A Convertible Preferred Stock, and each
surrendered certificate shall be canceled and retired.
7. COVENANTS. So long as any shares of Series A Convertible
Preferred Stock shall be outstanding, the Corporation shall not, without first
having provided the written notice of such proposed action to each holder of
outstanding shares of Series A Convertible Preferred Stock and having obtained
the affirmative vote or written consent of the holders of a majority in voting
power of the outstanding shares of Series A Convertible Preferred Stock, voting
as a separate class, with each share of Series A Convertible Preferred Stock
entitling the holder thereof to one vote per share of Series A Convertible
Preferred Stock held by such holder:
a. make any amendment to the Corporation's Amended and Restated
Certificate of Incorporation or by-laws or enter into any agreements that
materially adversely affect the rights of the holders of Series A Convertible
Preferred Stock;
b. reclassify any capital stock;
c. issue any shares of Common Stock (other than with respect to
options for management) or issue any shares of capital stock of the Corporation
which are senior to or on parity with the Series A Convertible Preferred Stock,
the Series B Convertible Preferred Stock or the Senior Redeemable Preferred
Stock with respect to dividends, conversion, liquidation or redemptions or with
any special voting rights;
d. create, incur, assume or be liable or permit to exist, any
indebtedness for borrowed money, other than indebtedness permitted under that
certain Stock
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Purchase Agreement dated as of March 14, 1996 by and among the Corporation, the
Investors and other parties thereto (the "Stock Purchase Agreement");
e. redeem, purchase or otherwise acquire for value (or pay into
or set aside for a sinking fund for such purpose) or pay any interest or
dividend on or make a distribution on any share or shares of capital stock of
the Corporation except as provided herein or permitted under the Stock Purchase
Agreement;
f. effect (I) any Liquidation Event, (II) any Extraordinary
Transaction or any other sale or transfer of all or any substantial portion of
the properties and assets of the Corporation or any subsidiary of the
Corporation, (III) any recapitalization of the Corporation or (IV) any other
transaction or series of related transactions which results in the disposition
of more than fifty percent (50%) of the voting power of the Corporation except
as permitted under the Stock Purchase Agreement;
g. purchase or otherwise acquire the capital stock of, assets
comprising the business of, obligations of or any interest in, any other
corporation or business entity except as permitted under the Stock Purchase
Agreement; or
h. increase the authorized number of Directors of the
Corporation.
8. NOTICE.
a. LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In the
event (i) the Corporation establishes a record date to determine the holders of
any class of securities who are entitled to receive any dividend or other
distribution or who are entitled to vote at a meeting (or by written consent) in
connection with any of the transactions identified in clause (ii) hereof, or
(ii) any Liquidation Event (as defined in Section A.3), any Extraordinary
Transaction (as defined in Section A.3) or any Qualified Public Offering (as
defined in Section A.4) becomes reasonably likely to occur, the Corporation
shall mail or cause to be mailed by first class mail (postage prepaid) to each
holder of Series A Convertible Preferred Stock at least thirty (30) days prior
to such record date specified therein or the expected effective date of any such
transaction, a notice specifying (A) the date of such record date for the
purpose of such dividend or distribution or meeting or consent and a description
of such dividend or distribution or the action to be taken at such meeting or by
such consent, (B) the date on which any such Liquidation Event, Extraordinary
Transaction or Qualified Public Offering is expected to become effective, and
(C) the date on which the books of the Corporation shall close or a record shall
be taken with respect to any such event.
b. WAIVER OF NOTICE. The holder or holders of a majority in
voting power of the outstanding shares of Series A Convertible Preferred Stock
may, at any time upon written notice to the Corporation, waive any notice
provisions specified herein for the benefit of such holders.
c. GENERAL. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the Corporation shall
at the same time
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provide a copy of any such notice, report or statement to each holder of
outstanding shares of Series A Convertible Preferred Stock.
9. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. No share
or shares of Series A Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
10. WAIVER. The holder or holders of a majority in voting power of
the outstanding shares of Series A Convertible Preferred Stock may, at any time
upon written notice to the Corporation, waive any provisions specified herein
for the benefit of such holders.
B. SERIES B CONVERTIBLE PREFERRED STOCK
1. VOTING GENERALLY. The holder of each share of Series B
Convertible Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of the Corporation and shall vote with
holders of Series A Convertible Preferred Stock and holders of the Common Stock,
voting together as single class, upon all matters submitted to a vote of
stockholders. The holder of each share of Series B Convertible Preferred Stock
shall be entitled to the number of votes equal to the largest number of full
shares of Common Stock into which each share of Series B Convertible Preferred
Stock could be converted pursuant to Section B.4 hereof on the record date for
the vote or for written consent of stockholders, if applicable. Except as
provided in this Section B.1, the holders of the Series B Convertible Preferred
Stock shall not be entitled to vote on any other matters. Fractional votes
shall not be permitted and any fractional voting rights resulting from the above
formula (after aggregating all shares of Common Stock into which shares of
Series B Convertible Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half rounded upward to
one).
2. DIVIDENDS. In the event the Board of Directors of the
Corporation shall declare a dividend payable upon outstanding shares of the
Common Stock, the holders of the Series B Convertible Preferred Stock shall be
entitled to the same amount of dividends per share of the Series B Convertible
Preferred Stock as such holders would have been entitled had such holders'
shares of Series B Convertible Preferred Stock been fully converted into shares
of Common Stock pursuant to the provisions of Section B.4 hereof as of the
record date for the determination of holders of shares of the Common Stock
entitled to receive such dividend.
3. LIQUIDATION AND OTHER EXTRAORDINARY TRANSACTIONS.
a. LIQUIDATION PREFERENCE. Upon any Liquidation Event or
Extraordinary Transaction each holder of outstanding shares of Series B
Convertible Preferred Stock shall be entitled to be paid out of the assets of
the Corporation available for distribution to stockholders, whether such assets
are capital, surplus or earnings:
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(i) on a parity with the payment of the Senior Series A
Convertible Liquidation Amount and the Senior Redeemable Liquidation Amount, and
before any amount shall be paid or distributed to the holders of Common Stock or
of any other stock ranking on liquidation junior to the Series B Convertible
Preferred Stock (including, without limitation, the Junior Redeemable Preferred
Stock), an amount in cash equal to $596.15384 per share (adjusted appropriately
for stock splits, stock dividends, recapitalizations and the like with respect
to the Series B Convertible Preferred Stock) (the "Senior Series B Convertible
Liquidation Amount"); provided, however, that if, upon any Liquidation Event or
Extraordinary Transaction, the amounts payable with respect to the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock and the
Senior Redeemable Preferred Stock are not paid in full, the holders of the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
and the Senior Redeemable Preferred Stock shall share ratably in any
distribution of assets in proportion to the full respective preferential amounts
to which they are entitled; and
(ii) after the payment of the Senior Series A Convertible
Liquidation Amount, the Senior Series B Convertible Liquidation Amount and the
Senior Redeemable Liquidation Amount and the payment of $403.84616 per share
(adjusted appropriately for stock splits, stock dividends, recapitalizations and
the like with respect to the Series A Convertible Preferred Stock) to the
holders of the Series A Convertible Preferred Stock as provided in Section
B.3(a)(ii), on a parity with the payment of the Junior Redeemable Liquidation
Amount and before any amount shall be paid or distributed to the holders of
Common Stock or of any other stock ranking on liquidation junior to the Series B
Convertible Preferred Stock, an amount in cash equal to $403.84616 per share
(adjusted appropriately for stock splits, stock dividends, recapitalizations and
the like with respect to the Series B Convertible Preferred Stock) (the "Junior
Series B Convertible Liquidation Amount"); provided, however, that if, upon any
Liquidation Event or Extraordinary Transaction, the amounts payable with respect
to the Series B Convertible Preferred Stock and the Junior Redeemable Preferred
Stock are not paid in full, the holders of the Series B Convertible Preferred
Stock and the Junior Redeemable Preferred Stock shall share ratably in any
distribution of assets in proportion to the full respective preferential amounts
to which they are entitled; and
(iii) after the payment of the Senior Series A Convertible
Liquidation Amount, the Senior Series B Convertible Liquidation Amount, the
Junior Series B Convertible Liquidation Amount, the Senior Redeemable
Liquidation Amount and the Junior Redeemable Liquidation Amount, and on a parity
with any amount paid or distributed to the holders of Common Stock, an amount
equal to the amount such holder would have received as a result of such
Liquidation Event or Extraordinary Transaction after the Senior Series A
Convertible Liquidation Amount shall have been paid in full, the Senior Series B
Convertible Liquidation Amount and the Junior Series B Convertible Liquidation
Amount shall have been paid in full, the Senior Redeemable Liquidation Amount
shall have been paid in full and the Junior Redeemable Liquidation Amount shall
have been paid in full and any assets remaining available for distribution shall
be distributed ratably among the holders of the Common Stock, the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock based
upon the number of shares of Common Stock (i) then held by each holder of Common
Stock, (ii) issuable upon conversion of the shares of Series A Convertible
Preferred Stock held by a holder of Series A Convertible Preferred Stock
pursuant to Section A.4 immediately prior to the
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occurrence of any such Liquidation Event or Extraordinary Transaction or (iii)
issuable upon conversion of the shares of Series B Convertible Preferred Stock
held by a holder of Series B Convertible Preferred Stock pursuant to Section B.4
immediately prior to the occurrence of any such Liquidation Event or
Extraordinary Transaction (the "Residual Series B Convertible Liquidation
Amount" and, together with the Senior Series B Convertible Liquidation Amount
and the Junior Series B Convertible Liquidation Amount, (the "Total Series B
Convertible Liquidation Amount"); provided, however, that if, upon any
Liquidation Event or Extraordinary Transaction, the Residual Series B
Convertible Liquidation Amount is not paid in full, the holders of the Series B
Convertible Preferred Stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled. Upon payment in full of the Total Series B Convertible Liquidation
Amount in accordance with the terms hereof, the holders of the Series B
Convertible Preferred Stock shall not have any conversion rights hereunder.
b. CONVERSION RIGHTS NOT IMPAIRED. Except to the extent that
the holders of Series B Convertible Preferred Stock shall have been paid in full
under Section B.3(a), nothing in this Section B.3 shall in any way limit the
right of conversion of the holders of the Series B Convertible Preferred Stock
under Section B.4.
c. NON-CASH CONSIDERATION. Notwithstanding the provisions of
Section B.3(a), in connection with any Extraordinary Transaction, the holders of
Series B Convertible Preferred Stock shall, on the effective date of such
Extraordinary Transaction, be paid by the Corporation, in cash solely to the
extent that cash is paid in such Extraordinary Transaction and then (or
alternatively if no cash payments are involved, as applicable), in such other
consideration (valued as provided below) as is delivered in such Extraordinary
Transaction in an amount equal to the Total Series B Convertible Liquidation
Amount.
Any securities or other consideration to be delivered to the holders of the
Series B Convertible Preferred Stock upon any Extraordinary Transaction shall be
valued pursuant to Section A.3(c) hereof.
d. SURRENDER OF CERTIFICATES. On the effective date of any
Extraordinary Transaction, the Corporation shall pay all cash and other
consideration to which the holders of Series B Convertible Preferred Stock shall
be entitled under this Section B.3. Upon receipt of such payment, each holder of
shares of Series B Convertible Preferred Stock shall surrender the certificate
or certificates representing such shares, duly assigned or endorsed for transfer
to the Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the offices of
the transfer agent for the Series B Convertible Preferred Stock, or shall notify
the Corporation or any transfer agent that such certificates have been lost,
stolen or destroyed and shall execute an Affidavit of Loss, and each surrendered
certificate shall be canceled and retired.
e. NOTICE. Prior to the occurrence of any Liquidation
Event or Extraordinary Transaction, the Corporation will furnish each holder of
Series B Convertible Preferred Stock notice in accordance with Section B.6
hereof, together with a certificate prepared by the chief financial officer of
the Corporation describing in detail the facts of such Liquidation
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Event or Extraordinary Transaction, stating in reasonable detail the amount(s)
per share of Series B Convertible Preferred Stock each holder of Series B
Convertible Preferred Stock would receive pursuant to the provisions of Section
B.3(a) hereof and stating in reasonable detail the facts upon which such amount
was determined and, in connection with any Extraordinary Transaction, describing
in reasonable detail all material terms of such Extraordinary Transaction,
including without limitation the consideration to be delivered in connection
with such Extraordinary Transaction, the valuation of the Corporation at the
time of such Extraordinary Transaction and the identities of the parties to the
Extraordinary Transaction.
4. CONVERSION. The holders of the Series B Convertible Preferred
Stock shall have the following conversion rights:
a. VOLUNTARY CONVERSION. At any time, each holder of shares of
Series B Convertible Preferred Stock shall be entitled, without the payment of
any additional consideration, to cause each outstanding share of Series B
Convertible Preferred Stock held by such holder to be converted into (i) the
number of fully paid and nonassessable shares of Common Stock which results from
dividing the Series B Conversion Price (as defined in this Section B.4(a)) then
in effect at the time of conversion into the Conversion Value of the Series B
Convertible Preferred Stock, which shall initially be $1,000 per share, (ii)
.59615384 of a fully paid and nonassessable share of Senior Redeemable Preferred
Stock and (iii) .40384616 of a fully paid and nonassessable share of Junior
Redeemable Preferred Stock. The "Series B Conversion Price" shall be $10.00 per
share of Common Stock, subject to adjustment from time to time as provided in
Section B.5 hereof. If a holder of shares of Series B Convertible Preferred
Stock elects to convert the outstanding shares of Series B Convertible Preferred
Stock at a time when there are any declared but unpaid dividends or other
amounts due on or in respect of such shares, such dividends and other amounts
shall be paid in full in cash by the Corporation in connection with such
conversion. If a holder of Series B Convertible Preferred Stock elects to
convert under this Section B.4(a), such holder shall deliver to the Corporation
a written notice of conversion specifying (i) the number of shares of Series B
Convertible Preferred Stock to be converted, (ii) the name or names in which
such holder wishes the certificate or certificates for Common Stock, Senior
Redeemable Preferred Stock and Junior Redeemable Preferred Stock and for any
Series B Convertible Preferred Stock not to be so converted to be issued and
(iii) the address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
b. AUTOMATIC CONVERSION. Each share of Series B Convertible
Preferred Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock, Senior Redeemable
Preferred Stock and Junior Redeemable Preferred Stock on the basis provided in
Section B.4(a) above upon (i) the written election of the holder or holders of
not less than a majority in voting power of the outstanding shares of Series B
Convertible Preferred Stock, (ii) the written election of the holder or holders
of not less than two-thirds in voting power of the outstanding shares of Series
A Convertible Preferred Stock to convert such shares pursuant to Section A.4(b)
hereof, or (iii) the closing of a Qualified Public Offering; provided that, in
connection with any conversion resulting from a Qualified Public Offering, each
holder of Series B Convertible Preferred Stock shall receive in lieu of shares
of Senior Redeemable Preferred Stock and notwithstanding anything herein to the
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contrary, payment in full of the redemption price for each share of Senior
Redeemable Preferred Stock to which such holder is entitled under Section C.4
and in lieu of shares of Junior Redeemable Preferred Stock and notwithstanding
anything herein to the contrary, payment in full of the redemption price for
each share of Junior Redeemable Preferred Stock to which such holder is entitled
under Section C.4.
c. CONVERSION PROCEDURES. Any holder of Series B Convertible
Preferred Stock converting such shares into shares of Common Stock, Senior
Redeemable Preferred Stock and Junior Redeemable Preferred Stock, or whose
shares are automatically converted pursuant to Section B.4(b), shall surrender
the certificate or certificates representing the Series B Convertible Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for the Series B Convertible Preferred Stock or such office or offices in
the continental United States of an agent for conversion as may from time to
time be designated by notice to the holders of the Series B Convertible
Preferred Stock by the Corporation, or shall deliver an Affidavit of Loss with
respect to such certificates. Upon surrender of a certificate representing
Series B Convertible Preferred Stock for conversion, the Corporation shall issue
and send by hand delivery, by courier or by first class mail (postage prepaid)
to the holder thereof or to such holder's designee, at the address designated by
such holder, a certificate or certificates for the number of shares of Common
Stock, Senior Redeemable Preferred Stock and Junior Redeemable Preferred Stock
to which such holder shall be entitled upon conversion. In the event that there
shall have been surrendered a certificate or certificates representing Series B
Convertible Preferred Stock, only part of which are to be converted, the
Corporation shall issue and send to such holder or such holder's designee, in
the manner set forth in the preceding sentence, a new certificate or
certificates representing the number of shares of Series B Convertible Preferred
Stock which shall not have been converted. The issuance of certificates for
Common Stock, Senior Redeemable Preferred Stock and Junior Redeemable Preferred
Stock upon conversion of Series B Convertible Preferred Stock will be made
without charge to the holders of such shares for any issuance tax in respect
thereof or other costs incurred by the Corporation in connection with such
conversion and the related issuance of such stock. Notwithstanding anything to
the contrary set forth in this Section B.4(c), in the event that the holders of
shares of Series B Convertible Preferred Stock elect to convert such shares in
connection with any Liquidation Event or Extraordinary Transaction, the holders
shall deliver notice of such conversion no later than five (5) days before the
occurrence of such Liquidation Event or the closing of such Extraordinary
Transaction and such notice shall be effective as of, and shall in all cases be
subject to, the occurrence of such Liquidation Event or closing of such
Extraordinary Transaction. If such Liquidation Event or Extraordinary
Transaction occurs, all outstanding shares of Series B Convertible Preferred
Stock elected to be converted shall be deemed to have been converted into shares
of Common Stock, Senior Redeemable Preferred Stock and Junior Redeemable
Preferred Stock immediately prior thereto, and the Corporation shall make
appropriate provisions (i) for the Common Stock issued upon such conversion to
be treated on the same basis as all other Common Stock in such Liquidation Event
or Extraordinary Transaction, (ii) for the payment of the Senior Redeemable
Liquidation Amount in connection with any Liquidation Event or the redemption of
the Senior Redeemable Preferred Stock (issued upon such conversion) upon
election of such redemption in
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connection with any Extraordinary Transaction, if applicable, as provided
herein, and (iii) for the payment of the Junior Redeemable Liquidation Amount in
connection with any Liquidation Event or the redemption of the Junior Redeemable
Preferred Stock (issued upon such conversion) upon election of such redemption
in connection with any Extraordinary Transaction, if applicable, as provided
herein.
d. EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock, Senior Redeemable Preferred Stock and
Junior Redeemable Preferred Stock upon a conversion of Series B Convertible
Preferred Stock into shares of Common Stock, Senior Redeemable Preferred Stock
and Junior Redeemable Preferred Stock at the option of the holder(s) thereof
pursuant to Section B.4(a) or B.4(b) hereof shall be effective as of the
surrender of the certificate or certificates for the Series B Convertible
Preferred Stock to be converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto) or
delivery of an Affidavit of Loss with respect to such certificates. The issuance
by the Corporation of shares of Common Stock, Senior Redeemable Preferred Stock
and Junior Redeemable Preferred Stock upon a conversion of Series B Convertible
Preferred Stock into Common Stock, Senior Redeemable Preferred Stock and Junior
Redeemable Preferred Stock pursuant to Section B.4(b) hereof upon the written
election of the holder or holders of not less than two-thirds in voting power of
the outstanding shares of Series A Convertible Preferred Stock to convert such
shares pursuant to Section A.4(b) hereof shall be deemed to be effective as of
the effective time of the conversion of such shares of Series A Convertible
Preferred Stock. The issuance by the Corporation of shares of Common Stock,
Senior Redeemable Preferred Stock and Junior Redeemable Preferred Stock upon a
conversion of Series B Convertible Preferred Stock into Common Stock, Senior
Redeemable Preferred Stock and Junior Redeemable Preferred Stock pursuant to
Section B.4(b) hereof upon a Qualified Public Offering shall be deemed to be
effective immediately prior to the closing of the Qualified Public Offering. On
and after the effective date of conversion, the person or persons entitled to
receive the Common Stock, Senior Redeemable Preferred Stock and Junior
Redeemable Preferred Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock,
Senior Redeemable Preferred Stock and Junior Redeemable Preferred Stock.
e. NO IMPAIRMENT. The Corporation shall not, by amendment of
this Amended and Restated Certificate of Incorporation or through any
Extraordinary Transaction or other reorganization, transfer of assets,
consolidation, merger, dissolution, 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 hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section B.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion and other rights of the holders
of the Series B Convertible Preferred Stock, the Senior Redeemable Preferred
Stock and the Junior Redeemable Preferred Stock against impairment.
f. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, Senior Redeemable Preferred Stock and
Junior Redeemable Preferred Stock solely for the purpose of effecting the
conversion of the shares of Series B Convertible Preferred
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Stock such number of its shares of Common Stock, Senior Redeemable Preferred
Stock and Junior Redeemable Preferred Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series B
Convertible Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock, Senior Redeemable Preferred Stock and Junior
Redeemable Preferred Stock shall not be sufficient to effect the conversion of
all then outstanding shares of Series B Convertible Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock, Senior Redeemable Preferred
Stock and Junior Redeemable Preferred Stock to such number of shares as shall be
sufficient for such purpose.
g. NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Series B Convertible Preferred
Stock in any manner which would interfere with the timely conversion of any
shares of Series B Convertible Preferred Stock.
5. ADJUSTMENTS.
a. If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Series B
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of any shares of Series B Convertible
Preferred Stock shall be increased in proportion to such increase of outstanding
shares of Common Stock.
b. If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination or reverse split of the
outstanding shares of Common Stock, then, on the effective date of such
combination or reverse split, the Series B Conversion Price of the Series B
Convertible Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of any shares of Series B
Convertible Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares of Common Stock.
c. In case, at any time after the date hereof, of any capital
reorganization (other than a reorganization constituting an Extraordinary
Transaction), or any reclassification of the stock of the Corporation (other
than as a result of a stock dividend payable on shares of Common Stock in the
form of Common Stock or subdivision, split-up or combination involving the
Common Stock), the shares of Series B Convertible Preferred Stock shall, after
such capital reorganization or reclassification, be convertible into the kind
and number of shares of stock or other securities or property of the Corporation
or otherwise to which such holder would have been entitled if immediately prior
to such capital reorganization or reclassification he or it had converted his or
its shares of Series B Convertible Preferred Stock into Common Stock, Senior
Redeemable Preferred Stock and Junior Redeemable Preferred Stock. The provisions
of this clause (c) shall similarly apply to successive capital reorganizations
or reclassifications.
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d. All calculations under this Section B.5 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the case may
be.
e. Upon the occurrence of each adjustment or readjustment
pursuant to this Section B.5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon written request at any time of any holder of Series B Convertible
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series B Conversion Price before and after such adjustment or readjustment, and
(iii) the number of shares of Common Stock, Senior Redeemable Preferred Stock
and Junior Redeemable Preferred Stock and the amount, if any, of other property
which at the time would be received upon the conversion of such holder's shares
of Series B Convertible Preferred Stock.
6. REDEMPTION.
a. MANDATORY REDEMPTION. Upon the election of the holder or
holders of two-thirds in voting power of the outstanding Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock (voting together as a
single class on an as-converted basis) made at any time on or before March 1,
2001, the Corporation shall, to the extent it may do so under applicable law,
redeem all of the outstanding shares of Series B Convertible Preferred Stock
pursuant to this Section B.6 in three equal installments on March 31, 2001,
March 31, 2002 and March 31, 2003 (each, a "Redemption Date") and the Series A
Convertible Preferred Stock pursuant to Section A.6. The foregoing election
shall be made by such holders giving written notice on or before March 1, 2001
to the Corporation and each of the other holders of Series B Convertible
Preferred Stock.
b. REDEMPTION PRICE. Upon the election to cause the Corporation
to redeem the Series B Convertible Preferred Stock pursuant to Section B.6(a),
all holders of Series B Convertible Preferred Stock shall be deemed to have
elected to cause the Series B Convertible Preferred Stock to be so redeemed. The
redemption price for each share of Series B Convertible Preferred Stock redeemed
pursuant to this Section B.6 shall be the sum of (x) the Senior Series B
Convertible Liquidation Amount, plus (y) any unpaid dividends to which such
holder of outstanding shares of Series B Convertible Preferred Stock is entitled
under Section B.2 and Section B.6(d) hereof (the "Series B Convertible Preferred
Redemption Price"); provided, however, that if at a Redemption Date shares of
Series B Convertible Preferred Stock are unable to be redeemed (as contemplated
by Section B.6(c) below), in addition to the Series B Convertible Preferred
Redemption Price the holders of Series B Convertible Preferred Stock shall be
entitled to any interest accrued pursuant to Section B.6(c). The Series B
Convertible Preferred Redemption Price shall be payable in cash in immediately
available funds on the Redemption Date. In connection with any redemption of the
Series B Convertible Preferred Stock, the holders thereof shall also be entitled
to receive the Junior Redeemable Preferred Stock and Common Stock that would be
issuable upon conversion thereof. Until the full Series B Convertible Preferred
Redemption Price, including any interest thereon, has been paid in cash for
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all shares of Series B Convertible Preferred Stock redeemed as of the applicable
Redemption Date: (A) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on any capital stock of the Corporation (other than
the dividends accruing on the Senior Redeemable Preferred Stock); and (B) no
shares of capital stock of the Corporation (other than the Series B Convertible
Preferred Stock in accordance with this Section B.6 and the Series A Convertible
Preferred Stock in accordance with Section A.6) shall be purchased, redeemed or
acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof, other than pursuant to vesting, first refusal or repurchase provisions
of agreements with employees, officers, directors or consultants of the
Corporation in which the Corporation repurchases shares of capital stock of the
Corporation at the original purchase price paid therefor by the applicable
individual.
c. INSUFFICIENT FUNDS FOR REDEMPTION. If, at a Redemption Date,
the Corporation is prohibited under the General Corporation Law of the State of
Delaware from redeeming all shares of Series B Convertible Preferred Stock for
which redemption is required hereunder, then it shall redeem such shares on a
pro-rata basis among the holders of Series A Convertible Preferred Stock and the
Series B Convertible Preferred (and, if applicable, the Senior Redeemable
Preferred Stock) in proportion to the full respective redemption amounts to
which they are entitled hereunder to the extent possible and shall redeem the
remaining shares to be redeemed as soon as the Corporation is not prohibited
from redeeming some or all of such shares under the General Corporation Law of
the State of Delaware. The shares of Series B Convertible Preferred Stock not
redeemed shall remain outstanding and entitled to all of the rights and
preferences provided in this Article IV. In the event that the Corporation fails
for any reason to redeem shares for which redemption is required pursuant to
Section B.6, then during the period from the applicable Redemption Date through
the date on which such unredeemed shares are redeemed, the applicable Series B
Convertible Preferred Redemption Price of such shares shall bear interest at the
greater of twelve percent (12%) per annum or five percent (5%) over the then
prevailing prime rate, which interest shall be compounded annually.
d. DIVIDEND AFTER REDEMPTION DATE. From and after a Redemption
Date, no shares of Series B Convertible Preferred Stock subject to redemption
shall be entitled to any further dividends pursuant to Section B.2 hereof;
provided, however, that in the event that shares of Series B Convertible
Preferred Stock are unable to be redeemed and continue to be outstanding in
accordance with Section B.6(c), such shares shall continue to be entitled to
dividends and interest thereon as provided in Sections B.6(b) and B.6(c) until
the date on which such shares are actually redeemed by the Corporation.
e. SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Series B Convertible Preferred Redemption Price by certified check or wire
transfer, each holder of shares of Series B Convertible Preferred Stock to be
redeemed shall surrender the certificate or certificates representing such
shares to the Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto), or shall deliver an
Affidavit of Loss with respect to such certificates at the principal executive
office of the Corporation or the office of the transfer agent for the Series B
Convertible Preferred Stock or such office or offices in the continental United
States of an agent for redemption as may from time to time be
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designated by notice to the holders of Series B Convertible Preferred Stock, and
each surrendered certificate shall be canceled and retired.
7. NOTICE.
a. LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In the
event (i) the Corporation establishes a record date to determine the holders of
any class of securities who are entitled to receive any dividend or other
distribution or who are entitled to vote at a meeting (or by written consent) in
connection with any of the transactions identified in clause (ii) hereof, or
(ii) any Liquidation Event (as defined in Section A.3), any Extraordinary
Transaction (as defined in Section A.3) or any Qualified Public Offering (as
defined in Section A.4) becomes reasonably likely to occur, the Corporation
shall mail or cause to be mailed by first class mail (postage prepaid) to each
holder of Series B Convertible Preferred Stock at least thirty (30) days prior
to such record date specified therein or the expected effective date of any such
transaction, a notice specifying (A) the date of such record date for the
purpose of such dividend or distribution or meeting or consent and a description
of such dividend or distribution or the action to be taken at such meeting or by
such consent, (B) the date on which any such Liquidation Event, Extraordinary
Transaction or Qualified Public Offering is expected to become effective, and
(C) the date on which the books of the Corporation shall close or a record shall
be taken with respect to any such event.
b. WAIVER OF NOTICE. The holder or holders of a majority in
voting power of the outstanding shares of Series B Convertible Preferred Stock
may, at any time upon written notice to the Corporation, waive any notice
provisions specified herein for the benefit of such holders.
c. GENERAL. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the Corporation shall
at the same time provide a copy of any such notice, report or statement to each
holder of outstanding shares of Series B Convertible Preferred Stock.
8. NO REISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK. No share
or shares of Series B Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
9. WAIVER. The holder or holders of a majority in voting power of
the outstanding shares of Series B Convertible Preferred Stock may, at any time
upon written notice to the Corporation, waive any provisions specified herein
for the benefit of such holders.
C. SENIOR REDEEMABLE PREFERRED STOCK
1. VOTING POWER. The holders of Senior Redeemable Preferred
Stock shall not be entitled to vote on any matters except to the extent
otherwise expressly required by law.
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2. DIVIDENDS. The holders of outstanding shares of Senior
Redeemable Preferred Stock shall be entitled to receive, out of any funds
legally available therefor, cumulative dividends on the Senior Redeemable
Preferred Stock at the per annum rate of $50.00 per share from and after the
date upon which two-thirds of the shares of Series A Convertible Preferred Stock
shall have been converted.
3. LIQUIDATION. Upon any Liquidation Event, each holder of
outstanding shares of Senior Redeemable Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus, or earnings as follows,
on a parity with the payment of the Senior Series A Convertible Liquidation
Amount and the Senior Series B Convertible Liquidation Amount and before any
amount shall be paid or distributed to the holders of Common Stock or of any
other stock ranking on liquidation junior to the Senior Redeemable Preferred
Stock (including, without limitation, the Junior Redeemable Preferred Stock) an
amount in cash equal to the sum of (a) $1,000 per share (adjusted appropriately
for stock splits, stock dividends, recapitalizations and the like with respect
to the Senior Redeemable Preferred Stock) (the "Senior Redeemable Liquidation
Amount"), plus (b) any unpaid dividends to which such holder of outstanding
shares of Senior Redeemable Preferred Stock is entitled pursuant to Section C.2
and C.4(d) hereof, plus (c) any interest accrued pursuant to Section C.4(c);
provided, however, that if, upon any Liquidation Event, the amounts payable
under this Section C.3 with respect to the Senior Redeemable Preferred Stock,
the Senior Series A Convertible Liquidation Amount due on the Series A
Convertible Preferred Stock under Section A.3(a)(i) and the Senior Series B
Convertible Liquidation Amount due on the Series B Convertible Preferred Stock
under Section B.3(a)(i) are not paid in full, the holders of the Senior
Redeemable Preferred Stock, the Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled.
4. REDEMPTION.
a. MANDATORY REDEMPTION.
(i) AUTOMATIC. Immediately upon, and in all cases subject
to, the closing of a Qualified Public Offering (a "Redemption Date"), the
Corporation shall redeem all (and not less than all) of the outstanding shares
of Senior Redeemable Preferred Stock at the Senior Redemption Price specified in
Section C.4(b).
(ii) AFTER MARCH 31, 2001. The Corporation shall, to the
extent it may do so under applicable law, redeem all of the outstanding shares
of Senior Redeemable Preferred Stock in three equal installments on March 31,
2001, March 31, 2002 and March 31, 2003 (each, a "Redemption Date"): (A) in the
event that two-thirds of the outstanding shares of Series A Convertible
Preferred Stock shall have been converted, upon the election of the holder or
holders of two-thirds in interest of the outstanding Senior Redeemable Preferred
Stock and (B) otherwise upon the election of the holder or holders of a majority
in voting power of the outstanding shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock (voting together as a single
class on an as-converted basis) to cause the
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Corporation to redeem such shares under Sections A.6 and B.6 hereof or to
convert the same in order to effect a redemption hereunder, in each case made at
any time on or before March 1, 2001. The foregoing election shall be made by
such holders giving written notice on or before March 1, 2001 to the
Corporation, the holders of Series A Convertible Preferred Stock and each of the
other holders of Senior Redeemable Preferred Stock.
(iii) UPON EXTRAORDINARY TRANSACTIONS. Upon the election of
the holder or holders of two-thirds of the outstanding shares of Senior
Redeemable Preferred Stock (or two-thirds in voting power of Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock voting
together as a single class on an as-converted basis, as applicable, proposing to
convert in order to effect a redemption hereunder), the Corporation shall, to
the extent it may do so under applicable law, redeem all of the outstanding
shares of Senior Redeemable Preferred Stock upon the occurrence of an
Extraordinary Transaction (as defined in Section B.3). The foregoing election
shall be made by such holders giving the Corporation and each other holder of
Senior Redeemable Preferred Stock (or Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock, as applicable) not less that five (5) days
prior written notice, which notice shall set forth the date for such redemption.
b. REDEMPTION PRICE. Upon the election of the holders of
two-thirds of the outstanding shares of Senior Redeemable Preferred Stock to
cause the Corporation to redeem the Senior Redeemable Preferred Stock pursuant
to Section C.4(a)(ii) or (iii), all holders of Senior Redeemable Preferred Stock
shall be deemed to have elected to cause the Senior Redeemable Preferred Stock
to be so redeemed. The redemption price for each share of Senior Redeemable
Preferred Stock redeemed pursuant to this Section C.4 shall be the sum of (x)
the Senior Redeemable Liquidation Amount, plus (y) any unpaid dividends to which
such holder of outstanding shares of Senior Redeemable Preferred Stock is
entitled under Section C.2 and Section C.4(d) hereof (the "Senior Redemption
Price"); provided, however, that if at a Redemption Date shares of Senior
Redeemable Preferred Stock are unable to be redeemed (as contemplated by Section
C.4(c) below), in addition to the Senior Redemption Price the holders of Senior
Redeemable Preferred Stock shall be entitled to any interest accrued pursuant to
Section C.4(c). The Senior Redemption Price shall be payable in cash in
immediately available funds on the Redemption Date. Until the full Senior
Redemption Price, including any interest thereon, has been paid in cash for all
shares of Senior Redeemable Preferred Stock redeemed as of the applicable
Redemption Date: (A) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on any capital stock of the Corporation; and (B) no
shares of capital stock of the Corporation (other than the Series A Convertible
Preferred Stock in accordance with Section A.6, the Series B Convertible
Preferred Stock in accordance with Section B.6 and the Senior Redeemable
Preferred Stock in accordance with this Section C.4) shall be purchased,
redeemed or acquired by the Corporation and no monies shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof, other than pursuant to vesting or first refusal provisions
of agreements with employees, officers, directors or consultants of the
Corporation in which the Corporation repurchases shares of capital stock of the
Corporation at the original purchase price paid therefor by the applicable
individual.
c. INSUFFICIENT FUNDS FOR REDEMPTION. If, at a Redemption
Date, the Corporation is prohibited under the General Corporation Law of the
State of Delaware from
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redeeming all shares of Senior Redeemable Preferred Stock for which redemption
is required hereunder, then it shall redeem such shares on a pro-rata basis
among the holders of Senior Redeemable Preferred Stock (and, if applicable, the
Series A Convertible Preferred Stock) in proportion to the full respective
redemption amounts to which they are entitled hereunder to the extent possible
and shall redeem the remaining shares to be redeemed as soon as the Corporation
is not prohibited from redeeming some or all of such shares under the General
Corporation Law of the State of Delaware. The shares of Senior Redeemable
Preferred Stock not redeemed shall remain outstanding and entitled to all of the
rights and preferences provided in this Article IV. In the event that the
Corporation fails for any reason to redeem shares for which redemption is
required pursuant to Section C.4, then during the period from the applicable
Redemption Date through the date on which such unredeemed shares are redeemed,
the applicable Redemption Price of such shares shall bear interest at the
greater of twelve percent (12%) per annum or five percent (5%) over the current
prime rate, which interest shall be compounded annually.
d. DIVIDEND AFTER REDEMPTION DATE. From and after a
Redemption Date, no shares of Senior Redeemable Preferred Stock subject to
redemption shall be entitled to any further dividends pursuant to Section C.2
hereof; provided, however, that in the event that shares of Senior Redeemable
Preferred Stock are unable to be redeemed and continue to be outstanding in
accordance with Section C.4(c), such shares shall continue to be entitled to
dividends and interest thereon as provided in Sections C.4(b) and C.4(c) until
the date on which such shares are actually redeemed by the Corporation.
e. SURRENDER OF CERTIFICATES. Upon receipt of the
applicable Senior Redemption Price by certified check or wire transfer, each
holder of shares of Senior Redeemable Preferred Stock to be redeemed shall
surrender the certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or accompanied by duly
executed stock powers relating thereto), or shall deliver an Affidavit of Loss
with respect to such certificates at the principal executive office of the
Corporation or the office of the transfer agent for the Senior Redeemable
Preferred Stock or such office or offices in the continental United States of an
agent for redemption as may from time to time be designated by notice to the
holders of Senior Redeemable Preferred Stock (or the holders of Series A
Convertible Preferred Stock, as applicable), and each surrendered certificate
shall be canceled and retired.
5. NOTICE.
a. LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC.
In the event (i) the Corporation establishes a record date to determine the
holders of any class of securities who are entitled to receive any dividend or
other distribution or who are entitled to vote at a meeting (or by written
consent) in connection with any of the transactions identified in clause (ii)
hereof, or (ii) any Liquidation Event (as defined in Section A.3), any
Extraordinary Transaction (as defined in Section A.3), or any Qualified Public
Offering (as defined in Section A.4) becomes reasonably likely to occur, the
Corporation shall mail or cause to be mailed by first class mail (postage
prepaid) to each holder of Senior Redeemable Preferred Stock, at least forty-
five (45) days prior to such record date specified therein or the expected
effective date of any such transaction, a notice specifying (A) the date of such
record date for the purpose of such dividend or distribution or meeting or
consent and a description of such dividend or
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distribution or the action to be taken at such meeting or by such consent, (B)
the date on which any such Liquidation Event, Extraordinary, Transaction, Equity
Offering or Qualified Public Offering is expected to become effective, and (C)
the date on which the books of the Corporation shall close or a record shall be
taken with respect to any such event.
b. WAIVER OF NOTICE. The holder or holders of a majority
of the outstanding shares of Senior Redeemable Preferred Stock may, at any time
upon written notice to the Corporation, waive any notice provisions specified
herein for the benefit of such holders.
c. GENERAL. In the event that the Corporation provides
any notice, report or statement to any holder of Common Stock, the Corporation
shall at the same time provide a copy of any such notice, report or statement to
each holder of outstanding shares of Senior Redeemable Preferred Stock.
6. NO REISSUANCE OF SENIOR REDEEMABLE PREFERRED STOCK. No share or
shares of Senior Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
7. WAIVER. The holder or holders of seventy percent (70%) of
the outstanding shares of Senior Redeemable Preferred Stock may, at any time
upon written notice to the Corporation, waive any provisions specified herein
for the benefit of such holders.
D. JUNIOR REDEEMABLE PREFERRED STOCK
1. VOTING POWER. The holders of Junior Redeemable Preferred
Stock shall not be entitled to vote on any matters except to the extent
otherwise expressly required by law.
2. DIVIDENDS. The holders of outstanding shares of Junior
Redeemable Preferred Stock shall be entitled to receive, out of any funds
legally available therefor, cumulative dividends on the Junior Redeemable
Preferred Stock at the per annum rate of $50.00 per share from and after the
date upon which a majority of the shares of Series A Convertible Preferred Stock
shall have been converted.
3. LIQUIDATION. Upon any Liquidation Event, each holder of
outstanding shares of Junior Redeemable Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus, or earnings as follows,
after payment in full of the Total Series A Convertible Liquidation Amount due
to any holders of outstanding Series A Convertible Preferred Stock, the Senior
Series B Convertible Liquidation Amount due to any holders of outstanding Series
B Convertible Preferred Stock and the Senior Redeemable Liquidation Amount due
to any holders of outstanding Senior Redeemable Stock, on a parity with the
payment of the Junior Series B Convertible Liquidation Amount and before any
amount shall be paid or distributed to the holders of Common Stock or of any
other stock ranking on liquidation junior to the Junior Redeemable Preferred
Stock, an amount in cash equal to the sum of (a) $1,000 per share
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<PAGE>
(adjusted appropriately for stock splits, stock dividends, recapitalizations and
the like with respect to the Junior Redeemable Preferred Stock), plus (b) any
unpaid dividends to which such holder of outstanding shares of Junior Redeemable
Preferred Stock, plus (c) any interest accrued pursuant to Section D.4(c) is
entitled pursuant to Section D.2 hereof (the "Junior Redeemable Liquidation
Amount"); provided, however, that if, upon any Liquidation Event, the amounts
payable with respect to the Junior Redeemable Preferred Stock and the Junior
Series B Convertible Liquidation Amount are not paid in full, the holders of the
Junior Redeemable Preferred Stock and the Series B Convertible Preferred Stock
shall share ratably in any distribution of assets in proportion to the full
respective preferential amounts to which they are entitled.
4. REDEMPTION.
a. MANDATORY REDEMPTION.
(i) AUTOMATIC. Immediately upon, and in all cases subject
to, the closing of a Qualified Public Offering, the Corporation shall redeem all
(and not less than all) of the outstanding shares of Junior Redeemable Preferred
Stock at the Redemption Price specified in Section D.4(b); provided, however,
that notwithstanding anything herein to the contrary, no redemption shall be
made of the Junior Redeemable Preferred Stock if the Corporation shall not have
redeemed all outstanding Senior Redeemable Preferred Stock (including any Senior
Redeemable Preferred Stock which may be deemed to have been issued upon
conversion of the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock).
(ii) AFTER MARCH 31, 2004. Upon the election of the holder
or holders of a majority in interest of the outstanding Junior Redeemable
Preferred Stock made at any time on or before March 1, 2004, the Corporation
shall, to the extent it may do so under applicable law, redeem all of the
outstanding shares of Junior Redeemable Preferred Stock in three equal
installments on the earlier of (A) the date which is the first anniversary of
the date on which all of the Senior Redeemable Preferred Stock shall have been
redeemed and on such date in each of the succeeding two years, or (B) March 31,
2004, March 31, 2005 and March 31, 2006 (each, a "Redemption Date"); provided,
however, that notwithstanding anything herein to the contrary, no redemption
shall be made of the Junior Redeemable Preferred Stock unless both (x) all of
the outstanding Series A Convertible Preferred Stock and, with respect to the
Senior Series B Convertible Liquidation Amount, the Series B Convertible
Preferred Stock shall have been redeemed or converted and (y) the Corporation
shall have redeemed all outstanding Senior Redeemable Preferred Stock (including
any Senior Redeemable Preferred Stock which may be deemed to have been issued
upon conversion of the Series A Convertible Preferred Stock or the Series B
Convertible Preferred Stock). The foregoing election shall be made by such
holders giving written notice on or before March 1, 2004 to the Corporation, the
holders of Series A Convertible Preferred Stock and Senior Redeemable Preferred
Stock and each of the other holders of Junior Redeemable Preferred Stock.
(iii) UPON EXTRAORDINARY TRANSACTION. Upon the election
of the holder or holders of a majority in interest of the outstanding Junior
Redeemable Preferred
27
<PAGE>
Stock, the Corporation shall, to the extent it may do so under applicable law,
redeem all (and not less than all, other than pursuant to Section D.4(c) below)
of the outstanding shares of Junior Redeemable Preferred Stock upon the
occurrence of an Extraordinary Transaction (as defined in Section A.3);
provided, however, that notwithstanding anything herein to the contrary, no
redemption shall be made of the Junior Redeemable Preferred Stock unless both
(x) all of the outstanding Series A Convertible Preferred Stock and, with
respect to the Senior Series B Convertible Liquidation Amount, the Series B
Convertible Preferred Stock shall have been redeemed or converted and (y) the
Corporation shall have redeemed all outstanding Senior Redeemable Preferred
Stock (including any Senior Redeemable Preferred Stock which may be deemed to
have been issued upon conversion of the Series A Convertible Preferred Stock or
the Series B Preferred Stock). The foregoing election shall be made by such
holders giving the Corporation and each other holder of Junior Redeemable
Preferred Stock (or Series A Convertible Preferred Stock, as applicable) not
less that five (5) days prior written notice, which notice shall set forth the
date for such redemption.
b. REDEMPTION PRICE. Upon the election of the holders of
a majority in interest of the outstanding Junior Redeemable Preferred Stock to
cause the Corporation to redeem the Junior Redeemable Preferred Stock pursuant
to Section D.4(a)(ii) or (iii), all holders of Junior Redeemable Preferred Stock
shall be deemed to have elected to cause the Junior Redeemable Preferred Stock
to be so redeemed. The redemption price for each share of Junior Redeemable
Preferred Stock redeemed pursuant to this Section D.4 shall be the Junior
Redeemable Liquidation Amount (the "Junior Redemption Price"); provided,
however, that if at a Redemption Date shares of Junior Redeemable Preferred
Stock are unable to be redeemed (as contemplated by Section D.4(c) below), in
addition to the Redemption Price the holders of Junior Redeemable Preferred
Stock shall be entitled to any interest accrued pursuant to Section D.4(c). The
Junior Redemption Price shall be payable in cash in immediately available funds
on the Redemption Date. Until the full Junior Redemption Price, including any
interest thereon, has been paid in cash for all shares of Junior Redeemable
Preferred Stock redeemed as of the applicable Redemption Date: (A) no dividend
whatsoever shall be paid or declared, and no distribution shall be made, on any
capital stock of the Corporation; and (B) no shares of capital stock of the
Corporation (other than the Junior Redeemable Preferred Stock in accordance with
this Section D.4) shall be purchased, redeemed or acquired by the Corporation
and no monies shall be paid into or set aside or made available for a sinking
fund for the purchase, redemption or acquisition thereof, other than pursuant to
vesting, first refusal or repurchase provisions of agreements with employees,
officers, directors or consultants of the Corporation in which the Corporation
repurchases shares of capital stock of the Corporation at the original purchase
price paid therefor by the applicable individual.
c. INSUFFICIENT FUNDS FOR REDEMPTION. If, at a Redemption
Date, the Corporation is prohibited under the General Corporation Law of the
State of Delaware from redeeming all shares of Junior Redeemable Preferred Stock
for which redemption is required hereunder, then it shall redeem such shares on
a pro-rata basis among the holders of Junior Redeemable Preferred Stock in
proportion to the full respective redemption amounts to which they are entitled
hereunder to the extent possible and shall redeem the remaining shares to be
redeemed as soon as the Corporation is not prohibited from redeeming some or all
of such shares under the General Corporation Law of the State of Delaware. The
shares of Junior Redeemable
28
<PAGE>
Preferred Stock not redeemed shall remain outstanding and entitled to all of the
rights and preferences provided in this Article IV. In the event that the
Corporation fails to redeem shares for which redemption is required pursuant to
Section D.4, then, during the period from the applicable Redemption Date through
the date on which such unredeemed shares are redeemed, the applicable Junior
Redemption Price of such shares shall bear interest at the greater of twelve
percent (12%) per annum or five percent (5%) over the current prime rate, which
interest shall be compounded annually.
d. SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Redemption Price by certified check or wire transfer, each holder of shares of
Junior Redeemable Preferred Stock to be redeemed shall surrender the certificate
or certificates representing such shares to the Corporation, duly assigned or
endorsed for transfer (or accompanied by duly executed stock powers relating
thereto), or shall deliver an Affidavit of Loss with respect to such
certificates at the principal executive office of the Corporation or the office
of the transfer agent for the Junior Redeemable Preferred Stock or such office
or offices in the continental United States of an agent for redemption as may
from time to time be designated by notice to the holders of Junior Redeemable
Preferred Stock (or the holders of Series A Convertible Preferred Stock, as
applicable), and each surrendered certificate shall be canceled and retired.
5. NOTICE.
a. LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC.
In the event (i) the Corporation establishes a record date to determine the
holders of any class of securities who are entitled to receive any dividend or
other distribution or who are entitled to vote at a meeting (or by written
consent) in connection with any of the transactions identified in clause (ii)
hereof, or (ii) any Liquidation Event (as defined in Section A.3), any
Extraordinary Transaction (as defined in Section A.3), or any Qualified Public
Offering (as defined in Section A.4) becomes reasonably likely to occur, the
Corporation shall mail or cause to be mailed by first class mail (postage
prepaid) to each holder of Junior Redeemable Preferred Stock, at least forty-
five (45) days prior to such record date specified therein or the expected
effective date of any such transaction, a notice specifying (A) the date of such
record date for the purpose of such dividend or distribution or meeting or
consent and a description of such dividend or distribution or the action to be
taken at such meeting or by such consent, (B) the date on which any such
Liquidation Event, Extraordinary Transaction, Equity Offering or Qualified
Public Offering is expected to become effective, and (C) the date on which the
books of the Corporation shall close or a record shall be taken with respect to
any such event.
b. WAIVER OF NOTICE. The holder or holders of a majority
in interest of the outstanding shares of Junior Redeemable Preferred Stock may,
at any time upon written notice to the Corporation, waive any notice provisions
specified herein for the benefit of such holders.
c. GENERAL. In the event that the Corporation provides
any notice, report or statement to any holder of Common Stock, the Corporation
shall at the same time
29
<PAGE>
provide a copy of any such notice, report or statement to each holder of
outstanding shares of Junior Redeemable Preferred Stock.
6. NO REISSUANCE OF JUNIOR REDEEMABLE PREFERRED STOCK. No share or
shares of Junior Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.
7. WAIVER. The holder or holders of a majority in interest of
the outstanding shares of Junior Redeemable Preferred Stock may, at any time
upon written notice to the Corporation, waive any provisions specified herein
for the benefit of such holders.
E. UNDESIGNATED PREFERRED STOCK
1. ISSUANCE. Subject to any limitations prescribed by law or this
Amended and Restated Certificate, the Board of Directors of the Corporation or
an authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more classes or
one or more series of stock within any class, and by filing a certificate
pursuant to applicable law of the State of Delaware, to establish or change from
time to time the number of shares to be included in each such class or series,
and to fix the designation, voting powers, preferences, qualifications,
privileges and rights of the share of each such class or series and any
qualifications, limitations and restrictions thereof. Any action of the Board of
Directors or an authorized committee thereof under this Section E shall require
an affirmative vote of a majority of the Directors then in office or a majority
of the members of such committee. The Board of Directors or an authorized
committee thereof shall have the right to determine or fix one or more of the
following with respect to each class or series of such Undesignated Preferred
Stock to the extent permitted by law:
a. The distinctive class or serial designation and the number
of shares constituting such class or series;
b. The dividend rates or the amount of dividends to be paid on
the shares of such class or series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for dividends, and
the participating and other rights, if any, with respect to dividends;
c. The voting powers, full or limited, if any, of the shares of
such class or series;
d. Whether the shares of such class or series shall be
redeemable and, if so, the price or prices at which, and the terms and
conditions on which, such shares may be redeemed;
30
<PAGE>
e. The amount or amounts payable upon the shares of such
class or series and any preferences applicable thereto in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
f. Whether the shares of such class or series shall be
entitled to the benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price or prices at which
such shares may be redeemed or purchased through the application of such fund;
g. Whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustment thereof, if any, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
h. The price or other consideration for which the shares
of such class or series shall be issued;
i. Whether the shares of such class or series which are
redeemed or converted shall have the status of authorized but unissued shares of
Preferred Stock and whether such shares may be reissued as shares of the same or
any other class or series of stock; and
j. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors of the
Corporation or an authorized committee thereof may deem advisable.
2. RESTORATION OF STATUS. Subject to the authority of the
Board of Directors as set forth in clause (i) above, any shares of Undesignated
Preferred Stock shall, upon reacquisition thereof by the Corporation, be
restored to the status of authorized but unissued Undesignated Preferred Stock
under this Section E.
F. COMMON STOCK
1. VOTING POWER. The holder of each share of Common Stock shall be
entitled to one vote for each such share as determined on the record date for
the vote or consent of stockholders and shall vote together with the holders of
the Series A Convertible Preferred Stock (to the extent provided by the
provisions of Part A of this Article IV) and the holders of the Series B
Convertible Preferred Stock (to the extent provided by the provisions of Part B
of this Article IV) as a single class upon any items submitted to a vote of
stockholders, except as otherwise provided herein.
2. DIVIDENDS. The holders of Common Stock shall be entitled to
receive dividends out of funds legally available therefor at such times and in
such amounts as the Board of Directors may determine in its sole discretion,
with holders of Series A Convertible Preferred Stock,
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<PAGE>
Series B Convertible Preferred Stock and Common Stock sharing pari passu in such
dividends as contemplated by Sections A.2 and B.2.
3. LIQUIDATION. Upon any Liquidation Event, after the payment or
provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Senior Redeemable Preferred Stock
or Junior Redeemable Preferred Stock, as applicable, are entitled with respect
to the distribution of assets in liquidation, the holders of Common Stock (and
to the extent applicable under Sections A.3(a) and B.3(a), Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock) shall be entitled to
share ratably in the remaining assets of the Corporation available for
distribution, with such stock being considered a single class for this purpose.
4. FRACTIONAL SHARES: UNCERTIFICATED SHARES. The Corporation may
issue fractional shares (up to five decimal places) of Common Stock. Fractional
shares shall be entitled to dividends (on a pro rata basis), and the holders of
fractional shares shall be entitled to all rights as stockholders of the
Corporation to the extent provided herein and under applicable law in respect of
such fractional shares. Shares of Common Stock, or fractions thereof, may, but
need not be represented by share certificates. Such shares, or fractions
thereof, not represented by share certificates ("Uncertificated Common Shares")
shall be registered in the stock records book of the Corporation. The
Corporation at any time at its sole option may deliver to any registered holder
of such shares share certificates to represent Uncertificated Common Shares
previously issued (or deemed issued) to such holder.
ARTICLE V
In furtherance of and not in limitation of powers conferred by statute, it
is further provided:
1. Election of Directors need not be by written ballot unless
the by-laws of the Corporation so provide.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the by-laws of the Corporation to the extent specified therein.
ARTICLE VI
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. No action required to be taken or which
may be taken at any annual or special meeting of stockholders of the Corporation
may be taken, except at a duly convened meeting or by unanimous written consent
of the stockholders entitled to vote thereat with respect to the matters
submitted thereto, and the power of stockholders to act by other than unanimous
written consent without a meeting, is specifically denied, provided that the
foregoing shall not apply with respect to consent, approval or waiver rights of
the holders of the Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, Senior Redeemable Preferred Stock or Junior
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Redeemable Preferred Stock set forth herein in cases for which less than
unanimous consent is expressly provided.
ARTICLE VII
To the extent permitted by law, the books of the Corporation may be
kept outside the State of Delaware at such place or places as may be designated
in the by-laws of the Corporation or from time to time by its Board of
Directors.
ARTICLE VIII
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of his or her fiduciary duty as a Director of
the Corporation, except for liability (a) for any breach of the Director's duty
of loyalty to the Corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the General Corporation Law of the State of
Delaware, or (d) for any transaction from which the Director derived an improper
personal benefit. If the General Corporation Law of the State of Delaware is
amended after the effective date of this Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of each past or present
Director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of this Article VIII by (a) the stockholders of
the Corporation or (b) an amendment to the General Corporation Law of the State
of Delaware (unless such statutory amendment specifically provides to the
contrary) shall not adversely affect any right or protection existing at the
time of such repeal or modification with respect to any acts or omissions
occurring either before or after such repeal or modification, of a person
serving as a Director prior to or at the time of such repeal or modification.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
[Remainder of Page Intentionally Left Blank]
33
<PAGE>
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as
of this 14th day of March, 1996.
R&D SYSTEMS COMPANY
By: /s/ Guy M. Lammle - CEO
---------------------------
Name: Guy M. Lammle
Title: Chief Executive Officer
ATTEST:
/s/ KJ Cunningham
- ------------------------------
Name: Kathy Cunningham
Title: Secretary
34
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
R&D SYSTEMS COMPANY
R&D SYSTEMS COMPANY (the "Corporation), a corporation duly organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
1. The name of the Corporation is R&D Systems Company.
2. The Amended and Restated Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware
on March 15, 1996.
3. The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by striking out Article I thereof and by
substituting in lieu of Article I the following:
"ARTICLE I
The name of the Corporation is NxTrend Technology, Inc."
4. The amendment of the Amended and Restated Certificate of
Incorporation herein certified has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
Executed on this 12th day of December, 1996.
/s/ KATHY CUNNINGHAM
-------------------------------------
Kathy Cunningham,
Chief Operating Officer,
Chief Financial Officer and Secretary
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is
NxTrend Technology, Inc.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 9 East Loockerman Street, City of Dover 19901,
County of Kent.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to National Registered Agents, Inc., the business
office of which is identical with the registered office of the corporation as
hereby changed.
4. The corporation has authorized the changes hereinbefore set
forth by resolution of its Board of Directors.
Signed on February 5, 1997.
NxTrend Technology, Inc.
/s/ K J. Cunningham
-------------------
K. J. Cunningham,
CFO/COO and Secretary
<PAGE>
EXHIBIT 3.3
______________________________________________________________________________
BYLAWS
OF
R&D SYSTEMS COMPANY
______________________________________________________________________________
ARTICLE I
OFFICES AND AGENT
1. PRINCIPAL OFFICE. The principal office of R&D Systems Company
(the "Corporation") may be located within or without the State of Delaware, as
designated by the board of directors. The Corporation may have other offices and
places of business at such places within or without the State of Delaware as
shall be determined by the directors.
2. REGISTERED OFFICE AND AGENT. The Corporation shall have and
maintain at all times (a) a registered office in the State of Delaware, which
office shall be located at 1013 Centre Road, Wilmington, Delaware 19805, and (b)
a registered agent located at such address whose name is Corporation Service
Company, until changed from time to time as provided by the General Corporation
Law of the State of Delaware ("Delaware Corporation Law").
ARTICLE II
STOCKHOLDERS MEETINGS
1. ANNUAL MEETINGS. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on such date and at such
time as determined by resolution of the board of directors. If, at the place of
the meeting, this date shall fall upon a legal holiday, then such meeting shall
be held on the next succeeding business day at the same hour. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these Bylaws to the
annual meeting of stockholders shall be deemed to refer to such special meeting.
2. SPECIAL MEETINGS. Special meetings of the stockholders of the
Corporation may be called for any purpose (including, without limitation, the
filling of board vacancies and newly created directorships) and may be held at
such time and place, within or without the State of Delaware, as shall be stated
in a notice of meeting or in a duly executed waiver of notice thereof. Such
meetings may be called at any time by the board of directors or the president
and shall be called by the president upon the written request of holders of
shares entitled to cast not less than
1.
<PAGE>
fifty percent of the votes at such special meeting or by the written request of
the holders of not less than fifty percent of the outstanding shares of any
series or class of the Corporation's stock; provided that if the president does
not so call the meeting, it may be called by the holders of shares entitled to
cast not less than fifty percent of the outstanding shares of any series or
class of the Corporation's stock. Such written request shall specify the purpose
or purposes of, and a proposed date for, the meeting and shall be delivered to
the president. Upon receipt of such written request, the president shall fix a
date and time for such meeting, which such date shall be within five business
days of the proposed date specified in the written request. A special meeting
shall in any event be held within five business days of the creation of a board
vacancy or new directorship.
3. PLACE OF MEETINGS. All meetings of stockholders of the
Corporation shall be held within or without the State of Delaware as may be
designated by the board of directors, the president or the stockholders entitled
to call a meeting pursuant to Section 2 of this Article II, or, if not
designated, at the registered office of the Corporation.
4. NOTICE OF MEETING. Except as otherwise provided in these Bylaws
or the Delaware Corporation Law, written notice of any meeting of stockholders
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose for which the meeting is called, shall be delivered either
personally or by mail to each stockholder of record entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting, by or at the direction of the board of directors, the president or
the secretary. If mailed, such notice shall be deemed to be delivered as to any
stockholder of record when deposited in the United States mail addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage prepaid. When a meeting is adjourned to another time
or place, 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 which 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
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
5. WAIVER OF NOTICE. Any stockholder, either before or after any
stockholders' meeting, may waive in writing notice of the meeting, and his
waiver shall be deemed the equivalent of giving notice. Attendance at a meeting
by a stockholder shall constitute a waiver of notice, except when the
stockholder 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.
6. FIXING OF RECORD DATE. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors of the Corporation may fix, in
advance, a record date which shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of such meeting, nor
2.
<PAGE>
more than sixty (60) days prior to any other action. If no record date is fixed,
the record date for determining the stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. The record date for determining the stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
7. STOCKHOLDERS LIST. 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 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, at a place within the city 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.
8. PROXIES. A 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 him by
proxy. No proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period.
9. VOTING RIGHTS. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation.
Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. Persons whose stock is pledged shall be entitled to
vote, unless in the transfer by the pledgor on the books of the Corporation he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
If shares having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety, or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (i) if only one votes, his act binds all; (ii) if
more than one vote, the act of the majority so voting binds all; and (iii) if
more than one vote, but the vote is evenly split on any particular matter, each
fraction may vote the securities in question proportionately, or any person
voting the
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shares or a beneficiary, if any, may apply to the Court of Chancery or any court
of competent jurisdiction in the State of Delaware to appoint an additional
person to act with the persons so voting the shares. The shares shall then be
voted as determined by a majority of such persons and the person appointed by
the Court. If a tenancy is held in unequal interests, a majority or even-split
for the purpose of this subsection shall be a majority or even-split in
interest.
10. QUORUM AND REQUIRED VOTE. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, the holders of a majority of
the shares entitled to vote at the meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the shares present or represented by proxy
at the meeting and entitled to vote on the subject matter shall be the act of
the stockholders, and, if there are two or more classes of stock entitled to
vote as separate classes, then, in the case of each such class, the affirmative
vote of a majority of the shares of that class present or represented by proxy
at the meeting shall be the vote of such class unless a different vote is
required by an express provision of law, the Certificate of Incorporation or
these Bylaws.
11. INFORMAL ACTION BY STOCKHOLDER. Except as otherwise provided in
the Certificate of Incorporation, any action required by the provisions of
Delaware Corporation Law to be taken or any action which may be taken at a
stockholders' meeting may be taken without a meeting without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding shares 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. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous consent shall be given to those stockholders who have not
consented in writing. Any action taken pursuant to such written consent of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
BOARD OF DIRECTORS
1. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. Except as otherwise
provided in the Certificate of Incorporation or the Delaware Corporation Law,
the business and affairs of the Corporation shall be managed by or under the
direction of a board of directors. Directors need not be stockholders of the
Corporation. The board of directors shall consist of not less than three and
not more than seven members. Except as otherwise provided in these Bylaws, each
director shall be elected at each annual meeting of stockholders and shall hold
such office until the next annual meeting of stockholders and until his
successor shall be elected and shall qualify. No decrease in the member of
directors shall have the effect of shortening the term of any incumbent
director.
2. VACANCIES. Except as otherwise provided by the Certificate of
Incorporation of the Corporation or any amendments thereto, board vacancies and
newly created directorships resulting from any increase in the authorized number
of directors shall be filled by a majority vote of the holders of the
Corporation's outstanding stock entitled to vote thereon, and each
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director so chosen shall hold office until the next annual meeting of the
stockholders and until a successor is duly elected and qualified or until his or
her earlier death, resignation or removal as hereinafter provided.
3. RESIGNATION. Any director may resign by delivering his written
resignation to the Corporation at its principal office addressed to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
4. REMOVAL. Except as otherwise provided in the Certificate of
Incorporation or the Delaware Corporation Law, 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 thereon at an election of directors.
5. COMPENSATION. Directors may be paid such compensation for their
services and such reimbursements for expenses of attendance at meetings as the
Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
MEETINGS OF THE BOARD
1. PLACE OF MEETINGS. The regular or special meetings of the board
of directors or any committee designated by the board shall be held at the
principal office of the Corporation or at any other place within or without the
State of Delaware that a majority of the board of directors or any such
committee, as the case may be, may designate from time to time by resolution.
2. REGULAR MEETINGS. The board of directors shall meet each year
immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing officers and transacting such other
business as may come before the meeting. The board of directors or any
committee designated by the board may provide, by resolution, for the holding of
additional regular meetings within or without the State of Delaware without
notice of the time and place of such meeting other than such resolution;
provided that any director who is absent when such resolution is made shall be
given notice of said resolution.
3. SPECIAL MEETINGS. Special meetings of the board of directors or
any committee designated by the board may be held at any time and place, within
or without the State of Delaware, designated in a call by the chairman of the
board, if any, by the president or by a majority of the members of the board of
directors or any such committee, as the case may be.
4. NOTICE OF SPECIAL MEETING. Except as otherwise provided by these
Bylaws or the laws of the State of Delaware, written notice of each special
meeting of the board of directors or any committee thereof setting forth the
time and place of the meeting shall be given to each director by the secretary
or by the officer or director calling the meeting not less than one (1) day
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prior to the time fixed for the meeting. Notice of special meetings may be
either given personally, personally by telephone, or by sending a copy of the
notice through the United States mail or by telegram, telex or telecopy, charges
prepaid, to the address of each director appearing on the books of the
Corporation. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage prepaid thereon.
If notice be given by telegram; such notice shall be deemed to be delivered when
the telegram, telex or telecopy, is delivered to the telegraph, telex or
telecopy operator. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be specified
in the notice or waiver of notice of such meeting.
5. WAIVER OF NOTICE. A director may waive, in writing, notice of
any special meeting of the board of directors or any committee thereof, either
before, at, or after the meeting; and his waiver shall be deemed the equivalent
of giving notice. By attending or participating in a regular or special
meeting, a director waives any required notice of such meeting unless the
director, at the beginning of the meeting, objects to the holding of the meeting
or the transacting of business at the meeting.
6. QUORUM AND ACTION AT MEETING. At meetings of the board of
directors or any committee designated by the board, a majority of the total
number of directors, or a majority of the members of any such committee, as the
case may be, shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. If a quorum is present, the act of
the majority of directors in attendance shall be the act of the board of
directors or any committee thereof, as the case may be, unless the act of a
greater number is required by these Bylaws, the Certificate of Incorporation or
Delaware Corporation Law. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn that meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
7. COMMITTEES. The board of directors may, by a resolution passed
by a majority of the whole board of directors designate one or more committees,
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
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 of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of the absent or disqualified member. Any such committee,
to the extent provided in the resolution of the board of directors and subject
to the provisions of Delaware Corporation Law, 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 such papers which may require it. Each such
committee shall keep minutes and make such reports as the board of directors may
from time to time request. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but,
unless otherwise
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provided by the directors or in such rules, its business shall be conducted as
nearly as possible in the same manner as is provided in these Bylaws for the
board of directors.
8. INFORMAL ACTION BY DIRECTORS. Except as otherwise provided in
the Certificate of Incorporation, any action required or permitted by the
Delaware Corporation Law to be taken at any meeting of the board of directors or
any committee thereof may be taken without a meeting if all members of the board
or committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the board or
committee.
9. TELEPHONIC MEETINGS. Directors or any members of any committee
designated by the board may participate in a meeting of the board or committee
by means of a conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other at the same time.
Such participation shall constitute presence in person at the meeting.
ARTICLE V
OFFICERS AND AGENTS
1. ENUMERATION, ELECTION AND TERM. The officers of the Corporation
shall consist of a president, a secretary, a treasurer and such other officers
with such other titles as may be deemed necessary or desirable by the board of
directors, including one or more vice presidents, assistant treasurers and
assistant secretaries and a chairman of the board. Any number of offices may be
held by the same person and no officer need be a stockholder or a resident of
the State of Delaware. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, each officer shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The officers of the Corporation shall be elected annually by the board
of directors at the first meeting of the board held after each annual meeting of
the stockholders.
2. GENERAL DUTIES. All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in
these Bylaws or as may be determined by resolution of the board of directors not
inconsistent with these Bylaws. In all cases where the duties of any officer,
agent or employee are not prescribed by the Bylaws or by the board of directors,
such officer, agent or employee shall follow the orders and instructions of the
president.
3. VACANCIES. The board of directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave any vacancy
unfilled for such period as it may determine other than a vacancy in the office
of president or secretary. The officer so selected shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal.
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4. COMPENSATION. The board of directors from time to time shall fix
the compensation of the officers of the Corporation. The compensation of other
agents and employees of the Corporation may be fixed by the board of directors,
or by any committee designated by the board or by an officer to whom that
function has been delegated by the board.
5. RESIGNATION AND REMOVAL. Any officer may resign by delivering
his written resignation to the Corporation at its principal office addressed to
the president or secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event. Any officer or agent of the Corporation may be removed,
with or without cause, by a vote of the majority of the members of the board of
directors whenever in its judgment the best interests of the Corporation may be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or an agent shall not of itself create contract rights.
6. CHAIRMAN OF THE BOARD. The chairman of the board, if any, shall
preside as chairman at meetings of the stockholders and the board of directors.
He shall, in addition, have such other duties as the board may prescribe that he
perform. At the request of the president, the chairman of the board may, in the
case of the president's absence or inability to act, temporarily act in his
place. In the case of death of the president or in the case of his absence or
inability to act without having designated the chairman of the board to act
temporarily in his place, the chairman of the board shall perform the duties of
the president, unless the board of directors, by resolution, provides otherwise.
If the chairman of the board shall be unable to act in place of the president,
the vice presidents may exercise such powers and perform such duties as provided
in Section 8 below.
7. PRESIDENT. The president shall be the chief executive officer of
the Corporation and shall have general supervision of the business of the
Corporation. In the event the position of chairman of the board shall not be
occupied or the chairman shall be absent or otherwise unable to act, the
president shall preside at meetings of the stockholders and directors and shall
discharge the duties of the presiding officer. At each annual meeting of the
stockholders, the president shall give a report of the business of the
Corporation for the preceding fiscal year and shall perform whatever other
duties the board of directors may from time to time prescribe.
8. VICE PRESIDENTS. Each vice president shall have such powers and
perform such duties as the board of directors may from to time prescribe or as
the president may from time to time delegate to him. At the request of the
president, in the case of the president's absence or inability to act, any vice
president may temporarily act in his place. In the case of the death of the
president, or in the case of his absence or inability to act without having
designated a vice president or vice presidents to act temporarily in his place,
the board of directors, by resolution, may designate a vice president or vice
presidents to perform the duties of the president. If no such designation shall
be made, the chairman of the board of directors, if any, shall exercise such
powers and perform such duties, as provided in Section 7 above, but if the
Corporation has no chairman of the board of directors, or if the chairman is
unable to act in place of the president, all of the vice presidents may exercise
such powers and perform such duties.
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9. SECRETARY. The secretary shall keep or cause to be kept in books
provided for that purpose, the minutes of the meetings of the stockholders,
executive committee, if any, and any other committees, and of the board of
directors; shall see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident to the office of secretary
and such other duties as may, from time to time, be assigned to him by the board
of directors or by the president. In the absence of the secretary or his
inability to act, the assistant secretaries, if any, shall act with the same
powers and shall be subject to the same restrictions as are applicable to the
secretary.
10. TREASURER. The treasurer shall have custody of corporate funds
and securities. He shall keep full and accurate accounts of receipts and
disbursements and shall deposit all corporate monies and other valuable effects
in the name and to the credit of the Corporation in the depository or
depositories of the Corporation, and shall render an account of his transactions
as treasurer and of the financial condition of the Corporation to the president
and/or the board of directors upon request. Such power given to the treasurer
to deposit and disburse funds shall not, however, preclude any other officer or
employee of the Corporation from also depositing and disbursing funds when
authorized to do so by the board of directors. The treasurer shall, if required
by the board of directors, give the Corporation a bond in such amount and with
such surety or sureties as may be ordered by the board of directors for the
faithful performance of the duties of his office. The treasurer shall have such
other powers and perform such other duties as may be from time to time
prescribed by the board of directors or the president. In the absence of the
treasurer or his inability to act, the assistant treasurers, if any, shall act
with the same authority and shall be subject to the same restrictions as are
applicable to the treasurer.
11. DELEGATION OF DUTIES. Whenever an officer is absent, or
whenever, for any reason, the board of directors may deem it desirable, the
board may delegate the powers and duties of an officer to any other officer or
officers or to any director or directors.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
1. INDEMNIFICATION: THIRD PARTY ACTIONS. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent, of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interest of
the Corporation, and,
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with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interest of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
2. INDEMNIFICATION: DERIVATIVE ACTIONS. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the fight of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
3. MANDATORY INDEMNIFICATION. To the extent that a director or
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article VI or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
4. AUTHORIZATION FOR INDEMNIFICATION. Any indemnification under
Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Sections I and 2 of this Article VI. Such determination shall be
made (1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
5. ADVANCE PAYMENT OF EXPENSES. Expenses (including attorneys'
fees) incurred in defending a civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation
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as authorized in Article VI. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
6. NON-EXCLUSIVE. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this Article VI
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue, unless otherwise provided when
authorized or ratified, as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
7. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article VI.
8. DEFINITIONS. For purposes of this Article VI, the following
terms shall have the following meanings:
(a) references to "the Corporation" shall include, in addition to
the resulting Corporation, any constituent Corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents so that any person who is
or was a director, officer, employee or agent of such constituent Corporation,
or is or was serving at the request of such constituent Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
Corporation as he or she would have with respect to such constituent Corporation
if its separate existence had continued;
(b) references to "other enterprises" shall include employee
benefit plans;
(c) references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan;
(d) references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and
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(e) a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the interests of the Corporation" as referred to in this Article VI.
ARTICLE VII
CAPITAL STOCK
1. CERTIFICATES OF STOCK. The shares of the Corporation shall be
represented by certificates; provided that the board of directors of the
Corporation may, by resolution, provide 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 treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the Corporation representing the number of shares
registered in certificate form. Any or all 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 shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
2. ISSUANCE OF STOCK. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
Corporation or the whole or any part of any unissued balance of the authorized
capital stock of the Corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by resolution of the board of directors in
such manner, for such consideration and on such terms as the board of directors
may determine. Consideration for such shares of capital stock shall be
expressed in dollars, and shall not be less than the par value or stated value
therefor, as the case may be. The par value for shares, if any, shall be stated
in the Certificate of Incorporation, and the stated value for shares, if any,
shall be fixed from time to time by the board of directors.
3. LOST CERTIFICATES. The board of directors may direct a new
certificate to be issued in place of any previously issued certificate alleged
to have been destroyed or lost if the owner makes an affidavit or affirmation of
that fact and produces such evidence of loss or destruction as the board may
require. The board, in its discretion, may as a condition precedent to the
issuance of a new certificate require the owner to give the Corporation a bond
as indemnity against any claim that may be made against the Corporation relating
to the allegedly destroyed or lost certificate.
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4. TRANSFER OF SHARES. Subject to applicable law, shares of stock
of the Corporation may be transferred on its books upon the surrender to the
Corporation or its transfer agent of the certificates representing such shares,
if any, duly endorsed or accompanied by a written assignment or power of
attorney duly executed and with such proof of authority or authenticity of
signature as the Corporation or its transfer agent may reasonably require. In
that event, the surrendered certificates shall be canceled, new certificates
issued to the persons entitled to them, if any, and the transaction recorded on
the books of the Corporation.
5. REGISTERED STOCKHOLDER. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of the other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.
6. STOCK LEDGER. An appropriate stock journal and ledger shall be
kept by the secretary or such registrars or transfer agents as the directors by
resolution may appoint in which all transactions in the shares of stock of the
Corporation shall be recorded.
7. RESTRICTION ON TRANSFER OF SHARES. Notice of any restriction on
the transfer of the stock of the Corporation shall be placed on each certificate
of stock issued or in the case of uncertificated shares contained in the notice
sent to the registered owner of such shares in accordance with the provisions of
the Delaware Corporation Law.
ARTICLE VIII
SEAL AND-FISCAL YEAR
8. SEAL. The Corporation shall have a seal in the form impressed to
the left of this paragraph of the Bylaws.
9. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the board of directors and set forth in the minutes of the
directors. Said fiscal year may be changed from time to time by the board of
directors in its discretion.
ARTICLE IX
DIVIDENDS
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a
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reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think in the best interest of the Corporation,
and the directors may modify or abolish any such reserve in the manner in which
it was created.
ARTICLE X
AMENDMENTS
Subject to repeal or change by action of the stockholders, the board
of directors may amend, supplement or repeal these Bylaws or adopt new Bylaws,
and all such changes shall affect and be binding upon the holders of all shares
heretofore as well as hereafter authorized, subscribed for or offered.
ARTICLE XI
MISCELLANEOUS
10. GENDER. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender shall include all
genders.
11. INVALID PROVISION. The invalidity or uneforceability of any
particular provision of these Bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
12. GOVERNING LAW. These Bylaws shall be governed by and construed
in accordance with the laws of the State of Delaware.
I, K.J. Cunningham, as Secretary of R&D Systems Company
---------------
hereby certify that the foregoing Bylaws were adopted by the Board of Directors
of the Corporation effective as of March 12, 1996.
--------
/s/ K.J. Cunningham
--------------------------
14.
<PAGE>
I, ______________________________, as Secretary of R&D Systems Company
hereby certify that the foregoing Bylaws were adopted by the Board of Directors
of the Corporation effective as of ______________.
__________________________
15.
<PAGE>
EXHIBIT 10.1
================================================================================
R&D SYSTEMS COMPANY
26,000 Shares of
Series A Convertible Participating Preferred Stock
STOCK PURCHASE AGREEMENT
Dated as of March 14, 1996
================================================================================
<PAGE>
R&D Systems Company
Stock Purchase Agreement
Dated as of March 14, 1996
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1. TERMS OF PURCHASE....................................................................1
1.1 Description of Securities............................................................1
1.2 Reserved Shares......................................................................1
1.3 Sale and Purchase....................................................................1
1.4 Closing..............................................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE INDIVIDUAL FOUNDERS............................................................2
2.1 Organization and Corporate Power.....................................................2
2.2 Authorization........................................................................2
2.3 Non-contravention....................................................................3
2.4 Capitalization of the Company........................................................3
2.5 Financial Statements.................................................................4
2.6 Absence of Undisclosed Liabilities...................................................5
2.7 Absence of Certain Developments......................................................5
2.8 Accounts Receivable..................................................................5
2.9 Title to Properties..................................................................6
2.10 Tax Matters..........................................................................6
2.11 Contracts and Commitments............................................................7
2.12 Proprietary Rights; Employee Restrictions............................................7
2.13 Litigation...........................................................................9
2.14 Offerees.............................................................................9
2.15 Business; Compliance with Laws......................................................10
2.16 Investment Banking; Brokerage.......................................................10
2.17 Solvency............................................................................11
2.18 Environmental Matters...............................................................11
2.19 Employee Benefit Programs...........................................................11
2.20 Product and Services Claims.........................................................13
2.21 Backlog.............................................................................14
2.22 Employees; Labor Matters............................................................14
2.23 Customers, Distributors and Suppliers...............................................14
2.24 Corporate Records; Copies of Documents..............................................14
2.25 Affiliate Transactions..............................................................15
2.26 FIRPTA Withholding..................................................................15
SECTION 3. CONDITIONS OF PURCHASE..............................................................15
3.1 Satisfaction of Conditions..........................................................15
3.2 Opinion of Counsel..................................................................15
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.3 Authorization.......................................................................15
3.4 Effectiveness of Preferred Stock Terms..............................................16
3.5 Stockholders' Agreement.............................................................16
3.6 Non-Competition Agreements..........................................................16
3.7 Senior Debt Facility................................................................16
3.8 Election of Directors; Indemnification Agreements...................................16
3.9 Recapitalization....................................................................16
3.10 [Intentionally Omitted].............................................................17
3.11 Releases............................................................................17
3.12 Escrow Agreement....................................................................17
3.13 All Proceedings Satisfactory........................................................17
3.14 No Adverse Change...................................................................17
3.15 Delivery of Documents...............................................................17
SECTION 3B. CONDITIONS OF SALE..................................................................18
3.1B Satisfaction of Conditions..........................................................18
3.2B Senior Debt Facility................................................................18
3.3B Stockholders' Agreement.............................................................18
3.4B Indemnification Agreement...........................................................19
3.5B Delivery of Documents...............................................................19
SECTION 4. COVENANTS OF THE COMPANY............................................................19
4.1 Financial Statements; Minutes.......................................................19
4.2 Budget and Operating Forecast.......................................................20
4.3 Conduct of Business.................................................................20
4.4 Payment of Taxes, Compliance with Laws, etc.........................................20
4.5 Insurance...........................................................................20
4.6 Maintenance of Properties...........................................................21
4.7 Affiliated Transactions.............................................................21
4.8 Management Compensation.............................................................21
4.9 Use of Proceeds.....................................................................21
4.10 Board of Directors Meetings.........................................................22
4.11 Right to Participate in Sales of Additional Securities..............................22
4.12 Stockholders' Agreement, Non-Competition Agreements and Confidentiality and
Proprietary Rights Agreements.......................................................23
4.13 Distributions on, and Redemptions of, Capital Stock.................................23
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other Actions...............24
4.15 No Amendments to Certificate of Incorporation.......................................24
4.16 Capital Expenditures................................................................24
SECTION 5. INVESTOR REPRESENTATIONS............................................................25
SECTION 6. INDEMNIFICATION.....................................................................26
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.1 [Intentionally Omitted].............................................................26
6.2 Indemnification for Breaches........................................................26
6.3 Limitations on Indemnification......................................................27
6.4 Notice; Defense of Claims...........................................................28
6.5 Satisfaction of Indemnification Obligations; Disputed Claims........................29
SECTION 7. GENERAL.............................................................................30
7.1 Amendments, Waivers and Consents....................................................30
7.2 Survival of Representations, Warranties and Covenants; Assignability of Rights......30
7.3 Governing Law.......................................................................31
7.4 Section Headings; Counterparts......................................................31
7.5 Notices and Demands.................................................................31
7.6 Severability........................................................................31
7.7 Expenses............................................................................31
7.8 Integration.........................................................................32
</TABLE>
APPENDIX A - List of Investors
APPENDIX B - Lammle Entity Holdings
EXHIBITS
- --------
Exhibit A - Form of Indemnification Agreement
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Confidentiality and Proprietary Rights Agreement
Exhibit D - Stockholders' Agreement
Exhibit E - Non-Competition Agreement
Exhibit F - Stock Option Plan
Exhibit G - Escrow Agreement
Exhibit H - Form of Release
Exhibit I - Form of Opinion re: Company
(iii)
<PAGE>
SCHEDULES
- ---------
Schedule 2.3 - Non-contravention
Schedule 2.4 - Capitalization and Beneficial Ownership
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Material Developments
Schedule 2.8 - Accounts Receivable
Schedule 2.9 - Title to Properties
Schedule 2.10 - Tax Matters
Schedule 2.11 - Material Contracts
Schedule 2.12 - Proprietary Rights
Schedule 2.13 - Litigation
Schedule 2.14 - Offerees
Schedule 2.15 - Business
Schedule 2.18 - Environmental Matters
Schedule 2.19 - ERISA
Schedule 2.20 - Product and Service Claims
Schedule 2.21 - Backlog
Schedule 2.22 - Employees; Labor Matters
Schedule 2.23 - Customers, Distributors and Suppliers
Schedule 2.25 - Affiliate Transactions
Schedule 3.9 - Recapitalization
(iv)
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 14th day of March, 1996 by and among R&D Systems
Company, a Delaware corporation (the "Company"), and Roger H. Linn and Guy M.
Lammle (collectively, the "Individual Founders"), and Lois J. Linn, Jennifer
Linn Trust and Sara Linn Trust (collectively with Roger Linn, the "Linn
Entities") and Rita L. Lammle, Amy Lammle Trust, Daina Lammle Trust and Lacey
Lammle Trust (collectively with Guy M. Lammle, the "Lammle Entities") (the Linn
Entities and the Lammle Entities are collectively referred to as the "Founders")
and the investors identified on the signature pages hereto (the "Investors").
SECTION 1. TERMS OF PURCHASE
-----------------
1.1 Description of Securities. The Company has authorized the issuance
-------------------------
and sale to the Investors of 26,000 shares (the "Preferred Shares") of its
authorized but unissued Series A Convertible Participating Preferred Stock, par
value $.01 per share (the "Preferred Stock"), which is convertible into 15,500
shares of the Company's authorized but unissued Senior Redeemable Preferred
Stock, par value $.01 per share (the "Senior Redeemable Preferred Stock"), and
2,600,000 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock") (in each case adjusted appropriately for stock splits, stock
dividends, recapitalizations and the like), for a purchase price of $1,000 per
Preferred Share. The Company has also authorized the issuance to the Lammle
Entities of 6,500 shares of its authorized but unissued Series B Convertible
Participating Preferred Stock, par value $.01 per share (the "Series B
Convertible Preferred Stock"), which is convertible into 3,875 shares of its
authorized but unissued Senior Redeemable Preferred Stock, 650,000 shares of
Common Stock and 2,625 shares of its authorized but unissued Junior Redeemable
Preferred Stock, par value $.01 per share (the "Junior Redeemable Preferred
Stock") (in each case adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like).
1.2 Reserved Shares. The Company has authorized and has reserved and
---------------
covenants to continue to reserve, a sufficient number of shares of Common Stock
and Senior Redeemable Preferred Stock to satisfy the rights of conversion of the
holders of the Preferred Stock. Any shares of Common Stock, Senior Redeemable
Preferred Stock or any successor class of capital stock of the Company hereafter
issued or issuable upon conversion of the Preferred Shares are herein referred
to as "Conversion Shares," and the Preferred Shares and the Conversion Shares
are herein collectively referred to as the "Securities."
1.3 Sale and Purchase. At the Closing (as hereinafter defined) and
-----------------
subject to the terms and conditions herein set forth, the Company shall issue
and sell to each of the Investors, and each Investor severally and not jointly
shall purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Investor in Column 1 of Appendix A hereto for the
----------
aggregate purchase price set forth in the corresponding row of Column 2 of said
Appendix A.
- ----------
1.4 Closing. The closing (the "Closing") of the sale and purchase of
-------
the Preferred Shares shall take place at the offices of Holland & Hart, located
at 555 Seventeenth Street, Suite
<PAGE>
2900, Denver, Colorado 80202, at 10:00 A.M., on the date hereof, or such other
date, time and place as shall be mutually agreed upon by the Company and a
majority-in-interest of the Investors (the "Closing Date"). At the Closing, the
Company will deliver the Preferred Shares being acquired by each Investor in the
form of a certificate, issued in such Investor's name or in the name of its
nominee (of which the Investor shall notify the Company not less than two
business days prior to the Closing), against payment of the full purchase price
therefor by or on behalf of each Investor to the Company by check or wire
transfer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE INDIVIDUAL
----------------------------------------------------------------
FOUNDERS
--------
In order to induce the Investors to enter into this Agreement, the Company
and the Individual Founders severally hereby represent and warrant to the
Investors that except as expressly contemplated by this Agreement, as of the
date hereof:
2.1 Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to qualify would not have a material adverse
effect on the Company. The Company has all required corporate power and
authority to own its property, to carry on its business as presently conducted
or contemplated, to enter into and perform this Agreement and the agreements
contemplated hereby, and generally to carry out the transactions contemplated
hereby and thereby. The copies of the Certificate of Incorporation and By-laws
of the Company, each as amended to date, which have been furnished to counsel
for the Investors, are correct and complete at the date hereof. The Company is
not in violation of any term of its Certificate of Incorporation or By-laws or
any material agreement, instrument, judgment, decree, order, statute, rule or
government regulation applicable to the Company.
2.2 Authorization. This Agreement and all documents and instruments
-------------
executed pursuant hereto are valid and binding obligations of the Company and,
to the extent they are parties thereto, each of the Founders, enforceable in
accordance with their terms against the Company and the Founders, respectively.
The execution, delivery and performance of this Agreement and all documents and
instruments contemplated hereby and the delivery and issuance of the Preferred
Shares and, upon conversion of the Preferred Shares, the Conversion Shares have
been duly authorized by all necessary corporate or other action of the Company.
No consent, approval or authorization of, or designation, declaration or filing
with, any governmental authority is required of the Company in connection with
the execution, delivery and performance of this Agreement, or the issuance and
delivery by the Company of the Preferred Shares in accordance with the terms of
this Agreement and, upon conversion of the Preferred Shares, the Conversion
Shares, or the performance or consummation of any other transaction contemplated
hereby.
2.3 Non-contravention. Except as set forth on Schedule 2.3, the
----------------- ------------
execution, delivery and performance by the Company and the Founders of this
Agreement and each of the other
2
<PAGE>
agreements and instruments to which they are a party and which are contemplated
hereby will not: (a) conflict with or result in any default under any material
agreement, contract, obligation or commitment of the Company or any of the
Founders, or any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any lien, charge or encumbrance of any
nature upon any of the properties or assets of the Company or the capital stock
of the Company owned or to be owned by the Founders or their affiliates; or (c)
violate any material instrument, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company or any of the Founders or to which the Company or any of the Founders is
a party.
2.4 Capitalization of the Company. The authorized capital stock of the
-----------------------------
Company consists of: (i) 10,000,000 shares of Common Stock, of which 640,845
shares will be, as of the Closing, duly and validly issued, outstanding, fully
paid and nonassessable after giving effect to the recapitalization contemplated
by Section 3.9; (ii) 54,500 shares of designated preferred stock, par value $.01
per share, of which (a) 26,000 shares have been designated as Series A
Convertible Participating Preferred Stock and will, as of the Closing, be
issued, outstanding, fully paid, and nonassessable, (b) 6,500 shares have been
designated as Series B Convertible Participating Preferred Stock and will, as of
the Closing, be issued, outstanding, fully paid, and nonassessable, (c) 19,375
shares have been designated as Senior Redeemable Preferred Stock, none of which
will be issued and outstanding as of the Closing, and (d) 2,625 shares have been
designated as Junior Redeemable Preferred Stock, none of which will be issued
and outstanding as of the Closing; and (iii) 50,000 shares of undesignated
preferred stock, par value $.01 per share. Except as disclosed in Schedule 2.4
------------
and except for 1,327,465 shares of Common Stock issued or reserved for issuance
under the Company's Stock Option and Grant Plan in the form attached hereto as
Exhibit F (the "Stock Option Plan"), the Company has not issued any other shares
- ---------
of its capital stock and there are no outstanding warrants, options or other
rights to purchase or acquire any of such shares, nor any outstanding securities
convertible into such shares or outstanding warrants, options or other rights to
acquire any such convertible securities. As of the Closing, assuming the
accuracy of the Investor representations set forth in Section 5 hereof, all of
the outstanding shares of capital stock of the Company will have been offered,
issued, sold and delivered in compliance with applicable federal and state
securities laws. The Preferred Shares have been duly and validly authorized and,
when delivered and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable. The Preferred Shares are convertible into 15,500
shares of Senior Redeemable Preferred Stock and 2,600,000 shares of Common Stock
representing 80% of the Common Stock of the Company on a presently outstanding
basis and 57% of the Common Stock of the Company on a fully-diluted basis after
giving effect to the issuance of the 1,327,465 shares issued or reserved for
issuance under the Stock Option Plan and the exercise, exchange or conversion of
any other securities exercisable or exchangeable for or convertible into Common
Stock. The relative rights, preferences, restrictions and other provisions
relating to the Preferred Stock are as set forth in Exhibit B attached hereto.
---------
The Company has authorized and reserved for issuance upon conversion of the
Preferred Shares not less than 15,500 shares of its Senior Redeemable Preferred
Stock and 2,600,000 shares of its Common Stock, and the Conversion Shares
issuable upon such conversion will be, when issued in accordance with the
Amended and Restated Certificate of
3
<PAGE>
Incorporation of the Company, duly and validly authorized and issued, fully paid
and nonassessable.
Except as set forth on Schedule 2.4, there are no preemptive rights or
------------
rights of first refusal with respect to the issuance or sale of the Company's
capital stock. Except as set forth on Schedule 2.4, no officer, director or
------------
employee of the Company or any other person or entity has, claims to have or has
any right to claim to have any interest in the Company's capital stock. Except
as disclosed in Schedule 2.4, there are no restrictions on the transfer of the
------------
Company's capital stock other than those arising from federal and state
securities laws or pursuant to the Stockholders' Agreement. Except as set forth
on Schedule 2.4 or pursuant to the Stockholders' Agreement, there are no rights,
------------
obligations, or restrictions on the voting of any of the Company's capital stock
or the registration of such capital stock for offering to the public pursuant to
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the capital stock owned by the Lammle Entities or the Linn Entities or which
arise pursuant to the Company's charter documents or any agreement to which the
Company is a party. The outstanding shares of the capital stock, before giving
effect to the transactions contemplated by this Agreement, are held of record
and beneficially by the persons identified in Schedule 2.4 in the amounts
------------
indicated therein. Upon the Closing, and after giving effect to the transactions
contemplated by this Agreement, the only stockholders of the Company other than
the Investors will be the Lammle Entities which, collectively, will beneficially
own 6,500 shares of Series B Convertible Preferred Stock, in the amount set
forth on Appendix B.
----------
The Company has no subsidiaries or investments in any other corporation
or business organization. Except as disclosed in Schedule 2.4, the Company does
------------
not own or have any direct or indirect interest in, a loan or advance to, or
control over any corporation, partnership, joint venture or other entity of any
kind.
2.5 Financial Statements. The Company has heretofore furnished to the
--------------------
Investors the following financial statements: (i) audited balance sheet of the
Company as of December 31, 1995 and the related statements of income, retained
earnings and cash flows of the Company for the 12-month period ended December
31, 1995, together with the notes thereto (collectively, the "Audited Financial
Statements"), and (ii) pro forma unaudited balance sheets for the Company as of
February 29, 1996 (adjusted to reflect the transactions contemplated herein).
All of the financial statements of the Company furnished to the Investors for
the fiscal years ended December 31, 1992, 1993, 1994 and 1995 have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, except that interim financial statements and pro forma
statements have been prepared without footnote disclosures and year-end audit
adjustments, which will not, in any event, be material. All of such financial
statements fairly represent the financial condition of the Company as of the
date thereof, and are true and correct as of the date thereof in all material
respects. The Company recognizes revenue in accordance with SOP 91-1. The
acquisition by the Company of substantially all of the assets of Ultimate Data
Systems, Inc. was accounted for as a purchase and booked in accordance with
generally accepted accounting principles.
4
<PAGE>
This Agreement and the Schedules, taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading. The
Confidential Memorandum prepared by The Wallach Company and the Company which
was delivered to the Investors was prepared in good faith and fairly presents
the business and prospects of the Company in all material respects as of its
date. To the best knowledge of the Company and the Individual Founders, the
forecasts and projections of future financial results contained in such
Confidential Memorandum were prepared by the Company in good faith and are based
upon information available to the Company as of the date thereof and upon
assumptions believed by the Company to be reasonable. There is no material fact
particular to the Company and not to the industry in which it does business
generally, relating to the business, prospects, operations, affairs or
conditions of the Company which materially adversely affects or in the future,
to the best knowledge of the Company, may materially adversely affect the same
which has not been set forth in this Agreement.
2.6 Absence of Undisclosed Liabilities. Since December 31, 1995 except
----------------------------------
as and to the extent disclosed in Schedule 2.6, the Company does not have any
------------
material liability or liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown.
2.7 Absence of Certain Developments. Except as disclosed in
-------------------------------
Schedule 2.7, since December 31, 1995 there has been (i) no material adverse
- ------------
change in the condition, financial or otherwise, of the Company or in the
assets, liabilities, business or prospects of the Company, (ii) no declaration,
setting aside or payment of any dividend or other distribution with respect to,
or any direct or indirect redemption or acquisition of, any of the capital stock
of the Company, (iii) no waiver of any valuable right of the Company or
cancellation of any material debt or claim held by the Company, (iv) no loan by
the Company to any officer, director, employee or stockholder of the Company, or
affiliates of any of the foregoing or any agreement or commitment therefor, (v)
no compensation paid or payable to any of the Founders (other than annual
salaries and bonuses for 1995 paid to any of the Founders in the ordinary course
of business and consistent with past practices) or any material increase in the
compensation paid or payable to any other officer, director, employee or agent
of the Company or affiliates of the Founders, (vi) no material loss, destruction
or damage to any property of the Company, whether or not insured, (vii) no
material labor dispute involving the Company and no material change in the
personnel of the Company or the terms and conditions of their employment, and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) except in the ordinary course of business nor any other
transaction by the Company otherwise than for fair value in the ordinary course
of business.
2.8 Accounts Receivable. Except to the extent reserved against in the
-------------------
Audited Financial Statements or disclosed elsewhere in this Agreement (including
the Schedules hereto), all of the accounts receivable of the Company represent
bona fide completed sales made in the ordinary course of business, are valid and
enforceable claims, subject to no set-off or counterclaim and fully-collectible
in the ordinary course. Except as disclosed on Schedule 2.8, the Company has no
------------
accounts receivable from any person, firm or corporation which is affiliated
5
<PAGE>
with it or from any of the Founders or any of its directors, officers, employees
or stockholders or any affiliates of the Founders of the Company.
2.9 Title to Properties. The Company has good and marketable title to
-------------------
or a valid leasehold interest in all of its properties and assets, free and
clear of all liens, restrictions or encumbrances, except as disclosed in
Schedule 2.9, and such properties and assets constitute all of the assets
- ------------
reasonably necessary for the conduct of the Company's business as presently
conducted and as presently contemplated by the Company to be conducted. All
machinery and equipment included in such properties which is necessary to the
business of the Company is in good condition and repair in all material respects
and all leases of real or personal property to which the Company is a party are
in full force and effect and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. The Company is not in violation
of any material zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
properties, nor has the Company received any written notice of violation with
which it has not complied in all material respects.
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached hereto:
----------- -------------
(a) The Company has paid or caused to be paid all federal,
state, local, foreign, and other taxes, including without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
franchise taxes, employment and payroll-related taxes, withholding taxes,
transfer taxes, and all deficiencies, or other additions to tax, interest, fines
and penalties owed by it (collectively, "Taxes"), required to be paid by it
through the date hereof whether disputed or not. All taxes and other assessments
and levies which the Company is required to withhold or collect have been
withheld and collected and have been paid over to the proper governmental
authorities. The Company has, in accordance with applicable law, timely and
properly filed all federal, state, local and foreign tax returns required to be
filed by it through the date hereof, all such returns correctly and accurately
set forth the amount of any Taxes relating to the applicable period and any
deductions from, or credits against any Taxes or taxable income relating to such
returns are valid and proper items of deduction or credit.
(b) Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge of the Company,
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
6
<PAGE>
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections.
2.11 Contracts and Commitments. Except as set forth on Schedule 2.11,
------------------------- -------------
the Company is not a party to any: (1) customer contract, obligation or
commitment (whether written or oral) which involves an unfulfilled obligation to
provide goods or services valued in excess of $250,000 to any other party; (2)
contract, obligation or commitment (whether written or oral) involving an
obligation to make payments in excess of $250,000 to any other party; (3)
exclusive license agreements; (4) employment contracts; (5) stock redemption or
purchase agreements; (6) loan agreements; (7) capital lease or other financing
agreements; (8) agreements with the Founders or any other officers, directors,
or stockholders of the Company or persons or organizations related to or
affiliated with the Founders or the Company; (9) leases; (10) powers of
attorney; or (11) pension, profit-sharing, retirement or stock option plans. To
the best knowledge of the Company, there is no basis for the termination,
expiration or modification of any such agreements within one year from the date
hereof, which termination, expiration or modification may have a material
adverse effect on the assets, liabilities, business, financial condition or
prospects of the Company. The Company is not in default under any contract,
obligation or commitment set forth on Schedule 2.11, and to the best knowledge
-------------
of the Company, there is no state of facts which upon notice or lapse of time or
both would constitute such a default.
2.12 Proprietary Rights; Employee Restrictions. Set forth in
-----------------------------------------
Schedule 2.12 is a list and brief description of all patents, patent rights,
- -------------
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names and copyrights owned by or registered in the name
of the Company, or of which the Company is a licensor or licensee (other than
with respect to "off-the-shelf" software which is generally available to the
general public at retail) or in which the Company has any right, and in each
case a brief description of the nature of such right. Except as set forth on
Schedule 2.12, the Company owns or possesses adequate licenses (other than with
- -------------
respect to "off-the-shelf" software which is generally available to the general
public at retail) to use, free and clear of claims or rights of any other
person, all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, programming processes and software, algorithms, formulae, trade
secrets and know how (collectively "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
Except as disclosed in Schedule 2.12, all Intellectual Property that is used or
-------------
incorporated into the Company's products or products actively under development
and which is proprietary to the Company was developed by or for the Company by
the current or former employees, consultants or independent contractors of the
Company or its predecessors in interests and is owned exclusively by the
Company, free and clear of claims or rights of any other person. The Company is
not aware of any infringement by any other person of any rights of the Company
under any Intellectual Property. No claim is pending or to the best of the
Company's knowledge threatened against the Company nor has the Company received
any notice from any third parties,
7
<PAGE>
to the effect that any Intellectual Property owned or licensed by the Company,
or which the Company otherwise has the right to use, or the operation, products
or services of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property, and, to the best knowledge of
the Company and the Founders, there is no basis for any such claim (whether or
not pending or threatened). No claim is pending or to the best of the Company's
knowledge threatened against the Company, nor has the Company received any
notice from any third parties, to the effect that any 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, as the case may be, and, to
the best knowledge of the Company and the Founders, there is no basis for any
such claim (whether or not pending or threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.12. All such licenses
-------------
or other agreements are in full force and effect, to the best of the Company's
knowledge, there is no material default by any party thereto, and, except as set
forth on Schedule 2.12, to the best of the Company's knowledge, all of the
-------------
rights of the Company thereunder are freely assignable. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to the Investors and, neither the Company nor the Founders have any
reason to believe that the licensors under such licenses and other agreements do
not have and did not have all requisite power and authority to grant the rights
purported to be conferred thereby.
All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property (including all end user agreements)
are listed in Schedule 2.12. All of said licenses or other agreements are in
-------------
full force and effect, to the best of the Company's knowledge, there is no
material default by any party thereto, and, except as set forth on Schedule
--------
2.12, to the best of the Company's knowledge, all of the rights of the Company
- ----
with respect to Trend product contracts are freely assignable. True and complete
copies of all such licenses or other agreements, and any amendments thereto,
have been made available to the Investors.
All material technical information developed by or belonging to the
Company and which is material to the business of the Company which has not been
patented or copyrighted has been kept confidential. To the best of the Company's
knowledge, the Company is not making unlawful use of any Intellectual Property
of any other person, including without limitation any former employer of any
past or present employees of the Company. Except as disclosed in Schedule 2.12,
-------------
to the best of the Company's knowledge, neither the Company nor any of its
employees, officers or consultants has any agreements or arrangements with
former employers of such employees, officers or consultants relating to any
Intellectual Property of such employers, which materially interfere or conflict
with the performance of such employee's or consultant's duties for the Company
or results in any former employers of such employees and consultants having any
rights in, or claims on, the Company's Intellectual Property. To the best of the
Company's knowledge, the activities of the Company's employees, officers and
consultants do not violate any agreements or arrangements which any such
employees have with former employers. The Company has taken commercially
reasonable steps required to establish and preserve its ownership of all of the
Intellectual Property; each current employee and officer of the Company, each
former employee and officer of the Company who was employed by the
8
<PAGE>
Company at any time and, except with respect to the SHIMS products, after
December 31, 1992 and each of the Company's current and former consultants and
independent contractors involved in development of any of the Intellectual
Property (limited, with respect to the SHIMS products to consultants and
contractors employed by the Company or its predecessor after December 31, 1992)
has executed an agreement regarding confidentiality, proprietary information and
assignment of inventions to the Company and, to the knowledge of the Company and
the Founders, none of such employees, consultants and independent contractors
are in violation of such agreements.
Without limitation of any of the foregoing and except as otherwise
expressly disclosed in Schedule 2.12 hereto: (a) the Company has taken
-------------
reasonable security measures to guard against unauthorized disclosure or use of
any of the Intellectual Property; and (b) the Company has no reason to believe
that any person (including without limitation any former employee of the
Company) has unauthorized possession of any of the Intellectual Property, or any
part thereof, or that any person has obtained unauthorized access to any of the
Intellectual Property.
2.13 Litigation. Except as disclosed in Schedule 2.13, there is no
---------- -------------
litigation or governmental proceeding or investigation pending against the
Company, the Founders or any officer of the Company, or, to the best knowledge
of the Company and the Individual Founders, threatened against the Company, the
Founders or any officer of the Company, which may call into question the
validity or hinder the enforceability or performance of this Agreement or the
agreements and transactions contemplated hereby or which could have a material
adverse effect on the assets, liabilities, business, condition (financial or
otherwise) or prospects of the Company; nor, to the best knowledge of the
Company and the Founders, has there occurred any event nor does there exist any
condition on the basis of which any litigation, proceeding or investigation
might properly be instituted.
2.14 Offerees. Except as set forth on Schedule 2.14, neither the
-------- -------------
Company nor, to the best of the Company's knowledge, anyone acting on its behalf
has in the past offered for sale or solicited offers to buy any securities of
the Company so as to bring the offer, issuance or sale of the Preferred Shares
or the Conversion Shares, as contemplated by this Agreement, within the
provisions of Section 5 of the Securities Act, unless such offer, issuance or
sale was within the exemptions of the Securities Act. Assuming the accuracy of
the Investor representations in Section 5 hereof, the Company has complied with
all applicable state "blue-sky" or securities laws in connection with the
issuance and sale of its Common Stock, Preferred Shares, and other securities
heretofore issued and to be issued upon the closing of this Agreement. The
Company has in the past complied with all applicable federal and state
securities laws in connection with the offer, solicitation of offers and sales
of its securities.
2.15 Business; Compliance with Laws. Except as disclosed in Schedule
------------------------------ --------
2.15, the Company has all franchises, permits, licenses and other rights and
- ----
privileges necessary to permit it to own its property and to conduct its
business as it is presently conducted by the Company except where the failure to
possess such rights and privileges would not have a material adverse effect on
the Company. The Company is not in material violation, in any respect, of any
material law, regulation, authorization or order of any public authority. The
Company is in compliance, in
9
<PAGE>
all material respects, with all federal, state and local laws and regulations
(including all applicable environmental laws and regulations) relating to its
business as presently conducted, except as disclosed in Schedule 2.15. The
-------------
Company believes that the relationships of the Company with its major customers
and its suppliers are good commercial working relationships, and, except as set
forth on Schedule 2.15, within the last three years no customer that has paid
-------------
the Company or is under contract to pay the Company $100,000 or more has
terminated its relationship with the Company and the Company has not received
any notice within the last two years from any such customers or suppliers of
their intention to terminate, or otherwise modify such relationships in a manner
which could have a material adverse effect on the Company. Neither the Company
nor the Founders or any of their respective affiliates has been: (a) convicted
in a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (b) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining it or
him from, or otherwise imposing limits or conditions on his, engaging in any
securities, investment advisory, banking, insurance or other type of business or
acting as an officer or director of a public company; or (c) found by a court of
competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated any
federal or state commodities, securities or unfair trade practices law, which
such judgment or finding has not been subsequently reversed, suspended, or
vacated.
2.16 Investment Banking; Brokerage. No broker, finder, agent or similar
-----------------------------
intermediary has acted on behalf of the Company or any Founder in connection
with this Agreement or the transactions contemplated hereby and there are no
brokerage commissions, finders fees or similar fees or commissions payable in
connection therewith (other than the Wallach Company, with respect to whom any
compensation shall be the sole responsibility of the Founders).
2.17 Solvency. The Company has not: (a) made a general assignment for
--------
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated therein (including the payment of the distribution
to the Company's existing shareholders): (a) the Company will be able to pay its
debts as they come due in the usual course of business and will have adequate
capital to conduct its business; and (b) the Company's total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof).
2.18 Environmental Matters.
---------------------
(a) Neither the Company nor, to the knowledge of the Company, any
other person: (i) has ever caused, permitted, or suffered to exist any Hazardous
Material (as defined below) to be spilled, placed, held, located or disposed of
on, under, or about, any of the premises leased by the Company (the "Premises"),
or from the Premises into the atmosphere, any body of
10
<PAGE>
water, any wetlands, or on any other real property nor to the Company's
knowledge does any Hazardous Material exist on, under or about the Premises
other than as disclosed on Schedule 2.18, or in respect of Hazardous Material
-------------
used or disposed of in compliance with law; (ii) has any knowledge that the
Premises has ever been used (whether by the Company or, to the knowledge of the
Company, by any other person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous Waste as defined in 42 U.S.C.A.
(S).6901, et seq. (the Resource Recovery and Conservation Act); and (iii) has
------
any knowledge of any notice of violation, lien or other notice issued by any
governmental agency with respect to the environmental condition of the Premises,
any other property owned or occupied by the Company, or any other property which
was included in the property description of the Premises or such other real
property within the preceding three years except as disclosed to the Investors.
(b) For purposes of this Section 2.18, "Hazardous Material"
shall mean any substance or material defined or designed as a hazardous or toxic
waste, hazardous or toxic material, hazardous or toxic substance, or other
similar term, by any United States federal, state or local environmental
statute, regulation or ordinance.
2.19 Employee Benefit Programs.
-------------------------
(a) Schedule 2.19 sets forth a list of every Employee Program
-------------
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
Closing.
(b) Each Employee Program which has ever been maintained by
the Company and which has at any time been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the Internal Revenue Service ("IRS") regarding its
qualification under such section and to the best knowledge of the Company has,
in fact, been continuously qualified under the applicable section of the Code
since the effective date of such Employee Program. No event or omission has
occurred which would cause any such Employee Program to lose its qualification
under the applicable Code section.
(c) Each Employee Program that has ever been maintained by
the Company has been maintained in all material respects in compliance with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exemption), which could result, directly or indirectly
(including, without limitation, through any obligation of indemnification or
contribution), in any material taxes, penalties or other liability to the
Company or any of its Affiliates (as defined below). No officer, director or
employee of the Company has committed a material breach of any duty imposed upon
fiduciaries by Title I of ERISA with respect to any Employee Program maintained
by the Company within the six years preceding the Closing Date. No litigation,
arbitration, or governmental administrative proceeding (or investigation) or
other proceeding (other than those relating to routine claims for benefits) is
pending or, to the best knowledge of the Company and the Founders, threatened
with respect to any such Employee Program.
11
<PAGE>
(d) Neither the Company nor any Affiliate (i) has ever
maintained any Employee Program which has been subject to Title IV of ERISA or
Section 412 of the Code (including, but not limited to, any Multiemployer Plan
(as defined below)) or (ii) has ever provided benefits described in Section 3(1)
of ERISA to any former employees or retirees of the Company or such Affiliate
(other than as required by part 6 of subtitle B of Title I of ERISA) or has ever
promised to provide post-termination benefits which promise remains in effect.
(e) With respect to each Employee Program maintained by or on
behalf of the Company or any Affiliate within the three (3) years preceding the
Closing, complete and correct copies of the following documents (if applicable
to such Employee Program) have previously been delivered to Goodwin, Procter &
Hoar: (i) all documents embodying or governing such Employee Program, and any
funding medium for the Employee Program (including, without limitation, trust
agreements), as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to any such Employee
Program intended to qualify under Code Section 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; and (v) any
insurance policy (including any fiduciary liability insurance policy and any
excess loss policy) related to such Employee Program.
(f) For purposes of this Section 2.19:
(i) "Employee Program" means (A) all employee
benefit plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within the
meaning of ERISA Section 3(40)), plans to which more than one
unaffiliated employer contributes and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA; and
(B) all stock or cash option plans, restricted stock plans, bonus or
incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans and benefit agreements, and
benefit arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code
Section 501(c)(9), each reference to such Employee Program shall
include a reference to such organization.
(ii) An entity "maintains" an Employee Program
if such entity sponsors, contributes to, or provides (or has promised
to provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries).
(iii) An entity is an "Affiliate" of the Company
if it would have ever been considered a single employer with the
Company under ERISA Section 4001(b)
12
<PAGE>
or part of the same "controlled group" as the Company for purposes of
ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
2.20 Product and Services Claims. Except as set forth on Schedule 2.20,
--------------------------- -------------
(i) there are no pending or, to the best of the Company's and the Individual
Founders' knowledge, threatened material product or service claims with respect
to any products manufactured or services provided by the Company prior to the
Closing date nor to the best of the Company's knowledge are there any facts upon
which a claim of such nature could reasonably be anticipated to be based, and
(ii) the Company does not have any contractual liability for breach of warranty
or service claims. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best of the
Company's and the Founders' knowledge, there are no facts upon which any such
claim should reasonably be anticipated to be based.
2.21 Backlog. As of March 8, 1996, the Company had outstanding firm
-------
orders for the sale of services and products as set forth in Schedule 2.21. All
-------------
such orders represent orders for products with specifications that can be met in
accordance with the terms of such orders and in the ordinary course of conduct
of the Company's business without undue delay or extraordinary expense.
2.22 Employees; Labor Matters. On March 8, 1996, the Company employed a
------------------------
total of approximately 215 full-time employees and 7 part-time employees and
generally enjoys good employer-employee relationships. The Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth in Schedule 2.22. All of the
-------------
Company's programs and/or arrangements in connection with the payment of
commissions are described in Schedule 2.22. To the best of the Company's
-------------
knowledge, the Company is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations which are existing, pending
or to the best of the Company's knowledge threatened against or involving the
Company. The Company has not received any information indicating that any of its
employment policies or practices is currently being audited or investigated by
any federal, state or local government agency. To the best of the Company's
knowledge, the Company is, and at all times since December 31, 1992 has been, in
compliance with the requirements of the Immigration Reform Control Act of 1986.
Schedule 2.22 sets forth a complete list of each officer, employee, salesperson
- -------------
and consultant who received or is scheduled
13
<PAGE>
to receive total remuneration from the Company in excess of $150,000 for the
calendar year ended December 31, 1995.
2.23 Customers, Distributors and Suppliers. The relationships of the
-------------------------------------
Company with its customers and vendors are good commercial working
relationships. Except as set forth on Schedule 2.23, during the past twelve
-------------
months, no customer, VAR or vendor has canceled, materially modified, or
otherwise terminated its relationship with the Company, or materially decreased
its services, supplies or materials to the Company or its usage or purchase of
the services or products of the Company, nor to the knowledge of Company and the
Founders, does any customer, VAR or vendor have any plan or intention to do any
of the foregoing.
2.24 Corporate Records; Copies of Documents. The corporate record books
--------------------------------------
of the Company accurately record all corporate action taken by its respective
stockholders and board of directors and committees. The copies of the corporate
records of the Company, as made available to the Investors for review, are true
and complete copies of the originals of such documents. The Company has made
available for inspection by the Investors and their counsel true and correct
copies of all documents referred to in this Section 2.24 or in the Schedules
delivered pursuant to this Agreement.
2.25 Affiliate Transactions. Except as set forth in Schedule 2.25
---------------------- -------------
hereto, neither the Company, the Founders nor to the knowledge of the Company
any director of the Company owns, directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer, director,
partner or in another similar capacity of, any competitor or supplier of
Company, or any organization which has a contract or arrangement with the
Company. After giving effect to the transactions contemplated hereby, the
Company shall not have any obligation or liability to any of the Founders, other
than as expressly provided in the Stockholders' Agreement. Attached hereto as
part of Schedule 2.25 is the letter agreement, dated March 7, 1996, among the
-------------
Company and the Founders relating to certain arrangements affecting the Company
and the Founders.
2.26 FIRPTA Withholding. The Company is not a "foreign person" within
------------------
the meaning of Section 145 of the Code and Treasury Regulations Section
1.1445-2.
SECTION 3. CONDITIONS OF PURCHASE
----------------------
The Investors' obligation to purchase and pay for the Preferred Shares
shall be subject to compliance by the Company and the Founders with their
agreements herein contained and to the fulfillment to the Investors' reasonable
satisfaction or waiver on or before the Closing Date of the following
conditions:
3.1 Satisfaction of Conditions. The representations and warranties of
--------------------------
the Company and the Founders contained in this Agreement (including but not
limited to the representations and warranties made in Section 2 hereof) shall be
true and correct in all material respects on and as of the Closing Date; and on
the Closing Date certificates to such effect executed by the Chief
14
<PAGE>
Executive Officer and the principal financial officer of the Company shall be
delivered to the Investors.
3.2 Opinion of Counsel. The Investors shall have received an opinion
------------------
in the form of Exhibit I hereto on the organization and authority of the
---------
Company, the enforceability of this Agreement and any related agreements,
absence of conflicts with organizational documents and other agreements
specifically identified, absence of litigation and such other matters as
requested by the Investors.
3.3 Authorization. The Board of Directors and the stockholders of the
-------------
Company shall have duly adopted resolutions in form reasonably satisfactory to
the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of the Secretary of the Company
setting forth a copy of such resolutions and the Certificate of Incorporation
and By-laws of the Company and such other matters as may be reasonably requested
by the Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
--------------------------------------
the Company shall have adopted a resolution establishing the terms of the
Preferred Stock as set forth in Exhibit B hereto, and such action shall have
---------
been made effective by approval thereof by the stockholders and the filing of an
Amended and Restated Certificate of Incorporation with the Secretary of State
for the State of Delaware.
3.5 Stockholders' Agreement. The Company, the Investors and the Lammle
-----------------------
Entities shall have executed and delivered a Stockholders' Agreement in the form
of Exhibit D hereto (the "Stockholders' Agreement").
---------
3.6 Non-Competition Agreements. Each of the Individual Founders and
--------------------------
all other key employees of the Company shall have entered into a Non-Competition
Agreement containing non-competition, non-solicitation and confidentiality
provisions with the Company in the form of Exhibit E hereto (the "Non-
---------
Competition Agreement"). All employees of the Company who are exposed to
technical and proprietary information of the Company shall have entered into
confidentiality and invention assignment agreements with the Company
substantially in the form attached as Exhibit C hereto or, if previously entered
---------
into, such other form as is reasonably satisfactory to the Investors (the
"Confidentiality and Proprietary Rights Agreement").
3.7 Senior Debt Facility. The Company shall have obtained at least
--------------------
$30,000,000 in funds (the "Senior Debt") pursuant to a senior credit agreement
(the "Senior Loan Agreement") with a bank or financial institution (the "Senior
Lender") and such other agreements, documents and instruments as may be required
or contemplated thereby, all on terms which are reasonably acceptable to the
Investors.
3.8 Election of Directors; Indemnification Agreements. In accordance
-------------------------------------------------
with the terms of the Stockholders' Agreement, the size of the Company's Board
of Directors shall have been fixed at no less than three (3) members and no more
than seven (7) members in accordance with the terms of the Stockholders'
Agreement and two (2) designees of the Investors shall have been
15
<PAGE>
elected to the Company's Board of Directors (herein referred to, together with
any successors as replacements, as the "Investor Representatives"). The Company
shall have entered into an Indemnification Agreement with each of the Investor
Representatives in substantially the form of Exhibit A hereto.
---------
3.9 Recapitalization. Subject to the provisions of Section 4.9, the
----------------
Company shall have (i) redeemed all of the shares of capital stock of the
Company held by the Linn Entities as of the date hereof and 60% of the shares of
capital stock of the Company held by the Lammle Entities for an aggregate of
$49,000,000 in cash, out of which the Founders shall pay all fees due to The
Wallach Company and deliver the Escrow Amount (as defined in Section 3.12 below)
to Norwest Bank Colorado, N.A. (the "Escrow Agent"), and (ii) made payments to
certain employees of the Company and related withholding obligations in an
aggregate amount of $7,000,000 pursuant to the Management Stock Unit Incentive
Plan ("MSUIP") of the Company, all as more fully set forth in Schedule 3.9
------------
hereto. The remaining capital stock in the Company held by the Lammle Entities
shall have been exchanged for 6,500 shares of Series B Convertible Preferred
Stock. In connection with such redemptions and exchanges, there shall have been
delivered to the Company the certificates representing all of the capital stock
held by the Founders, each marked canceled. Effective as of the Closing, options
or restricted stock grants for 640,845 shares of Common Stock shall have been
issued or granted to employees and agents of the Company under the Stock Option
Plan (thereby reducing the remaining shares available for issuance under the
Plan to 686,620) all in amounts and on terms acceptable to the Investors.
3.10 [Intentionally Omitted]
3.11 Releases. The Company and the Investors shall have received
--------
releases in substantially the form of Exhibit H hereto from each of the
---------
Founders, all of their respective affiliates and such other officers and
employees of the Company as the Investors shall designate.
3.12 Escrow Agreement. The Investors, the Founders and the Escrow Agent
----------------
shall have executed and delivered an Escrow Agreement in the form of Exhibit G
---------
hereto (the "Escrow Agreement"), pursuant to which $4,900,000 (the "Escrow
Amount") shall be deposited with the Escrow Agent at the Closing.
3.13 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to a
majority-in-interest of the Investors, and the Investors shall have received
such copies thereof and other materials (certified, if requested) as they may
reasonably request in connection therewith. The issuance and sale of the
Preferred Shares to the Investors shall be made in conformity with all
applicable state and federal securities laws.
3.14 No Adverse Change. Since December 31, 1995, there shall have been
-----------------
no material adverse change in the financial conditions, prospects, properties,
assets, liabilities, business or operations of the Company, whether or not in
the ordinary course of business.
16
<PAGE>
3.15 Delivery of Documents. The Company shall have executed and
---------------------
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate persons) the following:
(a) Certificates for the Preferred Shares;
(b) Certified copies of resolutions of the Board of Directors
(and, if necessary, the stockholders) of the Company authorizing the execution
and delivery of this Agreement, the Stockholders' Agreement, the Amended and
Restated Certificate of Incorporation creating the Preferred Shares, the
issuance of the Preferred Shares and upon conversion of the Preferred Shares,
the issuance of the Conversion Shares;
(c) A copy of the corporate charter of the Company, as amended,
certified as of a recent date by the Secretary of State of the State of
Delaware;
(d) A copy of the by-laws of the Company certified by the
Company's secretary;
(e) Certificates issued by the Secretary of State of the States
of Delaware, Colorado and Texas, certifying that the Company is in good standing
in their respective states;
(f) True and correct copies of the Senior Loan Agreement,
together with all amendments thereto, and copies of all documents and
instruments evidencing the transactions consummated in connection therewith; and
(g) Such other supporting documents and certificates as the
Investors may reasonably request.
SECTION 3B. CONDITIONS OF SALE
------------------
The Company's obligation to sell the Preferred Shares shall be subject
to the compliance by the Investors with their agreements herein contained and to
the fulfillment to the Company's reasonable satisfaction or waiver on or before
the Closing Date of the following conditions:
3.1B Satisfaction of Conditions. The representations and warranties
--------------------------
of the Investors contained in this Agreement (including but not limited to the
representations and warranties made in Section 5 hereof) shall be true and
correct in all material respects on and as of the Closing Date; and on the
Closing Date certificates to such effect executed by the Investors shall be
delivered to the Company.
3.2B Senior Debt Facility. The Company shall have obtained the Senior
--------------------
Debt pursuant to the Senior Loan Agreement with the Senior Lender and such other
agreements, documents and instruments as may be required or contemplated
thereby, all on terms which are reasonably acceptable to the Company.
17
<PAGE>
3.3B Stockholders' Agreement. The Company, the Investors and the Lammle
-----------------------
Entities shall have executed and delivered the Stockholders' Agreement.
3.4B Indemnification Agreement. The Company shall have entered into an
-------------------------
Indemnification Agreement with Guy M. Lammle in substantially the form of
Exhibit A hereto.
- ---------
3.5B Delivery of Documents. The Investors shall have executed and
---------------------
delivered to the Company (or shall have caused to be executed and delivered to
the Company by the appropriate persons) such supporting documents and
certificates as the Company may reasonably request.
SECTION 4. COVENANTS OF THE COMPANY
------------------------
The Company (which term shall be deemed to include, in addition to
subsidiaries existing as of the date hereof, for purposes of this Section 4, any
subsidiary or subsidiaries of the Company formed or acquired after the date of
this Agreement) shall comply with the following covenants except as shall
otherwise be expressly agreed pursuant to a written consent or consents executed
by a majority-in-interest of the Investors, until such time as all of the
Preferred Shares shall have either been redeemed in accordance with their terms
or converted into Common Stock and Senior Redeemable Preferred Stock at the
holders' option or upon the closing of an underwritten public offering pursuant
to an effective registration statement under the Securities Act covering the
offer and sale of Common Stock of the Company to the public at a per share price
of at least $20.00, appropriately adjusted for stock dividends, stock splits and
the like, and in which the proceeds received by the Company, net of underwriting
discounts and commissions, equal or exceed $30,000,000 (a "Qualified Public
Offering").
4.1 Financial Statements; Minutes. The Company will maintain a
-----------------------------
comparative system of accounts in accordance with generally accepted accounting
principles, keep full and complete financial records and furnish to the
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated balance sheet of the Company as at the end of
such year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied; (b) within 45 days after the end
of each quarter commencing with the quarter ending March 31, 1996, a
consolidated unaudited balance sheet of the Company as at the end of such
quarter and a consolidated unaudited statement of income and retained earnings
for the Company for such quarter and for the year to date; (c) within 30 days
after the end of each month commencing with the month ending March 31, 1996, a
consolidated unaudited balance sheet of the Company as at the end of such
month and an unaudited statement of income and retained earnings for the Company
for such month and for the year to date, each of the foregoing balance sheets
and statements of income and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period and to include a brief
written discussion and analysis by management of such annual, quarterly and
monthly financial statements; and (d) such other financial information as a
majority-in-interest of the Investors may reasonably request, including without
limitation
18
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certificates of the principal financial officer of the Company concerning
compliance with the covenants of the Company under this Section 4.
4.2 Budget and Operating Forecast. The Company will prepare and submit
-----------------------------
to the Board of Directors of the Company a budget for the Company for each
fiscal year of the Company at least 30 days prior to the beginning of such
fiscal year, together with management's written discussion and analysis of such
budget. The budget shall be accepted as the budget for such fiscal year when it
has been approved by a majority of the full Board of Directors of the Company
and, thereupon, a copy of such budget promptly shall be sent to the Investors.
The Company shall review the budget periodically and shall advise the Board of
Directors and the Investors of all changes therein and all material deviations
therefrom.
4.3 Conduct of Business. The Company will continue to engage
-------------------
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, including such
research and development activities as the Board of Directors may from time to
time approve. The Company will keep in full force and effect its corporate
existence and all intellectual property rights useful in its business (except
such rights as the Board of Directors has reasonably determined are not material
to the Company's continuing operations) and shall use its best efforts to cause
each new employee to execute a Confidentiality and Proprietary Rights Agreement
substantially in the form of Exhibit C attached hereto with such reasonable
---------
changes as may be deemed appropriate by the Board of Directors.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
-------------------------------------------
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Insurance. The Company will keep its insurable properties insured,
---------
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
-------------------------
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear
19
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and tear excepted, as necessary to permit such business to be properly and
advantageously conducted.
4.7 Affiliated Transactions. All transactions by and between the
-----------------------
Company and any of the Founders or any other officer or key employee of the
Company or persons controlling, controlled by, under common control with or
otherwise affiliated with such Founder, officer or key employee, shall be
conducted on an arm's-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from nonrelated persons and
shall be approved in advance by the Board of Directors after full disclosure of
the terms thereof; provided, however, that the Company may, under its agreement
-------- -------
with the Distribution Team, Inc., exercise its option to purchase a perpetual
license to use software for a total purchase price of $500,000.
4.8 Management Compensation. Compensation paid by the Company to its
-----------------------
management will be comparable to compensation paid to management prior to the
Closing. Any grants of capital stock or options hereunder shall be conditioned
upon the grantee agreeing to be bound by the terms of the Stockholders'
Agreement. With respect to the 686,620 shares of Common Stock which remain
reserved for issuance under the Stock Option Plan after the Closing: (a) options
and/or stock grants for no more than 457,747 shares of Common Stock shall be
granted prior to March 31, 1997 (the "First Year Grants"); (b) one-half of the
First Year Grants shall, regardless of when granted, vest 25% on the first
anniversary of grant and on a ratable basis thereafter through the fourth
anniversary of grant; (c) the other half of the First Year Grants shall,
regardless of when granted, vest ratably over a ten year period from the date of
grant subject to acceleration; and (c) the remaining 228,873 shares reserved for
issuance may be granted to new hires commencing after March 31, 1997 with
vesting to be on a ratable basis over a four-year period from the date of grant;
provided that if Guy M. Lammle is still serving as Chief Executive Officer on
March 31, 1998 he would, subject to the discretion of the Board of Directors, be
eligible to receive up to no more than one-half of such 228,873 shares remaining
available for grant at that time.
4.9 Use of Proceeds. The Company will use an aggregate of $56,000,000
---------------
of the proceeds from the sale of the Preferred Shares and the Senior Debt (a) to
repurchase certain outstanding capital stock held by each of the Founders (who
in turn shall be responsible for all fees payable to The Wallach Company) and
(b) to make payments to certain employees of the Company and on account of
related withholding obligations in an aggregate amount of $7,000,000 pursuant to
the Company's MSUIP, so that after giving effect to such redemptions and
payments, the outstanding capital stock of the Company shall be as set forth in
Sections 2.4 and 3.9 hereof. In connection with the payments under the MSUIP,
the Company shall on or before thirty (30) days after the Closing Date obtain a
release from each payee thereunder in favor of the Company in substantially the
form of Exhibit H attached hereto. The Escrow Amount will be delivered to the
---------
Escrow Agent to be held by the Escrow Agent pursuant to and in accordance with
the terms of the Escrow Agreement to be executed in substantially the form of
Exhibit G attached hereto.
- ---------
20
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4.10 Board of Directors Meetings. The Company will ensure that
---------------------------
meetings of its Board of Directors are held at least four times each year and at
intervals of not more than three months and will reimburse Directors for their
reasonable travel and other out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors or performing such other business
on behalf of the Company as may be approved by the Company in advance. The
Certificate of Incorporation or By-laws of the Company will at all times during
which any nominee of the Investors serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain on reasonable business
terms (including cost) directors and officers' liability insurance coverage of
at least $1,000,000 per occurrence.
4.11 Right to Participate in Sales of Additional Securities.
------------------------------------------------------
(a) The Company covenants and agrees that, except as otherwise
expressly permitted by Section 4.11(b) hereof it will not sell or issue any (i)
shares of capital stock of the Company, or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for capital
stock of the Company, or options, warrants or rights carrying any rights to
purchase capital stock or convertible or exchangeable securities of the Company
(collectively, "Additional Equity Securities"), other than in connection with a
Qualified Public Offering or as otherwise provided in Section 4.11(b) hereof or
(ii) notes, bonds, certificates of indebtedness, debentures or other debt
securities (collectively, "Additional Debt Securities" and together with
Additional Equity Securities, "Additional Securities") unless (x) the Company
shall have received a bona fide arms-length offer (which may be in response to a
solicitation by the Company) to purchase such Additional Securities from a third
party, and (y) the Company first submits a written offer to the Investors and
the Lammle Entities identifying the third party to whom such Additional
Securities are proposed to be sold and the terms of the proposed sale, and
offering to the Investors and the Lammle Entities the opportunity to purchase
such securities on terms and conditions, including price, not less favorable
than those on which the Company proposes to sell such securities to the third
party. Each of the Investors and the Lammle Entities shall have the right to
purchase its proportionate share of such securities based on the ratio which the
Conversion Shares and shares of Common Stock, respectively, of the Company owned
or obtainable by such Investor or Founder owned by it bears to the sum of all
Conversion Shares and shares of Common Stock owned by all Investors and Founders
immediately prior to such issuance. Any Investor may transfer its right to be
offered any such opportunity to any transferee of shares of its Preferred
Shares. The Company's offer to the Investors and the Lammle Entities shall
remain open and irrevocable for a period of at least 45 days. Any securities so
offered to the Investors and the Lammle Entities which are not purchased
pursuant to such offer shall be offered to the Investors and the Lammle Entities
wishing to purchase any such securities, and thereafter may be sold by the
Company to the third party originally named or assigned in the offer to the
Investors and the Lammle Entities on terms and conditions, including price, not
more favorable to the third party than those set forth in such offer at any time
within 75 days following the date of such offer, but may not be sold to any
other person or on terms and conditions, including price, that are more
favorable to the purchaser than those set forth in such offer or after such
75-day period without renewed compliance with this Section 4.11. Notwithstanding
21
<PAGE>
anything contained herein to the contrary, an Investor within an Investor group
shall have the right to purchase any shares with respect to which another
Investor within the same Investor group elects not to purchase hereunder.
(b) Notwithstanding the foregoing, the Company may (i) issue, or
issue options, warrants or rights to subscribe for, up to an aggregate of
1,327,465 shares of its Common Stock to officers, directors, employees,
consultants or agents of the Company pursuant to the terms of the Company's
Stock Option Plan and Section 4.8 hereof and issue shares of its Common Stock
upon the exercise of such stock options, (ii) issue Conversion Shares upon the
conversion of the Preferred Shares, (iii) declare, make or issue a dividend or
other distribution payable in shares of the Common Stock in respect of
outstanding shares of the Common Stock or the Preferred Stock in accordance with
the Company's Amended and Restated Certificate of Incorporation, as amended,
(iv) issue shares of Common Stock in connection with a Qualified Public
Offering, (v) issue shares of its Common Stock or other securities in connection
with the acquisition of any other corporation or business concern, whether by
acquisition of assets, or capital stock merger, consolidation or other
reorganization as long as the beneficial owners of the Company's outstanding
capital stock immediately prior to such transaction hold no less than fifty-one
percent (51%) of the voting power of the outstanding capital stock of the
Company immediately after such transaction, or (vi) with the prior consent of a
a majority-in-interest of the Investors, issue, or issue options, warrants or
rights to subscribe for, shares of its Common Stock in connection with any debt,
capital lease or other similar financing transaction, without offering the
Investors the opportunity to purchase their proportionate share of such shares
or options under this Section 4.11.
4.12 Stockholders' Agreement, Non-Competition Agreements and
-------------------------------------------------------
Confidentiality and Proprietary Rights Agreements. The Company will diligently
- -------------------------------------------------
enforce all of its rights under the Stockholders' Agreement described in Section
3.5 hereof, and the agreements described in Section 3.6 hereof. The Company will
not effect any transfer of any of the outstanding capital stock of the Company
on the stock record books of the Company unless such transfer is made in
accordance with the terms of the Stockholders' Agreement referred to in Section
3.5 hereof. The Company will not waive or release any rights under, or consent
to the amendment of, any such agreement without the written consent of a
majority-in-interest of the Investors.
4.13 Distributions on, and Redemptions of, Capital Stock. Except as
---------------------------------------------------
otherwise expressly provided in this Agreement or in Exhibit B hereto, the
---------
Company will not declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem,
purchase, or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock; provided, however, that this
restriction shall not apply to the repurchase of shares of the Common Stock
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers, by operation of law,
provided that the repurchase price paid by the Company does not exceed the
purchase price paid to the Company for such shares. Any redemption, repurchase
or other acquisition by
22
<PAGE>
the Company of any shares of its capital stock shall be made in compliance with
all laws, including but not limited to federal and state securities laws.
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
-------------------------------------------------------------
Actions. The Company will not without the prior written consent of Investors
- -------
holding a majority-in-interest of the Preferred Shares and Conversion Shares:
(a) sell, lease or otherwise dispose of (whether in one transaction or a series
of related transactions) all or substantially all of its assets, (b) merge
with or into or consolidate with another entity (except into or with a
wholly-owned subsidiary of the Company with the requisite stockholder approval),
(c) acquire any other corporation or business concern, whether by acquisition of
assets, capital stock or otherwise, and whether in consideration of the payment
of cash, the issuance of capital stock or otherwise, (d) voluntarily liquidate
or wind up its operations, (e) issue any shares of its capital stock which are
senior to or on a parity with the Preferred Shares with respect to dividends,
conversion, liquidation or redemptions or with any special voting rights, (f)
create, incur, assume, become liable for, or permit to exist any indebtedness
for borrowed money (other than the Senior Debt), capital leases, or other
similar commitments or obligations, which, for any one such borrowing or series
of related borrowings, is in excess of $300,000, (g) grant or permit to exist
any liens, security interests or encumbrances on any of the Company's assets or
properties, except as permitted by the terms of the Senior Debt as in effect on
the date hereof or except for purchase money security interests, or (h) enter
into any agreement with any party which by its terms restricts the payments due
the holders of the Preferred Shares pursuant to Exhibit B hereto.
---------
4.15 No Amendments to Certificate of Incorporation. The Company will
---------------------------------------------
not make any amendment to its Certificate of Incorporation or make any amendment
to its By-laws that material adversely affects the rights of holders of the
Preferred Stock without the prior written consent of Investors holding a
majority-in-interest of the Preferred Shares and Conversion Shares.
4.16 Capital Expenditures. The Company will not, without the prior
--------------------
approval of the Board of Directors of the Company, make any expenditures for
fixed or capital assets, or any commitments for such expenditures, exceeding an
amount of $100,000 for any one such expenditure or series of related
expenditures in any one year.
4.17 Life Insurance. The Company will, within thirty (30) days after
--------------
the Closing Date, obtain a key-man term life insurance policy on the life of Guy
M. Lammle in the amount of at least $10,000,000, such policy to name the Company
as sole beneficiary thereof.
SECTION 5. INVESTOR REPRESENTATIONS
------------------------
In order to induce the Company and the Founders to enter into this
Agreement, each Investor hereby severally represents with respect to such
Investor's purchase of Securities hereunder that:
(a) The execution of this Agreement and all other documents
executed pursuant hereto has been duly authorized by all necessary action on the
part of the Investor, has
23
<PAGE>
been duly executed and delivered, and constitutes a valid, binding and
enforceable agreement of the Investor.
(b) The Investor is acquiring the Preferred Shares for its own
account, for investment, and not with a present view to any "distribution"
thereof within the meaning of the Securities Act. The Investor was not formed or
organized for the purpose of acquiring the Preferred Shares.
(c) The Investor understands that because the Preferred Shares
have not been registered under the Securities Act, it cannot dispose of any or
all of the Preferred Stock or the Common Stock issuable upon conversion thereof
unless such securities are subsequently registered under the Securities Act or
exemptions from such registration are available. The Investor understands that
each certificate representing the Preferred Stock will bear the following legend
or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). These
securities have been acquired for investment and not with a
view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such
securities under the Act or the availability of an exemption
from such registration requirements.
(d) The Investor is sufficiently knowledgeable and experienced
in the making of venture capital investments so as to be able to evaluate the
risks and merits of its investment in the Company, and is able to bear the
economic risk of loss of its investment in the Company.
(e) The Investor has been advised that the Preferred Shares
have not been and are not being registered under the Act or under the "blue sky"
laws of any jurisdiction and that the Company in issuing the Preferred Stock is
relying upon, among other things, the representations and warranties of the
Investors contained in this Section 5.
(f) No broker, finder, agent or similar intermediary has acted
on behalf of an Investor in connection with this Agreement or the transactions
contemplated hereby and there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection therewith.
(g) The Investor is an "accredited investor" as defined in
Regulation D of the Securities Act.
(h) The Investor is not "controlled" by any other entity for
purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
(i) Advent VII L.P., Advent Atlantic and Pacific II L.P.,
Advent Atlantic and Pacific III, L.P., Advent New York L.P., Summit Ventures IV,
L.P., Summit Investors III, L.P.
24
<PAGE>
and TA Venture Investors Limited Partnership represent that they are
"institutional buyers" as described in the Massachusetts Uniform Securities Act.
(j) Technology Leaders II L.P. and Technology Leaders II
Offshore C.V. represent that they are "institutional investors" as described in
the Pennsylvania Securities Act.
SECTION 6. INDEMNIFICATION
---------------
6.1 [Intentionally Omitted]
6.2 Indemnification for Breaches. Each of the Founders, severally,
----------------------------
on behalf of himself and his successors, executors, administrators, estate,
heirs and assigns (collectively, for the purposes of this Section 6,
"Founders"), agrees to defend, indemnify, save and hold each of the Investors
and, from and after the Closing, the Company and persons serving as officers,
directors, partners, employees or agents of each Investor and the Company
(individually an "Indemnified Party" and collectively the "Indemnified Parties")
harmless from and against any and all costs, losses, liabilities, damages,
lawsuits, deficiencies, claims, taxes and expenses (whether or not arising out
of third-party claims), including, without limitation, interest, penalties,
reasonable attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing which may be sustained or suffered by any
such Indemnified Party (a "Loss" or "Losses"), based upon, arising out of,
resulting from, by reason of or otherwise in respect of or in connection with:
(a) any inaccuracy in or breach of any representation or
warranty made by the Founders or the Company in this Agreement, or in any
Schedule, exhibit or certificate delivered by or on behalf of the Founders or
the Company as part of or pursuant to this Agreement (collectively, "Warranty
Claims");
(b) any breach of the representations set forth in Section 2.4
relating to the capital stock and capitalization of the Company and Section 2.16
relating to investment banking or brokerage fees or any covenant or agreement
made by or on behalf of the Founders or the Company in this Agreement, or in any
Schedule, exhibit or certificate delivered by or on behalf of the Founders or
the Company as part of or pursuant to this Agreement;
(c) any liability of the Company for Taxes arising from an
event or transaction prior to the Closing or as a result of the Closing which
have not been paid by the Company prior to the Closing, including without
limitation, any increase in Taxes due to the unavailability of any loss or
deduction claimed by the Company; or
(d) any liability of the Company arising from the defense
or disposition of Data Dynamics, Inc. v. R&D Systems Company (which for purposes
------------------------------------------
of this Section 6 shall be deemed to be a Warranty Claim).
25
<PAGE>
The rights of Indemnified Parties to recover indemnification in respect
of any occurrence referred to in either of clauses (b), (c) and (d) of this
Section 6.2 shall not be limited by the fact that such occurrence may constitute
an inaccuracy in or breach of any representation, warranty or agreement referred
to in clause (a) of this Section 6.2.
6.3 Limitations on Indemnification.
------------------------------
(a) The right of Indemnified Parties to indemnification
under Section 6.2 shall be subject to the following provisions:
(i) Indemnification with respect to Warranty Claims
shall expire on the earlier to occur of (A) a Qualified Public Offering
or (B) thirty (30) days after receipt by the Company of the audited
financial statements of the Company for the fiscal year ending December
31, 1996; provided, however, that the limitation of this clause (i)
shall not apply to (x) Warranty Claims involving fraud, intentional
misrepresentation or breach of Section 2.4 or 2.16, (y) Taxes, for
which the period for making such claims shall expire on the date which
is six (6) months after the termination of the applicable statute of
limitations relating thereto and (z) claims arising from the defense or
disposition of Data Dynamics, Inc. v. R&D Systems Company if such
------------------------------------------
lawsuit has not been finally adjudicated as of such date (in which
event appropriate reserves for the estimated liabilities, losses and
expenses arising from such lawsuit shall remain in escrow (which
reserves will not, in any event exceed $650,000)). If prior to the
relevant date of expiration a specific state of facts shall have become
known which may constitute or give rise to any Warranty Claim as to
which indemnity may be payable and an Indemnified Party shall have
given notice of such facts to the Founders, then the right to
indemnification with respect thereto shall remain in effect without
regard to when such matter shall have been finally determined and
disposed of, according to the date on which notice of the applicable
claim is given.
(ii) No indemnification shall be payable with respect
to Warranty Claims (other than those involving fraud, intentional
misrepresentation, breach of Section 2.4 or 2.16 or Taxes) to
Indemnified Parties unless the total of all Warranty Claims shall
exceed $500,000 in the aggregate, whereupon only the amount of such
excess claims shall be recoverable in accordance with the terms hereof;
provided, however, that with respect to indemnification claims relating
-------- -------
to Section 6.2(d) hereof, indemnification shall be available from the
first dollar of loss or claim, notwithstanding anything herein to the
contrary.
(iii) The Founders shall not be obligated to
indemnify Indemnified Parties for Warranty Claims (other than any such
claims involving fraud, intentional misrepresentations, or Taxes) after
the cumulative amount of all amounts paid by the Founders to
Indemnified Parties with respect thereto exceeds FOUR MILLION NINE
HUNDRED THOUSAND DOLLARS ($4,900,000) and the sole remedy with respect
to any such claim described in this Section 6.3(a)(iii) shall be as
provided in the Escrow Agreement; provided, further, that the Founders
-------- -------
shall not be obligated to indemnify
26
<PAGE>
Indemnified Parties for indemnification claims relating to Section
6.2(d) in an amount in excess of Six Hundred and Fifty Thousand Dollars
($650,000).
(iv) The limitations herein with respect to certain
Warranty Claims shall not limit the rights of any Indemnified Party
with respect to any other claims arising under provisions of Section
6.2 and the Founders shall not have any right of contribution from, or
claims against, the Company with respect to their indemnification
claims hereunder.
(b) In the event any claim for indemnification hereunder arises under
more than one provision of Section 6.2 and as such may be subject to limitations
pursuant to this Section 6.3 if deemed to arise under a particular provision but
not if deemed to arise under a different provision, then the claim shall be
deemed to arise under the provision to which no restrictions or the least
restrictive provisions apply.
6.4 Notice; Defense of Claims. Promptly after receipt by an indemnified
-------------------------
party of notice of any third party or other claim, liability or expense to which
the indemnification obligations hereunder would apply, including in connection
with any governmental proceeding, the indemnified party shall give notice
thereof in writing to the indemnifying party or parties, but the omission to so
notify the indemnifying party or parties promptly will not relieve the
indemnifying party or parties from any liability except to the extent that the
indemnifying party or parties shall have been materially prejudiced as a result
of the failure or delay in giving such notice. Such notice shall state the
information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the indemnifying party
or parties (i) give written notice to the indemnified party or parties stating
that they intend to defend in good faith against such claim, liability or
expense at their own cost and expense and (ii) provide assurance and security
reasonably acceptable to such indemnified party or parties that such
indemnification will be paid fully and promptly if required and such indemnified
party or parties will not incur cost or expense during the proceeding, then
counsel for the defense shall be selected by the indemnifying party or parties
(subject to the consent of such indemnified party or parties which consent shall
not be unreasonably withheld) and such indemnified party or parties shall not be
required to make any payment with respect to such claim, liability or expense as
long as the indemnifying party or parties are conducting a good faith and
diligent defense at their own expense; provided, however, that the assumption of
defense of any such matters by the indemnifying party or parties shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. If the indemnifying party or parties assume such defense in
accordance with the preceding sentence, they shall have the right, with the
consent of such indemnified party or parties, which consent shall not be
unreasonably withheld, to settle all Indemnifiable matters related to claims by
third parties which are susceptible to being settled provided the indemnifying
party or parties' obligation to indemnify such indemnified party or parties
therefor will be fully satisfied and the settlement includes a complete release
of such indemnified party or parties. The
27
<PAGE>
indemnifying party or parties shall keep such indemnified party or parties
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish such indemnified party or
parties with all documents and information that such indemnified party or
parties shall reasonably request and shall consult with such indemnified party
or parties prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, such indemnified party or parties shall
at all times have the right to fully participate in such defense at its own
expense directly or through counsel; provided, however, if the named parties to
the action or proceeding include both the indemnifying party or parties and the
indemnified party or parties and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for such indemnified party or parties
shall be paid by the indemnifying party or parties. If no such notice of intent
to dispute and defend is given by the indemnifying party or parties, or if such
diligent good faith defense is not being or ceases to be conducted, such
indemnified party or parties shall, at the expense of the indemnifying party or
parties, undertake the defense of (with counsel selected by such indemnified
party or parties), and shall have the right to compromise or settle, such claim,
liability or expense with the consent of the Indemnifying Party, which will not
be unreasonably withheld, provided, however, if such consent is requested and
the Indemnifying Party does not respond within ten (10) business days, such
Indemnifying Party shall be deemed to have consented. If such claim, liability
or expense is one that by its nature cannot be defended solely by the
indemnifying party or parties, then such indemnified party or parties shall make
available all information and assistance that the indemnifying party or parties
may reasonably request and shall cooperate with the indemnifying party or
parties in such defense.
6.5 Satisfaction of Indemnification Obligations; Disputed Claims. Any
------------------------------------------------------------
indemnity payable pursuant to this Section 6 shall be paid in accordance with
the Escrow Agreement within the later of (a) fifteen (15) days after the
indemnified party's request therefor or (b) ten (10) days prior to the date on
which the Loss upon which the indemnity is based is required to be satisfied by
the indemnified party. Notwithstanding anything to the contrary set forth in
this Agreement, any dispute relating to any indemnification claim hereunder
shall be resolved in accordance with the provisions of the Escrow Agreement.
SECTION 7. GENERAL
-------
7.1 Amendments, Waivers and Consents. For the purposes of this
--------------------------------
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company or the Founders on the one hand and any Investor
on the other and no delay on the part of any party hereto in exercising any
rights hereunder or thereunder shall operate as a waiver of the rights hereof
and thereof. No covenant or other provision hereof or thereof may be waived
otherwise than by a written instrument signed by the party so waiving such
covenant or other provision; provided, however, that except as otherwise
provided herein or therein, changes in or additions to, and any consents
required by, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in
28
<PAGE>
a particular instance and either retroactively or prospectively) by a consent or
consents in writing signed by the Investors holding a majority-in-interest of
the Preferred Shares (including for such purposes, on a proportional basis, any
Conversion Shares into which any of the Preferred Shares have been converted
that have not been sold to the public) and (in the case of any such change or
addition) the Company; provided, however, that the amendment, modification or
-------- -------
waiver of any provision which by its terms requires the consent or approval of
more than a majority-in-interest of the Investors shall only be effective if it
is signed by holders of such requisite percentage. All references in this
Agreement to a majority-in-interest of the Investors refer to Investors holding
a- majority-in-interest of the outstanding Preferred Shares and Conversion
Shares on an as converted basis. Any amendment or waiver effected in accordance
with this Section 7.1 shall be binding upon each holder of Preferred Shares
purchased under this Agreement at the time outstanding (including securities
into which such Preferred Shares have been converted), each future holder of all
such securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
------------------------------------------------------
Assignability of Rights. All covenants, agreements, representations and
- -----------------------
warranties of the Company and/or the Founders made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished by or on behalf of the Company and/or the Founders to any Investor
in connection herewith shall be deemed material and to have been relied upon by
such Investor, and, except as otherwise provided in this Agreement, shall
survive the delivery of the Securities regardless of any instruction and shall
not merge in the performance of any obligation and shall bind the Company's and
the Founders' successors, assigns and heirs, whether so expressed or not, and,
except as otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not. The representations and warranties made by the Investors in
Section 5 of this Agreement shall survive the delivery of the Securities and
shall bind the Investors' successors and assigns and shall inure to the benefit
of the Company's successors and assigns.
7.3 Governing Law. Except for Delaware corporate law matters relating
-------------
to the Company which shall be governed by and construed in accordance with the
Delaware General Corporation Law, this Agreement shall be deemed to be a
contract made under, and shall be construed in accordance with, the laws of The
Commonwealth of Massachusetts (without giving effect to principles of conflicts
of law). Each party also waives trial by jury in any action relating to this
Agreement
7.4 Section Headings; Counterparts. The descriptive headings in this
------------------------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
-------------------
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto,
29
<PAGE>
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served and received for all
purposes when delivered or five days after being sent by certified or registered
mail, postage and charges prepaid, return receipt requested, or by express
delivery providing receipt of delivery, to the following addresses: if to the
Company, at its address as shown on the signature page hereof, or at any other
address designated by the Company to each of the Investors in writing; if to an
Investor, at its mailing address as shown on Appendix A hereto, or at any other
----------
address designated by such Investor to the Company and the other Investors in
writing; if to a Lammle Entity, at its mailing address as shown on Appendix B
----------
hereto, or at any other address designated by such Lammle Entity to the Company
and the Investors in writing; and if to an assignee of an Investor, at its
address as designated to the Company and the other Investors in writing.
7.6 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Founders shall pay all attorneys' fees (including
--------
costs) that each of the Company, the Founders and the Investors incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement and the agreements, documents and instruments contemplated hereby or
executed pursuant hereto and the Founders shall pay all other costs and expenses
that they and the Company incur with respect to the negotiation, execution,
delivery and performance of this Agreement and the agreements, documents and
instruments contemplated hereby or executed pursuant hereto (including, without
limitation, any amounts payable to The Wallach Company).
7.8 Integration. This Agreement together with the Stockholders'
-----------
Agreement, including the exhibits, documents and instruments referred to herein
or therein, constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
[Remainder of Page Intentionally Left Blank]
30
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
R&D SYSTEMS COMPANY
5225 N. Academy Blvd., Suite 200
Colorado Springs, CO 80918
By: /s/ GUY M. LAMMLE
-----------------------------
Name:
Title:
/s/ ROGER H. LINN
--------------------------------
Roger H. Linn
/s/ GUY M. LAMMLE
--------------------------------
Guy M. Lammle
/s/ LOIS J. LIN
--------------------------------
Lois J. Linn
JENNIFER LINN TRUST
By: /s/ ROGER H. LINN
-----------------------------
Trustee
SARA LINN TRUST
By: /s/ ROGER H. LINN
-----------------------------
Trustee
/s/ RITA L. LAMMLE
--------------------------------
Rita L. Lammle
31
<PAGE>
AMY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------
Trustee
DAINA LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------
Trustee
LACEY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------
Trustee
TA INVESTORS:
------------
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------
32
<PAGE>
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
ADVENT ATLANTIC AND
PACIFIC III, L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
TA VENTURE INVESTORS
LIMITED PARTNERSHIP
By: *
--------------------------------
33
<PAGE>
*/s/ JACQUELINE C. MORBY
------------------------
By Jacqueline Morby
SUMMIT INVESTORS:
----------------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By: /s/ GREGORY M. AVIS
--------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ GREGORY M AVIS
--------------------------------
General Partner
TL INVESTORS:
------------
TECHNOLOGY LEADERS II L.P.
By:Technology Leaders II Management
L.P., the General Partner
By:Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------
Managing Director
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By:Technology Leaders II Management
L.P., a General Partner
34
<PAGE>
By: Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------
Managing Director
35
<PAGE>
Appendix A
----------
List of Investors
-----------------
<TABLE>
<CAPTION>
Column 1 Column 2
-------- --------
Number of Aggregate
Preferred Purchase Price for
Name Shares Preferred Shares
---- --------- ------------------
<S> <C> <C>
Advent VII L.P. 7,500 $7,500,000
c/o TA Associates
125 High Street, Suite 2500
High Street Tower
Boston, MA 02110
Advent Atlantic and Pacific II L.P. 2,865 2,865,000
c/o TA Associates, Inc.
125 High Street, Suite 2500
High Street Tower
Boston, MA 02110
Advent Atlantic and Pacific III, L.P. 3,750 3,750,000
c/o TA Associates, Inc.
125 High Street, Suite 2500
High Street Tower
Boston, MA 02110
Advent New York L.P. 750 750,000
c/o TA Associates, Inc.
125 High Street, Suite 2500
High Street Tower
Boston, MA 02110
TA Venture Investors Limited Partnership 135 135,000
c/o TA Associates, Inc.
125 High Street, Suite 2500
High Street Tower
Boston, MA 02110
Summit Ventures IV, L.P. 9,577 9,577,000
c/o Summit Partners
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Summit Investors III, L.P. 423 423,000
c/o Summit Partners
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Technology Leaders II L.P. 557 557,000
c/o Technology Leaders Management,
Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders II Offshore C.V. 443 443,000
c/o Technology Leaders Management,
Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
========== ==========
Total 26,000 $26,000,000
========== ==========
</TABLE>
36
<PAGE>
Appendix B
Lammle Entity Holdings
----------------------
Number of Shares of
Series B Convertible
Name Preferred Stock
---- --------------------
Guy M. Lammle 2,275
Rita L. Lammle 2,275
Amy Lammle Trust 487.5
Daina Lammle Trust 487.5
Lacey Lammle Trust 975
-------
6,500
The address for each of the above is:
23234 East County Club Trail
Scottsdale, AZ 85255
<PAGE>
Exhibit A
to Stock Purchase Agreement
Form of Indemnification Agreement
[Reference is hereby made to Exhibit 10.17 to the Registration Statement.]
<PAGE>
Exhibit B
to Stock Purchase Agreement
Amended and Restated Certificate of Incorporation
[Reference is hereby made to Exhibit 3.1 to the Registration Statement.]
<PAGE>
EXHIBIT C
---------
R&D SYSTEMS COMPANY
EMPLOYEE AGREEMENT
REGARDING CONFIDENTIALITY
AND PROPRIETARY RIGHTS
Employee Name:
Date:
WHEREAS, certain investors have agreed to provide financing (the
"Financing") to R&D Systems Company (the "Company") subject to the terms of
that certain Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as
of the date hereof, by and among the Company, the stockholders of the Company
identified therein (the "Founders") and the investors identified therein (the
"Investors");
WHEREAS, such Financing will significantly benefit the Company and
indirectly benefit the above-named Employee as a stockholder of the Company; and
WHEREAS, this Agreement is a condition to the Stock Purchase
Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Non-Disclosure Obligation. I understand and agree that my
-------------------------
employment creates a relationship of confidence and trust between me and the
Company with respect to (a) all proprietary and confidential information of the
Company, and (b) the confidential information of others with which the Company
has a business relationship. The information referred to in clauses (a) and (b)
of the preceding sentence is referred to in this Agreement, collectively, as
"Confidential Information." I will not at any time, whether during or after the
termination of employment, for any reason whatsoever (other than to promote and
advance the business of the Company), reveal to any person or entity (both
commercial and non-commercial) or use for any purpose other than the furtherance
of the Company's business interests any of the trade secrets or Confidential
Information, including, but not limited to, the Company's research and
development activities; marketing plans and strategies; pricing and costing
policies; customer and supplier lists; and business or financial information of
the Company so far as they have come or may come to my knowledge, except as may
be required in the ordinary course of performing my duties as an employee of the
Company. This restriction shall not apply to: (i) information that may be
disclosed generally or is in the public domain through no fault of mine; (ii)
information received from a third party outside the Company that was disclosed
without a breach of any confidentiality obligation; or (iii) information that
may be required by law or an order of any court, agency or proceeding to be
disclosed; provided, that such disclosure is subject to all applicable
governmental or judicial protection available for like material and I agree to
provide the Company with prior notice of any such disclosure. I shall keep
secret all matters of such nature entrusted to me and shall not use or disclose
any such information in any manner, except as may be required in the ordinary
course of performing my duties as an employee of the Company.
2. Assignment of Inventions. I expressly understand and agree
------------------------
that any and all right or interest I have or obtain in any designs, trade
secrets, technical specifications, technical data, know-how and show-how,
internal reports and memoranda, marketing plans, inventions, concepts, ideas,
expressions, discoveries, improvements, copyrights, and patent or patent rights
conceived, devised, developed, reduced to practice, or which I otherwise have or
obtain during the
<PAGE>
term of this Agreement which relate to the business of the Company or arise out
of my employment with the Company are expressly regarded as "works for hire"
(the "Inventions").
I hereby assign to the Company the sole and exclusive right to such
Inventions. I agree that I will promptly disclose to the Company any and all
such Inventions, and that, upon request of the Company, I will execute and
deliver any and all documents or instruments and take any other action which the
Company shall deem necessary to assign to and vest completely in the Company, to
perfect trademark, copyright and patent protection with respect to, or to
otherwise protect the Company's trade secrets and proprietary interest in such
Inventions. The obligations of this Section shall continue beyond the
termination of my employment with respect to such Inventions conceived of or
made by me during the term of this Agreement. The Company agrees to pay any and
all copyright, trademark and patent fees and expenses or other costs incurred by
me for any assistance rendered to the Company pursuant to this Section.
My obligation to assign Inventions shall not apply to any invention
about which I can prove that: (i) it was developed entirely on my own time and
effort; (ii) no equipment, supplies, facilities, trade secrets or confidential
information of the Company was used in its development; (iii) it does not relate
to the business of the Company or to the Company's actual or anticipated
research and development; and (iv) it does not result from any work performed by
me for the Company.
3. Documents, records, etc. All documents, records, apparatus,
-----------------------
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Restrictions on Corporate Opportunities. During my
---------------------------------------
employment with the Company and for a period of one (1) year thereafter, I will
not pursue, engage in or have an interest in other business ventures or
opportunities which arise out of, are similar to or competitive with the
business of the Company. In addition, I will be obligated to present any
computer software business or investment opportunity arising out of the
Company's operations to the Company, and the Company shall have the exclusive
right to pursue such business or investment opportunity.
5. Absence of Conflicting Agreements. I understand the Company
---------------------------------
does not desire to acquire from me any trade secrets, know-how or confidential
business information that I may have acquired from others. I represent that I
am not bound by any agreement or any other existing or previous business
relationship which conflicts with or prevents the full performance of my duties
and obligations to the Company under this Agreement or otherwise during the
course of my employment.
6. No Employment Obligation. I understand that this Agreement
------------------------
does not create an obligation on the part of the Company to continue my
employment with the Company. I am employed as an employee "at will."
7. Remedies Upon Breach. I agree that it would be difficult to
--------------------
measure any damages caused to the Company which might result from any breach by
me of the promises set forth in this Agreement, and that, in any event, money
damages would be an inadequate remedy for any such breach. Accordingly, I agree
that if I breach, or propose to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
<PAGE>
8. Binding Effect. This Agreement will be binding upon me and
--------------
my heirs, executors, administrators and legal representatives and will inure to
the benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns. My obligations under this Agreement shall
survive the termination of my relationship with the Company regardless of the
manner of such termination.
9. Enforceability. If any portion or provision of this
--------------
Agreement is to any extent declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.
10. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Company and myself with respect to the subject matter
hereof, and supersedes all prior representations and agreements with respect to
such subject matter. This Agreement may not be amended, modified or waived
except by a written instrument duly executed by the person against whom
enforcement of such amendment, modification or waiver is sought. The failure of
any party to require the performance of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement, in any
particular case will not prevent any subsequent enforcement of such term or
obligation or to be deemed a waiver of any separate or subsequent breach.
11. Third Party Beneficiaries. This Agreement is being entered
-------------------------
into at the request of the Investors and such Investors are intended to be third
party beneficiaries hereunder with full power to enforce the terms hereof.
12. Notices. Any notices, requests, demands and other
-------
communications provided for by this Agreement will be sufficient if in writing
and delivered in person or sent by registered or certified mail, postage
prepaid, to me at the last address which I have filed in writing with the
Company or, in the case of any notice to the Company, at its main offices, to
the attention of its Chief Executive Officer.
13. Governing Law. This is a State of Colorado contract and shall be
-------------
construed under and be governed in all respects by the laws of the State of
Colorado, without giving effect to its conflicts of law principles.
<PAGE>
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE
READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
__________________________________
Accepted and Agreed to by
R&D SYSTEMS COMPANY
By: ___________________________
Name:
Title:
Date:
<PAGE>
Exhibit D
to Stock Purchase Agreement
Stockholder's Agreement
[Reference is hereby made to Exhibit 10.2 to the Registration Statement.]
<PAGE>
Exhibit E
to Stock Purchase Agreement
Non-Competition Agreement
[Reference is hereby made to Exhibit 10.19 to the Registration Statement.]
<PAGE>
EXHIBIT F
---------
R&D SYSTEMS COMPANY
1996 Stock Option and Grant Plan
--------------------------------
1. PURPOSE
This Stock Option and Grant Plan (the "Plan") is intended as a performance
incentive for officers, employees, directors, consultants and other key persons
of R&D Systems Company (the "Company") or its Subsidiaries (as hereinafter
defined) to enable the persons to whom options are granted (the "Optionees") or
to whom shares of common stock are granted (the "Grantees") to acquire or
increase a proprietary interest in the success of the Company. The Company
intends that this purpose will be effected by the granting of "incentive stock
options" ("Incentive Options") as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), nonqualified stock options ("Nonqualified
Options") and outright grants of common stock under the Plan. The term
"Subsidiaries" includes any corporations in which stock possessing fifty percent
or more of the total combined voting power of all classes of stock is owned
directly or indirectly by the Company.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by a committee (the "Option Committee")
of not less than two directors of the Company appointed by the Board of
Directors of the Company (the "Board of Directors") each of whom is an "outside
director" within the meaning of Section 162(m) of the Code.
1
<PAGE>
(c) Subject to the terms and conditions of the Plan, the Option Committee
shall have the power:
(i) To determine from time to time the options or stock to be
granted to eligible persons under the Plan, to prescribe the terms and
provisions (which need not be identical) of options or stock granted under
the Plan to such persons and to approve the grant of options or stock, as
the case may be;
(ii) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for administration of the
Plan. In this connection, the Option Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, in any
option agreement, or in any related agreements, in the manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective. All decisions and determinations by the Option Committee in the
exercise of this power shall be final and binding upon the Company, the
Optionees and the Grantees; and
(iii) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of the
Company with respect to the Plan.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued common
stock, par value $.01 per share (the "Common Stock"). The total number of shares
that may be issued under the Plan shall not exceed an aggregate of 1,327,465
shares of Common Stock and the total number of shares of Common Stock that may
be issued to, and/or for which Options may be granted to, any one
2
<PAGE>
individual during any one calendar year shall not exceed 700,000. Such number
shall be subject to adjustment as provided in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is cancelled
or is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options under the Plan or grants of Common Stock.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other employees
of the Company or its Subsidiaries, including members of the Board of Directors
who are also employees of the Company or its Subsidiaries. Nonqualified Options
may be granted to officers or other employees of the Company or its
Subsidiaries, members of the Board of Directors and consultants and other key
persons who provide services to the Company or its Subsidiaries (regardless of
whether they are also employees). Grants of Common Stock may be made to any
officer, director, employee, consultant or other key person of the Company.
(b) No person shall be eligible to receive any Incentive Option under the
Plan if, at the date of grant, such person beneficially owns stock representing
in excess of 10% of the voting power of all outstanding capital stock of the
Company (a "Ten Percent Stockholder") unless notwithstanding anything in this
Plan to the contrary (i) the purchase price for the Common Stock subject to such
option is at least 110% of the fair market value of such stock at the time of
the grant and (ii) the option by its terms is not exercisable more than five
years from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, to the extent that
the aggregate fair market value of the stock with respect to which Incentive
Options are exercisable for the first
3
<PAGE>
time by any individual during any calendar year (under all plans of the Company
and its parent and Subsidiaries) exceeds $100,000, the options attributable to
the excess over $100,000 shall be treated as Nonqualified Options under the
Plan. Such annual limitation shall be applied by taking Incentive Options into
account in the order in which they were granted.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement shall
contain such provisions as the Option Committee shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
-------------------------------------
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted; provided, however, that if such Incentive Option
is held by a Ten Percent Stockholder, the expiration date of such Incentive
Option shall not be later than five years from the date of grant thereof. If an
Optionee's employment or service as a director with the Company and its
Subsidiaries terminates for any reason, the Option Committee may in its
discretion provide, at any time, that any outstanding option granted to such
Optionee under the Plan shall be exercisable for three months following
termination of employment, subject to the expiration date of such option.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
--------------------------
to which an option may be exercised at any one time shall be fifty (50) shares,
or such lesser number as is subject to exercise under the option at the time,
provided that no fractional shares may be issued.
4
<PAGE>
(c) Exercise. Each option shall be exercisable in such installments (which
--------
need not be equal) and at such times as may be designated by the Option
Committee. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject
--------------
to each option shall be determined by the Option Committee; provided, however,
that the purchase price per share of Common Stock subject to each Incentive
Option shall be not less than the fair market value of the Common Stock on the
date such Incentive Option is granted. For the purposes of the Plan, the fair
market value of the Common Stock shall be determined in good faith by the Option
Committee; provided, however, that (i) if the Common Stock is admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") on the date the option is granted, the fair market value shall
not be less than the average of the highest bid and lowest asked prices of the
Common Stock on NASDAQ reported for such date, or (ii) if the Common Stock is
admitted to trading on a national securities exchange or the NASDAQ National
Market System on the date the option is granted, the fair market value shall not
be less than the closing price reported for the Common Stock on such exchange or
system for such date or, if no sales were reported for such date, for the last
date preceding such date for which a sale was reported.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to be
-------------------
the owner of any shares of Common Stock subject to any option unless and until
(i) the option shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Company, (iii) the Company shall have issued and
delivered the shares to the Optionee, and (iv) the Optionee's name shall
5
<PAGE>
have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Common Stock.
(f) Transfer. No option granted hereunder shall be transferable by the
--------
Optionee other than by will or by the laws of descent and distribution, and such
option may be exercised during the Optionee's lifetime only by the Optionee, or
his or her guardian or legal representative.
5A. TERMS OF STOCK GRANT
Subject to the terms and conditions of this Plan, the Option Committee may
grant (or sell at a purchase price determined by such committee) shares of
Common Stock to eligible participants under this Plan. Such grants or issuances
may be on such terms as the Option Committee may determine, including
restrictions on transfer, rights of first refusal and repurchase provisions
based upon continuing employment and/or the achievement of performance goals or
other conditions. In no event may Common Stock issued or granted under this Plan
(other than as a result of the exercise of Options issued under this Plan) be
transferred or sold within six months of the date of issuance thereof.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Section 5(b) hereof, in part by delivering to the Company
on any business day a written notice specifying the number of shares of Common
Stock the Optionee then desires to purchase (the "Notice"). As a condition
precedent to the exercise of any option (i) prior to the closing date of the
Company's first underwritten public offering of the Common Stock, on or prior to
the exercise date, the Optionee shall execute and deliver a Stockholders'
Agreement with substantially the terms attached hereto as Exhibit A, which may
---------
be amended from time to time
6
<PAGE>
and (ii) the Optionee shall pay or make arrangements for the payment of all
taxes to be withheld, in accordance with Section 9 of the Plan.
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or bank
check or other payment acceptable to the Company, equal to the option exercise
price for the number of shares specified in the Notice (the "Total Option
Price"); (ii) if authorized by the applicable option agreement and if permitted
by law, by delivery of shares of Common Stock that the optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Option Committee, and the fulfillment of any
other requirements contained in the option agreement or applicable provisions of
law.
7
<PAGE>
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares subject to the Plan, and in the number, kind, and per share
exercise price of shares subject to unexercised options or portions thereof
granted prior to any such change. In the event of any such adjustment in an
outstanding option, the Optionee thereafter shall have the right to purchase the
number of shares under such option at the per share price, as so adjusted, which
the Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the Option
Committee and such determinations shall be conclusive. The Option Committee
shall have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any option or
portion thereof shall become exercisable. No fractional shares of Common Stock
shall be issued under the Plan on account of any adjustment specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company
8
<PAGE>
to another entity, the Plan and the options issued hereunder shall terminate
upon the effectiveness of any such transaction or event, unless provision is
made in connection with such transaction for the assumption of options
theretofore granted, or the substitution for such options of new options of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and the per share exercise price, as provided in Section 7.
In the event of such termination, all outstanding vested options shall be
exercisable for at least fifteen (15) days prior to the date of such termination
whether or not otherwise vested or exercisable during such period.
9. TAX WITHHOLDING
Each Optionee shall, no later than the exercise date of any option, pay to
the Company, or make arrangements satisfactory to the Option Committee regarding
payment of any Federal, state, or local taxes of any kind required by law to be
withheld with respect to such income. The Company and its Subsidiaries shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee.
10. CONDITION TO GRANTS OF COMMON STOCK
As a condition precedent to the grant of Common Stock to any Grantee under
the Plan prior to the closing date of the Company's first underwritten public
offering of the Common Stock, the Grantee shall execute and deliver a
Stockholders' Agreement with substantially the terms attached hereto as Exhibit
-------
A, which may be amended from time to time. The Option Committee may also impose
- -
such other terms and conditions on the grant of any Common Stock under the Plan
as it may determine.
11. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as
9
<PAGE>
provided in Sections 7 and 8 hereof, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations at an annual or special meeting held within twelve months before
or after the date of adoption of such amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options may
be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price; or
(d) otherwise materially increase the benefits accruing to participants
under the Plan.
Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before any amendment of the Plan shall not be altered or
impaired by such amendment, except with the consent of the Optionee.
12. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan nor any option granted hereunder shall be
deemed to confer upon any employee any right to continued employment with the
Company or its Subsidiaries.
10
<PAGE>
13. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Option Committee.
(b) The Plan shall be governed by Delaware law, except to the extent that
such law is preempted by federal law.
14. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior to
such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
* * *
Approved by Board of Directors: March 14, 1996
Approved by Stockholders: March 14, 1996
11
<PAGE>
EXHIBIT G
---------
ESCROW AGREEMENT
----------------
This Agreement is made and entered into as of March 14, 1996 by and among
Roger H. Linn, Lois J. Linn, Jennifer Linn Trust and Sara Linn Trust
(collectively, the "Linn Entities") and Guy M. Lammle, Rita L. Lammle, Amy
Lammle Trust, Daina Lammle Trust and Lacey Lammle Trust (collectively, the
"Lammle Entities") (the Linn Entities and the Lammle Entities are collectively
referred to as the "Founders"), the investors identified on the signature pages
hereto (the "Investors"), and Norwest Bank Colorado, N.A. (the "Escrow Agent").
WHEREAS, reference is made to the Stock Purchase Agreement, dated as of the
date hereof, by and among R&D Systems Company (the "Company"), the Founders and
the Investors (the "Investment Agreement"), pursuant to which the Investors have
purchased 26,000 shares of Convertible Participating Preferred Stock, par value
$.01 per share, of the Company;
WHEREAS, the Founders have agreed to indemnify the Investors against
certain losses resulting from breaches of the representations, obligations,
warranties and covenants made by the Company and the Founders in the Investment
Agreement;
WHEREAS, under the Investment Agreement, the Founders and the Investors
have agreed that an aggregate amount of $4,900,000 will be deposited into
escrow, on the terms and conditions hereinafter provided, in an aggregate amount
equal to $4,900,000, to secure payment of such indemnification;
WHEREAS, the Founders and the Investors acknowledge that the Founders have
not received, nor do they have control over, the funds deposited hereunder, and
that the Founders will not receive any control over such funds until certain
conditions set forth herein have been satisfied; and
WHEREAS, Norwest Bank Colorado, N.A. is willing to serve as Escrow Agent
pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by each party hereto, it is hereby agreed by and
among the Founders, the Investors and the Escrow Agent as follows:
1. Establishment of Escrow. The Investors have herewith deposited with
-----------------------
the Escrow Agent, and the Escrow Agent acknowledges receipt of, the sum of Four
Million Nine Hundred Thousand Dollars ($4,900,000). The consideration deposited
hereunder, and all interest and earnings thereon, shall be referred to as the
"Escrowed Funds." The Escrowed Funds shall be held in escrow in the name of the
Escrow Agent or its nominee, subject to the terms and conditions set forth
herein.
<PAGE>
2. Investment of Escrowed Funds. The Escrow Agent shall invest the
----------------------------
Escrowed Funds in United States Treasury obligations with a remaining maturity
of less than one year and investment- grade commercial paper. The Escrow Agent
shall not be responsible for any loss incurred upon any such investment made in
good faith. All income and earnings of the Escrowed Funds shall be attributed
to the Founders.
3. Distribution of Earnings. All amounts earned on the Escrowed Funds (by
------------------------
way of interest, dividends or otherwise) shall not be distributed except as
provided in Section 6 and shall be held by the Escrow Agent under the terms of
this Agreement and shall be considered as part of the Escrowed Funds.
4. Claims Against Escrowed Funds. At any time or times prior to the
-----------------------------
expiration of this Agreement, the Investors may make claims against the Escrowed
Funds, pursuant to the indemnification provisions set forth in Section 6 of the
Investment Agreement. The Investors shall notify each of the Founders and the
Escrow Agent in writing prior to the expiration of this Agreement of each such
claim, including a brief description (based on information then available) of
the amount and nature of such claim. If any of the Founders shall dispute such
claim, such Founder shall give written notice thereof to the Investors and to
the Escrow Agent within thirty (30) days after the date of notice of the
Investors' claim, in which case the Escrow Agent shall continue to hold the
Escrowed Funds in accordance with the terms of this Agreement; otherwise, such
claim shall be deemed to have been acknowledged to be payable out of the
Escrowed Funds in the full amount thereof and the Escrow Agent shall pay such
claim in immediately available funds to the Investors within three (3) business
days after expiration of said thirty-day period. If the amount of the claim
exceeds the value of the Escrowed Funds, the Escrow Agent shall pay to the
Investors the entire Escrowed Funds and shall have no liability or
responsibility for any deficiency.
5. Disputed Claims.
---------------
(a) If any of the Founders shall dispute an indemnification claim of the
Investors by written notice as provided above, the Escrow Agent shall set aside
a portion of the Escrowed Funds sufficient to pay said claim in full, which
shall be based upon the full amount of such claim as set forth in the Investors
initial notice (the "Set Aside Amount"). In addition to the Set Aside Amount,
in the event the Investors notify the Escrow Agent in writing that it has made
out-of-pocket expenditures in connection with any such disputed claim, an amount
equal to such expenditures shall be set aside and added to and become a part of
the Set Aside Amount.
(b) If the disputed indemnification claim has not been resolved or
compromised within sixty (60) days after any of the Founders gives notice of
dispute of the same, or in the event of a third-party claim or suit, within
fifteen (15) days after its resolution or compromise, said indemnification claim
shall be submitted to arbitration to be held in Boston, Massachusetts in
accordance with the rules and procedures of the American Arbitration
Association, and the decision of such arbitrators shall be final and conclusive
and judgment thereof may be entered in any court of law having jurisdiction,
including, without limitation, any Superior Court in the Commonwealth of
Massachusetts. Notwithstanding the foregoing, in the
2
<PAGE>
event the Escrow Agent seeks to become a party to any arbitration claim, the
venue for such claim shall be removed to Denver, Colorado. The fees and expenses
of the arbitrators shall be borne equally by the Investors on the one hand and
the Founders on the other, unless the arbitrators shall in their sole discretion
specify another allocation, and in such case such fees and expenses shall be
borne as so allocated. In no event shall the Escrow Agent be made a party to,
nor be responsible for any fee or expense of any party to, any arbitration
proceeding. The Escrow Agent shall make payment of such claim, as and to the
extent allowed, to the Investors out of the Set Aside Amount within three (3)
business days following said determination by the arbitrators.
6. Termination. This Agreement shall terminate on the earlier to occur of
-----------
(a) the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock of the Company to the public at a per share
price of at least $20.00, appropriately adjusted for stock dividends, stock
splits and the like, and in which the proceeds received by the Company, net of
underwriting discounts and commissions, equal or exceed $30,000,000, or (b)
thirty (30) days after receipt by the Company of the audited financial
statements for the fiscal year ending December 31, 1996, together with an
audited statement of income and retained earnings of the Company for the fiscal
year then ended (such earlier date, the "Termination Date"), and the balance of
the Escrowed Funds (including any amounts earned on the Escrowed Funds, less any
taxes paid or accrued by the Escrow Agent on such earnings) shall be distributed
to the Founders in the ratio of five-eighths to the Linn Entities and three-
eighths to the Lammle Entities (the "Sharing Ratio"); provided that there are no
-------- ----
indemnification claims outstanding on the Termination Date and provided further
----------------
that in the event that Data Dynamics, Inc. v. R&D Systems, Inc. has not been
----------------------------------------
finally adjudicated as of such Termination Date (in which event appropriate
reserves for the estimated liabilities, losses and expenses arising from such
lawsuit shall remain in escrow pending final adjudication of such lawsuit (which
reserves will not, in any event exceed $650,000)). If there are indemnification
claims outstanding on the Termination Date, this Agreement shall continue in
effect until all indemnification claims the Investors have made pursuant to
Section 4 hereof on or prior to the Termination Date shall have been disposed
of. As of the Termination Date, an amount of the Escrowed Funds adequate to
cover all disputed and undisputed claims made by the Investors pursuant to
Section 4 hereof will be held by the Escrow Agent, and the Escrow Agent shall
distribute on the Termination Date the balance, if any, of the Escrowed Funds to
the Founders in accordance with the Sharing Ratio. At such time as all
remaining indemnification claims hereunder have been resolved and the Escrow
Agent has received a written notice executed in counterpart by the Investors and
each of the Founders to that effect and any amounts to be distributed to the
Investors in connection therewith have been so distributed, the Escrow Agent
shall distribute the remaining Escrowed Funds, if any, to the Founders in
accordance with the Sharing Ratio or as directed by each of the Founders.
7. Duties and Responsibilities of Escrow Agent.
-------------------------------------------
(a) The Founders and the Investors acknowledge and agree that the Escrow
Agent (i) shall not be responsible for any of the agreements referred to herein
but shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement; (ii) shall not be obligated to take
any legal or other action hereunder which might in its judgment
3
<PAGE>
involve any expense or liability unless it shall have been furnished with
acceptable indemnification; (iii) may rely on and shall be protected in acting
or refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (iv) may
consult counsel satisfactory to it, including house counsel, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or wilful misconduct. The Founders and the Investors,
jointly and severally, covenant and agree to indemnify the Escrow Agent and hold
it harmless without limitation from and against any loss, liability or expense
of any nature incurred by the Escrow Agent arising out of or in connection with
this Agreement or with the administration of its duties hereunder, including but
not limited to reasonable legal fees and other costs and expenses of defending
or preparing to defend against any claim or liability, unless such loss,
liability or expense shall be caused by the Escrow Agent's willful misconduct or
gross negligence. In no event shall the Escrow Agent be liable for indirect,
special or consequential damages.
(c) The Founders agree to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to the payment of Escrowed
Funds under this Agreement, and to indemnify and hold the Escrow Agent harmless
from and against any taxes, additions for late payment, interest, penalties and
other expenses, that may be assessed against the Escrow Agent on any such
payment or other activities under this Agreement. The Founders undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. The Founders agree to
indemnify and hold the Escrow Agent harmless from any liability on account of
taxes, assessments or other governmental charges, including without limitation
the withholding or deduction or the failure to withhold or deduct same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement including costs and
expenses (including reasonable legal fees), interest and penalties.
(d) Concurrently with the execution of this Agreement by the parties
hereto, the Investors will pay to the Escrow Agent by check, as compensation for
the services of the Escrow Agent hereunder, a fee in accordance with the
schedule attached hereto as Exhibit A. The Founders shall be liable for out of
---------
pocket expenses of the Escrow Agent referred to in Exhibit A.
---------
(e) The Escrow Agent may at any time resign as Escrow Agent hereunder by
giving at least thirty (30) days' prior written notice of resignation to the
Founders and the
4
<PAGE>
Investors. Prior to the effective date of the resignation as specified in such
notice, the Founders and the Investors will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrowed Funds to a bank or trust
company that they select. Such bank or trust company shall have capital, surplus
and undivided profits in excess of $50,000,000. If, however, the Founders and
the Investors shall fail to name such a successor escrow agent within twenty
(20) days after receipt of notice of resignation from the Escrow Agent, the
Escrow Agent may apply to a court of competent jurisdiction for appointment of a
successor escrow agent. The provisions of paragraph (b) and (c) of this Section
7 shall survive the termination of this Agreement.
8. Dispute Resolution. It is understood and agreed that should any
------------------
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrowed Funds, or should any claim be made upon the
Escrowed Funds by a third party, the Escrow Agent, upon receipt of written
notice of such dispute or claim by the parties hereto or by a third party, is
authorized and directed to retain in its possession without liability to anyone,
all or any of the Escrowed Funds until such dispute shall have been settled
either by the mutual agreement of the parties involved or by the dispute
resolution procedure set forth in Section 5(b) hereof. The Escrow Agent may,
but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Escrowed Funds.
9. Force Majeure. Neither the Founders nor the Investors nor the Escrow
-------------
Agent shall be responsible for any delay or failure in performance resulting
from acts beyond its control. Such acts shall include but not be limited to
acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental
regulations superimposed after the fact, fire, communication line failures,
power failures, earthquakes or other disasters.
10. Notices. Any notice permitted or required hereunder shall be deemed
-------
to have been duly given when received or when mailed certified or registered
mail, postage prepaid, to the parties at their address set forth below or to
such other address as they may hereafter designate in the manner set forth
herein.
(a) if to the Founders:
Roger H. Linn (and all other Linn Entities)
609 Edgewood Drive
Montgomery, TX 77356
Facsimile:
Guy M. Lammle (and all other Lammle Entities)
23234 E. Country Club
Scottsdale, AZ 85255
Facsimile:
with a copy to:
5
<PAGE>
(b) if to the Investors:
TA Associates, Inc.
116 Woodland Road
Pittsburgh, PA 15232
Facsimile: (412) 441-5784
Attention: Jacqui Morby
TA Associates, Inc.
435 Tasso Street
Suite 200
Palo Alto, CA 94301
Facsimile: (415) 326-4933
Attention: Jeff Chambers
Summit Partners
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Facsimile: (415) 321-1188
Attention: Greg Avis
Technology Leaders Management, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Facsimile: (610) 975-9330
Attention: Brian Dooner
with a copy to:
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, MA 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
H. David Henken, Esq.
(c) if to the Escrow Agent:
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, CO 80274-8693
Facsimile: (303) 863-5645
Attention: Leigh Lutz
6
<PAGE>
12. Binding Effect. This Agreement shall be binding upon the respective
--------------
parties hereto and their heirs, executors, successors and assigns.
13. Modifications. This Agreement may not be altered or modified without
-------------
the express written consent of the parties hereto. No course of conduct shall
constitute a waiver of any of the terms and conditions of this Agreement, unless
such waiver is specified in writing, and then only to the extent so specified.
A waiver of any of the terms and conditions of this Agreement on one occasion
shall not constitute a waiver of the other terms of this Agreement, or of such
terms and conditions on any other occasion.
14. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Colorado.
15. Execution. This Agreement may be executed in counterparts, each of
---------
which shall be deemed an original, and all of which together shall constitute
one Agreement. In the event of any conflict between the terms of this Agreement
and the Investment Agreement, the terms of the Investment Agreement shall
control.
16. Assignment. The Founders' interests under this Agreement shall not be
----------
assignable, in whole or in part, and none of the Founders may sell, transfer,
pledge, hypothecate or mortgage its interest in this Agreement. Any attempt to
assign, sell, transfer, pledge, hypothecate or mortgage any interest of a
Founder hereunder shall be void and of no force or effect.
[Remainder of Page Intentionally Left Blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FOUNDERS:
--------
--------------------------------------------
Roger H. Linn
--------------------------------------------
Lois J. Linn
JENNIFER LINN TRUST
By:_________________________________________
Trustee
SARA LINN TRUST
By:_________________________________________
Trustee
--------------------------------------------
Guy M. Lammle
--------------------------------------------
Rita L. Lammle
AMY LAMMLE TRUST
By:_________________________________________
Trustee
8
<PAGE>
DAINA LAMMLE TRUST
By:_________________________________________
Trustee
LACEY LAMMLE TRUST
By:_________________________________________
Trustee
INVESTORS:
---------
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------------
9
<PAGE>
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
----------------------------------------
ADVENT ATLANTIC AND
PACIFIC III, L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
----------------------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------------
TA VENTURE INVESTORS
LIMITED PARTNERSHIP
By: *
----------------------------------------
*__________________________________
By Jacqueline Morby
10
<PAGE>
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By:_________________________________________
General Partner
SUMMIT INVESTORS III, L.P.
By:_________________________________________
General Partner
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management
L.P., the General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:_________________________________________
Managing Director
11
<PAGE>
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By: Technology Leaders II Management
L.P., a General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:_________________________________________
Managing Director
ESCROW AGENT:
------------
NORWEST BANK COLORADO, N.A.
By:_________________________________________
Name:
Title:
12
<PAGE>
EXHIBIT H
---------
GENERAL RELEASE
---------------
This General Release is delivered in connection with that certain Stock
Purchase Agreement (the "Purchase Agreement") dated as of March 14, 1996.
Capitalized terms used herein and not otherwise defined shall have the meanings
provided in the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the undersigned, the undersigned hereby generally
releases and discharges the Company, its past, present and future officers,
directors, employees, agents, successors, predecessors, divisions, subsidiaries,
affiliates, business units, assigns, subrogees and attorneys (each a "Released
Party") of and from any and all commitments, indebtedness, suits, demands,
obligations and liabilities, contingent or otherwise, every kind and nature,
including claims and causes of action both in law and in equity, which the
undersigned and/or his heirs, executors, administrators or assigns ever had, now
has or, to the extent arising from or in connection with any act, omission or
state of facts taken or existing on or prior to the date hereof, may have after
the date hereof, against any Released Party, whether asserted, unasserted,
absolute, contingent, known or unknown, other than (a) claims for accrued
bonuses and commissions for the Company's first quarter ending March 31, 1996
and expenses, including but not limited to reimbursements for fringe benefits,
and (b) claims or causes of action arising after the date hereof under or
pursuant to the Purchase Agreement, the Stockholders' Agreement or the
Indemnification Agreement, in each case dated as of the date hereof and to which
the undersigned is a party.
The undersigned hereby represents to the Released Parties that (i) he has
not assigned any claim or possible claim against any Released Party, (ii) he
fully intends to release all claims against the Released Parties including
without limitation unknown and contingent claims, and (iii) he has consulted
with counsel with respect to the execution and delivery of this General Release
and has been fully apprised of the consequences hereof. With respect to the
foregoing General Release, the undersigned also hereby acknowledges that (v) he
has been informed that from time to time the Company has received indications of
interest from third parties regarding possible acquisitions, joint ventures, or
additional types of financing, including a possible initial public offering, for
the Company ("Financing Transactions"), and that the Company may, at any time,
enter into one or more Financing Transactions which could result in a valuation
for the capital stock of the Company that is significantly higher than the
present value, (w) he is a sophisticated investor accustomed to making
valuations of investments such as the capital stock of the Company and agrees
that, in making his decision to have his capital stock redeemed by the Company
as contemplated by the Purchase Agreement, he has relied upon his own valuation
of the capital stock held by him and not upon a valuation provided by the
Company, (x) he has had an opportunity to obtain all information from the
Company relevant to his decision to have his capital stock redeemed by the
Company as contemplated by the Purchase Agreement, (y) notwithstanding the
possibility of any future Financing Transactions and the undersigned's review of
all Company-related information which he has deemed to be relevant to his
redemption decision, the undersigned has made a decision to have his capital
stock redeemed, and (z) the execution and delivery of this General Release was a
condition to the investment by the Investors
<PAGE>
in the Company which funded the redemption of the undersigned's capital stock
and was relied upon by the Investors. The undersigned hereby acknowledges that
it is entering into this General Release with the full understanding of the
possibility that the Company may enter into one or more Financing Transactions.
This General Release shall be governed by and construed in accordance with
the internal laws of Delaware.
EXECUTED as of March __, 1996.
_______________________________
2
<PAGE>
EXHIBIT I
March 15, 1996
To the Investors Listed in Appendix A to the Stock Purchase Agreement dated as
of March 14, 1996
Ladies and Gentlemen:
We have acted as special counsel to R&D Systems Company, a Delaware
corporation (the "Company") and the Lammle Parties (as defined below) in
connection with (i) the merger (the "Merger") of R&D Systems Company, a Colorado
corporation, with and into the Company, (ii) the negotiation, execution and
delivery of the Stock Purchase Agreement (the "Purchase Agreement") dated as of
March 14, 1996, by and among (a) the Company, (b) Roger H. Linn ("R. Linn"),
Lois J. Linn, Jennifer Linn Trust and Sara Linn Trust, (collectively, the "Linn
Parties"), (c) Guy M. Lammle ("G. Lammle"), Rita L. Lammle, Amy Lammle Trust,
Daina Lammle Trust and Lacey Lammle Trust (collectively, the "Lammle Parties")
(the "Linn Parties" and the "Lammle Parties" collectively referred to as the
"Stockholders"), and (d) the Investors named therein (the "Investors"); (iii)
the issuance and sale by the Company of 26,000 shares (the "Preferred Shares")
of its authorized but unissued Series A Convertible Participating Preferred
Stock, par value $.01 per share (the "Preferred Stock"), for a purchase price of
$1,000 per Preferred Share to the Investors; (iv) the redemption (the
"Redemption") by the Company of 5,000 shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), held by the Linn Parties and 3,000
shares of the Company's Common Stock held by the Lammle Parties; (v) the payment
to employees and agents of the Company of an aggregate of $7,000,000 (before
applicable withholding) (the "MSUIP Payment") pursuant to the Management Stock
Unit Incentive Plan of the Company (the "MSUIP") and (vi) the issuance to G.
Lammle of 640,845 shares of the Company's Common Stock (the "Common Stock")
pursuant to the Stock Purchase and Restriction Agreement, dated March 14, 1996
between the Company and G. Lammle (the "Restricted Stock Agreement"). This
opinion is being delivered to you pursuant to Section 3.2 of the Purchase
Agreement. Capitalized terms used in this opinion, unless
<PAGE>
March 15, 1996
Page 2
specifically defined herein, shall have the meanings assigned them in the
Purchase Agreement.
For purposes of this opinion, we have examined copies of the following
documents:
a. an executed copy of the Purchase Agreement;
b. an executed copy of the Stockholders' Agreement;
c. an executed copy of the Escrow Agreement;
d. an executed copy of the Non-Competition Agreement, dated March
14, 1996, between the Company and G. Lammle (the "Lammle Non-Competition
Agreement");
e. an executed copy of the Non-Competition Agreement between the
Company and R. Linn, dated March 14, 1996 (the "Linn Non-Competition
Agreement");
f. an executed copy of the Redemption and Exchange Agreement, dated
March 14, 1996, among the Company, the Lammle Parties and the Linn Parties (the
"Redemption Agreement");
g. an executed copy of the Restricted Stock Agreement;
h. an executed copy of the Indemnification Agreement, dated March
14, 1996 between the Company and the Investors (the "Indemnification
Agreement").
i. the Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on March 11, 1996; the Agreement and Plan of
Merger, dated as of March 12, 1996 by and between the Company and R&D Systems
Company, a Colorado corporation ("R&D Colorado"); the Articles of Merger of R&D
Colorado into the Company, dated as of March 12, 1996 and the Certificate of
Merger of R&D Colorado into the Company dated as of March 12, 1996
(collectively, the "Merger Documents");
j. the Company's Amended and Restated Certificate of Incorporation
certified to us by an officer of the Company as being in full force and effect
as of the date of this opinion;
<PAGE>
March 15, 1996
Page 3
k. the Bylaws of the Company, as amended to date, and certified to
us by an officer of the Company as being complete and in full force and effect
as of the date of this opinion;
l. the trust agreements for the Daina Lammle Trust dated July 2,
1984, Amy Lammle Trust dated July 2, 1984, and Lacey Lammle Trust dated October
16, 1985 (collectively the "Lammle Trusts"); and
m. records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the Board of Directors
and Stockholders of the Company relating to the transactions contemplated by the
Purchase Agreement.
We have also examined such other documents, corporate records, other
certificates, instruments and statements of government officials and corporate
officials and other representatives of the Company as we have deemed necessary
or appropriate for the purpose of this opinion. As to certain questions of fact
material to such opinion, we have relied upon certificates from officers or
other representatives of the Company.
As used in this opinion, the expression "to our best knowledge" with
reference to matters of fact means that, after an examination of documents in
our files and documents made available to us by the Company and the Stockholders
and after inquiries of officers of the Company and the Stockholders and based on
the actual present knowledge of the Holland & Hart attorneys who have had
significant responsibility representing the Company during the course of our
representation of the Company with respect to this matter, we find no reason to
believe that the opinions expressed herein are factually incorrect; but beyond
that we have made no independent factual investigation for the purpose of
rendering this opinion.
We are qualified to practice in the State of Colorado, and we do not
purport to be experts in, and do not express any opinion herein concerning any
law other than the laws of such jurisdiction, the General Corporation Law of the
State of Delaware and federal law of the United States.
In rendering the opinions expressed herein, we have assumed, without
independent verification, but with your consent, that:
<PAGE>
March 15, 1996
Page 4
1. the signatures of persons signing all documents in connection
with which this opinion is rendered are genuine (other than those of each of the
Company and the Lammle Parties, as to which our opinion is rendered below);
2. all documents submitted to us as originals or duplicate originals
are authentic;
3. all documents submitted to us as copies, whether certified or
not, conform to authentic original documents; and
4. all parties to the documents reviewed by us (other than the
Company and the Lammle Parties as to which our opinion is rendered below) have
full power, authority and legal capacity to execute and deliver, and to perform
their obligations under, such documents, and all such documents have been duly
authorized by all necessary corporate or other action on the part of such
parties, have been duly executed by such parties, have been duly delivered by
such parties and constitute the legal, valid and binding agreement of such
parties, enforceable in accordance with their terms.
Based on the foregoing and upon an examination of such questions of law
as we have considered necessary or appropriate, it is our opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to conduct its business.
2. The Merger has become effective under the laws of the states of
Delaware and Colorado.
3. The Company has the corporate power and authority (a) to execute,
deliver and perform the (i) Purchase Agreement, including, without limitation,
the power to issue the Preferred Shares, (ii) the Stockholders' Agreement, (iii)
the Lammle and Linn Non-Competition Agreements, (iv) the Redemption Agreement
(collectively, the "Company Transaction Documents"), (v) the Restricted Stock
Agreement and (vi) the Indemnification Agreement and (b) to make the MSUIP
Payment.
4. The Lammle Trusts have the power and authority to execute,
deliver and perform the Purchase Agreement, the
<PAGE>
March 15, 1996
Page 5
Stockholders' Agreement, the Escrow Agreement and the
Redemption Agreement.
5. Each of the Company Transaction Documents, the Restricted Stock
Agreement and the Indemnification Agreement has been duly authorized, executed
and delivered by the Company. The Redemption Agreement constitutes the legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms. We note that the Purchase Agreement and the
Stockholders' Agreement are governed by the laws of The Commonwealth of
Massachusetts, and the Restricted Stock Agreement is governed by the laws of the
State of Delaware. However, if the laws of the State of Colorado were determined
by a court of competent jurisdiction to govern the Purchase Agreement, the
Stockholders' Agreement and the Restricted Stock Agreement, each of the Purchase
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement would
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Our opinion is subject to the
qualification that enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws affecting or
limiting the enforcement of creditors' rights generally; and such enforceability
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Furthermore,
we express no opinion on the enforceability of Section 7.3 of the Purchase
Agreement, Sections 4.6 and 6.10 of the Stockholders' Agreement, Section 8.4 of
the Restricted Stock Agreement or the Lammle or Linn Non-Competition Agreements.
6. The Lammle Non-Competition Agreement and the Restricted Stock
Agreement have been executed and delivered by G. Lammle. Each of the Purchase
Agreement, the Stockholders' Agreement, the Escrow Agreement and the Redemption
Agreement has been duly authorized, executed and delivered by the Lammle
Parties. The Escrow Agreement and the Redemption Agreement each constitutes the
legal, valid and binding agreement of the Lammle Parties, enforceable against
the Lammle Parties in accordance with its terms. We note that the Purchase
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement are
governed by the laws of The Commonwealth of Massachusetts. However, if the laws
of the State of Colorado were determined by a court of competent jurisdiction to
govern the Purchase
<PAGE>
March 15, 1996
Page 6
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement, each
of the Purchase Agreement and the Stockholders' Agreement would constitute the
valid and binding obligation of the Lammle Parties, and the Restricted Stock
Agreement would constitute the valid and binding obligation of G. Lammle,
enforceable in accordance with their respective terms. Our opinion is subject to
the qualification that enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws affecting or
limiting the enforcement of creditors' rights generally; and such enforceability
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Furthermore,
we express no opinion on the enforceability of Section 7.3 of the Purchase
Agreement, Sections 4.6 and 6.10 of the Stockholders' Agreement, Section 14 of
the Escrow Agreement or the Lammle and Linn Non-Competition Agreements.
7. Neither the execution or delivery of the Company Transaction
Documents, nor the performance by the Company of its obligations under the
Company Transaction Documents (a) violates any provision of the Amended and
Restated Certificate of Incorporation or the Bylaws of the Company, or (b)
except as set forth on Schedule A attached to this opinion, results in the
breach, constitutes a default under or results in the creation or imposition of
any lien, charge or encumbrance on any property or assets of the Company under
any indenture, agreement or other instrument listed on Schedule 2.11 of the
Purchase Agreement, or (c) assuming the accuracy of the representations of the
Investors in Section 5 of the Purchase Agreement, violates any federal, State of
Colorado or Delaware General Corporation law which affects the Company.
8. Assuming the accuracy of the representations of the Investors in
Section 5 of the Purchase Agreement, no authorization, approval or other action
by or notice to or filing with any federal, State of Colorado or Delaware
governmental authority or regulatory body is required in connection with the
execution and delivery of the Company Transaction Documents by the Company or
the performance of its obligations thereunder, except for the filing of the
Merger Documents with the Secretaries of State of Colorado and Delaware; filings
contemplated by the Loan Agreement dated March 14, 1996 between the Company,
Fleet Bank of Massachusetts, The First National Bank of Boston and Other
<PAGE>
March 15, 1996
Page 7
Financial Institutions (the "Loan Agreement"); and filings pursuant to federal
and state securities laws.
9. The Amended and Restated Certificate of Incorporation has been
duly adopted by the Company, has been duly filed with the Secretary of State of
Delaware and has become effective under the laws of Delaware.
10. The stock certificates representing the Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock") purchased at the
Closing have been duly authorized, executed and delivered by the Company, such
Series A Preferred Stock has been validly issued and is outstanding, fully paid
and nonassessable, and there are no statutory, or to our best knowledge
contractual, preemptive rights of stockholders or rights of first refusal with
respect to the issuance of such Preferred Stock.
11. The Senior Redeemable Preferred Stock and Common Stock issuable
upon conversion of the Series A Preferred Stock has been duly authorized and
reserved for issuance by the Company, there are no statutory, or to our best
knowledge contractual, preemptive rights of stockholders or rights of first
refusal with respect to the issuance of such Senior Redeemable Preferred Stock
and Common Stock and the Senior Redeemable Preferred Stock and Common Stock to
be issued upon conversion of such Preferred Stock will upon such issuance be
validly issued, fully paid and nonassessable.
12. Assuming the accuracy of the representations of the Investors in
Section 5 of the Purchase Agreement, the sale and issuance of (a) the Series A
Preferred Stock under the Purchase Agreement and (b) the Company's Common Stock
under the Restricted Stock Agreement does not require registration under the
Securities Act of 1933, as amended.
13. Schedule B attached to this opinion correctly sets forth the
number of shares of each class of the Company's authorized capital stock and the
number of outstanding shares of each such class as of the Closing.
14. To our best knowledge, except as set forth on Schedule B, there
are no (a) outstanding shares of capital stock or securities convertible into or
exchangeable or exercisable for shares of the Company's capital stock, or (b)
outstanding options for the purchase of any such capital stock.
<PAGE>
March 15, 1996
Page 8
15. We are not acting as counsel for the Company in any pending
litigation to which the Company is a party.
Our opinions set forth herein are as of the date hereof, and we
disclaim any undertaking or obligation to advise you of changes which may
hereafter be brought to our attention.
This opinion is solely for your benefit in connection with this matter
and may not be relied upon in any manner by any other person or by you in any
other context.
Very truly yours,
<PAGE>
EXHIBIT 10.2
================================================================================
STOCKHOLDERS' AGREEMENT
By and Among
R&D Systems Company,
Guy M. Lammle,
Rita L. Lammle,
Amy Lammle Trust,
Daina Lammle Trust,
Lacey Lammle Trust
and
The Investors
as defined herein and set forth
on the signature pages hereto
Dated as of March 14, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.........................................................2
Section 1.1. Construction of Terms.......................................2
Section 1.2. Terms Not Defined...........................................2
Section 1.3. Number of Shares of Stock...................................2
Section 1.4. Defined Terms...............................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................4
Section 2.1. Representations and Warranties of the Investors.............4
Section 2.2. Representations and Warranties of the Founders..............5
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF LAST REFUSAL; CO-SALE
AND DRAG-ALONG PROVISIONS.................................................5
Section 3.1. Restrictions on Transfer....................................5
Section 3.2. Right of Last Refusal.......................................6
Section 3.3. Co-Sale Option..............................................8
Section 3.4. Drag-Along Obligations.....................................10
Section 3.5. Prohibited Transfers.......................................12
ARTICLE IV REGISTRATION RIGHTS...............................................12
Section 4.1. Piggyback Registration Rights..............................12
Section 4.2. Demand Registration Rights.................................13
Section 4.3. Form S-3...................................................14
Section 4.4. Further Obligations of the Company.........................15
Section 4.5. Information about Holders..................................17
Section 4.6. Indemnification; Contribution..............................17
Section 4.7. Rule 144 Requirements......................................20
Section 4.8. Market Stand-Off...........................................20
ARTICLE V ELECTION OF DIRECTORS OF THE COMPANY...............................20
Section 5.1. Voting of Shares for Election of Directors of the Company..20
Section 5.2. Committees of the Board....................................21
Section 5.3. Vacancies..................................................21
Section 5.4. Removal....................................................22
Section 5.5. No Waiver..................................................22
Section 5.6 Assignment.................................................22
Section 5.7 Term.......................................................22
(i)
<PAGE>
ARTICLE VI MISCELLANEOUS PROVISIONS..........................................22
Section 6.1. Survival of Representations and Covenants..................22
Section 6.2. Legend on Securities.......................................22
Section 6.3. Amendment and Waiver.......................................23
Section 6.4. Notices....................................................23
Section 6.5. Headings...................................................27
Section 6.6. Counterparts...............................................27
Section 6.7. Remedies; Severability.....................................27
Section 6.8. Entire Agreement...........................................28
Section 6.9. Adjustments................................................28
Section 6.10. Law Governing..............................................28
Section 6.11. Successors and Assigns.....................................28
Exhibit A - Form of Joinder Agreement
Schedule 1.4 - Amended and Restated Certificate of Incorporation
(ii)
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement is made as of this 14th day of March, 1996 by
and among R&D Systems Company, a Delaware corporation (the "Company"), Guy M.
Lammle, Rita L. Lammle, Amy Lammle Trust, Daina Lammle Trust and Lacey Lammle
Trust (collectively, the "Founders" and individually, a "Founder"), the
investment funds identified on the signature pages hereto as the TA Investors
(the "TA Investors"), the investment funds identified on the signature pages
hereto as the Summit Investors (the "Summit Investors"), the investment funds
identified on the signature pages hereto as the TL Investors (the "TL
Investors"), and any other stockholder or optionholder who from time to time
becomes party to this Agreement by execution of a Joinder Agreement in
substantially the form attached hereto as Exhibit A (the "Management
Stockholders"). The TA Investors, the Summit Investors and the TL Investors are
herein referred to collectively as the "Investors" and individually as an
"Investor," and the Founders and the Management Stockholders are herein referred
to collectively as the "Stockholders" and individually as a "Stockholder."
W I T N E S S E T H
-------------------
WHEREAS, reference is made to the Stock Purchase Agreement, dated as of the
date hereof, by and among, inter alia, the Company, the Founders and the
----- ----
Investors (the "Investment Agreement"), pursuant to which the Investors have
purchased 26,000 shares of Series A Convertible Participating Preferred Stock,
par value $.01 per share, of the Company (the "Series A Convertible Preferred
Stock"), which is convertible into 15,500 shares of the Company's authorized but
unissued Senior Redeemable Preferred Stock, par value $.01 per share (the
"Senior Redeemable Stock"), and 2,600,000 shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock") (in each case adjusted
appropriately for stock splits, stock dividends, recapitalizations and the
like); and
WHEREAS, the effectiveness of this Agreement is a condition to the
consummation of the Investment Agreement; and
WHEREAS, concurrently with the funding under the Investment Agreement, the
Founders are receiving 6,500 shares of the Company's Series B Convertible
Participating Preferred Stock, par value $.01 per share (the "Series B
Convertible Preferred Stock"), which is convertible into 650,000 shares of
Common Stock, 3,875 shares of Senior Redeemable Stock and 2,625 shares of the
Company's Junior Redeemable Preferred Stock, par value $.01 per share (the
"Junior Redeemable Stock") (in each case appropriately adjusted for stock
splits, stock dividends, recapitalizations and the like); and
<PAGE>
WHEREAS, the parties hereto desire to agree upon the terms upon which their
investment in the capital stock of the Company will be held, transferred and
voted.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I DEFINITIONS
- --------- -----------
Section 1.1. Construction of Terms. As used herein, the masculine,
----------- ---------------------
feminine or neuter gender, and the singular or plural number, shall be deemed to
be or to include the other genders or number, as the case may be, whenever the
context so indicates or requires.
Section 1.2. Terms Not Defined. Capitalized terms used herein and not
----------- -----------------
otherwise defined shall have the meanings ascribed to them in the Investment
Agreement.
Section 1.3. Number of Shares of Stock. Whenever any provision of this
----------- -------------------------
Agreement calls for any calculation based on a number of Shares held by a
Stockholder or Investor, the number of Shares deemed to be held by that
Stockholder or Investor shall be the total number of Shares of Common Stock then
owned by the Stockholder or Investor, plus the total number of Shares of Common
Stock issuable upon conversion of any Series A Convertible Preferred Stock or
Series B Convertible Preferred Stock or other convertible securities or exercise
of any options, warrants or subscription rights then owned by the Stockholder or
Investor.
Section 1.4. Defined Terms. The following capitalized terms, as used in
----------- -------------
this Agreement, shall have the meanings set forth below.
An "Affiliate" of any Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with the first mentioned Person. A Person shall be deemed to
control another Person if such first Person possesses directly or indirectly the
power to direct, or cause the direction of, the management and policies of the
second Person, whether through the ownership of voting securities, by contract
or otherwise.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company, as the context requires, and any other common equity securities now or
hereafter issued by the Company (but not including the Preferred Stock), and any
other shares of stock issued or issuable with respect thereto (whether by way of
a stock dividend or stock split or in exchange for or upon
2
<PAGE>
conversion of such shares or otherwise in connection with a combination of
shares, recapitalization, merger, consolidation or other corporate
reorganization).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Independent Third Party" means any person who, immediately prior to the
contemplated transaction, does not own in excess of 10% of the Company's Common
Stock on a fully-diluted basis, who is not controlling, controlled by or under
common control with any such 10% owner of the Company's Common Stock and who is
not the spouse or descendent (by birth or adoption) of any such 10% owner of the
Company's Common Stock.
"Investor Group" means with respect to the TA Investors, the Summit
Investors and the TL Investors, respectively, all of the Investors within such
group.
"Junior Redeemable Stock" means the Junior Redeemable Preferred Stock, par
value $.01 per share, of the Company.
"Person" means an individual, a corporation, an association, a partnership,
an estate, a trust, and any other entity or organization, governmental or
otherwise.
"Preferred Stock" means the Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock, the Junior Redeemable Stock and the Senior
Redeemable Stock, each issued or to be issued in accordance with and subject to
the terms of the Amended and Restated Certificate of Incorporation of the
Company substantially in the form attached hereto as Schedule 1.4 (the
------------
"Charter"), together with any other shares issued or issuable with respect
thereto (whether by way of a stock dividend, stock split or in exchange for or
in replacement or upon conversion of such shares or otherwise in connection with
a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Qualified Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act,
covering the offer and sale of Common Stock to the public in which the proceeds
received by the Company, net of underwriting discounts and commissions, equal or
exceed $30 million and at a price per share of no less than $20.00 (adjusted for
stock splits, stock dividends and recapitalization).
"Sale of the Company" means the sale of the Company to an Independent Third
Party or affiliated group of Independent Third Parties pursuant to which such
party or parties acquire (i) capital stock of the Company possessing the voting
power to elect a majority of the Board
3
<PAGE>
(whether by merger, consolidation or sale or transfer of the Company's capital
stock); or (ii) all or substantially all of the Company's assets determined on a
consolidated basis.
"Senior Redeemable Stock" means the Senior Redeemable Stock, par value $.01
per share, of the Company.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations promulgated thereunder.
"Series A Convertible Preferred Stock" means the Series A Convertible
Participating Preferred Stock, par value $.01 per share, of the Company.
"Series B Convertible Preferred Stock" means the Series B Convertible
Participating Preferred Stock, par value $.01 per share, of the Company.
"Shares" means the shares of Common Stock, Preferred Stock and any other
equity securities now or hereafter issued by the Company, together with any
options thereon and any other shares of stock issued or issuable with respect
thereto (whether by way of a stock dividend, stock split or in exchange for or
upon conversion of such shares or otherwise in connection with a combination of
shares, recapitalization, merger, consolidation or other corporate
reorganization).
"Transfer" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights. "Transferred" means the accomplishment of a Transfer, and "Transferee"
means the recipient of a Transfer.
ARTICLE II REPRESENTATIONS AND WARRANTIES
- ---------- ------------------------------
Section 2.1. Representations and Warranties of the Investors. Each of the
----------- -----------------------------------------------
Investors, individually and not jointly, hereby represents, warrants and
covenants to the Company and to the Founders as follows: (a) such Investor has
full authority and power under its charter, by-laws, governing partnership
agreement or comparable document to enter into this Agreement; (b) this
Agreement constitutes the valid and binding obligation of such Investor; and (c)
the execution, delivery and performance by such Investor of this Agreement: (i)
does not and will not violate any laws, rules or regulations of the United
States or any state or other jurisdiction applicable to such Investor, or
require such Investor to obtain any approval, consent or waiver of, or to make
any filing with, any Person that has not been obtained or made; and (ii) does
not and will not result in a breach of, constitute a default under, accelerate
any obligation under or give rise to a
4
<PAGE>
right of termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Investor is a party or by which the property of such Investor is
bound or affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any of the
assets or properties of such Investor.
Section 2.2. Representations and Warranties of the Founders. Each of the
----------- ----------------------------------------------
Founders, individually and not jointly, hereby represents, warrants and
covenants to the Company and to the Investors as follows: (a) such Founder has
full authority, power and capacity to enter into this Agreement; (b) this
Agreement constitutes the valid and binding obligation of such Founder
enforceable against it in accordance with its terms; and (c) the execution,
delivery and performance by such Founder of this Agreement: (i) does not and
will not violate any laws, rules or regulations of the United States or any
state or other jurisdiction applicable to such Founder, or require such Founder
to obtain any approval, consent or waiver of, or to make any filing with, any
Person that has not been obtained or made; and (ii) does not and will not result
in a breach of, constitute a default under, accelerate any obligation under or
give rise to a right of termination of any indenture or loan or credit agreement
or any other material agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which such Founder is a party or by which the property
of such Founder is bound or affected, or result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets or properties of such Founder.
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF LAST REFUSAL; CO-SALE
- ----------- --------------------------------------------------------
AND DRAG-ALONG PROVISIONS
-------------------------
The following provisions of this Article III shall terminate immediately
upon the closing of a Qualified Public Offering or a Sale of the Company.
Section 3.1. Restrictions on Transfer. Each Stockholder agrees that it or
----------- ------------------------
he will not, without the prior written consent of two-thirds-in-interest of the
Investors, Transfer all or any portion of the Shares now owned or hereafter
acquired by it or him, except in connection with, and strictly in compliance
with the conditions of, any of the following:
(a) Transfers effected pursuant to Sections 3.2, 3.3 and
3.4, in each case made in accordance with the procedures set forth
therein;
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(b) Transfers by any Stockholder to his or her spouse
or children or to a trust of which he is the settlor and a trustee for
the benefit of his or her spouse or children, provided that any such
--------
trust does not require or permit distribution of such Shares during the
term of this Agreement, and provided further that the Transferee shall
-------- -------
have entered into an enforceable written agreement consented to by
two-thirds-in-interest of the Investors, which consent shall not be
unreasonably withheld, providing that all Shares so Transferred shall
continue to be subject to all provisions of this Agreement as if such
Shares were still held by such Stockholder; and
(c) Transfers upon the death of any Stockholder to
his or her heirs, executors or administrators or to a trust under his
or her will or Transfers between such Stockholder and his or her
guardian or conservator, provided that the Transferee shall have
entered into an enforceable written agreement consented to by
two-thirds-in-interest of the Investors, which consent shall not be
unreasonably withheld, providing that all Shares so Transferred shall
continue to be subject to all provisions of this Agreement as if such
Shares were still held by such Stockholder.
Any permitted Transferee described in the preceding clauses (b) or (c)
shall be referred to herein as a "Permitted Transferee." Anything to
the contrary in this Agreement notwithstanding, Permitted Transferees
shall take any Shares so Transferred subject to all provisions of this
Agreement as if such Shares were still held by the Transferring
Stockholder, whether or not they so agree with the Transferring
Stockholder and/or the Company.
In addition to and without limitation of the other
restrictions on the Transfer of Shares, each Stockholder agrees that,
except as provided in Sections 3.1(b) and (c), he or it will not,
without the prior written consent of two-thirds-in-interest of the
Investors (which the Investors may withhold in their absolute
discretion), Transfer all or any portion of his or its Preferred Stock
to any Person unless all of the outstanding shares of Senior Redeemable
Stock held by the Investors have been redeemed in full by the Company
in accordance with the terms of the Amended and Restated Certificate of
Incorporation of the Company.
Section 3.2. Right of Last Refusal. In the event that any of the
----------- ---------------------
Stockholders, including any of their Permitted Transferees, receives a
bona fide offer to purchase all or any portion of the Shares held by
such Stockholder (a "Transaction Offer") from a non-Affiliate (the
"Offeror"), such Stockholder (a "Transferring Stockholder") may,
subject to the restrictions in the last paragraph of Section 3.1 and
the provisions of Section 3.3 hereof, Transfer such Shares pursuant to
and in accordance with the following provisions of this Section 3.2:
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(a) Such Transferring Stockholder shall cause the
Transaction Offer and all of the terms thereof to be reduced to writing
and shall notify each Investor (enclosing a copy of the Transaction
Offer) of its wish to accept the Transaction Offer and otherwise comply
with the provisions of this Section 3.2 and, if applicable, Section 3.3
(such notice, the "Offer Notice").
(b) Each Investor shall have the right (the "Right of Last
Refusal") to offer to purchase that number of Shares covered by the
Transaction Offer as shall be equal to the product obtained by
multiplying (i) the total number of Shares subject to the Transaction
Offer by (ii) a fraction, the numerator of which is the total number of
shares of Common Stock owned by such Investor on the date of the Offer
Notice on an as converted basis (including any shares of Common Stock
that may be received upon conversion of the Series A Convertible
Preferred Stock), and the denominator of which is the total number of
Shares of Common Stock then held by all Investors on the date of the
Offer Notice on an as converted basis. (The number of Shares that each
Investor or its transferee is entitled to purchase under this Section
3.2 shall be referred to as its "Pro Rata Fraction"). Each Investor
shall have the right to transfer its right to any Pro Rata Fraction or
part thereof to any transferee. In the event an Investor does not wish
to purchase or to transfer its right to purchase its Pro Rata Fraction,
then any Investors who so elect shall have the right to offer to
purchase, on a pro rata basis with any other Investors who so elect,
any Pro Rata Fraction not purchased by an Investor or its transferee.
Each Investor shall have the right to accept the Transaction Offer as
to all or part of the Shares offered thereby within thirty (30) days
after receipt of the Offer Notice. In the event that an Investor shall
elect to purchase all or a part of the Shares covered by the
Transaction Offer, such Investor shall individually communicate in
writing such election to purchase to the Transferring Stockholder,
which communication shall be delivered by hand or mailed to such
Transferring Stockholder in accordance with Section 6.4 hereof and
shall, when taken in conjunction with the Transaction Offer, be deemed
to constitute a valid, legally binding and enforceable agreement for
the sale and purchase of the Shares covered thereby to the extent of
the number of Shares, if any, allocated to such Investor in accordance
with the following paragraph. In the event that the price set forth in
the Offer Notice is stated in consideration other than cash or cash
equivalents, the Board of Directors of the Company may determine the
fair market value of such consideration, reasonably and in good faith,
and the Investors may exercise their Right of Last Refusal by payment
of such fair market value in cash or cash equivalents. Notwithstanding
anything contained herein to the contrary, an Investor within an
Investor Group shall have the right to purchase any shares with respect
to which another Investor within the same Investor Group elects not to
exercise their Right of Last Refusal.
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<PAGE>
Upon the expiration of thirty (30) days following receipt of
the Offer Notice by all Investors, the number of Shares to be purchased
by each Investor shall be determined as follows: (x) there shall first
be allocated to each Investor a number of Shares equal to the lesser of
(A) the number of Shares as to which such Investor accepted the
Transaction Offer or (B) such Investor's Pro Rata Fraction, and (y) the
balance, if any, not allocated under clause (x) above, shall be
allocated to those Investors who accepted the Transaction Offer as to a
number of Shares which exceeded their respective Pro Rata Fractions, in
each case on a pro rata basis in proportion to the amount of such
excess. The closing for any purchase of Shares to the Investors
hereunder shall take place within thirty (30) days after the expiration
of the first thirty (30) day period following the Investors' receipt of
the Offer Notice at the place and on the date specified by a
majority-in-interest of the Investors.
(c) In the event that the Investors do not elect to
exercise the Right of Last Refusal with respect to all of the Shares
proposed to be sold, the Investors shall not be entitled to purchase
any such Shares and the Transferring Stockholder may sell all such
Shares proposed to be sold to the Offeror on the terms and conditions
set forth in the Offer Notice, subject to the restrictions set forth in
the last paragraph of Section 3.1 and the further provisions of Section
3.3. If the Transferring Stockholder's transfer to an Offeror is not
consummated in accordance with the terms of the Transaction Offer
within the later of (i) ninety (90) days after the expiration of the
Right of Last Refusal and the Co-Sale Option set forth in Section 3.3
below, if applicable, and (ii) the satisfaction of all governmental
approval or filing requirements, the Transaction Offer shall be deemed
to lapse, and any Transfers of Shares pursuant to such Transaction
Offer shall be deemed to be in violation of the provisions of this
Agreement unless the Investors are once again afforded the Right of
Last Refusal provided for herein with respect to such Transaction
Offer.
Section 3.3. Co-Sale Option. In the event that any Transferring
----------- --------------
Stockholder receives a Transaction Offer from an Offeror, and the Right of Last
Refusal is not exercised, such Transferring Stockholder may Transfer such Shares
only pursuant to and in accordance with the following provisions of this Section
3.3:
(a) Each of the Investors shall have the right to
participate in the Transaction Offer on the terms and conditions herein
stated. The class of Shares with which the Investors shall have the
right to participate in the Transaction Offer shall be determined in
accordance with the following: (a) if the Transferring Stockholder
elects to Transfer Series B Convertible Preferred Stock then the
Investors shall have the right to participate in the Transaction Offer
with Series A Convertible Preferred Stock; (b) if the Transferring
Stockholder elects to Transfer Senior Redeemable Stock or Junior
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<PAGE>
Redeemable Stock then the Investors shall have the right to participate
in the Transaction Offer with Senior Redeemable Stock; and (c) if the
Transferring Stockholder elects to Transfer Common Stock then the
Investors shall have the right to participate in the Transaction Offer
with Common Stock. The right to participate shall be exercisable upon
written notice (the "Acceptance Notice") to the Transferring
Stockholder within the later of (i) thirty (30) days after delivery to
it of the Offer Notice and (ii) ten (10) days after the Transferring
Stockholder notifies the Investors that the Investors have not elected
to exercise the Right of Last Refusal with respect to all of the Shares
proposed to be sold (the "Co-Sale Option"). The Acceptance Notice shall
indicate the maximum number of Shares such Investor wishes to sell
including the number of Shares it would sell if one or more other
Investors do not elect to participate in the sale on the terms and
conditions stated in the Offer Notice, except that any Investor who
holds Preferred Stock shall be permitted to sell to the relevant
purchaser Shares of Common Stock acquired upon conversion thereof or,
at its election, an option to acquire such Common Stock when it
receives the same upon such conversion at the election of such Investor
or as otherwise provided in the Charter with the same effect as if
Common Stock were being conveyed.
(b) Each of the Investors shall have the right to sell a
portion of its Shares pursuant to the Transaction Offer which is equal
to or less than the product obtained by multiplying (i) the total
number of Shares subject to the Transaction Offer by (ii) a fraction,
the numerator of which is the total number of shares of Common Stock
owned by such Investor on the date of the Offer Notice on an as
converted basis (including any Common Stock issuable upon exercise of
the Series A Convertible Preferred Stock), and the denominator of which
is the total number of shares of Common Stock then held by all
Investors and Stockholders on the date of the Offer Notice on an as
converted basis. To the extent one or more Investors elect not to sell,
or fail to exercise their right to sell, the full amount of such Shares
which they are entitled to sell pursuant to this Section 3.3, the other
Investors' rights to sell Shares shall be increased proportionately and
the other Investors shall have an additional five (5) days from the
date upon which they are notified of such election or failure to
exercise in which to increase the number of Shares to be sold by them
hereunder.
(c) Within ten (10) days after the date by which the
Investors were first required to notify the Transferring Stockholder of
their intent to participate, the Transferring Stockholder shall notify
each participating Investor of the number of Shares held by such
Investor that will be included in the sale and the date on which the
Transaction Offer will be consummated, which shall be no later than the
later of (i) thirty (30) days after the date by which the Investors
were required to notify the Transferring Stockholder of their intent to
participate and (ii) the satisfaction of any governmental approval or
filing requirements, if any.
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<PAGE>
(d) Each of participating Investors may effect its
participation in any Transaction Offer hereunder by delivery to the
Offeror, or to the Transferring Stockholder for delivery to the
Offeror, of one or more instruments or certificates, properly endorsed
for transfer, representing the Shares it elects to sell therein. At the
time of consummation of the Transaction Offer, the Offeror shall remit
directly to each Investor that portion of the sale proceeds to which
each Investor is entitled by reason of its participation therein (less
any adjustments due to the conversion of any convertible securities or
the exercise of any exercisable securities).
(e) In the event that the Transaction Offer is not
consummated within the period required by subsection (c) hereof or the
Offeror fails timely to remit to each Investor its portion of the sale
proceeds, the Transaction Offer shall be deemed to lapse, and any
Transfers of Shares pursuant to such Transaction Offer shall be deemed
to be in violation of the provisions of this Agreement unless the
Transferring Stockholder once again complies with the provisions of
Section 3.2 and this Section 3.3 hereof with respect to such
Transaction Offer.
Section 3.4. Drag-Along Obligations.
----------- ----------------------
(a) In the event that two-thirds-in-interest of the
Investors determine to sell or otherwise dispose of all or
substantially all of the assets of the Company or all or substantially
all of the capital stock of the Company owned by the Investors to any
non-Affiliate(s) of the Company or any of the Investors, or to cause
the Company to merge with or into or consolidate with any non-
Affiliate(s) of the Company or any of the Investors (in each case, the
"Buyer") in a bona fide negotiated transaction (a "Sale"), each of the
Stockholders, including any of their respective Permitted Transferees
(collectively, the "Non-Investor Stockholders"), shall be obligated to
and shall upon the written request of two-thirds-in-interest of the
Investors: (i) sell, transfer and deliver, or cause to be sold,
transferred and delivered, to the Buyer, his, her or its Shares
(including for this purpose all of such Non-Investor Stockholder's
Shares that presently or as a result of any such transaction may be
acquired upon the exercise of options (following the payment of the
exercise price therefore)) on substantially the same terms applicable
to the Investors (with appropriate adjustments to reflect the
conversion of convertible securities, the redemption of redeemable
securities and the exercise of exercisable securities as well as the
relative preferences and priorities of the Preferred Stock); and (ii)
execute and deliver such instruments of conveyance and transfer and
take such other action, including voting such Shares in favor of any
Sale proposed by the Investors and executing any purchase agreements,
merger agreements, indemnity agreements, escrow agreements or related
documents, as the Investors or the Buyer may reasonably require in
order to carry out the terms and provisions of this Section 3.4.
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<PAGE>
(b) In the event of a Sale to a Buyer as contemplated
in Section 3.4(a) above, each Founder shall in the event that the
Investors do not exercise their "drag- along" rights in Section 3.4(a)
above, have the right to require the Investors to include such
Founder's Shares in the Sale on the same terms as the Investors' Shares
(with appropriate adjustments to reflect the conversion of convertible
securities, the redemption of redeemable securities and the exercise of
exercisable securities as well as the relative priorities and
preferences of the Preferred Stock and the terms of any options issued
by the Company), which such right shall be exercisable by the delivery
of written notice to the Company and each of the Investors at least
twenty (20) days prior to the date proposed for the closing of the
Sale.
(c) Not less than thirty (30) days prior to the date
proposed for the closing of any Sale, the Investors shall give written
notice to each Non-Investor Stockholder, setting forth in reasonable
detail the name or names of the Buyer, the terms and conditions of the
Sale, including the purchase price, and the proposed closing date. In
furtherance of the provisions of this Section 3.4, each of the
Non-Investor Stockholders hereby (i) irrevocably appoints TA
Associates, Inc. as its agent and attorney-in-fact (the "Agent") (with
full power of substitution) to execute all agreements, instruments and
certificates and take all actions necessary or desirable to effectuate
any Sale hereunder; and (ii) grants to the Agent a proxy (which shall
be deemed to be coupled with an interest and irrevocable) to vote the
Shares held by such Non-Investor Stockholder and exercise any consent
rights applicable thereto in favor of any Sale hereunder; provided,
however, that the Investors shall not exercise such powers-of-attorney
or proxies with respect to any Non-Investor Stockholder unless such
Non-Investor Stockholders are in breach of their obligations under this
Section 3.4.
Section 3.5. Prohibited Transfers. If any Transfer is made or attempted
----------- --------------------
contrary to the provisions of this Agreement, such purported Transfer shall be
void ab initio; the Company, the Investors and the other Stockholders shall
have, in addition to any other legal or equitable remedies which they may have,
the right to enforce the provisions of this Agreement by actions for specific
performance (to the extent permitted by law); and the Company shall have the
right to refuse to recognize any Transferee as one of its stockholders for any
purpose. Without limitation to the foregoing, each of the Investors and
Stockholders further agrees that the provisions of Section 6.7 shall apply in
the event of any violation or threatened violation of this Agreement.
ARTICLE IV REGISTRATION RIGHTS
- ---------- -------------------
The Company's obligation to register shares of Common Stock under this
Article IV shall terminate seven (7) years following the closing by the Company
of its first underwritten public
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<PAGE>
offering pursuant to a registration statement under the Securities Act (an
"IPO") or, with respect to shares held by particular Investors or the Founders
and commencing on the first anniversary of any IPO, whenever such shares can be
fully transferred under Rule 144(k) of the Securities Act.
Section 4.1. Piggyback Registration Rights. If at any time or times
----------- -----------------------------
after the date hereof, the Company shall determine to register any shares of its
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock under the Securities Act (whether in connection with a
public offering of securities by the Company (a "primary offering"), a public
offering of securities by stockholders (a "secondary offering"), or both, but
not in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable or a registration effected
pursuant to Sections 4.2 or 4.3 hereof), the Company will promptly give written
notice thereof to the Investors and the Founders. In connection with any such
registration, if within thirty (30) days after their receipt of such notice any
Investor or Founder requests the inclusion in such registration of some or all
of the Common Stock owned by such Investor or Founder, or into which any Shares
held by such Investor or Founder are convertible or exchangeable (the
"Registrable Shares"), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Shares which all such
Investors and Founders so request; provided, however, that in the case of an
-------- -------
underwritten public offering, if the underwriter determines that a limitation on
the number of shares to be underwritten is required, and (i) if such
registration is the first registered offering of the Company's securities to the
public, the underwriter may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the Registrable
Shares which would otherwise be underwritten pursuant to the notice described
herein, and (ii) if such registration is other than the first registered
offering of the sale of the Company's securities to the public, the underwriter
may (subject to the allocation priority set forth below) limit the number of
Registrable Shares to be included in the registration and underwriting to not
less than thirty percent (30%) of the securities included therein (based on
aggregate market values). The Company shall advise all Investors and Founders
promptly after such determination by the underwriter, and the number of shares
of Registrable Shares that may be included in the registration and underwriting
shall be allocated among all Investors and Founders in proportion, as nearly as
practicable, to their respective holdings of Registrable Shares. If the Company
includes in such registration any Registrable Shares to be offered by it, all
expenses of the registration and offering and the reasonable fees and expenses
of one independent counsel for all of the Investors as a group on the one hand,
and the Founders as a group on the other, shall be borne by the Company, except
that the Investors and the Founders shall bear underwriting and selling
commissions attributable to their Registrable Shares being registered and
transfer taxes on Shares being sold by such Investors and Founders.
12
<PAGE>
Section 4.2. Demand Registration Rights. If on any two (2) occasions
----------- --------------------------
(which occasions shall in no event be less than six months apart from each
other) after the earlier of (i) two (2) years after the date of this Agreement
or (ii) six (6) months after the closing of the Company's first public offering
pursuant to a registration statement under the Securities Act, holders of an
aggregate of at least 40% of the Registrable Shares shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
all or any portion of its or their Registrable Shares, the Company will notify
all of the Investors and the Founders of its receipt of such notification from
such Investor(s) or Founder(s). If within thirty (30) days after their receipt
of such notice any Investor or Founder requests the inclusion of some or all of
the Registrable Shares owned by such Investor or Founder in such registration,
the Company will use its best efforts to cause such Registrable Shares so
requested (including the Registrable Shares held by the Investor(s) or
Founder(s) giving the initial notice of intent to register hereunder) to be
registered under the Securities Act in accordance with the terms of this Section
4.2; provided, however, that unless such registration becomes effective, the
-------- -------
Investors and the Founders shall be entitled to require an additional
registration pursuant to this Section 4.2; and, provided further that if such
-------- -------
registration is underwritten and the underwriter determines that a limitation on
the number of shares to be underwritten is required, the first shares to be
excluded from such registration should be any shares registered for the benefit
of the Company, and thereafter any shares which the Investors and the Founders
have requested to be registered shall be limited, to the extent necessary, based
upon their respective holdings of Registrable Shares.
All expenses of such registrations and offerings and the reasonable
fees and expenses of one independent counsel for all of the Investors as a group
on the one hand, and the Founders as a group on the other, shall be borne by the
Company. The Company may postpone the filing of any registration statement
required hereunder for a reasonable period of time, not to exceed 180 days
during any twelve month period, if the Company determines in good faith that
such filing would require the disclosure of a material transaction or other
matter and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company or otherwise
would not be in the best interest of the Company. The Company shall not be
required to cause a registration statement requested pursuant to this Section
4.2 to become effective prior to 180 days following the effective date of a
Registration Statement initiated by the Company, if the request for registration
has been received by the Company subsequent to the giving of written notice by
the Company, made in good faith, to the Investors and the Founders to the effect
that the Company is commencing to prepare a Company-initiated Registration
Statement (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable); provided, however, that the
Company shall use its best efforts to achieve such effectiveness promptly
following such 180-day period if the request pursuant to this Section 4.2 has
been made prior to the expiration of such 180-day period. If so requested by any
Investor or Founder in connection with a registration under this paragraph, the
13
<PAGE>
Company shall take such steps as are required to register the Investors' and the
Founders' Registrable Shares for sale on a delayed or continuous basis under
Rule 415, and also take such steps as are required to keep any registration
effective until all of the Investors' and the Founders' Registrable Shares
registered thereunder are sold. Notwithstanding the foregoing, the Company shall
have no obligation to keep any registration effective more than 120 days after
the initial date of effectiveness of such registration.
Section 4.3. Form S-3. If the Company becomes eligible to use Form S-3
----------- --------
under the Securities Act or a comparable successor form, (a) the Company shall
use its best efforts to continue to qualify at all times for registration of its
capital stock on Form S-3 or such successor form, and (b) holders of an
aggregate of not less than twenty percent (20%) of the Registrable Shares shall
have the right to request and have effected one (1) registration of Shares on
Form S-3 or such successor form (such requests shall be in writing and shall
state the number of Shares to be disposed of and the intended method of
disposition of such Shares by such Investor(s) or Founder(s)) within any
consecutive twelve (12) month period. The Company will use its best efforts to
effect promptly the registration of all Shares on Form S-3 or such successor
form to the extent requested by such Investor(s) or Founder(s). If so requested
by such Investor(s) or Founder(s) in connection with a registration under this
Section 4.3, the Company shall take such steps as are required to register such
Investor's or Founder's Registrable Shares for sale on a delayed or continuous
basis under Rule 415, and to keep such registration effective until all of such
Investor's or Founder's Registrable Shares registered thereunder are sold.
Notwithstanding the foregoing, the Company shall have no obligation to keep any
registration effective more than 120 days after the initial date of
effectiveness of such registration. All expenses incurred in connection with a
registration requested pursuant to this Section 4.3 and the reasonable fees and
expenses of one independent counsel for all of the Investors as a group on the
one hand, and all of the Founders as a group on the other shall be borne by the
Company. The Company may postpone the filing of any Registration Statement
required hereunder for a reasonable period of time, not to exceed 180 days, if
the Company determines in good faith that such filing would require the
disclosure of a material transaction or other factor and the Company determines
reasonably and in good faith that such disclosure would have a material adverse
effect on the Company. The Company shall not be required to cause a Registration
Statement requested pursuant to this Section 4.3 to become effective prior to
180 days following the effective date of a Registration Statement initiated by
the Investors pursuant to Section 4.2 or by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors and the
Founders to the effect that the Company is commencing to prepare a Company-
initiated Registration Statement (other than a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145 or any
other similar rule of the Commission under the Securities Act is applicable);
provided, however, that the Company shall use its best efforts to achieve such
- -------- -------
effectiveness
14
<PAGE>
promptly following such 180-day period if the request pursuant to this Section
4.3 has been made prior to the expiration of such 180-day period.
Section 4.4. Further Obligations of the Company. Whenever, under the
----------- ----------------------------------
provisions of Sections 4.1, 4.2 or 4.3 of this Agreement, the Company is
required to register any Registrable Shares, it agrees that it shall also do the
following:
(a) Use its best efforts to diligently prepare and file
with the Commission a registration statement and such amendments, post-
effective amendments and supplements to said registration statement and
the prospectus used in connection therewith as may be necessary to keep
said registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale of securities covered by
said registration statement for the period necessary to complete the
proposed public offering;
(b) Furnish to each selling Investor or Founder such
copies of each preliminary and final prospectus and such other
documents as such Investor or Founder may reasonably request to
facilitate the public offering of its Registrable Shares;
(c) Enter into any reasonable underwriting agreement
required by the proposed underwriter for the selling Investors or
Founders, if any;
(d) Use its commercially reasonable efforts to register
or qualify the securities covered by said registration statement under
the securities or "blue-sky" laws of such jurisdictions as any selling
Investors or Founders may reasonably request, provided that the Company
shall not be required to register or qualify the securities in any
jurisdictions which require it to qualify to do business or subject
itself to general service of process therein;
(e) Immediately notify each selling Investor or Founder,
at any time when a prospectus relating to his Registrable Shares is
required to be delivered under the Securities Act, of the happening of
any event as a result of which such prospectus contains an untrue
statement of a material fact or omits any material fact necessary to
make the statements therein not misleading, and, at the request of any
such selling Investor or Founder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of
such Registrable Shares, such prospectus will not contain any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
15
<PAGE>
(f) Cause all such Registrable Shares to be listed on or
included in each securities exchange or quotation system on which
similar securities issued by the Company are then listed;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally
available to its stockholders, in each case as soon as practicable, but
not later than 30 days after the close of the period covered thereby an
earnings statement of the Company which will satisfy the provisions of
Section 11(a) of the Securities Act;
(h) The Company shall cooperate with each Investor and
Founder and each underwriter participating in the disposition of
Registrable Shares and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc.;
(i) The Company shall, during the period when the
Prospectus is required to be delivered under the Securities Act,
promptly file all documents required to be filed with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(j) The Company shall appoint a transfer agent and
registrar for all Registrable Shares covered by a Registration
Statement not later than the effective date of such Registration
Statement; and
(k) In connection with an underwritten offering, the
Company will participate, to the extent reasonably requested by the
managing underwriter for the offering or the Investors or the
Stockholders, in customary efforts to sell the securities under the
offering, including without limitation, participating in "road shows."
Section 4.5. Information about Holders. Each holder of Registrable
----------- -------------------------
Shares shall furnish to the Company such information regarding such holder
(including a statement as to whether such holder believes or has reason to
believe that the Company is in default under any of its agreements with such
holder) and the distribution proposed by such holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
Section 4.6. Indemnification; Contribution.
----------- -----------------------------
(a) Incident to any registration statement referred to in this
Article IV, and subject to applicable law, the Company will indemnify and hold
harmless each underwriter, each
16
<PAGE>
Investor or Founder who offers or sells any such Registrable Shares in
connection with such registration statement (including its partners (including
partners of partners and stockholders of any such partners), and directors,
officers, employees and agents of any of them (a "Selling Stockholder"), and
each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934 (the
"Exchange Act") (a "Controlling Person"), from and against any and all losses,
claims, damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
(including any related preliminary or definitive prospectus, or any amendment or
supplement to such registration statement or prospectus), (ii) any omission or
alleged omission to state in such document a material fact required to be stated
in it or necessary to make the statements in it not misleading, or (iii) any
violation by the Company of the Securities Act, any state securities or "blue
sky" laws or any rule or regulation thereunder in connection with such
registration; provided, however, that the Company will not be liable to the
extent that such loss, claim, damage, expense or liability arises from and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information furnished in writing to
the Company by such underwriter, Selling Stockholder or Controlling Person
expressly for use in such registration statement. With respect to such untrue
statement or omission or alleged untrue statement or omission in the information
furnished in writing to the Company by such Selling Stockholder expressly for
use in such registration statement, such Selling Stockholder will indemnify and
hold harmless each underwriter, the Company (including its directors, officers,
employees and agents), each Founder, each other Investor (including its partners
(including partners of partners and stockholders of such partners) and
directors, officers, employees and agents of any of them) so registered, and
each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, expenses and liabilities, joint or several, to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise to the same extent provided in the immediately preceding sentence. In
no event, however, shall the liability of a Selling Stockholder for
indemnification under this Section 4.6(a) in its capacity as such (and not in
its capacity as an officer or director of the Company) exceed the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Selling Stockholder or
(ii) the proceeds received by such Selling Stockholder from its sale of
Registrable Shares under such registration statement.
17
<PAGE>
(b) If the indemnification provided for in Section 4.6(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then each indemnifying party under
this Section 4.6, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, expenses or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the other Selling Stockholders and the underwriters from the offering
of the Registrable 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 (i) above but also
the relative fault of the Company, the other Selling Stockholders and the
underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Selling Stockholders and the underwriters shall be deemed to be in
the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders and the
underwriting discount received by the underwriters, in each case as set forth in
the table on the cover page of the applicable prospectus, bear to the aggregate
public offering price of the Registrable Shares. The relative fault of the
Company, the Selling Stockholders and the underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or the
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders, and the underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 4.6(b) were determined by pro rata or per capita allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. In no event,
however, shall a Selling Stockholder be required to contribute any amount under
this Section 4.6(b) in excess of the lesser of (i) that proportion of the total
of such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total Registrable Shares sold under such registration
statement which are being sold by such Selling Stockholder or (ii) the proceeds
received by such Selling Stockholder from its sale of Registrable Shares under
such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 4.6 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses
18
<PAGE>
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim, payable as the same are incurred. The
indemnification and contribution provided for in this Section 4.6 will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified parties or any officer, director, employee, agent or controlling
person of the indemnified parties.
(d) Any person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification, but the failure to do so shall not relieve
the indemnifying party from any liability, except to the extent it is actually
prejudiced by the failure or delay in giving such notice, and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
Section 4.7. Rule 144 Requirements. If the Company becomes subject to
----------- ---------------------
the reporting requirements of either Section 13 or 15(d) of the Exchange Act,
the Company will use its best efforts thereafter to file with the Commission
such information as is specified under either of said Sections for so long as
any of the Investors hold any Registrable Shares; and in such event, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 under the Securities Act (or any successor or
similar exemptive rules hereafter in effect). The Company shall furnish to any
holder of Registrable Shares upon request a written statement executed by the
Company as to the steps it has taken to comply with the current public
information requirement of Rule 144 or such successor rules.
Section 4.8. Market Stand-Off. Each Investor and Founder agrees, if
----------- ----------------
requested by the Company and an underwriter of Registrable Shares of the
Company, not to sell or otherwise transfer or dispose of any Shares held by it
for such period, not to exceed 180 days following the effective date of any
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable) of the Company
filed under the Securities Act as the Company or such underwriter shall specify
reasonably and in good faith.
19
<PAGE>
ARTICLE V ELECTION OF DIRECTORS OF THE COMPANY
- --------- ------------------------------------
Section 5.1. Voting of Shares for Election of Directors of the
----------- -------------------------------------------------
Company. With respect to each election or removal of members of the Board of
- -------
Directors of the Company (including, without limitation, any replacement
members), whether at an annual or special meeting of stockholders (which special
meeting may be called, solely for purposes specified under this Section 1.5, by
a majority in interest of the Founders or a majority in interest of the
Investors) or by written consent of stockholders, each of the parties to this
Agreement (including all Management Stockholders and Permitted Transferees)
agrees to vote his, her or its Shares (and any Shares over which he, she or it
exercises voting control) and to take such other action as may be necessary to
fix the number of Directors of the Company at seven (7) and to elect as
Directors of the Company and to keep in office as such, the persons selected as
follows: (a) one (1) person designated by the TA Investors; (b) one (1) person
designated by the Summit Investors; (c) the person elected and serving from time
to time as the Company's Chief Executive Officer; (d) two (2) persons who shall
not be Affiliates of the Company or any of the Investors and who shall be
selected by two-thirds-in-interest of all of the Investors, subject to the
consent of a majority-in-interest of the Founders, which shall not be
unreasonably withheld; and (e) two (2) persons who shall not be Affiliates of
the Company or the Founders and who shall be selected by a majority-in-interest
of the Founders, subject to the consent of two-thirds-in-interest of all of the
Investors, which shall not be unreasonably withheld; provided, however, that if
-------- -------
Guy M. Lammle ceases to serve as the Company's Chief Executive Officer, then he
may be selected by a majority-in-interest of the Founders to serve as a Director
of the Company pursuant to this clause (e) in replacement of one of the
Founders' non-Affiliate designees thereunder. Each of the Investors, the
Stockholders and/or their Permitted Transferees, if any, further agrees to vote
his, her or its Shares (and any Shares over which he, she or it exercises voting
control) for the removal of any such designee upon the request of the parties
designating such designee, and for the election of a substitute designee
nominated by such parties upon request therefor.
Section 5.2. Committees of the Board. The Company and each of Investors
----------- -----------------------
and Stockholders (including all Management Stockholders and Permitted
Transferees) further agrees to use their best efforts to cause the Board of
Directors to establish a Compensation Committee (which shall be charged with
exclusive authority over all compensation and employment matters) and an Audit
Committee (which shall be charged with reviewing the Company's financial
statements and accounting practices), consisting in each case of three (3)
Directors, two (2) of whom shall have been designated by the Investors
(including individuals designated by the Investors) and one (1) of whom shall be
the Company's Chief Executive Officer; provided, that if the Company's Stock
--------
Option Plan must be administered solely by outside directors in order to comply
with relevant tax and securities law requirements, the Chief Executive Officer
shall be permitted to consult with the Compensation Committee without being a
voting member thereof
20
<PAGE>
and the Compensation Committee shall consult with the Chief Executive Officer on
such matters.
Section 5.3. Vacancies. Each of the Investors, Stockholders and/or
----------- ---------
their Permitted Transferees, if any, agrees to vote his, her or its Shares (and
any Shares over which he, she or it exercises voting control), to the extent
required by Section 5.1, in such manner as shall be necessary or appropriate so
as to ensure that any vacancy occurring for any reason in the Board of Directors
of the Company held by designees of parties hereto shall be filled only by an
individual who (a) is nominated directly or indirectly by the party or parties
that nominated directly or indirectly the director whose departure created the
vacancy, and that remains entitled at the time such vacancy is filled to
nominate directly or indirectly and have elected the director who had held such
directorship before such vacancy arose and (b) causes the requirements described
in Section 5.1 relating to the composition of the Company's Board of Directors
to be satisfied.
Section 5.4. Removal. The removal from the Board of Directors (with or
----------- -------
without cause) of any representative designated hereunder by any Investors or
the Founders shall be at such Investors' or the Founders' request, respectively,
but only upon such written request and under no other circumstances (in the case
of any of the Investors, determined by the vote of two- thirds-in-interest of
such Investors, and in the case of the Founders, determined by the vote of a
majority-in-interest of the Founders).
Section 5.5. No Waiver. Any failure by any of the parties hereto to
----------- ---------
fully exercise their rights to designate one or more Directors under this
Article V at any time shall not be construed to waive or limit their rights to
designate such Director(s) hereunder at any time thereafter.
Section 5.6 Assignment. Each of the Investors, Stockholders and
----------- ----------
Founders agrees, as a condition to any transfer of its shares, to cause the
transferee to agree to the provisions of this Article V, whereupon such
transferee shall be subject to the provisions hereof.
Section 5.7 Term. This Article V shall remain in effect until the
----------- ----
closing of a Qualified Public Offering or the Sale of the Company or, if sooner,
the latest date after the date hereof permitted by law.
ARTICLE VI MISCELLANEOUS PROVISIONS
- ---------- ------------------------
Section 6.1. Survival of Representations and Covenants. Each of the
----------- -----------------------------------------
parties hereto agrees that each representation, warranty, covenant and agreement
made by each of them in this Agreement or in any certificate, instrument or
other document delivered pursuant to this Agreement is material, shall be deemed
to have been relied upon by the other parties and shall
21
<PAGE>
remain operative and in full force and effect after the date hereof regardless
of any investigation. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties hereto and their
respective successors and permitted assigns to the extent contemplated herein.
Section 6.2. Legend on Securities. The Company, the Investors and the
----------- --------------------
Stockholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by any of the Investors, Stockholders or their Permitted Transferees:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (1) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT OR
(2) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS
OF A CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF MARCH 14, 1996, INCLUDING
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A COMPLETE AND CORRECT COPY
OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Section 6.3. Amendment and Waiver. Any party may waive any provision
----------- --------------------
hereof intended for its benefit in writing. No failure or delay on the part of
any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to any party hereto at
law or in equity or otherwise. This Agreement may be amended with the prior
written consent of the Company, a majority-in-interest of the Founders and
two-thirds-in-interest of the Investors; provided, however, that any amendment
-------- -------
which directly, materially and adversely affects any right specifically granted
to a particular Investor in a manner different than other Investors shall not be
effective unless such Person has consented to that amendment. All actions by the
Company hereunder shall be taken by or upon the direction of a majority of the
Directors designated, from time to time, pursuant to Article V hereof.
Section 6.4. Notices. All notices and other communications provided for
----------- -------
herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by telex or
facsimile, registered or certified mail (return receipt requested) postage
prepaid, or by courier guaranteeing next day delivery, in each case to the party
to whom it is directed at the following addresses (or at such other address for
any party as shall
22
<PAGE>
be specified by notice given in accordance with the provisions hereof, provided
that notices of a change of address shall be effective only upon receipt
thereof). Notices delivered personally shall be effective on the day so
delivered, notices sent by registered or certified mail shall be effective three
days after mailing, notices sent by telex shall be effective when answered back,
notices sent by facsimile shall be effective when receipt is acknowledged, and
notices sent by courier guaranteeing next day delivery shall be effective on the
earlier of the second business day after timely delivery to the courier or the
day of actual delivery by the courier:
(a) if to the Company:
R&D Systems Company
5225 N. Academy Boulevard
Suite 200
Colorado Springs, CO 80918
Facsimile: (719) 599-3823
Attention: Guy M. Lammle
Chief Executive Officer
with a copy to:
TA Associates, Inc.
116 Woodland Road
Pittsburgh, PA 15232
Facsimile: (412) 441-5784
Attention: Jacqueline Morby
TA Associates, Inc.
435 Tasso Street
Suite 200
Palo Alto, CA 94301
Facsimile: (415) 326-4933
Attention: Jeffrey Chambers
23
<PAGE>
and to:
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
H. David Henken, Esq.
and to:
Holland & Hart
555 Seventeenth Street
Suite 2900
Denver, CO 80202
Facsimile: (303) 295-8261
Attention: Betty Carter Arkell, Esq.
(b) if to the Founders:
Guy M. Lammle
23234 E. Country Club
Scottsdale, AZ 85255
with a copy to:
------------------------
------------------------
------------------------
(c) if to the TA Investors:
TA Associates, Inc.
116 Woodland Road
Pittsburgh, PA 15232
Facsimile: (412) 441-5784
Attention: Jacqueline Morby
24
<PAGE>
TA Associates, Inc.
435 Tasso Street
Suite 200
Palo Alto, CA 94301
Facsimile: (415) 326-4933
Attention: Jeffrey Chambers
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
H. David Henken, Esq.
(d) if to the Summit Investors:
Summit Partners
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Facsimile: (415) 321-1188
Attention: Greg Avis
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
H. David Henken, Esq.
25
<PAGE>
(e) if to the TL Investors:
Technology Leaders Management, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Facsimile: (610) 975-9330
Attention: Brian Dooner
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
H. David Henken, Esq.
(f) if to Management Stockholders:
The address set forth in the Joinder Agreement
executed by any such Management Stockholder at the
time he/she becomes a Management Stockholder.
Section 6.5. Headings. The Article and Section headings used or
----------- --------
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 6.6. Counterparts. This Agreement may be executed in one or
----------- ------------
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 6.7. Remedies; Severability. It is specifically understood and
----------- ----------------------
agreed that any breach of the provisions of this Agreement by any Person subject
hereto will result in irreparable injury to the other parties hereto, that the
remedy at law alone will be an inadequate remedy for such breach, and that, in
addition to any other legal or equitable remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law) and the Company may refuse to
recognize any unauthorized Transferee as one of its stockholders for any
purpose, including, without limitation, for purposes of dividend
26
<PAGE>
and voting rights, until the relevant party or parties have complied with all
applicable provisions of this Agreement.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
Section 6.8. Entire Agreement. This Agreement, together with the
----------- ----------------
Investment Agreement and other agreements specifically contemplated hereby and
thereby, is intended by the parties as a final expression of their agreement and
intended to be complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement and the Investment Agreement and other
agreements contemplated hereby and thereby (including the exhibits hereto and
thereto) supersede all prior agreements and understandings between the parties
with respect to such subject matter.
Section 6.9. Adjustments. All references to share prices and amounts
----------- -----------
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of the
Company.
Section 6.10. Law Governing. This Agreement shall be construed and
------------ -------------
enforced in accordance with and governed by the laws of The Commonwealth of
Massachusetts (without giving effect to principles of conflicts of law), except
that any Delaware corporate law matters relating to the Company shall be
construed and enforced in accordance with and governed by the Delaware General
Corporation Law (without giving effect to principles of conflicts of law). Each
party also waives trial by jury in any action relating to this Agreement.
Section 6.11. Successors and Assigns. This Agreement shall be binding
------------ ----------------------
upon and inure to the benefit of the respective successors and assigns of the
parties hereto, but may not be assigned by any Stockholder without the prior
written consent of two-thirds-in-interest of the Investors, and without such
prior written consent any attempted transfer shall be null and void.
[Remainder of Page Intentionally Left Blank]
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
R&D SYSTEMS COMPANY
By: /s/ GUY M. LAMMLE
-----------------------------------
President
FOUNDERS:
/s/ GUY M. LAMMLE
--------------------------------------
Guy M. Lammle
/s/ RITA L. LAMMLE
--------------------------------------
Rita L. Lammle
AMY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------------
Trustee
DAINA LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------------
Trustee
LACEY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
-----------------------------------
Trustee
28
<PAGE>
TA INVESTORS:
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------
ADVENT ATLANTIC AND PACIFIC
III, L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------
29
<PAGE>
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
By: *
-----------------------------------
* /s/ JACQUELINE C. MORBY
--------------------------
By Jacqueline Morby
Address for each of the above TA Investors is as follows:
c/o TA Associates, Inc.
125 High Street, Suite 2500
Boston, MA 02110
SUMMIT INVESTORS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By: /s/ GREGORY M. AVIS
-----------------------------------
General Partner
30
<PAGE>
SUMMIT INVESTORS III, L.P.
By: /s/ GREGORY M. AVIS
-----------------------------------
General Partner
TL INVESTORS:
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management
L.P., the General Partner
By: Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
-----------------------------------
Managing Director
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By: Technology Leaders II Management
L.P., a General Partner
By: Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
-----------------------------------
Managing Director
31
<PAGE>
EXHIBIT A
---------
Form of Joinder Agreement
-------------------------
The undersigned hereby agrees, effective as of the date hereof, to
become a party to that certain Stockholders' Agreement (the "Agreement") dated
as of March 14, 1996 by and among R&D Systems Company (the "Company") and the
parties named therein and for all purposes of the Agreement, the undersigned
shall be included within the term "Management Stockholder" and "Stockholder"
(each as defined in the Agreement). As of the date hereof the undersigned makes
each of the representations and warranties set forth in Section 2.2 of the
Agreement. The address and facsimile number to which notices may be sent to the
undersigned is as follows:
- ---------------------------------------------------------------------------
Facsimile No. .
--------------------
------------------------------
[NAME OF UNDERSIGNED]
<PAGE>
FIRST AMENDMENT TO
STOCKHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT, dated as of January 2,
1997 ("First Amendment") is made to the Stockholders Agreement (the
"Stockholders Agreement") dated as of March 14, 1996, by and among NxTrend
Technology, Inc. (f/k/a R&D Systems Company) (the "Company"), the Founders and
the Investors (as those terms are defined in the Stockholders Agreement).
Capitalized terms not otherwise defined in this First Amendment have the
meanings given to them in the Stockholders Agreement.
WHEREAS, the Company is purchasing substantially all of the assets of Saber
Systems, Inc., a Minnesota corporation ("Saber") for cash and shares of the
Company's common stock, $.01 par value (the "NxTrend Common");
WHEREAS, one of the conditions to the sale of the assets by Saber is that
Saber receive piggyback registration rights with respect to the NxTrend Common
it is acquiring; and
WHEREAS, the Stockholders Agreement must be amended in order to grant the
piggyback registration rights;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
(1) The Stockholders Agreement is amended to provide that Saber shall be
included within the term "Founder" and "Founders" in the introductory paragraph
to Article 4 and Sections 4.1, 4.3, 4.4, 4.5, 4.6, 4.7 and 4.8 of the
Stockholders Agreement.
(2) For purposes of Section 6.4 of the Stockholders Agreement, all notices
and other communications to Saber should be sent to the following address:
Russell Bengtson
Saber Systems, Inc.
17755 Layton Path
Lakeville, MN 55044
with a copy to:
Robert B. Carlson, Esq.
The General Counsel, Ltd.
18405 11th Avenue North
Plymouth, MN 55447
(3) All other terms and conditions of the Stockholders Agreement shall
remain in full force and effect.
(4) In accordance with Section 6.3 of the Stockholders Agreement, this
First Amendment shall be effective when signed by the Company, a majority-in-
interest of the Founders and two-thirds in interest of the Investors.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment.
COMPANY:
NxTREND TECHNOLOGY, INC.
By: /s/ GUY M. LAMMLE
------------------------------
President
FOUNDERS:
/s/ GUY M. LAMMLE
------------------------------
Guy Lammle
/s/ RITA L. LAMMLE
------------------------------
Rita L. Lammle
AMY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
------------------------------
Trustee
DAINA LAMMLE TRUST
By: /s/ GUY M. LAMMLE
------------------------------
Trustee
LACEY LAMMLE TRUST
By: /s/ GUY M. LAMMLE
------------------------------
Trustee
2
<PAGE>
TA INVESTORS:
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.
its General Partner
By: *
---------------------------
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
----------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.
its General Partner
* By:/s/ JACQUELINE MORBY By: *
-------------------- ----------------------------
Jacqueline Morby
3
<PAGE>
SUMMIT INVESTORS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV
Its General Partner
By:______________________________
General Partner
SUMMIT INVESTORS III, L.P.
By:______________________________
TL INVESTORS:
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management
L.P., the General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:______________________________
Managing Director
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By: Technology Leaders II Management
L.P., the General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:_______________________________
Managing Director
4
<PAGE>
MARKET STREET INVESTOR:
MARKET STREET PARTNERS
By:_______________________________
HH:745407 v2 _______________________________
5
<PAGE>
EXHIBIT 10.3
STOCK REDEMPTION AND EXCHANGE AGREEMENT
THIS STOCK REDEMPTION AND EXCHANGE AGREEMENT (the "Agreement") is made as
of the 14th day of March, 1996, by and among Roger H. Linn, Lois J. Linn,
Jennifer Linn Trust and Sara Linn Trust (collectively, the "Linn Entities") and
Guy M. Lammle, Rita L. Lammle, Amy Lammle Trust, Daina Lammle Trust and Lacey
Lammle Trust (collectively, the "Lammle Entities," and together with the Linn
Entities, the "Stockholders"), and R&D Systems Company, a Delaware corporation
(the "Corporation").
RECITALS
--------
A. The Stockholders currently own the shares of common stock of the
Corporation set forth on Exhibit A attached hereto (the "Common Stock").
---------
B. The Corporation desires to redeem all of the Common Stock held by the
Linn Entities, and 60% of the Common Stock held by the Lammle Entities
(collectively, the "Redemption Shares"), as more fully set forth on
Exhibit B, for the cash consideration set forth on Exhibit B. The
--------- ---------
Stockholders also desire that the Corporation redeem the Redemption
Shares for the cash consideration set forth on Exhibit B.
---------
C. The Corporation desires to exchange the remaining 40% of the Common Stock
held by the Lammle Entities (the "Exchange Shares") for shares of newly
issued Series B Convertible Participating Preferred Stock of the
Corporation, as set forth on Exhibit C (the "Preferred Stock"). The
---------
Lammle Entities also desire to exchange such Exchange Shares for the
Preferred Stock set forth on Exhibit C.
---------
NOW, THEREFORE, for good and valuable consideration herein recited and
the mutual promises herein contained, the parties hereto agree as follows:
AGREEMENT
---------
1. Redemption of Common Stock. Upon the terms and subject to the conditions
--------------------------
set forth in this Agreement, the parties hereto agree that all of the
Redemption Shares shall be redeemed for the cash consideration set forth
on Exhibit B.
---------
2. Exchange of Common Stock. Upon the terms and subject to the conditions
------------------------
set forth in this Agreement, the parties hereto agree that the Exchange
Shares shall be exchanged for the Preferred Stock set forth on Exhibit C.
---------
3. Closing of Redemption and Exchange. The closing (the "Closing") of the
----------------------------------
redemption and exchange of the Common Stock will occur on the date of the
closing of the Stock Purchase Agreement dated as of March __, 1996 among
the Company, the Stockholders, and the Investors named therein (the
"Purchase Agreement"). At the Closing, the Stockholders shall deliver to
the Company all certificates or other evidence of their ownership of the
Common Stock, and the Company shall deliver to the Stockholders the
<PAGE>
consideration set forth on Exhibits B and C. Any certificates of stock
----------------
delivered by the Stockholders shall be duly endorsed in blank and
accompanied by duly executed stock powers.
4. Stockholder Representations. Each Stockholder severally represents and
---------------------------
warrants as follows:
a. Ownership. The Stockholder is the owner of the Common
---------
Stock set forth on Exhibits A and B opposite his, her or
----------------
its name, free and clear of all claims, encumbrances, liens,
pledges, security interests and rights of any kind or nature
whatsoever.
b. Authorization for and Validity of this Agreement. The
------------------------------------------------
Stockholder has all necessary power and authority to
execute, deliver and perform this Agreement. No approval of,
filing with, or other action by any court, governmental
body, agency or official is required by such Stockholder to
execute, deliver and perform the terms of this Agreement.
This Agreement constitutes a valid and binding agreement of
each Stockholder, enforceable against such Stockholder in
accordance with its terms.
c. Breach or Default. Neither the execution of this
-----------------
Agreement nor the consummation of the transactions
contemplated by it will:
(1) result in the breach of any of the terms or
conditions of, or constitute a default under, any
mortgage, note, bond, indenture, contract, agreement,
license or other instrument or obligation of any kind
or nature to which such Stockholder is a party or by
which such Stockholder or any of his, her or its
assets may be bound or affected; or
(2) violate any order, writ, injunction or decree
applicable to such Stockholder of any court,
administrative agency or governmental body.
5. Lammle Entities Representations. Each Lammle Entity severally represents
-------------------------------
and warrants as follows:
a. The Lammle Entity is acquiring the Preferred Stock for its
own account, for investment, and not with a present view to
any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Act").
b. The Lammle Entity understands that neither the Preferred
Stock to be issued and delivered to it pursuant to this
Agreement, nor any of the
2
<PAGE>
securities that the Preferred Stock is convertible into, have
been registered under the Act, and that it cannot dispose of any
or all of the Preferred Stock or the securities issuable upon
conversion thereof unless such securities are registered under
the Act or exemptions from such registration are available. The
Lammle Entity understands that each certificate representing the
Preferred Stock will bear the following legend or one
substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). These
securities have been acquired for investment and not with a view
to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an
effective registration statement for such securities under the
Act or the availability of an exemption from such registration
requirements.
c. The Lammle Entity is sufficiently knowledgeable and experienced
in the making of venture capital investments so as to be able to
evaluate the risks and merits of its investment in the
Corporation, and is able to bear the economic risk of loss of
its investment in the Corporation.
6. Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties, covenants and agreements of the parties
hereto contained in this Agreement shall survive the Closing and shall
continue in full force and effect indefinitely thereafter, subject only
to applicable statutes of limitations.
7. Indemnification. Each Stockholder severally hereby agrees to save,
---------------
defend, indemnify and hold harmless the Corporation and its officers,
directors, stockholders, partners, members, managers, employees, agents,
representatives and affiliates (collectively, the "Corporation
Affiliates") against any loss, liability, damage or expense (including
reasonable legal fees and expenses), or any claim which if unsuccessful
would result in any such loss, liability, damage or expense, suffered or
incurred by the Corporation for or on account of or arising from or in
connection with a breach of any representation, warranty, covenant or
agreement of any Stockholder contained in this Agreement.
3
<PAGE>
8. Miscellaneous Provisions.
------------------------
a. Assignability; Binding Effect. No party hereto shall have the
-----------------------------
right to assign such party's rights or obligations under this
Agreement without the consent of the other parties hereto.
Subject to the foregoing limitation, the benefits and
obligations of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
heirs, successors and assigns.
b. 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 agreement.
c. Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties hereto with respect to the subject
matter hereof and supersedes all prior negotiations,
understandings, and agreements among the parties hereto with
respect to the subject matter hereof. No modification,
amendment or waiver of any provision hereof shall be binding
upon any party hereto unless it is in writing and executed by
all parties hereto or, in the case of a waiver, by the party
waiving compliance.
d. Waiver. The waiver by any party hereto of any default,
------
misrepresentation or breach of warranty or covenant hereunder
shall not be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant
and shall not affect in any way any rights arising by virtue of
any such prior or subsequent occurrence.
e. Section Headings. The section headings contained herein are for
----------------
reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
f. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Colorado (without
giving effect to principles of conflicts of laws), except that
any Delaware corporate law matters relating to the Company
shall be construed and enforced in accordance with and governed
by the Delaware General Corporation Law (without giving effect
to principles of conflicts of laws).
g. Remedies. No right or remedy herein conferred upon or reserved
--------
to a party hereto is intended to be exclusive of any other
right or remedy, and all such rights and remedies shall be
cumulative.
4
<PAGE>
h. No Closing. All of the provisions hereof shall be effective
----------
upon the Closing. In the event the Closing does not occur, this
Agreement shall be of no further force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
R&D SYSTEMS COMPANY
_________________________________
Name:____________________________
Title:___________________________
_________________________________
Roger H. Linn
_________________________________
Lois J. Linn
Jennifer Linn Trust
_________________________________
By: Roger H. Linn, Trustee
Sara Linn Trust
_________________________________
By: Roger H. Linn, Trustee
_________________________________
Guy M. Lammle
_________________________________
Rita L. Lammle
5
<PAGE>
Amy Lammle Trust
__________________________
By: Guy M. Lammle, Trustee
Daina Lammle Trust
__________________________
By: Guy M. Lammle, Trustee
Lacey Lammle Trust
__________________________
By: Guy M. Lammle, Trustee
6
<PAGE>
Exhibit A to Redemption and Exchange Agreement
----------------------------------------------
Current Ownership
-----------------
Stockholders Shares
- ------------ ------
Guy M. Lammle 1,750
Rita L. Lammle 1,750
Amy Lammle Trust/Guy M. Lammle Trustee 375
Daina Lammle Trust/Guy M. Lammle Trustee 375
Lacey Lammle Trust/Guy M. Lammle Trustee 750
Roger H. Linn 1,750
Lois J. Linn 1,750
Sara Linn Trust/Roger H. Linn Trustee 750
Jennifer Linn Trust/Roger H. Linn Trustee 750
Total Number of Shares 10,000
<PAGE>
Exhibit B to Redemption and Exchange Agreement
----------------------------------------------
Redemption Shares
-----------------
Stockholder Shares Cash Consideration
----------- ------ ------------------
Roger H. Linn 1,750 $ 11,025,000
Lois J. Linn 1,750 $ 11,025,000
Sara Linn Trust/Roger H. Linn Trustee 750 4,725,000
Jennifer Linn Trust/Roger H. Linn Trustee 750 4,725,000
Guy M. Lammle 1,050 6,125,000
Rita L. Lammle 1,050 6,125,000
Amy Lammle Trust/Guy M. Lammle Trustee 225 1,312,500
Daina Lammle Trust/Guy M. Lammle Trustee 225 1,312,500
Lacy Lammle Trust/Guy M. Lammle Trustee 450 2,625,000
--------------------------------
8,000 $ 49,000,000
<PAGE>
Exhibit C to Redemption and Exchange Agreement
----------------------------------------------
Exchange Shares
---------------
Series B
Convertible
Participating
Stockholder Shares Preferred Stock
----------- ------ ---------------
Guy M. Lammle 700 2,275
Rita L. Lammle 700 2,275
Amy Lammle Trust/Guy M. Lammle Trustee 150 487.5
Daina Lammle Trust/Guy M. Lammle Trustee 150 487.5
Lacey Lammle Trust/Guy M. Lammle Trustee 300 975
------ ---------------
2,000 6,500
<PAGE>
EXHIBIT 10.4
PROGRESS
S O F T W A R E PROGRESS SOFTWARE CORPORATION
VALUE ADDED RESELLER AGREEMENT
R&D Systems, Inc. August 15th, 1989
- -------------------------- -------------------------------------
Value Added Reseller Effective Date of Agreement
7150 Campus Drive #155 United States
- -------------------------- -------------------------------------
Address Territory
Colorado Springs, CO 80918 Mark Taube - Progress Guy Lammle R&D
- -------------------------- -------------------------------------
Contact
7195908940
- -------------------------- -------------------------------------
City, State, Zip Code Telephone
Progress Software Corporation (PSC) and the Value Added Reseller (VAR) listed
above agree as follows:
1. PSC hereby grants to VAR, and VAR hereby accepts from PSC, the right to
obtain PSC products on a non-exclusive basis and to market their products to
Customers within the Territory set forth above (or the United States if no
Territory is indicated).
1.1 VAR or its Customers who make use of PSC products to implement or
enhance products they supply shall be free to market PSC products in connection
with the products they supply, in any manner and in any territory they choose
and without incurring any liabilities or obligations to PSC, provided, however,
that in PSC's judgment the products they supply constitute substantial value
added and VAR or its customers are not attempting solely to market PSC products
within such territory in violation of this Agreement.
1.2 VAR agrees to train within 60 days of signing the Agreement and
maintain a sufficient number (minimum of (1) one) of capable technical and sales
personnel to carry out the obligations and responsibilities of VAR under this
Agreement.
1.3 VAR agrees to actively market PSC's then current annual
maintenance plan to its Customers.
1.4 VAR agrees to notify PSC of each Customer to which it ships PSC
products (including product designation, serial number and name and address)
within five working days of shipment of product to such customer.
2. Prices and discounts attached hereto, and payment and credit terms may be
changed by PSC, subject to the following conditions:
2.1 If the change results in an increase in cost to VAR, then such
change shall become effective only upon 30 days prior written notice by PSC.
2.2 If the change results in a decrease in cost to VAR, then PSC will
grant VAR credit for the difference in cost on all products purchased within 30
days prior to the effective date of the change and not yet resold by VAR on the
effective date of the decrease.
2.3 Payment shall be made to PSC by VAR within 30 days of shipment,
provided VAR meets PSC's credit requirements. Otherwise payment shall be made
in advance or on a C.O.D. basis. Interest shall accrue on any delinquent
amounts owed by VAR for PSC products at the lesser of eighteen percent (18%) per
annum or the maximum rate permitted by applicable usury law.
3. Each order placed by VAR for products shall be deemed to incorporate all
of the terms and conditions of this Agreement and any terms and conditions of
such order which are in addition to or inconsistent with the terms of this
Agreement shall be deemed stricken from such order.
PSC shall ship products ordered by VAR as soon as practical after
acceptance of VAR's order. Delivery of products shall be FOB PSC's offices, and
risk of loss shall pass to VAR upon delivery to the carrier. VAR shall pay all
transportation and handling charges, insurance costs and sales and use taxes.
4. Each product shall be delivered to VAR in a package which may contain one
or more system media, introductory media, manual and license agreement. VAR
shall deliver each product to the Customer unopened (except for those products
which require that VAR first record an application program on the system media).
Title to PSC products (including the manual, media and program contained
therein) shall remain with PSC. VAR shall not, and shall require in any
contrasts with its Customers that such Customers shall not, copy or modify any
products, nor remove, alter, cover or obfuscate any copyright notices or other
proprietary rights notices placed or embedded by PSC on or in any part of the
products. VAR shall not be responsible for any actions of its Customers made in
violation of this Agreement or VAR's agreements without VAR's knowledge. VAR
shall be responsible for notifying PSC of such violations as they come to VAR's
attention.
Because of the unique and proprietary nature of the products, it is understood
and agreed that PSC's remedies at law for a breach by VAR of its obligations
under this Section 4 will be inadequate and that PSC shall, in the event of any
such breach, be entitled to equitable relief (including without limitation
provisional and permanent injunctive relief and specific performance) in
addition to all other remedies provided under this Agreement or available to PSC
at law.
<PAGE>
PSC through this Agreement shall acquire no rights to any application programs
developed or resold by VAR.
PSC shall have the right to inspect and audit all the accounting, sales, and
customer service books and records of VAR to ensure compliance with the terms of
this Agreement. Any such audit shall be conducted only by a Certified public
Accountant whose fee is paid by PSC and all audits shall be conducted during
regular business hours at VAR's offices and in such a manner as not to interfere
with VAR's normal business activities.
5. OTHER THAN THE LIMITED WARRANTY, IF ANY, ACCOMPANYING THE PRODUCT, PSC
MAKES NO WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF PSC PRODUCTS OR AS
TO SERVICE TO VAR OR TO ANY OTHER PERSON. PSC RESERVES THE RIGHT TO CHANGE THE
WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY, OR OTHERWISE AT
ANY TIME, WITHOUT FURTHER NOTICE AND WITHOUT LIABILITY TO VAR OR ANY OTHER
PERSON.
5.1 TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE HEREBY EXCLUDED AND
THE LIABILITY OF PSC, IF ANY, FOR DAMAGES RELATED TO ANY PSC PRODUCTS SHALL BE
LIMITED TO THE ACTUAL AMOUNTS PAID BY VAR FOR SUCH PSC PRODUCT AND SHALL IN NO
EVENT INCLUDE INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND.
5.2 VAR SHALL NOT MAKE OR PASS ON TO CUSTOMER ANY WARRANTY OR
REPRESENTATION ON BEHALF OF PSC OTHER THAN OR INCONSISTENT WITH THE LIMITED
WARRANTY.
5.3 VAR agrees to take all actions reasonably specified by PSC in
writing from time to time in order to insure that the Limited Warranty is made
in compliance with all applicable laws.
6. VAR shall bear primary responsibility for developing applications or for
assisting Customers in developing applications with PSC products, and will
provide appropriate support to Customers in using PSC products and/or using
applications developed with PSC products. PSC will provide support to VAR from
PSC's offices by letter and telephone, and will provide support to VAR's
Customers in accordance with the applicable User Support Plan (if any) set forth
in the manual that accompanies each product.
7. For purposes of this Agreement, the term "PSC Trademarks" shall mean
those names and designations by which any of the products is known, and the name
"Progress Software Corporation" or "PSC". VAR shall insure that none of the PSC
Trademarks ( or any variation thereof) appears in any portion of VAR's name or
any name under which VAR does business.
8. This Agreement may not be assigned by either party, except in connection
with a merger or sale of assets of such party which does not materially affect
its business activities nor its ability to carry out its obligations under this
Agreement.
9. This Agreement shall become effective upon the Effective Date (or upon the
date the Agreement is accepted by PSC if no Effective Date of Agreement is
indicated) set forth above and shall continue in force for three months.
Thereafter, it may be terminated upon thirty days written notice.
Notwithstanding the foregoing, so long as any material breach of this
Agreement by VAR continues after thirty days written notice by PSC, PSC may
terminate this Agreement, including any orders issued by VAR, on written notice
to VAR.
So long as any material breach under this Agreement by PSC continues after
thirty days written notice by VAR, VAR may terminate this Agreement on written
notice to PSC.
In addition to any material breach of this Agreement, the application or
adjudication in bankruptcy of VAR, or the dissolution of VAR shall terminate
this Agreement.
In the event this Agreement is terminated for any reason, VAR shall remain
responsible for safeguarding the trade secrets and proprietary rights of PSC,
and for payment to PSC for all products previously supplied.
10. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
Agreed to:
R&D Systems, Inc.
- ---------------------------
Value Added Reseller
Guy M. Lammle - VP
- ---------------------------
By
/s/ Guy M. Lammle
- ---------------------------
Name (Type or Print)
VP
- ---------------------------
Title
8-15-89
- ---------------------------
Date
Accepted By:
PROGRESS SOFTWARE CORPORATION
/s/ Michael J. Crismond
- ---------------------------
By
Michael J. Crismond
- ---------------------------
Name (Type or Print)
Director, U.S. Sales
- ---------------------------
Title
August 21, 1989
- ---------------------------
Date
<PAGE>
This is Amendment Number 1 to the VAR agreement between Progress Software
Corporation and R&D Software Systems dated August 15th, 1989 (the "Agreement").
1. Addendum A, attached hereto, is made part of the agreement.
***
3. Termination of the Agreement by VAR pursuant to Section 9 of the agreement
shall in no event relieve VAR of it's obligation to pay back discounts, as set
forth in Paragraph 2 of this Amendment.
4. VAR agrees that when providing PSC Products to their dealers for further
distribution to end users, that VAR shall shall make best effort to
contractually limit such dealers to license PSC Products only in conjunction
with Progress-based applications.
5. VAR shall have the right to license reasonable copies of the PSC Application
Development Environment (either PADS or PROGRESS 4GL) to a dealer without the
requirement of VAR licensing an application. ("Reasonable - is typically
defined to be TWO copies, but with mutual agreement this number may be increased
to more appropriately reflect unique business opportunities). VAR shall make
best effort to require such dealer to use the aforementioned copies to develop
applications for licensing to end users and not to use the copies solely for
internal usage.
1 of 2 12/31/89
<PAGE>
6. VAR agrees that when providing PSC Product to end users or that its dealers
re-market to end users, it will include the significant addition of other
equipment and/or software products which VAR acquires, manufacturers or develops
for incorporation into VAR's systems. Such significant addition, which will be
determined solely on the basis of cost, pricing, manufacturing and other data,
and must represent functional and value enhancements to PSC Products.
7. VAR and PSC mutually agree that when sales conflict in the field takes
place, that they will work together to solve such issues in an expeditious
manner. PSC has committed to R&D to offer pass thru commission credits on
relevant sales involving each of our respective sales forces which should
greatly reduce any such conflict.
PSC VAR
Progress Software Corporation R&D Systems
BY: /s/ Michael J. Crismond BY: /s/ Guy M. Lammle
----------------------------- ----------------------
NAME: Michael J. Crismond NAME: Guy M. Lammle
--------------------------- --------------------
TITLE: Director, U.S. Comm Sales TITLE: C.E.O.
------------------------- -------------------
DATE: Jan 26, 1990 DATE: 12/31/89
-------------------------- -------------------
***
2 of 2 12/31/89
<PAGE>
***
<PAGE>
VAR AMENDMENT
This is an Amendment to the VAR Agreement (the "Agreement") between Progress
Software Corporation (PSC) and R & D Software Systems dated ____________________
----------------------
Paragraph 10.1 is replaced with the following:
"This Agreement shall become effective upon the date the Agreement is
accepted by PSC and shall continue in force until December 31, 1995.
Thereafter, it may be terminated upon twelve months written notice."
Additional Terms:
1. Discount Schedule (the "Discount Schedule"), attached hereto, is made part
of the Agreement. As of January 1, 1996, providing VAR has not violated
the terms and conditions of this agreement; and VAR and PSC have not
negotiated a new agreement; then VAR shall purchase products and services
from PSC at the then current standard PSC VAR discount.
***
3. Termination of the Agreement pursuant to Section 10 of the Agreement shall
in no event relieve VAR of its obligation to pay back discounts, as set
forth in Paragraph 2 of this Amendment.
4. VAR agrees that when providing PSC Products to their dealers for further
distribution to end users, that VAR shall limit such dealers to license PSC
Products only in a one-for-one ratio per machine with VAR's Progress-based
applications.
<PAGE>
Var Amendment
Page Two
5. VAR shall have the right to license reasonable copies of the PSC
Application Development Environment (either PADS or PROGRESS 4GL) to a
dealer without the requirement of VAR licensing an application.
("Reasonable" - is typically defined to be TWO copies, but with mutual
written agreement this number may be increased to more appropriately
reflect unique business opportunities). VAR shall require such dealer to
use the aforementioned copies to develop enhance, and/or support VAR's
applications for licensing to end users and not to use the copies solely
for internal data processing requirements.
6. VAR agrees that when providing PSC Products to their dealers and customers,
that dealers and customers understand that the PSC Products are to be
installed only in the United States and Canada.
----
7. VAR and PSC mutually agree that when sales conflict in the field take
place, that they will work together to solve issues in an expeditious
manner.
***
Agreed To: Accepted By:
- -------------------------------- Progress Software Corporation
R & D Systems
/S/ Roger H. Linn
- -------------------------------- --------------------------------
By By
Roger H. Linn
- -------------------------------- --------------------------------
Name (Type or Print) Name (Type or Print)
Pres
- -------------------------------- --------------------------------
Title Title
1/19/93
- -------------------------------- --------------------------------
Date Date
<PAGE>
***
<PAGE>
SECOND AMENDMENT TO PROGRESS SOFTWARE CORPORATION VALUE ADDED
RESELLER AGREEMENT
This Second Amendment to the Progress Software Corporation Value Added
Reseller Agreement is entered into as of the 1st day of March, 1996, by and
between Progress Software Corporation, a Massachusetts corporation with its
principal place of business at 14 Oak Park, Bedford, Massachusetts 01730 ("PSC")
and R&D Systems Company, a Colorado corporation with its principal place of
business at 5225 N. Academy Blvd., Suite 100, Colorado Springs, Colorado 80918
("R&D").
WHEREAS, PSC and R&D entered into a Progress Software Corporation Value
Added Reseller Agreement effective as of August 15, 1989 (the "Agreement");
WHEREAS, PSC and R&D entered into an amendment to the Agreement dated as of
January 26, 1990 setting forth special pricing and distribution terms and
conditions relating to PSC products (the "Amendment");
WHEREAS, the parties desire to amend and modify the terms and conditions of
the Agreement pertaining to the pricing, production and distribution of PSC
products under the Agreement;
WHEREAS, the parties desire that this Second Amendment completely supersede
the terms and conditions of the earlier Amendment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used but not defined in this Addendum shall have the same
meanings as in the Agreement.
2. The following terms as used herein shall have the following meanings:
a. "R&D Trend Software Modules" shall mean the R&D Trend software
application modules listed in Exhibit A to this Second Amendment. R&D
may update Exhibit A from time to time to reflect new modules added to
the Trend software application suite by providing PSC with written
notice of such updates.
b. "Marketing Associate" shall mean an authorized reseller of the R&D
Trend Software Modules.
c. "R&D Initial License Fee" shall mean R&D's fee for the initial license
grant of R&D Trend Software Modules purchased by an R&D customer.
d. "R&D Annual License Fee" shall mean R&D's annual fee for the initial
term and renewal terms of annual releases as licensed by an R&D
customer in connection with an initial license grant for an R&D Trend
Module. The R&D customer is required to pay both the R&D Initial
License Fee and the R&D Annual License Fee at the time of the initial
license grant. The initial license grant is for an initial term;
thereafter, the R&D customer must pay the R&D Annual License Fee in
order to continue using the R&D Trend Software
<PAGE>
Module(s) (including annual releases thereto) for successive annual
renewal terms.
e. "Net Trend Sales Revenue" shall mean the R&D Initial License Fee
charged by R&D for the R&D Trend Software Module license (pursuant to
R&D's then-current price schedule), net of any and all discounts
(subject to the limitations set forth in Section 4 below), sales tax
and shipping fees. The term "Net Trend Sales Revenue" shall not
include source code license fees charged by R&D or a Marketing
Associate to an R&D customer; provided that such source code license
fees are in addition to (and do not supersede) R&D's standard product
license fee for an object code license. If R&D or a Marketing
Associate charge only the source code license fee, without the
standard object code product license fee (pursuant to R&D's then-
current price schedule), the special royalty provisions set forth in
Sections 3(c) and 3(d) shall not apply and R&D or Marketing Associate
shall purchase the required PSC product licenses pursuant to PSC's
then-current price list less the discount set forth in Exhibit D."
3. Notwithstanding anything to the contrary contained in the Agreement, the
following terms and conditions shall apply to the distribution by R&D of
the PSC products set forth in Section 3(e) hereof in connection with the
R&D Trend Modules:
a. For the period commencing on March 1, 1996 and ending on January 1,
1999, R&D shall have the right to distribute the PSC products identified in
Section 3(e) hereof solely in connection with the deployment of the R&D
Trend Software Modules in the United States and Canada subject to the terms
and conditions of the Agreement and this Second Amendment.
b. R&D will, in its sole discretion, establish and maintain a product
price schedule setting forth the product fees for the R&D Trend Modules. A
copy of the current price schedule is attached hereto as Exhibit B. R&D
shall provide PSC with written notice of any updates to the above-mentioned
price schedule.
***
<PAGE>
***
e. R&D shall have the right to deploy the following PSC product
configuration for R&D Trend Modules customer for the fees set forth above:
V7/V8 Enterprise server Users equal to # of R&D Trend
Module users licensed
V7/V8 Query/Results, Report Builder 16 users (combined)
V7/V8 4GL Development System 1 user
The above PSC product configuration is subject to modification upon written
mutual agreement of the parties. In the event PSC renames any of the
above-listed PSC products in future releases, the above PSC product
configuration shall be modified to reflect equivalent substitutions
available under future releases.
***
<PAGE>
g. The special pricing provisions set forth in Section 3(c) above shall
not apply to R&D existing customers (licensees of R&D Trend Software
Modules prior to the effective date of this Second Amendment). In the
event any such customer requires additional PSC products or modifications
to its current configurations or environments, such PSC product licenses or
configuration modifications will be purchased from PSC pursuant to the then
current PSC price list. AP shall receive the discount set forth in Exhibit
D hereto.
h. With respect to all licenses of the R&D Trend Software Modules which
require additional PSC products or configurations different from Subsection
3(e) above, R&D shall purchase such PSC product licenses and/or
configurations (and optional PSC maintenance services) from the then-
current PSC price list. R&D shall receive the discounts set forth in
Exhibit D on the purchase of these PSC product licenses and/or
configurations. As of the effective date of this Second Amendment, all
existing PSC Unlimited user licenses will remain unlimited unless PSC is
notified in writing that R&D wishes otherwise.
4. The royalty payment method described herein shall not be applicable if R&D
discounts the PSC products at a percentage higher than the average discount
applied to all components (hardware, software, professional services, etc.)
of the total sale to the R&D customer. Under such circumstances, R&D shall
pay PSC the then-current list price for the PSC products and maintenance
services less the discounts set forth in Exhibit D hereto.
5. The special pricing and distribution terms and conditions set forth herein
apply only to the PSC product configurations described in Section 3(e),
distributed by R&D or its Marketing Associates solely in conjunction with
the R&D Trend Software Modules. R&D's deployment of PSC products in
conjunction with any other PROGRESS-based application shall be subject to
the standard terms and conditions set forth in the Agreement and PSC's
then-current price list and standard AP discount schedule. R&D's purchase
of PSC product licenses for internal use shall be subject to PSC's then-
current price list.
6. PSC shall, at R&D's request, provide R&D master media for each of R&D's
deployment operating system environments. Upon request, PSC shall provide
one master media set for each additional environment or updates to the
original environments at the then-current PSC media handling charges. R&D
shall have the right to reproduce and distribute the PSC product
configurations described in Section 3(e) for deployment to its R&D end-
users in accordance with the terms and conditions of the Agreement and this
Second Amendment. For each R&D end-user receiving PSC products, R&D shall,
PRIOR TO SENDING ANY PSC PRODUCTS, enter into a license agreement executed
by such end-user which incorporates by reference PSC's end-user license
agreement (attached hereto as Exhibit E) and states that software delivered
to the end-user includes PSC products subject to the terms and conditions
of the attached PSC end-user license agreement. R&D shall maintain sole
control over all copies of the master media and shall not release any such
copies to any other party including but not limited to the R&D Marketing
Associates.
7. On a monthly basis, R&D shall provide the following reports to PSC:
<PAGE>
(1) R&D Trend Software Modules Deployment Report including for each copy of
the R&D Trend Modules licensed to an R&D customer directly by R&D or
through an R&D Marketing Associate during the report month, the customer
name, location, number of users, hardware configuration, PSC serial
number(s), R&D Initial License Fee, R&D Annual License Fee and information
about whether the products were distributed directly by R&D or through an
R&D Marketing Associate;
(2) Annual License Fee Report including for each existing R&D customer who
has paid to R&D or an R&D Marketing Associate an Annual License Fee for a
renewal release term during the report month, the customer name, location,
PSC serial number(s) and the R&D Annual License Fee.
Such required reports are due by the fifteenth (15th) day of each month
following the month in which the R&D Trend Software Modules licenses are
deployed and/or renewal Annual License Fee revenue is collected directly by
R&D or one of its authorized Marketing Associates.
Payment in full for PSC license royalties described in Section 3(c) above
and the PSC royalties from the initial R&D Annual License Fees described in
Section 3(d) above shall be due and payable within fifteen (15) business
days of the due date for the R&D Trend Software Modules Deployment Report
(regardless of whether or not R&D or an R&D Marketing Associate has
collected the Initial License Fees or the initial Annual License Fees from
the R&D customers).
Payment in full for PSC royalties from renewal Annual License Fees (such
royalties are described in Section 3(d) above) shall be due and payable
within fifteen (15) business days of the due date for the Annual License
Fee Report. In the event R&D or an R&D Marketing Associate is unable to
collect an Annual License Fee from an existing R&D customer for a renewal
annual release term or an existing R&D customer elects not to purchase a
renewal annual release term, R&D shall not be liable to PSC for payment of
the PSC royalties for the Annual License Fee with respect to such
customers; however, the PSC maintenance for such R&D customers will be
considered to have lapsed and reinstatement will be subject to PSC's
current policies concerning penalties and maintenance fees in effect at the
time of reinstatement.
8. R&D agrees that when providing PSC products to R&D Marketing Associates for
further distribution to R&D end-users, R&D shall require such Marketing
Associates to distribute PSC products solely in conjunction with the R&D
Trend Software Modules.
9. R&D shall have the right to distribute a reasonable number of PSC
Application Development Environment product licenses to Marketing
Associates without the requirement of licensing a PROGRESS-based
application. The term "reasonable" is defined to be TWO copies, but with
mutual written agreement this number may be increased to more appropriately
reflect unique businss opportunities. The license fees owed to PSC for the
licenses described herein shall be subject to PSC's current price list less
the product discount set forth in Exhibit D. R&D shall require such
Marketing Associate to use the aforementioned PSC product licenses solely
to develop, enhance, and/or support R&D's applications for licensing to
end-users and not use the copies for internal data processing requirements.
For each of the aforementioned PSC
<PAGE>
Application Development Environment product licenses, R&D shall report to
PSC the following information: R&D Marketing Associate name, the location,
hardware configuration, PSC serial numbers and designation as a Marketing
Associate internal development and support license. Such information shall
be reported to PSC on a monthly basis along with the above-mentioned
license fees, in accordance with the reporting schedule and payment
schedule set forth in Section 7. R&D shall have the right to distribute,
free of charge, a single copy of a single PSC Deployment product to each
Marketing Associate; provided that Marketing Associate's use of such
product shall be solely for the purpose of demonstrating the R&D Trend
Software Modules and shall, under no circumstances, be used for Marketing
Associate's internal data processing activities. For each of the
aforementioned PSC deployment licenses, R&D shall report to PSC the
following information: R&D Marketing Associate name, the location, hardware
configuration, PSC serial numbers, and designation as a Marketing Associate
demonstration license. Such information shall be reported to PSC on a
monthly basis in accordance with the reporting schedule set forth in
Section 7 above.
10. The special pricing terms and conditions specified above apply only to PSC
products distributed by R&D or an R&D Marketing Associate for installation
in the United States or Canada in accordance with the terms and conditions
of the Agreement and this Second Amendment. R&D shall inform the R&D
customers of the installation site restriction and require the Marketing
Associates to do the same.
11. R&D and PSC mutually agree that when sales conflict in the field takes
place, R&D and PSC will work together to solve issues in an expeditious
manner.
***
13. Notwithstanding anything to the contrary set forth in the first paragraph
of Section 9 of the Agreement, this Second Amendment shall continue in
force until January 1, 1999 (unless any one or more of the reasons for
termination listed in Section 9 of the Agreement occurs, i.e., uncured
breach by either one of the parties, bankruptcy or involuntary dissolution
of R&D). Thereafter, provided R&D has not violated the terms
<PAGE>
and conditions of the Agreement or this Second Amendment; and R&D and PSC
have not negotiated a new pricing and distribution amendment, R&D shall
purchase PSC products and services from PSC subject to the standard terms
and conditions of the Agreement (prior to the Amendment and this Second
Amendment) and the then current PSC price list and application partner
discount schedule. Upon expiration or termination of this Second Amendment,
R&D shall return to PSC all master media disks of the PSC products,
including all copies thereof, in the possession of R&D.
14. Notwithstanding anything to the contrary set forth in Section 8 of the
Agreement, the special pricing and distribution terms and conditions set
forth in this Second Amendment may not be assigned by R&D without the prior
written consent of PSC, which shall not be unreasonably withheld.
15. Except as modified herein, all provisions of the Agreement are hereby
confirmed and in all respects this Second Amendment (including Exhibits A
through D hereto) and the Agreement shall be read and construed together as
if the provisions of this Second Amendment had been part of the Agreement.
This Second Amendment completely supersedes the earlier Amendment. No
other modifications or additions are made to the Agreement. Except as may
be modified or amended by this Agreement, the terms and conditions of the
Agreement shall remain in effect until termination of the Agreement. In
the event of conflict between the terms and conditions of the Agreement and
this Second Amendment, the terms and conditions of this Second Amendment
shall govern.
IN WITNESS WHEREOF, this Second Amendment has been executed under seal for and
on behalf of each of the parties hereto by their duly authorized representative
as of the date first set forth above.
PROGRESS SOFTWARE CORPORATION
By: /s/ Michael J. Crismond
----------------------------
Name: Michael J. Crismond
----------------------------
Title: V.P. N.A. Sales
----------------------------
R&D SYSTEMS COMPANY
By: /s/ KJ Cunningham
----------------------------
Name: K.J. Cunningham
----------------------------
Title: Chief Administrative Officer
----------------------------
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
R&D Trend Modules:
Foundation Modules
- ------------------
System Administrator
Office Interface
Accounts Receivable
Accounts Payable
General Ledger
Customer Marketing
Payroll
On-Line Operations Guide
Vertical Modules
- ----------------
Distribution System
Warehouse Transfer
Kit Production
Bar Code
Parcel Management
Warehouse Manager
Bid Preparation
EDI
Supplier Link
Document Manager
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
End User Product License Agreement
CAUTION: OPENING THE MEDIA PACKAGE INDICATES YOUR UNDERSTANDING AND ACCEPTANCE
OF THE FOLLOWING TERMS AND CONDITIONS. PLEASE CAREFULLY READ THESE TERMS AND
CONDITIONS BEFORE OPENING THE SEALED PACKAGE. IF YOU DO NOT AGREE WITH THEM,
PROMPTLY RETURN THE UNOPENED PACKAGE TO PROGRESS SOFTWARE CORPORATION OR THE
DEALER FROM WHICH IT WAS ACQUIRED.
Subject to the following terms and conditions, Progress Software Corporation
(PSC) grants to you ("User") a non-exclusive license to use the enclosed
software Product(s) and related manuals ("Documentation").
1. SCOPE OF LICENSE.
1.1 This license allows User to install and use the Product solely on the single
computer model or on the nodes of a single network of specified computers for
which the license was purchased, as set forth on the applicable license
addendum, purchase order, or other documentation. If such documentation
specifies a maximum number of simultaneous sessions, User agrees to limit usage
in accordance with this restriction.
1.2 The Product may not be transferred, sold, assigned, or otherwise conveyed by
User to another party without PCS's prior written consent. Transfer of the
Product to another computer or network may only be made following payment of the
then current Product Upgrade fees as specified in the applicable PSC price list.
1.3 A Product Update replaces part or all of a Product or Product Update
previously licensed. Use of a Product Update terminates the license to use the
Product or that part of the Product which the Product Update replaces and User
shall destroy or return to PSC all copies of any prior Product or Product
Update.
1.4 User may not grant sublicenses, leases, or other rights in the Product to
others.
1.5 User may obtain rights to acquire Product Updates and other technical
services under PSC's then current fees and terms.
1.6 This Agreement automatically terminates if User transfers possession of any
copy of the Product or Product Update to another party.
2. PROGRESS SOFTWARE'S RIGHTS.
The Product and Documentation are proprietary products of PSC, or its
licensor(s), and are protected by copyright law. By virtue of this Agreement,
User acquires only the non-exclusive right to use the Product and does not
acquire any rights of ownership in the Product or the media upon which it is
embodied. PSC, or its licensor(s), shall at all times retain all rights, title
and interest in the Product and the media.
3. NON-DISCLOSURE; COPIES; ALTERATIONS.
User agrees not to cause or permit the reverse engineering, disassembly,
copying, or decompilation of the Product, except to reproduce machine-readable
object code portions for back-up purposes and installation of new releases,
under penalty of license termination but not exclusive of any other remedies.
User may copy the Product for installation, back-up, or other purposes as
described in the Documentation. User may not copy nor allow others to copy the
Product or Product Update for any other purpose. User agrees not to remove any
product identification, copyright notices, or other notices or proprietary
restrictions from the Product. User may not copy nor allow others to copy any
part of the manuals or other printed material provided with the Product or
Product Update by any means, including data transmission or translation.
4. LIMITED WARRANTY.
PSC warrants that the materials of both the Product media and Documentation are
not defective and that the software is properly recorded on the media. If either
the media (such as the diskettes, cartridges, and magnetic tapes) or the
Documentation is physically defective, PSC will replace it free of charge during
the 90 day warranty period. User's remedy is limited to return of the media
and/or Documentation to the supplier or to PSC for replacement. This Limited
Warranty is in effect for claims made with 90 days from User's purchase of the
Product.
PSC warrants that it has the right to license the Product(s). PSC will defend
User against any claim based on an allegation that a Product infringes a U.S.
patent or copyright, but only if PSC is notified promptly in writing of such
claim and is given sole control of the defense thereof and all related
settlement negotiations related thereto. Notwithstanding the foregoing, PSC
shall not be liable to User for any claim arising from or based upon the
alteration or modification of any of the Product(s). The Product has been tested
and the Documentation has been reviewed. However, except as specifically stated
above, PSC MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THIS PRODUCT AND DOCUMENTATION. For example, PSC does not
warrant that there are no discrepancies between the Product and the
Documentation, nor that errors cannot arise during the use of the Product. THIS
WARRANTY GIVES THE USER SPECIFIC LEGAL RIGHTS, AND MAY ALSO IMPLY OTHER RIGHTS
WHICH VARY FROM STATE TO STATE. SOME STATES DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF IMPLIED WARRANTIES, AND DO NOT ALLOW A LIMITATION ON HOW LONG ANY
IMPLIED WARRANTY LASTS, SO THE ABOVE LIMITATIONS MAY NOT APPLY. No PSC employee,
supplier, or agent is authorized to make any modification or addition to this
warranty.
5. LIMITATION OF LIABILITY.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE LIABILITY OF PSC, IF ANY, FOR
DAMAGES RELATING TO ANY PSC PRODUCTS SHALL BE LIMITED TO THE ACTUAL AMOUNTS PAID
BY USER FOR SUCH PSC PRODUCT AND SHALL IN NO EVENT INCLUDE INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND. SOME STATES DO NOT ALLOW THE EXCLUSION OF
INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATIONS MAY NOT APPLY.
6. EXPORT ADMINISTRATION.
User agrees to comply fully with all relevant regulations of the United States
Department of Commerce and with the United States Export Administration Act to
assure that the Product and Documentation are not exported or re-exported in
violation of United States law. Further, User shall not directly or indirectly
export or re-export any Products, Documentation, or the direct Product thereof
without first obtaining PSC's written approval.
7. U.S. GOVERNMENT RESTRICTED RIGHTS.
The Product is provided with RESTRICTED RIGHTS. Use, duplication or disclosure
by the U.S. Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of The Rights in Technical Data and Computer Program Product clause
at DFARS 252.277-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer
Software-Restricted Rights at 48 CFR 52.277-19, as applicable.
Contractor/manufacturer is Progress Software Corporation, 14 Oak Park, Bedford,
MA 01730. Unpublished - all rights reserved under the copyright laws of the
United States.
8. GENERAL.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, USA. User has read this Agreement, understands it, and agrees to
be bound by its terms.
Revised 9/93
<PAGE>
THIRD AMENDMENT TO PROGRESS SOFTWARE CORPORATION VALUE
ADDED RESELLER AGREEMENT
This Third Amendment to the Progress Software Corporation Value Added Reseller
Agreement is entered into as of the 2nd day of May 1996, by and between PROGRESS
SOFTWARE CORPORATION, a Massachusetts corporation with its principal place of
business at 14 Oak Park, Bedford, Massachusetts 01730 ("PSC") and R&D Systems
Company, a Colorado corporation with its principal place of business at 5225 N.
Academy Blvd., Suite 100, Colorado Springs, Colorado 80918 ("R&D").
WHEREAS, PSC and R&D entered into a Progress Software Corporation
Value Added Reseller Agreement effective as of August 15, 1989 (the
"Agreement"); and
WHEREAS, PSC and R&D entered into an amendment to the Agreement dated
as of January 26, 1990 setting forth special pricing and distribution terms and
conditions relating to PSC products (the "Amendment"); and
WHEREAS, the parties entered into a Second Amendment to the Agreement
dated as of March 1, 1996 which completely superseded the terms and conditions
of the earlier Amendment ("Second Amendment"); and
WHEREAS, the parties desire that this Third Amendment modify certain
terms and conditions of the Second Amendment; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used but not defined in this Addendum shall have the same
meanings as in the Agreement.
***
<PAGE>
***
3. This Third Amendment shall continue in force until January 1, 1999 pursuant
to the terms and conditions of Section 13 of the Second Amendment.
4. Except as modified herein, all provisions of the Agreement are hereby
confirmed and in all respects this Third Amendment and the Agreement shall be
read and construed together as if the provisions of this Third Amendment had
been part of the Agreement and the Second Amendment. No other modifications or
additions are made to the Agreement. Except as may be modified or amended by
this Third Amendment, the terms and conditions of the Agreement and Second
Amendment shall remain in effect until termination of the Agreement. In the
event of conflict between the terms and conditions of the Agreement and the
Second Amendment and this Third Amendment, the terms and conditions of this
Third Amendment shall govern.
IN WITNESS WHEREOF, this Third Amendment has been executed under seal for and on
behalf of each of the parties hereto by their duly authorized representative as
of the date first set forth above.
PROGRESS SOFTWARE CORPORATION R&D SYSTEMS COMPANY
By: /s/ Michael J. Crismond By: /s/ KJ Cunningham
----------------------- ------------------------
Name: Michael J. Crismond Name: K.J. Cunningham
----------------------- ------------------------
Title: V.P. North America Title: Chief Operating Officer
----------------------- ------------------------
<PAGE>
Exhibit 10.5
DISTRIBUTOR AGREEMENT
---------------------
This Agreement is entered into and becomes effective the 30 day of March 1995,
by and between VMARK SOFTWARE, INC. ("VMARK"), a Delaware Corporation with its
principal place of business at 50 Washington Street, Westboro, Massachusetts,
01581, and UDS ("DISTRIBUTOR") with its principal place of business at 1505 LBJ
Freeway, suite 210, Dallas, Texas 75342.
The software products covered by this Agreement are those set forth in VMARK's
then existing published Price List [hereinafter referred to as Product(s)].
Now, therefore, VMARK and DISTRIBUTOR agree as follows:
1. Territory
---------
VMARK grants DISTRIBUTOR the right to distribute Product(s) in the United
States of America, District of Columbia, Mexico and Australia under the
terms and conditions set forth herein including all schedules attached
hereto and by this reference made part hereof.
2. Term
----
This Agreement shall continue in effect one year from the date set forth
above and shall continue thereunder unless terminated by either party upon
90 day written notice of such termination to the other subject to
compliance by DISTRIBUTOR and VMARK with all the terms and conditions set
forth in this Agreement including all the Schedules hereto, unless sooner
terminated as provided herein.
3. Products
--------
VMARK may add or delete versions of Product(s) set forth in VMARK's then
prevailing price list upon seventy-five (75) days' notice to DISTRIBUTOR.
The Product(s) covered by this Agreement is that Product(s) ordered by
DISTRIBUTOR as an initial or additional DISTRIBUTOR Package.
4. License
-------
4.1 VMARK hereby grants to DISTRIBUTOR a non-exclusive license to
demonstrate, market, promote and copy, for backup purposes only,
Product(s) and to sublicense Product(s) to End-Users for use
solely on systems designated in the Sublicense Agreement.
<PAGE>
4.2 Each Product(s) license purchased hereunder may be sublicensed
only one time by DISTRIBUTOR, otherwise said license is non-
transferable.
4.3 Upon execution of this Agreement and payment of the license fee
set forth in the attached Initial Distributor Order, DISTRIBUTOR
shall have the right to use and demonstrate Product(s) on a
designated system.
Upon payment by DISTRIBUTOR of the fee for temporary
demonstration licenses set forth in Schedule 1, VMARK shall, upon
written request from DISTRIBUTOR provide a temporary
demonstration copy of Product(s) under the license provisions of
this Agreement. However, the license for such temporary
demonstration copy of Product(s) shall expire sixty (60) days
after shipment by VMARK.
5. Sublicenses
-----------
5.1 DISTRIBUTOR may provide and sublicense Product(s) to End-Users,
but only pursuant to a non-exclusive, non-transferable sublicense
agreement in a form approved by VMARK. The current approved
sublicense agreement form is attached as Schedule 2, and may be
changed from time to time by mutual agreement between VMARK and
DISTRIBUTOR.
5.2 DISTRIBUTOR shall provide to VMARK, upon written request, a copy
of all sublicense agreements with an End-User granted by
DISTRIBUTOR hereunder on or before the fifteenth (15th) day of
the month following receipt by DISTRIBUTOR of such written
request.
5.3 DISTRIBUTOR must secure a new sublicense from End-User for any
upgrade version of Product(s), such as increasing the number of
users supported by Product(s) or replacing the Central Processing
Unit on which Product(s) is originally licensed for use.
6. Ordering
--------
6.1 Concurrent with the execution of this Agreement DISTRIBUTOR shall
order a demonstration package as set forth in the Initial
Distributor Order Form.
6.2 During the term hereof DISTRIBUTOR orders for Product(s) shall be
submitted to VMARK by written purchase order on a form acceptable
to VMARK pursuant to the terms hereof and VMARK shall confirm
acceptance or rejection of the order in writing within twenty
(20) business days. VMARK may refuse to accept any purchase
order(s) if DISTRIBUTOR is in breach of this Agreement including
the Schedules hereto. All purchase orders submitted to VMARK by
DISTRIBUTOR must
2
<PAGE>
specify that they are subject to the terms and conditions of this
Agreement; all other terms and conditions on such purchase order
shall have no force or effect. No orders shall be binding upon
VMARK until acceptance by VMARK.
6.3 If at any time subsequent to VMARK's acceptance of the
DISTRIBUTOR's purchase order and prior to delivery, the
DISTRIBUTOR is in default of any provision of this Agreement or
schedule hereto, VMARK's acceptance of any purchase order shall
be deemed to be vacated and the purchase order shall be canceled.
7. Shipment
--------
DISTRIBUTOR shall pay all shipping charges. Unless otherwise agreed,
costs of shipment will be paid by VMARK for the account of DISTRIBUTOR.
In the absence of shipping instructions, VMARK will select a common
carrier on behalf of the DISTRIBUTOR.
8. Title
-----
Title to and ownership of all proprietary rights in Product(s) and all
related proprietary information shall at all times remain with VMARK.
9. Copyright and Trade Secret Notice and Legends
---------------------------------------------
9.1 DISTRIBUTOR shall reproduce on any copies including partial
copies of Product(s) and related material the notice or legend
which they contained when received by DISTRIBUTOR. In the absence
of such notice or legend upon receipt by DISTRIBUTOR, the
following notice shall be placed on all material objects
embodying partial or complete copies of Product(s) and related
material.
COPYRIGHT VMARK SOFTWARE, INC. 1993
ALL RIGHTS RESERVED
9.2 Each copyright notice shall be reproduced in human-readable
form on the media containers, tapes or other tangible
manifestations in which Product(s) are produced under this
Agreement and in machine readable form embedded in the object
code of Product(s) such that the notice is displayed on the
terminal when Product(s) are first logged on. Such copyright
notice shall not be construed as an admission of or presumption
that publication has occurred.
10. License Fee
-----------
3
<PAGE>
DISTRIBUTOR shall pay to VMARK for each copy of Product(s) ordered and
shipped the appropriate license fee set forth in the appropriate
Schedule 1, attached to this Agreement.
11. Payment Terms
-------------
11.1 License fees and other charges payable by DISTRIBUTOR to VMARK
under this Agreement are payable net of all taxes, tariffs and
other governmental charges, except taxes based on VMARK's net
income, and if VMARK is required to pay any such tax, tariff
or other charge based on the license granted or services
performed under this Agreement, then such taxes, tariffs or
other charges shall be billed to DISTRIBUTOR and payable upon
invoice.
11.2 License fees shall be payable in U.S. dollars. All other
payments due hereunder shall be paid in U.S. dollars and as
specified herein. If no payment term is specified, such
payments shall be due within 30 days from date of invoice. Any
amount not paid when due may be subject to a late payment
charge at the rate of 1.5% per month or the maximum rate
permitted by law, whichever is less until such payment is
made.
12. Warranty
--------
12.1 VMARK warrants that Product(s), when shipped, will
conform to its then current published specification for
Product(s). In the event that Product(s) does not so conform
and DISTRIBUTOR notifies VMARK in writing within ninety (90)
days from the date of shipment, then VMARK shall at its
option, either correct the defect, or replace Product(s) with
a conforming copy.
12.2 EXCEPT FOR THE WARRANTIES SET FORTH HEREIN IN THIS
PARAGRAPH 12 ABOVE, VMARK DISCLAIMS ALL WARRANTIES WITH REGARD
TO Product(s), INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE; and the
stated express written warranties are in lieu of all
obligations or liabilities on the part of VMARK for damages,
including but not limited to special, indirect or
consequential damages arising out of or in connection with the
use or performance thereof.
13. Support Services
----------------
13.1 VMARK shall make Support Services available to
DISTRIBUTOR and/or to licensees of Product(s) sublicensed
by DISTRIBUTOR.
4
<PAGE>
Such Support Services shall be provided by VMARK at
VMARK's then prevailing prices, terms and conditions, as
defined in Schedule 13.2 attached to this Agreement, and
by this reference incorporated herein.
14. Infringement Indemnification
----------------------------
14.1 VMARK shall defend any claim, suit or proceeding brought
against DISTRIBUTOR so far as it is based on a claim that
the use or transfer of Product(s) and related material
delivered hereunder constitutes an infringement of a
United States patent or copyright, so long as VMARK is
notified promptly in writing by DISTRIBUTOR as to any
such action and is given full authority, information and
assistance (at VMARKs expense) for the defense of any
such claim or proceeding. VMARK shall pay all damages and
costs awarded therein against DISTRIBUTOR but shall not
be responsible for any compromise made without its
consent. In the event of a final judgment which prohibits
DISTRIBUTOR or DISTRIBUTOR's customers continued use of
Product(s) by reason of infringement of a United States
patent or copyright, or if at any time VMARK is of the
opinion that Product(s) is likely to become the cause of
an action for infringement of a United States patent or
copyright, VMARK shall, at its sole option and at its
expense, either obtain the rights to continued use of
Product(s) or replace or modify Product(s) so that it is
no longer infringing.
14.2 DISTRIBUTOR shall indemnify and hold harmless VMARK from
any loss, cost, or expense suffered or incurred in
connection with any claim, suit or proceeding brought
against VMARK so far as it is based on a claim that
Product(s) modified, altered or combined by DISTRIBUTOR
with any equipment, device or software not supplied by
VMARK hereunder constitutes such an infringement because
of such modification, alteration or combination.
15. Use of VMARK's Name
-------------------
15.1 VMARK expressly prohibits any direct or indirect use,
reference to, or other employment of its name, trademarks
or trade names or of any name, trademark or trade name
exclusively licensed to VMARK, except in this Agreement
or as expressly authorized by VMARK in writing.
15.2 All DISTRIBUTOR advertising and other promotional
material for Product(s) shall identify VMARK and will be
submitted to VMARK
5
<PAGE>
for approval prior to release by DISTRIBUTOR. VMARK
acknowledges that its consent may not be unreasonably
withheld.
15.3 VMARK hereby authorizes DISTRIBUTOR's use of the legend
VMARK AUTHORIZED DISTRIBUTOR. If utilized by DISTRIBUTOR,
said legend shall appear in conjunction with, and after,
DISTRIBUTOR's name and shall not be more prominent than
DISTRIBUTOR's name. DISTRIBUTOR shall submit to VMARK the
full particulars as to any requested use of the
authorized legend in any manner and shall not utilize the
same unless and until VMARK's written approval is
obtained.
15.4 Upon termination of this Agreement, DISTRIBUTOR shall
discontinue the use of such legend in any manner and
thereafter shall not use, either directly or indirectly,
such legend or any similar legend, the use of which might
confuse or deceive the public and/or potential
DISTRIBUTOR customers.
15.5 DISTRIBUTOR agrees that the names uniVerse and VMARK are
owned by VMARK, and DISTRIBUTOR shall upon request from
VMARK and at VMARK's cost and expense, assist VMARK in
taking appropriate steps to protect its rights in said
names.
16. Marketing Support
-----------------
VMARK shall have the right to participate with DISTRIBUTOR in user
meetings, advertisement and newsletters primarily concerning Product(s).
17. Documentation
-------------
VMARK will provide DISTRIBUTOR with an initial complement of sales
literature at no additional charge to DISTRIBUTOR. VMARK shall also
provide one (1) set of system manuals with the initial version of
Product(s) licensed by DISTRIBUTOR. DISTRIBUTOR may purchase additional
manual(s) at VMARK's then prevailing prices for such manual(s).
18. Excusable Delays
----------------
VMARK shall not be liable for any loss, damage or penalty for delay in
delivery or for failure to give notice of delay when such delay is due
to causes beyond the reasonable control of VMARK, such as, but not
limited to, acts of God, fire or explosions, war or civil disturbances,
labor disturbances, delays in transportation or unreasonable delay in
delivery by VMARK's vendors. The time for performance hereunder shall be
extended by a period of time equal to the time lost because of any such
delay.
6
<PAGE>
19. Relationship of Parties
-----------------------
19.1 DISTRIBUTOR acknowledges that both parties hereto are
independent contractors and that DISTRIBUTOR will solicit
orders for Product(s) only as an independent contractor.
DISTRIBUTOR shall in no way represent itself as a partner,
joint-venture, agent, employee or general representative of
VMARK. DISTRIBUTOR acknowledges that its only authorized
representation to third parties is to identify itself as a
VMARK AUTHORIZED UNIVERSE DISTRIBUTOR. DISTRIBUTOR further
acknowledges that it shall have no right, power or authority
to in any way obligate VMARK to any contract, term or
condition.
19.2 DISTRIBUTOR agrees to indemnify and hold VMARK free and
harmless from any and all claims, damages and expenses of
every kind and nature, including reasonable attorneys fees,
arising from acts of commission or omission by DISTRIBUTOR in
relation to licenses sold by DISTRIBUTOR under this Agreement.
20. Solicitation of Employees
-------------------------
Neither VMARK nor DISTRIBUTOR shall solicit the services of employees of
the other during the term of this Agreement.
21. ASSIGNMENT
This Agreement is personal to DISTRIBUTOR and the Agreement, or any part
thereof, may not be transferred or assigned by DISTRIBUTOR without the
prior written consent of VMARK.
VMARK will not unreasonably withhold consent of assignment.
22. Termination
-----------
22.1 Unless terminated pursuant to Paragraph 2, this Agreement
shall remain in full force and effect except if terminated as
follows:
a. If either party neglects or fails to perform, observe or
cure within thirty (30) days of written notice of such
failure to perform any of its existing or future
obligations.
b. If DISTRIBUTOR attempts to assign this Agreement or any of
its rights hereunder.
7
<PAGE>
22.2 Termination of this Agreement shall not affect any of
DISTRIBUTOR's pretermination obligations hereunder and any
such term termination is without prejudice to the enforcement
of any undischarged obligations existing at the time of
termination.
22.3 In the event of termination of this Agreement, DISTRIBUTOR
shall have no further right to use Product(s) or VMARK's
trademarks and trade names, and immediately after the
termination date shall return to VMARK all originals and
copies of Product(s), including all compilations,
translations, and partial copies, whether or not modified or
merged into other software or documentation. DISTRIBUTOR shall
certify in writing within ten (10) days following termination
that it has complied with this paragraph. DISTRIBUTOR
acknowledges that it shall not be entitled to any compensation
by reason of allegedly having contributed to VMARK's goodwill
during the term of this Agreement.
22.4 All licenses granted by VMARK to DISTRIBUTOR under this
Agreement shall immediately terminate, but such termination
shall not affect the right of existing End-User sublicensees
granted by DISTRIBUTOR to use Product(s).
22.5 Sections 8 and 9 shall survive the termination or expiration
of this Agreement.
23. Notice
------
Unless otherwise agreed to by the parties, all notices required
hereunder shall be made by either registered mail or certified mail,
return receipt requested and all notices shall be addressed to the
attention of the party executing this Agreement or its successor.
24. General
-------
24.1 Either party's lack of enforcement of any provision in this
Agreement in the event of a breach by the other shall not be
construed to be a waiver of any such provision and the non-
breaching party may elect to enforce any such provision in the
event of any repeated or continuing breach by the other.
24.2 A valid contract binding upon the parties hereto shall come
into being only upon execution of this Agreement by a duly
authorized agent, officer or representative of both parties.
8
<PAGE>
24.3 This Agreement is the exclusive statement of the entire
agreement between VMARK and DISTRIBUTOR and supersedes all
prior oral or written representations or agreements between
the parties as to the subject matter hereof. No change,
termination or attempted waiver of any of the provisions
hereof shall be binding unless in writing and signed by the
party against whom the same is sought to be enforced.
24.4 The parties hereto agree that the terms and conditions
contained herein shall prevail notwithstanding any variations
on any orders submitted by DISTRIBUTOR.
24.5 This Agreement shall be governed by, subject to and
construed in accordance with the laws of the Commonwealth of
Massachusetts.
24.6 The particular provisions of this Agreement shall be deemed
confidential in nature and neither DISTRIBUTOR nor VMARK shall
divulge any of its provisions as set forth herein to any third
parties except as may be required by law.
24.7 DISTRIBUTOR understands that VMARK is subject to regulation by
agencies of the U.S. Government, including the U.S. Department
of Commerce, which prohibit export or diversion of VMARK
products to certain countries, and agrees it will not
knowingly assist or participate in any such diversion or other
violation of applicable U.S. laws and regulations. DISTRIBUTOR
warrants that it shall not license Product(s) in countries or
to users not approved to receive classified technical
equipment under applicable U.S. laws and regulations and that
it will abide by such laws and regulations. DISTRIBUTOR shall
hold harmless and indemnify VMARK for any damages resulting to
VMARK from a breach of this paragraph by DISTRIBUTOR.
DISTRIBUTOR shall include in all sublicenses the name and
location of the end user customer.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this instrument to be
effective as of the date first written above on the first page hereof.
VMARK SOFTWARE, INC. DISTRIBUTOR
By: /s/ James K. Walsh By: /s/ Roger H. Linn
- ----------------------- -----------------------
James K. Walsh Roger H. Linn
- ----------------------- -----------------------
Printed Name Printed Name
Ex VP & C.O.O. Pres.
- ----------------------- -----------------------
Title Title
3/30/95 3/30/95
- ----------------------- -----------------------
Date Date
10
<PAGE>
SCHEDULE 13.2
-------------
VANTAGE SUPPORT SERVICES
------------------------
Definitions
- -----------
"VANTAGE PARTNER" is a relationship agreed-to between DISTRIBUTOR and VMARK, as
elected below, consisting of certain terms and conditions as contained herein.
"VANTAGE RESELLER" is a relationship agreed-to between DISTRIBUTOR and VMARK, as
elected below, consisting of certain terms and conditions as contained herein.
"LIST MAINTENANCE PRICE" is VMARK's then current, per-end-user, Annual
Maintenance List-Price for a given license of Product as shown in Schedule 1 of
this Distributor Agreement between DISTRIBUTOR and VMARK.
"MAINTENANCE CHARGE" for a given license of Product is equal to the LIST
MAINTENANCE PRICE multiplied by the number of users associated with that
license.
"TOTAL MAINTENANCE CHARGE" is the sum of the MAINTENANCE CHARGES for all
licenses of Product(s) sold by DISTRIBUTOR under this Distributor Agreement, and
any prior Agreement(s), between DISTRIBUTOR and VMARK.
"COMMITMENT LEVEL" is that category of terms and conditions specified herein and
elected by DISTRIBUTOR under which DISTRIBUTOR commits to act as a VMARK VANTAGE
PARTNER.
"LICENSEE PERCENTAGE" is that percentage of all licenses of Product(s) sold by
DISTRIBUTOR under this Distributor Agreement, and any prior Agreement(s),
between DISTRIBUTOR and VMARK deemed to be subject to MAINTENANCE CHARGES,
determined by and associated with each COMMITMENT LEVEL, and used to calculate
quarterly payments due to VMARK by DISTRIBUTOR as a VANTAGE PARTNER.
"VANTAGE PERCENTAGE" is that share of a MAINTENANCE CHARGE that is payable to
VMARK by DISTRIBUTOR, determined by and associated with each COMMITMENT LEVEL,
and used to calculate quarterly payments due to VMARK by DISTRIBUTOR as a
VANTAGE PARTNER.
"QUARTERLY MINIMUM" is that minimum monetary amount, which DISTRIBUTOR is
obligated to pay each calendar quarter to VMARK as a VANTAGE PARTNER which is
determined by and associated with each COMMITMENT LEVEL.
<PAGE>
"THRESHOLD SALES REVENUE" is that minimum monetary amount, determined by and
associated with each COMMITMENT LEVEL, which is paid or owed to VMARK by
DISTRIBUTOR for all purchases (inclusive solely of licenses of Product(s),
consulting services and training) made under this Distributor Agreement, and any
prior Agreement(s), between DISTRIBUTOR and VMARK during each twelve-month
period beginning with the Effective Date, and each anniversary thereof.
"FIRST LINE SUPPORT" is that level of support described in Schedule 1 of this
Distributor Agreement between DISTRIBUTOR and VMARK provided directly to the
end-customer in execution of a Maintenance Agreement with the end-customer.
"SECOND LINE SUPPORT" is that level of support described in Schedule 1 of this
Distributor Agreement between DISTRIBUTOR and VMARK provided by VMARK to
DISTRIBUTOR should DISTRIBUTOR elect herein to assume FIRST LINE SUPPORT duties
to end-customers.
VANTAGE SUPPORT SERVICES OPTIONS
- --------------------------------
DISTRIBUTOR shall elect, as of the effective date of this Agreement, the form of
Vantage Service from VMARK that shall be provided to DISTRIBUTOR. DISTRIBUTOR
elects either VANTAGE PARTNER, or VANTAGE RESELLER, but not both, of these two
options set forth below.
DISTRIBUTOR elects to become a VANTAGE PARTNER, COMMITMENT LEVEL GOLD for all
sublicenses of _____________ Product(s).
DISTRIBUTOR elects to become a VANTAGE ________________, COMMITMENT LEVEL
________________ for all sublicenses of _______________ Product(s).
A. VANTAGE PARTNER Terms and Conditions
1. Definition
----------
As a VANTAGE PARTNER, DISTRIBUTOR directly provides FIRST LINE SUPPORT
for each Product sublicensed by DISTRIBUTOR. VMARK provides SECOND
LINE SUPPORT to DISTRIBUTOR only.
As a VANTAGE PARTNER, DISTRIBUTOR may request, and VMARK will provide,
service and support which require greater expertise and knowledge of
VMARK Product(s) than DISTRIBUTOR is trained or certified to provide.
Such service will be provided by VMARK at VMARK's then current prices,
terms and conditions.
2
<PAGE>
2. VANTAGE PARTNER Criteria
------------------------
In order to qualify as a VANTAGE PARTNER, DISTRIBUTOR must, on an
annual basis, demonstrate sufficient business with VMARK to meet the
following criteria:
. THRESHOLD SALES REVENUE for the elected COMMITMENT LEVEL
. Possess a Service infrastructure with dedicated Support Engineers
within DISTRIBUTOR's organization
. Such DISTRIBUTOR Support Engineers shall be certified by VMARK
3. VANTAGE PARTNER Commitment Level
--------------------------------
a. As a VANTAGE PARTNER, DISTRIBUTOR shall elect one and only one
COMMITMENT LEVEL, with accompanying terms and conditions, of the
following set out below:
THRESHOLD
COMMITMENT VANTAGE QTRLY LICENSE SALES
Initial one LEVEL PERCENTAGE MINIMUM PERCENTAGE REVENUE
- ------------- ------- ----------- ------- ----------- -------
RHL Gold 30% $5,000 90% $800K
______
______ Silver 40% $4,000 85% $400K
______ Bronze 50% $3,000 85% $100K
b. As a VANTAGE PARTNER, DISTRIBUTOR's COMMITMENT LEVEL, and
accompanying criteria, shall be reviewed each year. If
DISTRIBUTOR fails to meet any of the above criteria
appropriate to the DISTRIBUTOR's COMMITMENT LEVEL, VMARK may
provide written notice, effective upon receipt by
DISTRIBUTOR, that DISTRIBUTOR shall be treated under the
terms and conditions of a different COMMITMENT LEVEL or
shall be required to select VANTAGE RESELLER terms and
conditions.
c. Upon each anniversary of the Effective Date of this
Agreement, DISTRIBUTOR may elect to change its VANTAGE
PARTNER COMMITMENT LEVEL or change to a VANTAGE RESELLER
status. Such election may only be done by 90 days written
notice from DISTRIBUTOR to VMARK. If DISTRIBUTOR elects to
change to a VANTAGE RESELLER status, the terms and
conditions and payments to VMARK for all Product licenses
sold prior to the effective date of change shall be those in
effect, for the
3
<PAGE>
VANTAGE PARTNER COMMITMENT LEVEL prior to the elected status
change.
4. Vantage Partner Payments
------------------------
VMARK, at the beginning of each quarter, shall invoice
DISTRIBUTOR for the greater of either;
a. The QUARTERLY MINIMUM appropriate to the COMMITMENT LEVEL as
elected by DISTRIBUTOR herein, or
b. The result of the following calculation:
Quarterly VMARK Charge = (VANTAGE PERCENTAGE x LICENSEE
PERCENTAGE x TOTAL MAINTENANCE CHARGE) divided by 4
EXAMPLE.
DISTRIBUTOR OMEGA, A VANTAGE PARTNER, HAS A COMMITMENT LEVEL
OF "GOLD". AS OF 12/13/94, DISTRIBUTOR OMEGA HAD SOLD 1,000
LICENSES WITH 10,000 TOTAL USERS; 5,000 OF THESE USERS HAVE
A LIST MAINTENANCE PRICE OF $56 PER USER (5,000 X $56 =
$280,000), AND 5,000 USERS HAVE A LIST MAINTENANCE PRICE OF
$51 PER USER (5,000 X $51= $255,000). THE TOTAL MAINTENANCE
CHARGE FOR DISTRIBUTOR OMEGA IS $535,000 (= $280,000 +
$255,000) FOR THE 10,000 USERS. THE QUARTERLY VMARK CHARGE
TO DISTRIBUTOR OMEGA FOR JANUARY 1, 1994, TO MARCH 31, 1994,
IS CALCULATED AS FOLLOWS: $36,112.50 = (.30 X.90 X $535,000)
divided by 4.
The first Quarterly VMARK Charge shall be invoiced upon the
effective Date of this Agreement and shall be prorated based
upon the number of days remaining within VMARK's business
quarter as a percentage of a ninety (90) day quarter.
Payments are due within thirty (30) days after invoice date.
B. VANTAGE RESELLER
----------------
Initial As a VANTAGE RESELLER, for each Maintenance Agreement with the sub-
_______ licensee DISTRIBUTOR procures for VMARK for Product(s) licensed by
DISTRIBUTOR, VMARK shall pay to DISTRIBUTOR a sales commission equal
to the following percentages of the MAINTENANCE CHARGE, net of any
discounts, e.g., for multi-year contracts, prepayments, etc., paid
to VMARK:
4
<PAGE>
. 1st year - twenty percent (20%)
. 2nd year - ten percent (10%)
. 3rd year - five percent (5%)
To qualify for these payments, DISTRIBUTOR must procure the
Maintenance Agreement with the sub-licensee at point of sale or
within thirty (30) days of the date of license. Such commission
payments shall be made by VMARK to DISTRIBUTOR each quarter for
MAINTENANCE CHARGE payments made by DISTRIBUTOR's sub-licensee(s) to
VMARK during the prior quarter. Payments will be made to DISTRIBUTOR
within forty-five (45) days following the end of each quarter.
5
<PAGE>
INITIAL DISTRIBUTION PACKAGE
----------------------------
This order is issued in accordance with the terms and conditions of the
Distributor Agreement between VMARK Software, Inc. and __________ dated
_________.
Product Selection: UniVerse_______ PI/open _______
6-User Product(s) License
Indicate hardware platform and version
code requested: HW ________ VC _______
1 Year Vantage Standard Support
Complete Set of Product(s) Documentation
1 Copy of Prof (with uniVerse only)
3 Days of on-site educational service (must be provided on a
mutually agreed upon schedule within ninety (90) days from date
set forth above). Reasonable travel and living expenses incurred
by VMARK will be paid by Distributor.
TOTAL: $5,000.00
---------
Payment and Shipment
- --------------------
Initial Distributor Package Fee of $5,000 is payable upon contract execution by
DISTRIBUTOR.
Subject to prior written credit approval by VMARK; license fees and other
charges are payable as provided for in Section 11, Payment Terms, of the
Distributor Agreement.
Requested shipping date for 6-user License and Documentation
_____________.
Purchase Order Number _______________
THE FOREGOING ORDER IS ACCEPTED.
DISTRIBUTOR VMARK SOFTWARE, INC.
- ----------- --------------------
- --------------------
COMPANY NAME
- -------------------- --------------------
NAME (PRINTED) NAME (PRINTED)
- -------------------- --------------------
SIGNATURE SIGNATURE
- -------------------- --------------------
DATE DATE
<PAGE>
INITIAL DISTRIBUTION PACKAGE
----------------------------
This order is issued in accordance with the terms and conditions of the
Distributor Agreement between VMARK Software, Inc. and ___________ dated
__________.
Product Selection: UniVerse ________________ PI/open _________________
6-User Product(s) License
Indicate hardware platform and version
code requested: HW ________ VC _______
1 Year Vantage Standard Support
Complete Set of Product(s) Documentation
1 Copy of Prof (with UniVerse only)
5 Days of on-site educational service (must be provided on a
mutually agreed upon schedule within ninety (90) days from date
set forth above). Reasonable travel and living expenses incurred
by VMARK will be paid by Distributor.
TOTAL: $7,000.00
---------
Payment and Shipment
- --------------------
Initial Distributor Package Fee of $7,000 is payable upon contract execution by
DISTRIBUTOR.
Subject to prior written credit approval by VMARK; license fees and other
charges are payable as provided for in Section 11, Payment Terms, of the
Distributor Agreement.
Requested shipping date for 6-user License and Documentation ____________.
Purchase Order Number _____________
THE FOREGOING ORDER IS ACCEPTED.
DISTRIBUTOR VMARK SOFTWARE, INC.
- ----------- --------------------
____________________
COMPANY NAME
____________________ ______________________
NAME (PRINTED) NAME (PRINTED)
____________________ ______________________
SIGNATURE SIGNATURE
____________________ ______________________
DATE DATE
<PAGE>
ADDITIONAL DISTRIBUTOR PACKAGE
------------------------------
This order is issued in accordance with the terms and conditions of the
Distributor Agreement between VMARK Software, Inc. and _____________ dated
_________.
Product Selection: UniVerse __________ PI/open ______________
6-User Product(s) License
Indicate hardware platform and version
code requested: HW _________ VC_______________
1 Year Vantage Standard Support
Complete Set of Product(s) Documentation
One Copy of Prof (with UniVerse only)
TOTAL: $1,700.00
---------
Payment and Shipment
- --------------------
Additional Distributor Package Fee of $1,700 is payable upon contract execution
by DISTRIBUTOR.
Subject to prior written credit approval by VMARK; license fees and other
charges are payable as provided for in Section 11, Payment Terms, of the
Distributor Agreement.
Requested shipping date for 6-user license and Documentation ________________.
Purchase Order Number _______________.
THE FOREGOING ORDER IS ACCEPTED.
DISTRIBUTOR VMARK SOFTWARE, INC.
- ----------- --------------------
______________________
COMPANY NAME
______________________ _______________________
NAME (PRINTED) NAME (PRINTED)
______________________ _______________________
SIGNATURE SIGNATURE
______________________ _______________________
DATE DATE
<PAGE>
LICENSE FEE DESIGNATED SYSTEM
______________________ ______________________
______________________ ______________________
______________________ ______________________
SCHEDULE 2
----------
AGREEMENT
---------
This Agreement is entered into by and between _____________ (the DISTRIBUTOR)
located at ______________________and ____________________________ (LICENSEE)
located at ____________________________________________.
The DISTRIBUTOR agrees to license certain software provided by VMARK Software,
Inc. to LICENSEE for the internal use of LICENSEE. The LICENSEE agrees to be
bound by the terms of the sublicense herein granted.
1. Sublicense of Operating System
------------------------------
1.1 DISTRIBUTOR hereby grants LICENSEE a personal non-exclusive, non-
transferable license to use and to copy in machine readable form the
Software provided by DISTRIBUTOR on a single identified Central
Processing Unit (CPU) solely for LICENSEE's own use for its internal
data processing operating on equipment purchased from or approved in
writing by DISTRIBUTOR. "Software" as used herein means system
software, utility programs, routines, related documentation and
media. If the designated CPU becomes temporarily inoperative,
LICENSEE may use the Software on a back-up CPU until operable status
is restored.
2. LICENSEE's Obligations
----------------------
LICENSEE shall:
(a) pay the DISTRIBUTOR the license fee set forth herein;
(b) agree that title to all rights and interest in Software, wherever
resident and in whatever media (except only the right to use
<PAGE>
pursuant to the license herein granted) remains with DISTRIBUTOR's
Supplier;
(c) install within six months of issuance and the notification by
DISTRIBUTOR of its availability the latest releases of the Software
which is offered by DISTRIBUTOR;
(d) not make any copies of any Software except as necessary in connection
with the rights granted hereunder, and shall reproduce and include
any copyright and proprietary notice included on the original copy on
all such copies of the Software and mark all media containing such
copies with a warning that such Software is subject to restrictions
contained in a license between DISTRIBUTOR and it suppliers and that
such Software is the property of the Supplier;
(e) not export or transmit Software to any country foreign to the United
States;
(f) not reverse compile or disassemble the Software;
(g) take appropriate action by instruction, agreement or otherwise,
regarding all persons permitted access to the Software so as to
enable LICENSEE to satisfy its obligations under this license;
(h) treat the Software as confidential information which is proprietary
to DISTRIBUTOR's Supplier by not making any part thereof available to
others;
(i) shall use the Software only on the designated system;
(j) shall promptly return to DISTRIBUTOR the Software and all materials
associated with the Software upon termination of this License. This
License will terminate upon LICENSEE's surrender of the Software and
all materials associated therewith and upon DISTRIBUTOR's giving
LICENSE written notice of LICENSEE's violation of one or more of the
conditions of this license;
3. Limitation of Liability
-----------------------
DISTRIBUTOR OR ITS SUPPLIER SHALL IN NO EVENT BE LIABLE TO LICENSEE OR TO
ANY OTHER ENTITY WHICH USES ANY SOFTWARE SUPPLIED UNDER THIS AGREEMENT FOR
ANY CLAIM FOR INDIRECT, SPECIAL, RELIANCE, INCIDENTAL OR CONSEQUENTIAL
LOSSES, DAMAGES OR EXPENSES ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION
RESULTING
2
<PAGE>
THEREFROM OR THE USE OR PERFORMANCE OF THE SOFTWARE, WHETHER IN AN ACTION
BASED ON BREACH OR WARRANTY (EXPRESS OR IMPLIED), BREACH OF CONTRACT,
DELAY,NEGLIGENCE (ACTIVE OR PASSIVE), STRICT TORT LIABILITY OR OTHERWISE.
DISTRIBUTOR OR ITS SUPPLIER'S ENTIRE LIABILITY FOR ANY CLAIM ARISING FROM
ANY CAUSE WHATSOEVER, EXCEPTING PERSONAL INJURY AND INFRINGEMENT, SHALL IN
NO EVENT EXCEED THE LICENSE PURCHASE PRICE OF THE SOFTWARE WHICH DIRECTLY
GIVES RISE TO THE CLAIM. NO ACTION OR PROCEEDING AGAINST DISTRIBUTOR OR ITS
SUPPLIER MAY BE COMMENCED MORE THAN TWO YEARS AFTER THE SOFTWARE IS SHIPPED
OR THE CAUSE OF ACTION OTHERWISE ARISES. THIS CAUSE SHALL SURVIVE THE
FAILURE OF ANY EXCLUSIVE REMEDY.
4. Infringement
------------
4.1 DISTRIBUTOR or its Supplier shall defend any claim, suit or
proceeding brought against LICENSEE so far as it is based on a claim that
the use or transfer of the Software and related material delivered
hereunder constitutes an infringement of a United States patent or
copyright, so long as DISTRIBUTOR or its Supplier is notified promptly in
writing by LICENSEE as to any such action and is given full authority,
information and assistance (at DISTRIBUTOR or its Suppliers expense) for
the defense of any such claim or proceeding. DISTRIBUTOR or its Supplier
shall pay all damages and costs awarded therein against LICENSEE but shall
not be responsible for any compromise made without its consent. In the
event of a final judgment which prohibits LICENSEE's continued use of the
Software by reason of infringement of a United States patent or copyright,
or if at any time DISTRIBUTOR or its Supplier is of the opinion that the
Software is likely to become the cause of an action for infringement of a
United States Patent or copyright, DISTRIBUTOR or its Supplier shall, at
its sole option and at its expense, either obtain the rights to continue
use of product, replace or modify product so that it is no longer
infringing.
4.2 LICENSEE shall indemnify and hold harmless DISTRIBUTOR or its supplier from
any loss, cost, or expense suffered or incurred in connection with any
claim, suit or proceeding brought against DISTRIBUTOR or its Supplier so
far as it is based on a claim that the Software modified, altered or
combined by LICENSEE with any equipment, device or software not supplied by
DISTRIBUTOR or its Supplier hereunder constitutes such an infringement
because of such modification, alternation or combination.
3
<PAGE>
5. Warranty
--------
5.1 DISTRIBUTOR or its Supplier warrants that the Software, when
shipped, will conform to its then current published specification for
uniVerse on computer systems set forth in said specifications. In the
event that the Software does not so conform and LICENSEE notifies
DISTRIBUTOR or its Supplier in writing within ninety (90) days from
the date of shipment, then DISTRIBUTOR or its Supplier shall at its
option, either correct the defect, or replace the Software with a
conforming copy.
5.2 EXCEPT FOR THE WARRANTIES SET FORTH HEREIN IN THIS PARAGRAPH 5.1
ABOVE, DISTRIBUTOR OR ITS SUPPLIER DISCLAIMS ALL WARRANTIES WITH
REGARD TO THE SOFTWARE, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE; and the stated
express written warranties are in lieu of all obligations or
liabilities on the part of DISTRIBUTOR or its Supplier for damages,
including but not limited to special, indirect or consequential
damages arising out of or in connection with the use or performance
thereof.
6. LICENSEE agrees that the Sublicense Agreement may be enforced
directly by VMARK Software, Inc.
IN WITNESS WHEREOF, THE PARTIES HEREUNTO EXECUTED THIS AGREEMENT AS OF THE
________ DAY OF ___________ 19____.
DISTRIBUTOR: LICENSEE:
By: ________________ By: _____________________
Title: _____________ Title: ____________________
4
<PAGE>
ANNUAL MINIMUM PURCHASE - DOMESTIC
----------------------------------
THIS AMENDMENT is made the 30th day of March, 1995 by and between VMARK
SOFTWARE, INC., of 50 Washington Street, Westboro, Massachusetts 01581,
(hereinafter referred to as "VMARK"), and UDS having a principal place of
business at 1505 LBJ Freeway Suite 210, Dallas, Texas 75342 (hereinafter
referred to as "DISTRIBUTOR").
WHEREAS, VMARK and Distributor have entered into a Distribution Agreement dated
as of March 30, 1995 ("Agreement"); and
WHEREAS, VMARK and DISTRIBUTOR wish to amend said Agreement;
NOW, THEREFORE, in lieu of VMARK's standard License Fees set forth in the
Agreement, DISTRIBUTOR shall pay the appropriate Price Per User/Port as set
forth below.
1. The Price Per User/Port payable by Distributor for all VMARK Products
(as set forth on
Schedule 1 to the Agreement), shall be based on the Annual Minimum Dollar
Purchase selected by DISTRIBUTOR as set forth below, except PC/uniVerse
which shall be at the prices set forth on said Schedule 1:
ANNUAL MINIMUM
PRICE PER USER/PORT Purchase U.S. $
------------------- ---------------
$170 $400,000
$156 $600,000
$140 $800,000
2. The foregoing Annual Minimum Purchase chosen by DISTRIBUTOR shall be for a
period of twelve months from the date of this Amendment or payment
hereunder as set forth in Section 11 below, whichever first occurs, and
shall continue for each twelve (12) month period thereafter during the term
of the Agreement unless modified by written notice from DISTRIBUTOR to
VMARK sixty (60) days prior to the end of the twelve (12) month period and
any anniversary thereof.
3. At the end of any twelve (12) month minimum Purchase period, should
DISTRIBUTOR choose to eliminate the Annual Minimum Purchase for the
following twelve (12) month period, the Price Per User/Port payable by
DISTRIBUTOR shall be VMARK's then prevailing List Price less the
appropriate discount then in effect.
4. At the end of the first and subsequent twelve (12) month minimum Purchase
period, should DISTRIBUTOR choose an Annual Minimum Purchase different from
that in effect, then the Price Per User/Port payable by DISTRIBUTOR shall
be the appropriate price set forth above based on such Minimum Annual
Purchase.
5. During any twelve (12) month minimum contract period DISTRIBUTOR shall have
the right upon written notice and adjusted payment to VMARK to increase the
amount of the Annual Minimum Purchase and receive the appropriate Price Per
User/Port associated with the larger Annual Minimum Purchase. Such increase
shall be in effect from and begin a new twelve (12) month period unless
modified pursuant to the terms of this paragraph 5.
<PAGE>
6. The appropriate Price Per User/Port shall be effective from the date of
order of one fourth (1/4) of the new Annual Minimum Purchase.
7. During the twelve (12) month Annual Minimum Purchase period DISTRIBUTOR
shall not have the right to reduce the Annual Minimum Purchase then in
effect.
8. One fourth (1/4) of the Annual Minimum Purchase shall be ordered upon
election of the appropriate Annual Minimum Purchase with subsequent one
fourth (1/4) payments due each ninety (90) days thereafter until such time
as the then applicable Annual Minimum Purchase is reached.
9. Any license fees due by DISTRIBUTOR for licenses sold prior to the
effective date hereof shall remain due and payable based on the license fee
in effect on the date of such sale.
10. Price Per User/Port and/or Required Annual Minimum Purchase may be changed
by VMARK upon ninety (90) days prior written notice.
11. DISTRIBUTOR hereby elects the Annual Minimum Purchase of $__________
and shall pay upon execution of the Amendment $________________, which
represents the first quarterly payment in accordance with Section 8 above.
12. VMARK Grants to DISTRIBUTOR a special price of $100/user for any existing
UDS customer currently using ULT Plus, Ultimate O/S or the Pick O/S from
Monolith. DISTRIBUTOR will supply to VMARK a list of all those existing
customer names currently using ULT Plus, Ultimate O/S or Pick O/S within
two weeks from the date of this Agreement.
13. Revised Commitment levels attached.
All other terms and conditions of the Agreement not modified herein shall remain
in full force and effect.
VMARK SOFTWARE, INC. DISTRIBUTOR
/s/ James K. Walsh /s/ Roger H. Linn
- ------------------ ------------------
Name Name
Ex VP & C.O.O. Pres.
- ------------------ ------------------
Title Title
3/30/95 3/30/95
- ------------------ ------------------
Date Date
2
<PAGE>
Revised Commitment Levels
Ql 95 200k
Q2 95 125k
Q3 95 150k
Q4 95 175k
Ql 96 200k (and future quarters)
/s/ Roger H. Linn 3/30/95
- ------------------ -------
Roger H. Linn Date
UDS
/s/ James K. Walsh 3/30/95
- ------------------ -------
VMARK Date
3
<PAGE>
Termite Amendment
-----------------
VMARK Software, Inc., ("VMARK") having its principal place of business at 50
Washington Street, Westboro, Massachusetts, 01581, and R & D Systems Company,
(CUSTOMER"), having its principal place of business at 5225 N. Academy Blvd,
Suite 100, Colorado Springs, CO 80918 agree that the terms and conditions herein
shall govern the licensing of the software listed on Schedule 1 ("SOFTWARE")
attached hereto at the prices set forth thereon and by this reference made a
part hereof.
Whereas, VMARK & Distributor have entered into a Distribution Agreement date
March 30,1995, such agreement is hereby amended as follows:
TERMITE is a product of Pixel innovations, Limited of Hemel Hempstead, Herts
Unit Kingdom, hereinafter referred to as "Pixel", with whom VMARK has a
worldwide re-seller and support agreement.
VMARK grants to DISTRIBUTOR the right to sell a limited function version of
TERMITE as part of DISTRIBUTOR's "Invision" product. This limited function
version of TERMITE, hereinafter referred to as "PRODUCT," consists of:
1. The TERMITE Version 6 Windows executable program, with VT420 and
WYSE 50 terminal emulation only.
2. 'C' language, UNIX host file transfer routines. PRODUCT is not
licensed for use with any other PIXEL developed host routines
(i.e. PICK-based) or programs.
3. A VBX (Visual Basic Extension) that provides control of TERMITE
executable program from another Windows program.
4. DISTRIBUTOR logos and markings in place of all PIXEL logos and
markings.
5. All previously agreed enhancements as defined in attachment I
(Intellex Letter dated 10 17-95, punch list)
PRODUCT does not include:
1. Any terminal emulations other than those specified above.
2. Any PICK host routines.
3. Any formal documentation. DISTRIBUTOR is responsible for
supplying such documentation to its customers.
VMARK will provide DISTRIBUTOR with a "Master" diskette containing the PRODUCT
for the purpose of duplication and distribution as part of DISTRIBUTOR's
"Invision" product. DISTRIBUTOR may only sell PRODUCT in conjunction with, and
for use with, "TREND", "SHIMS", and "GAP" applications.
VMARK will provide DISTRIBUTOR with electronic version of documentation and help
at no additional charge.
Upon execution of this agreement, DISTRIBUTOR agrees to place an advance order
for 1000 licenses of PRODUCT at a royalty of $35.00 per license. In
consideration thereof, VMARK grants to DISTRIBUTOR at no additional charge an
internal use license for PRODUCT, to be used for development, sales and customer
support purposes. This License will be limited to a total of 250 users.
After DISTRIBUTOR distributes the initial 1000 licenses of PRODUCT, DISTRIBUTOR
agrees to pay VMARK $35.00 per user for each license distributed thereafter.
<PAGE>
The royalty to VMARK for upgrades to any future versions of existing PRODUCT
will be $15.00 per user.
DISTRIBUTOR will report and pay to VMARK on a monthly basis the previous month's
sales of PRODUCT and PRODUCT upgrades. VMARK reserves the right to audit
DISTRIBUTOR records at any time upon reasonable notice.
DISTRIBUTOR is responsible for providing all technical support for PRODUCT to
its customers. VMARK shall provide DISTRIBUTOR with technical support for a
period of thirty (30) days following DISTRIBUTOR reporting sale of PRODUCT to a
customer. Thereafter, DISTRIBUTOR may obtain technical support by purchasing
from VMARK Vantage Incident Packs for TERMITE. Vantage Incident Packs for
TERMITE give DISTRIBUTOR telephone support 8 hours a day 5 days a week for a
period of 12 months. An incident is defined as a single support issue and the
reasonable effort(s) needed to resolve it. A single support issue is a problem
that cannot be broken down into subordinate problems. If a problem consists of
subordinate problems, each problem is considered a separate incident. Before
VMARK provides support for an incident, DISTRIBUTOR and VMARK's designated
support engineer(s) must agree on what the problem is and the parameters for an
acceptable solution. An incident may require multiple telephone calls and off-
line research to resolve it. A quarterly audit of incident usage will be
provided to DISTRIBUTOR upon request.
Vantage Incident Packs for TERMITE options available to DISTRIBUTOR are:
1. 10 Incidents for 12 months at $1,199.00, or
2. 25 Incidents for 12 months at $1,799.00 or
3. 50 Incidents for 12 months at $3,199.00.
The above Vantage Incident Packs for TERMITE options and prices are available as
of the date of this agreement and are subject to change in the future.
DISTRIBUTOR acknowledges that the PRODUCT and its source code are the property
of PIXEL. All copyrights to the PRODUCT and its source code are owned by PIXEL.
The PRODUCT, its source code, routines associated programs, and documentation
remain the confidential property of PIXEL and can not be disclosed to anyone
without the prior written consent of PIXEL.
VMARK Software, Inc. R&D Systems Company
By: /s/ James K. Walsh By: /s/ KJ Cunningham
---------------------------- ---------------------------
Title: Executive Vice President and Title: Chief Admin. Officer
---------------------------- ---------------------------
Chief Operating Officer
----------------------------
Date: 11/30/95
---------------------------
Date: November 6, 1995
----------------------------
2
<PAGE>
Definition Amendment
--------------------
VMARK Software, Inc., ("VMARK") having its principal place of business at 50
Washington Street, Westboro, Massachusetts, 01581, and R&D Systems Company
("CUSTOMER"), having its principal place of business at, 5225 N. Academy Blvd.,
Suite 100, Colorado Springs, CO. agree that the terms and conditions herein
shall govern the licensing of the software listed on Schedule 1 ("SOFTWARE")
attached hereto at the prices set forth thereon and by this reference made a
part hereof.
Whereas, VMARK & Distributor have entered into a Distribution Agreement date
March 30, 1995, such agreement is hereby amended as follows:
The original agreement redefine (CUSTOMER) as R&D Systems Company and its
divisions, as DISTRIBUTOR. The address will be changed to 5225 N. Academy
Blvd., Colorado Springs, CO 80918. The billing and payment issues will remain
at UDS, at the current address until otherwise notified.
Section 22.3 of the Distribution Agreement is hereby amended as follows:
In the event of termination of this Agreement, DISTRIBUTOR shall have
no further right to use Product(s) or VMARK's trademarks and trade names, and
immediately after the termination date shall return VMARK all originals and
copies of Product(s), including all compilations, translations, and partial
copies, whether or not modified or merged into other software or documentation.
However, if DISTRIBUTOR has purchased advanced copies of any software product(s)
licensed hereunder, then DISTRIBUTOR shall be permitted to sublicense such
products, until such inventory is exhausted. DISTRIBUTOR shall certify in
writing within ten (10) days following termination that it has complied with
this paragraph. DISTRIBUTOR acknowledges that it shall not be entitled to any
compensation by reason of allegedly having contributed to VMARK's goodwill
during the term of this Agreement.
VMARK Software, Inc. R&D Systems Company
By: /s/ James K. Walsh By: /s/ KJ Cunningham
---------------------------- --------------------
Title: Executive Vice President and Title: Chief Admin. Officer
---------------------------- --------------------
Chief Operating Officer
----------------------------
Date: November 6, 1995 Date: 11/30/95
---------------------------- --------------------
<PAGE>
Exhibit 10.6
R&D SYSTEMS COMPANY
CROSS LICENSE AGREEMENT
WITH
THE DISTRIBUTION TEAM, INC.
This Cross License Agreement ("Agreement") is entered into this 16th day of
August, 1995 (the Effective Date), by and between R&D Systems Company, ("R&D"),
a Colorado corporation having its principal place of business at 5225 North
Academy Blvd., Suite 100, Colorado Springs, Colorado 80918 , and The
Distribution Team, Inc. ("DT"), a Texas Corporation having its principal
location at 4164 Austin Bluffs Parkway, Suite 338, Colorado Springs, Colorado,
80918.
R&D either owns or has the right to license the software products ("Software")
and their accompanying printed material ("Collateral Material") covered by this
Agreement;
R&D desires to grant and DT desires to accept a license to use the Software
subject to the terms and conditions contained herein;
In consideration of the above premises and the mutual covenants and conditions
contained herein, R&D and DT agree as follows:
1. Recitals.
--------
(a) R&D Systems Company. R&D is engaged in the business of developing,
-------------------
distributing and licensing distribution inventory management Software called
Trend, as well as selling the computer hardware on which to run said Software.
Among the Software modules developed and licensed by R&D is an on-line
Operations Guide ("Operations Guide").
(b) Intellex: Intellex, a division of R&D, is engaged in the business of
--------
developing strategic data warehouse applications for PC networks primarily to
complement the operational systems (like Trend) offered by other R&D divisions.
Included with Intellex's initial Software product offering, is a subsystem
Software product entitled Manager's Handbook ("Handbook"). This subsystem
allows the user access to expert advice from ideas generated by industry
experts, and supplied to DT or the Intellex Division for inclusion in the
Handbook and which may be licensed along with the Operations Guide.
(c) The Distribution Team: The Distribution Team, hereinafter "DT" desires to
-----------------------
obtain a copy of the Handbook code in order to develop a specific expert module
incorporating the expertise and advice of an industry expert Gordon Graham,
whose philosophies and teachings will be incorporated in a specific Handbook
called the "GGHandbook", or other handbooks at their sole discretion.
2. Grant of License. R&D grants to DT and DT accepts, the following non-
----------------
transferable, non-exclusive rights:
(a) A perpetual license to market and sublicense the Handbook Software in
source or object code format as a standalone application outside of the R&D
and/or Intellex customer base, (unless modified in writing to the contrary); DT
acknowledges they are receiving a copy of the Handbook Software in both source
and object code format, and may sublicense source and object code to its'
customers. DT agrees to provide a list of its customers so licensed to R&D on a
quarterly calendar basis.
(b) A $2,000 royalty shall be paid to DT on every GGHandbook Software module
sold with each new Operations Guide customer licensed by R&D. For the purposes
of this Agreement, a new Operations Guide customer shall be defined as a
customer licensing Software from R&D wherein Operations Guide is licensed along
with other Software modules or products and is part of an overall Software
package licensed thereunder. R&D shall have no limitations on the prices for
such Software charged to its' customers, and R&D shall also have total
discretion as to whether such GGHandbook is sold as a separate module or
sold/bundled within its Software. If the SHIMS Software, owned by R&D and
marketed through the UDS division of R&D, uses Operations Guide concepts or
chooses to market the GGHandbook, the same $2,000 royalty will apply. Payments
will be made to DT on a quarterly basis and will be disbursed by R&D within
thirty (30) days of the close of a calendar quarter (March, June, September and
December). To qualify for payment, a sale must have been recognized as revenue
by R&D and R&D must have been paid in full by customer. R&D hereby commits to
including the GGHandbook in each license of its Operations Guide. The $2,000 per
license royalty may be fully paid up at any time by R&D via the execution of a
one-time $500,000 license payment to DT less any previously paid $2,000 royalty
payments accumulated up until execution of this one-time buy-out provision. Upon
1
<PAGE>
execution of the buy-out provision by R&D, DT shall be released from any support
or update obligations on the GGHandbook and R&D shall be granted a perpetual
license for the GGHandbook and all related Collateral Materials. Updated
Collateral materials and releases of the GGHandbook Software will become the
responsibility of R&D for its' own customers.
(c) An option to market GGHandbook directly into R&D and/or Intellex customer
base. Should DT choose to exercise this option, they will:
1) Notify R&D in writing of their intention to exercise the option sixty
(60) days in advance of the date they wish to begin marketing;
2) Assume all responsibilities for billing and collections for sales of
Handbook into the R&D and/or Intellex customer base; and
3) Pay R&D a pre-negotiated royalty (in writing) on any sale into the
R&D and/or Intellex customer base (regardless of actual sale price by DT to
customer).
(d) The understanding between the parties that, should a customer license
GGHandbook from DT and later become a customer of R&D/Intellex for an
operational system such as Trend or SHIMS or another like strategic system such
as Profit Workbench, DT will not receive the $2,000 royalty payment.
Furthermore, in such cases, the Intellex division of R&D will not pay its
royalty payment specified in section 2.c.4.
3. Grant from DT to R&D: R&D shall be granted the right from the effective
----------------------
date of this Agreement until January 1, 1997, to purchase from DT books and
videos known as the Gordon Graham books and videos owned by DT at a fifty
percent (50%) discount off current list price (Attached as Exhibit 1.) After
January 1, 1997, R&D's discount will be eighteen percent (18%) of the current
list price.
4. Ownership of Software. The Software, Handbook (including any images,
---------------------
"applets", photographs, animations, video, audio, music and text incorporated
into the Software) is owned by R&D or its suppliers and DT shall have no
ownership interests therein. The Software is protected by United States
copyright laws and international treaty provisions. Therefore, DT must treat
the Handbook Software like any other copyrighted material (e.g., a book or
musical recording) except that they may either (a) make one (1) copy of the
------
Handbook Software solely for backup or archival purposes, or (b) transfer the
Handbook Software to a single hard disk provided they keep the original solely
for backup or archival purposes. DT agrees to take all reasonable steps to
protect the confidentiality of the Handbook Software and Collateral Material.
Likewise, the data stored in the Handbook database is owned by DT and is
protected by United States copyright laws and international treaty provisions.
R&D agrees to take all reasonable steps to protect the confidentiality of DT's
copyrighted material.
R&D acknowledges that DT shall have full ownership of the GGHandbook and R&D
shall have no rights of ownership therein.
5. Technical & other Support Services from R&D. R&D will provide DT with
-------------------------------------------
unlimited access to the Intellex/R&D Bulletin Board. Should DT need technical
support other than through the Bulletin Board, R&D will make it available to DT
subject to the applicable fees and terms in place at the time such support is
requested by DT. R&D will supply DT with contacts of all third party tool
vendors to enable DT to establish their own relationships with such vendors. R&D
will provide assistance to DT via reasonably requested and required resources,
which may be a combination of personnel, video and personal computer equipment.
Accounting and other administrative support services will be supplied at $250
per month or $3,000 per year and so long as R&D continues to receive the
preferred royalty rate of $2,000. The adequacy of such fees will be reviewed
annually by R&D's Board of Directors. All costs of duplication and distribution
of GGHandbook Software and Collateral Materials will be the sole responsibility
of DT.
6. Confidentiality. DT agrees that they shall, during the term of this
---------------
Agreement, take all steps which are reasonable to safeguard the confidentiality
of, and proprietary rights to, the confidential information ("Confidential
Information") of the other party which may be disclosed as part of the execution
of this Agreement (including, but not limited to, product plans, designs,
business plans, technical specifications, research, customer or financial data)
and shall not, without prior written consent of R&D, (i) use such Confidential
Information for their own benefit or the benefit of any third party except for
purposes expressly provided for in this Agreement, or (ii) disclose such
Confidential Information to any third party; provided, however, that this
provision shall not be construed to restrict the disclosure of information which
(a) is publicly known at the time of its disclosure to DT, (b) is lawfully
received by DT from a third party not bound to a confidential relationship to
R&D, (c) was already known by DT prior to entering into this Agreement or (d) is
required by law to be disclosed.
7. Representations and Indemnification by DT.
-----------------------------------------
(a) DT represents and warrants that they have the full power and authority to
enter into this Agreement and that they shall make no representations and/or
warranties to their customers regarding the use of the
2
<PAGE>
Software except as may be contained in the documentation published by R&D and
approved by DT.
(b) DT shall indemnify and hold R&D harmless from any claim, action or other
liability whatsoever resulting from the use of the Software and Collateral
Materials by their customers or from representations made by DT to their
customers in breach of Section 7(a).
(c) DT shall be responsible for all marketing activities for their sales of
Handbook and their associated costs. Further, DT shall be responsible for
all billing and collection activities for their customers.
(d) DT shall be responsible for distribution and support of Handbook to their
customers.
(e) DT shall be responsible for any enhancements made to the data stored in
the Handbook database and agrees to provide such enhancements back to R&D
for their inclusion into R&D'vs copies of Handbook no less than thirty (30)
days prior to their release to their customers.
(f) Should DT make any programmatic changes to the Handbook application or
Handbook database, they agree to inform R&D of such changes and provide such
changes back to R&D for inclusion into their copies of the Handbook application
no less than sixty (60) days prior to the release of such changes to R&D's
customers, should R&D elect at their sole option to include such changes.
8. Representations and Indemnification by R&D.
------------------------------------------
(a) R&D represents and warrants that it has the full power and authority to
enter into this Agreement and that it shall make no representations and/or
warranties to DT's customers regarding the use of the Software except as
may be contained in the documentation published by R&D as approved by DT.
(b) All Handbook Software modules delivered by R&D to new customers within the
R&D/Intellex customer base will require DT to provide a registration code
upon their installation. Furthermore, they will include a registration
card which must be completed and returned to DT for their tracking.
(c) R&D will invest the development resources necessary to provide a standalone
Handbook Software application with video drill down capabilities to the
Handbook.
Should DT wish any enhancements or new features be added to the Handbook
application, R&D will bid the time necessary to make such enhancements to them
subject to the applicable fees and terms in place at the time it is requested by
DT.
(d) R&D agrees to develop an entry level set of documentation for Handbook and
a "how to" video and provide it to DT for their use in the sales of Handbook to
their customers.
(e) R&D agrees not to build a competing product to the GGHandbook, but shall
not be restricted from building any other expert Handbook.
9. R&D's Limited Warranty. R&D warrants that the Software will perform
----------------------
substantially in accordance with accompanying printed material for a period of
sixty (60) days from the date of receipt, so long as the Software is properly
used in the operating environment specified in the accompanying printed
material.
(a) Remedies. R&D's entire liability and DT's exclusive remedy shall be, at
--------
R&D's option, either (a) return of the paid price or (b) repair or replacement
of the Software that does not meet R&D's Limited Warranty and that is returned
to R&D within the warranty period. This Limited Warranty is void if failure of
the Software has resulted from accident, abuse, or misapplication. Any
replacement Software will be warranted for the remainder of the original
warranty period or thirty (30) days, whichever is longer.
(b) No Other Warranties. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
-------------------
R&D DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE SOFTWARE, AND THE ACCOMPANYING PRINTED MATERIALS.
(c) No Liability for Consequential Damages. TO THE MAXIMUM EXTENT PERMITTED BY
--------------------------------------
APPLICABLE LAW, IN NO EVENT SHALL R&D OR ITS SUPPLIERS BE LIABLE FOR ANY DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS)
ARISING OUT OF THE USE OR INABILITY TO USE THESE R&D PRODUCTS, EVEN IF R&D HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. R&D'S MAXIMUM LIABILITY
REGARDLESS OF THE FORM OF ACTION SHALL NOT EXCEED THE INITIAL LICENSE FEE PAID
BY CUSTOMER FOR THE SOFTWARE.
10. DT's Limited Warranty. DT warrants that the data will perform substantially
----------------------
in accordance with accompanying printed material for a period of sixty (60) days
from the date of receipt, so long as the data is properly used in the operating
environment specified in the accompanying printed material.
(a) Remedies. DT's entire liability and R&D's exclusive remedy shall be, at
--------
DT's option, either (a) return of the paid price or (b) repair or replacement of
the data that does not meet DT's Limited Warranty
3
<PAGE>
and that is returned to DT within the warranty period. This Limited Warranty is
void if failure of the data has resulted from accident, abuse, or
misapplication. Any replacement data will be warranted for the remainder of the
original warranty period or thirty (30) days, whichever is longer.
(b) No Other Warranties. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, DT
-------------------
DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE DATA, AND THE ACCOMPANYING PRINTED MATERIALS.
(c) No Liability for Consequential Damages. TO THE MAXIMUM EXTENT PERMITTED BY
--------------------------------------
APPLICABLE LAW, IN NO EVENT SHALL DT OR ITS SUPPLIERS BE LIABLE FOR ANY DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY LOSS)
ARISING OUT OF THE USE OR INABILITY TO USE DT'S PRODUCTS, EVEN IF DT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. General.
-------
(a) Reservation of Rights and Remedies. In addition to any specific right or
----------------------------------
remedy provided by this Agreement, R&D and DT reserve all other rights and
remedies available by law.
(b) Force Majeure. Neither party shall be liable for any delays in the
-------------
performance of any of their obligations under this Agreement (other than the
obligation to issue payments) due to causes beyond their reasonable control,
including but not limited to, fire, strike, war, riots, acts of any civil or
military authority, judicial action, acts of God, or other casualty or natural
calamity for so long as and to the extent that the effects of such circumstance
continue.
(c) Severability. If any one or more of the provisions of this Agreement are
------------
finally adjudicated to be partially or entirely unenforceable by a court of
competent jurisdiction, then this Agreement shall be construed as if such
unlawful provision had not been contained within.
(d) Waiver of Performance. A waiver of any breach or default under this
---------------------
Agreement shall not be a waiver of any other or subsequent breach or default.
Failure or delay by either party to enforce compliance with any term or
condition of this Agreement shall not constitute a waiver of such term or
condition.
(e) Taxes. All charges in this Agreement are exclusive of sales and use taxes.
-----
If any such taxes are imposed on transactions covered by this Agreement by any
state, local, federal or special jurisdiction in the United States, the selling
party, either DT or R&D, agrees that the collection and disbursement of such
taxes are their responsibility.
(f) Notices. Required notices under this Agreement shall be deemed delivered
-------
when (i) personally delivered, (ii) faxed with confirmation to a designated fax
number, or (iii) upon signed receipt when delivered by certified or registered
mail. Such notices shall be sent to the other party at their address set forth
on the first page of this Agreement.
(g) Export Administration. This Agreement shall be subject to all applicable
---------------------
United States and Territory laws, rules and regulations relating to the Software
and Collateral Materials including export regulations of the U.S. Commerce
Department. DT and R&D shall comply with all such laws, rules and regulations.
(h) Governing Law. This Agreement shall be governed by and construed to be in
-------------
accordance with the laws of the State of Colorado and the parties hereto agree
to submit to the exclusive jurisdiction of the U.S. District Court, District of
Colorado.
(i) Effect of Agreement. This Agreement embodies the entire Agreement and
-------------------
understanding of the parties and supersede any and all prior agreements,
arrangements and understandings, whether verbal or in writing, relating to
matters provided for herein. No amendment, waiver of compliance with any
provision or condition hereof, or consent pursuant to this Agreement shall be
effective unless evidenced by an instrument in writing signed by the parties.
The captions are for convenience only and shall not control or affect the
meaning or construction of the provisions of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Agreement as effective the
day and year first above written.
R&D SYSTEMS COMPANY THE DISTRIBUTION TEAM, INC.
By: /s/ K. J. Cunningham By: /s/ Guy Lammle
---------------------------- -------------------------------
Printed Name: K. J. Cunningham Printed Name Lammle, Guy
----------------- ----------------------
Title: Chief Admin. Officer Title: Chairman
------------------------ -----------------------------
Date: 8/16/95 Date: 8/16/95
-------------------------- -----------------------------
v
5
<PAGE>
AMENDMENT #1 TO THE R&D SYSTEMS COMPANY
CROSS LICENSE AGREEMENT WITH THE DISTRIBUTION
TEAM, INC. DATED AUGUST 16, 1996
As R&D Systems Company is exercising the rights granted by The Distribution Team
under the above referenced Agreement effective this 14th daye of August, 1996 to
purchase a perpetual license to the GGHandbook for $500,000 less any royalties
paid to date, said Agreement is hereby amended as follows:
SECTION 2(B) GRANT OF LICENSE is DELETED in its' entirety.
----------------
SECTION 2 (D) GRANT OF LICENSE is amended as follows: THE LAST
----------------
SENTENCE..."Furthermore, in such cases, the Intellex division of R&D will not
pay its royalty payment specified in Section 2.c.4" IS DELETED.
SECTION 5 TECHNICAL & OTHER SUPPORT SERVICES FROM R&D is hereby AMENDED as
-------------------------------------------
follows. ..."Accounting and other administrative support services will be
supplied at $250 per month or $3,000 per year and so long as R&D continues to
receive the preferred royalty rate of $2,000." shall be DELETED.
All other terms and conditions of the Agreement shall remain unchanged.
Ownership of the Handbook and the Manager's Handbook shall continue to reside
with R&D Systems. Ownership of the GGHandbook shall continue to reside with The
Distribution Team, Inc.
IN WITNESS WHEREOF, the undersigned have signed this Agreement effective the day
and year first written above.
R&D Systems Company The Distribution Team, Inc.
By: /s/ K. J. Cunningham By: /s/ Scott F. Stratman
----------------------- -------------------------
Name: K. J. Cunningham Name: Scott F. Stratman
----------------------- -------------------------
Title: Chief Operating Officer Title: President
----------------------- -------------------------
Date: 8/16/96 Date: 8/25/96
----------------------- -------------------------
<PAGE>
EXHIBIT 10.7
LOAN AGREEMENT
BY AND BETWEEN
R&D SYSTEMS COMPANY
AND
FLEET BANK OF MASSACHUSETTS, N.A., AS AGENT AND A LENDER
AND
THE FIRST NATIONAL BANK OF BOSTON,
AS A LENDER AND CO-AGENT
AND
THE OTHER FINANCIAL INSTITUTIONS NOW OR
HEREAFTER PARTIES HERETO
$25,000,000 SECURED TERM LOAN
AND
$5,000,000 SECURED REVOLVING CREDIT LOAN
March 14, 1996
<PAGE>
LOAN AGREEMENT
INDEX TO
LOAN AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND ACCOUNTING AND OTHER TERMS 1
Section 1.1. Certain Defined Terms. 1
- ------------ ----------------------
Section 1.2. Accounting Terms. 19
- ------------ ----------------
Section 1.3. Other Terms. 19
- ------------ ------------
ARTICLE 2. AMOUNT AND TERMS OF THE LOANS 20
Section 2.1. The Loans. 20
- ----------- ----------
Section 2.1.0. The Revolving Credit Loans. 20
- ------------- --------------------------
Section 2.1.1. Term Loans. 21
- ------------- ----------
Section 2.2. Interest and Fees on the Loans. 22
- ----------- ------------------------------
Section 2.2.1. Interest. 22
- ------------- --------
Section 2.2.2. Fees. 23
- ------------- ----
Section 2.2.3. Increased Costs - Capital. 23
- ------------- -------------------------
Section 2.3. Notations. 24
- ----------- ---------
Section 2.4. Computation of Interest. 25
- ----------- -----------------------
Section 2.5. Time of Payments and Prepayments in
- ----------- -----------------------------------
Immediately Available Funds. 25
---------------------------
Section 2.5.1. Time. 25
- ------------- ----
Section 2.5.2. Setoff, etc. 27
- ------------- -----------
Section 2.5.3. Unconditional Obligations and No
- ------------- --------------------------------
Deductions. 27
----------
Section 2.6. Prepayment and Certain Payments. 28
- ----------- -------------------------------
Section 2.6.1. Mandatory Payments. 28
- ------------- ------------------
Section 2.6.2. Voluntary Prepayments. 30
- ------------- ---------------------
Section 2.6.3. Prepayment of Libor Loans. 30
- ------------- -------------------------
Section 2.6.4. Permanent Reduction of Commitment. 30
- ------------- ---------------------------------
Section 2.7. Payment on Non-Business Days. 31
- ----------- ----------------------------
Section 2.8. Use of Proceeds. 31
- ----------- ---------------
Section 2.9. Special Libor Loan Provisions. 31
- ----------- -----------------------------
Section 2.9.1. Requests. 31
- ------------- --------
Section 2.9.2. Libor Loans Unavailable. 31
- ------------- -----------------------
Section 2.9.3. Libor Lending Unlawful. 33
- ------------- ----------------------
Section 2.9.4. Additional Costs on Libor Loans. 34
- ------------- -------------------------------
Section 2.9.5. Libor Funding Losses. 35
- ------------- --------------------
Section 2.9.6. Banking Practices. 37
- ------------- -----------------
Section 2.9.7. Borrower's Options on Unavailability or
- ------------- ----------------------------------------
Increased Cost of Libor Loans. 37
-----------------------------
Section 2.9.8. Assumptions Concerning Funding of Libor
- ------------- ----------------------------------------
Loans. 38
-----
Section 2.10 Interest Rate Protection 39
- ------------ ------------------------
ARTICLE 3. CONDITIONS OF LENDING 39
Section 3.1. Conditions Precedent to the Commitment
- ----------- ----------------------------------------
and to all Loans. 39
----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 3.1.1. The Commitment and Initial Loans. 39
- ------------- --------------------------------
Section 3.1.2. The Commitment and the Loans. 43
- ------------- ----------------------------
ARTICLE 4. REPRESENTATIONS AND WARRANTIES 44
Section 4.1. Representations and Warranties of the
- ----------- -------------------------------------
Borrower. 44
--------
Section 4.1.1. Organization and Existence. 44
- ------------- --------------------------
Section 4.1.2. Authorization and Absence of Defaults. 44
- ------------- -------------------------------------
Section 4.1.3. Acquisition of Consents. 45
- ------------- -----------------------
Section 4.1.4. Validity and Enforceability. 45
- ------------- ---------------------------
Section 4.1.5. Financial Information. 45
- ------------- ---------------------
Section 4.1.6. No Litigation. 46
- ------------- -------------
Section 4.1.7. Regulation U. 46
- ------------- ------------
Section 4.1.8. Absence of Adverse Agreements. 46
- ------------- -----------------------------
Section 4.1.9. Taxes. 47
- ------------- -----
Section 4.1.10. ERISA. 47
- -------------- -----
Section 4.1.11. Ownership of Properties. 47
- -------------- -----------------------
Section 4.1.12. Accuracy of Representations and
- -------------- -------------------------------
Warranties. 48
----------
Section 4.1.13. No Investment Company. 48
- -------------- ---------------------
Section 4.1.14. Solvency, etc. 48
- -------------- -------------
Section 4.1.15. Approvals. 48
- -------------- ---------
Section 4.1.16. Ownership Interests. 49
- -------------- -------------------
Section 4.1.17. Licenses, Registrations, Compliance with
- -------------- ----------------------------------------
Laws, etc. 49
---------
Section 4.1.18. Principal Place of Business; Books and
- -------------- --------------------------------------
Records. 49
-------
Section 4.1.19. Subsidiaries. 50
- -------------- ------------
Section 4.1.20. Copyright. 50
- -------------- ---------
Section 4.1.21. Environmental Compliance. 50
- -------------- ------------------------
Section 4.1.22. Material Agreements, etc. 50
- -------------- ------------------------
Section 4.1.23. Patents, Trademarks and Other Property
- -------------- --------------------------------------
Rights. 51
------
Section 4.1.24. Related Transaction Documents. 51
- -------------- -----------------------------
ARTICLE 5. COVENANTS OF THE BORROWER 51
Section 5.1. Affirmative Covenants of the Borrower
- ----------- -------------------------------------
Other than Reporting Requirements. 51
---------------------------------
Section 5.1.1. Payment of Taxes, etc. 51
- ------------- ---------------------
Section 5.1.2. Maintenance of Insurance. 52
- ------------- ------------------------
Section 5.1.3. Preservation of Existence, etc. 53
- ------------- ------------------------------
Section 5.1.4. Compliance with Laws, etc. 53
- ------------- -------------------------
Section 5.1.5. Visitation Rights. 53
- ------------- -----------------
Section 5.1.6. Keeping of Records and Books of Account. 54
- ------------- ----------------------------------------
Section 5.1.7. Maintenance of Properties, etc. 54
- ------------- ------------------------------
Section 5.1.8. Post-Closing Items. 54
- ------------- ------------------
Section 5.1.9. Other Documents, etc. 54
- ------------- --------------------
Section 5.1.10. Minimum Interest Coverage Ratio. 54
- -------------- -------------------------------
Section 5.1.11. Minimum Debt Service Coverage Ratio. 55
- -------------- -----------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.1.12. Maximum Ratio of Total Indebtedness for
- -------------- ---------------------------------------
Borrowed Money to EBITDA. 55
------------------------
Section 5.1.13. Officer's Certificates and Requests. 56
- -------------- -----------------------------------
Section 5.1.14. Depository. 56
- -------------- ----------
Section 5.1.15. Chief Executive Officer. 56
- -------------- -----------------------
Section 5.1.16. Notice of Purchase of Real Estate and
- -------------- -------------------------------------
Leases. 56
------
Section 5.1.17. Additional Assurances. 56
- -------------- ---------------------
Section 5.1.18. Appraisals. 56
- -------------- ----------
Section 5.1.19. Environmental Compliance. 57
- -------------- ------------------------
Section 5.1.20. Remediation. 57
- -------------- -----------
Section 5.1.21. Site Assessments. 57
- -------------- ----------------
Section 5.1.22. Indemnity. 57
- -------------- ---------
Section 5.1.23. Trademarks, Copyrights, etc. 57
- -------------- ---------------------------
Section 5.1.24. Maintenance of Escrow. 58
- -------------- ---------------------
Section 5.2. Negative Covenants of the Borrower. 58
- ----------- ----------------------------------
Section 5.2.1. Liens, etc. 58
- ------------- ----------
Section 5.2.2. Assumptions, Guaranties, etc. of
- ------------- --------------------------------
Indebtedness of Other Persons. 60
-----------------------------
Section 5.2.3. Acquisitions, Dissolution, etc. 60
- ------------- ------------------------------
Section 5.2.4. Change in Nature of Business. 61
- ------------- ----------------------------
Section 5.2.5. Ownership. 61
- ------------- ---------
Section 5.2.6. Sale and Leaseback. 61
- ------------- ------------------
Section 5.2.7. Sale of Accounts, etc. 61
- ------------- ---------------------
Section 5.2.8. Indebtedness. 61
- ------------- ------------
Section 5.2.9. Other Agreements. 62
- ------------- ----------------
Section 5.2.10. Payment or Prepayment of Equity. 63
- -------------- -------------------------------
Section 5.2.11. Dividends, Payments and Distributions. 63
- -------------- -------------------------------------
Section 5.2.12. Investments in or to Other Persons. 63
- -------------- ----------------------------------
Section 5.2.13. Transactions with Affiliates. 63
- -------------- ----------------------------
Section 5.2.14. Change of Fiscal Year. 64
- -------------- ---------------------
Section 5.2.15. Subordination of Claims. 64
- -------------- -----------------------
Section 5.2.16. Compliance with ERISA. 64
- -------------- ---------------------
Section 5.2.17. Capital Expenditures. 65
- -------------- --------------------
Section 5.2.18. Hazardous Waste. 65
- -------------- ---------------
Section 5.3. Reporting Requirements. 65
- ----------- ----------------------
ARTICLE 6. EVENTS OF DEFAULT 68
Section 6.1. Events of Default. 68
- ----------- -----------------
ARTICLE 7. REMEDIES OF LENDERS 70
ARTICLE 8. AGENT 71
Section 8.1. Appointment. 71
- ----------- -----------
Section 8.2. Powers; General Immunity. 72
- ----------- ------------------------
Section 8.2.1. Duties Specified. 72
- ------------- ----------------
Section 8.2.2. No Responsibility For Certain Matters. 72
- ------------- -------------------------------------
Section 8.2.3. Exculpatory Provisions. 73
- ------------- ----------------------
Section 8.2.4. Agent Entitled to Act as Lender. 73
- ------------- -------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.3. Representations and Warranties; No
- ----------- ----------------------------------
Responsibility for Appraisal of
-------------------------------
Creditworthiness. 74
----------------
Section 8.4. Right to Indemnity. 74
- ----------- ------------------
Section 8.5. Payee of Note Treated as Owner. 75
- ----------- ------------------------------
Section 8.6. Resignation by Agent. 75
- ----------- --------------------
Section 8.7. Successor Agent. 76
- ----------- ---------------
ARTICLE 9. MISCELLANEOUS 76
Section 9.1. Consent to Jurisdiction and Service of
- ----------- --------------------------------------
Process. 76
-------
Section 9.2. Rights and Remedies Cumulative. 77
- ----------- ------------------------------
Section 9.3. Delay or Omission not Waiver. 77
- ----------- ----------------------------
Section 9.4. Waiver of Stay or Extension Laws. 78
- ----------- --------------------------------
Section 9.5. Amendments, etc. 78
- ----------- ---------------
Section 9.6. Addresses for Notices, etc. 79
- ----------- --------------------------
Section 9.7. Costs, Expenses and Taxes. 80
- ----------- -------------------------
Section 9.8. Participations. 81
- ----------- --------------
Section 9.9. Binding Effect; Assignment. 81
- ----------- --------------------------
Section 9.10. Actual Knowledge. 81
- ------------ ----------------
Section 9.11. Substitutions and Assignments. 82
- ------------ -----------------------------
Section 9.12. Payments Pro Rata. 84
- ------------ -----------------
Section 9.13 Indemnification. 85
- ------------ ---------------
Section 9.13. Governing Law. 86
- ------------ -------------
Section 9.14. Severability of Provisions. 86
- ------------ --------------------------
Section 9.15. Headings. 87
- ------------ --------
Section 9.16. Counterparts. 87
- ------------ ------------
</TABLE>
4
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT 1.1 EQUITY INVESTMENTS, OWNERSHIP INTERESTS
- ----------- ---------------------------------------
AND SUBSIDIARIES
----------------
EXHIBIT 1.2 RELATED TRANSACTION DOCUMENTS
- ----------- ------------------------------
EXHIBIT 1.4 FORM OF INTEREST RATE ELECTION
- ----------- -------------------------------
EXHIBIT 1.5 FORM OF REVOLVING CREDIT NOTE
- ----------- ------------------------------
EXHIBIT 1.6 FORM OF TERM NOTE
- ----------- ------------------
EXHIBIT 1.8 PERMITTED ENCUMBRANCES
- ----------- ----------------------
EXHIBIT 1.9 PRO RATA SHARES AGENT'S AND LENDERS'
- ----------- -------------------------------------
NOTICE ADDRESSES AND WIRE TRANSFER INSTRUCTIONS
-----------------------------------------------
EXHIBIT 1.10 FORM OF REQUEST
- ------------ ---------------
EXHIBIT 1.12 PROJECTIONS
- ------------ -----------
EXHIBIT 3.1.1.8 PERMITTED INDEBTEDNESS AND CAPITALIZED
- --------------- --------------------------------------
LEASES
------
EXHIBIT 3.1.1.10 FORM OF COMPLIANCE CERTIFICATE
- ---------------- ------------------------------
EXHIBIT 4.1.1 FOREIGN QUALIFICATIONS
- ------------- ----------------------
EXHIBIT 4.1.2 AUTHORIZATIONS
- ------------- --------------
EXHIBIT 4.1.3 CONSENTS
- ------------- --------
EXHIBIT 4.1.6 LITIGATION
- ------------- ----------
EXHIBIT 4.1.8 ADVERSE AGREEMENTS
- ------------- ------------------
EXHIBIT 4.1.9 TAXES
- ------------- -----
EXHIBIT 4.1.11 REAL PROPERTY
- -------------- -------------
EXHIBIT 4.1.17 GOVERNMENTAL PERMITS
- -------------- --------------------
EXHIBIT 4.1.20 COPYRIGHTS
- -------------- ----------
EXHIBIT 4.1.21 HAZARDOUS WASTE
- -------------- ---------------
EXHIBIT 4.1.22 MATERIAL CONTRACTS
- -------------- ------------------
EXHIBIT 4.1.23 INTELLECTUAL PROPERTY
- -------------- ---------------------
EXHIBIT 5.2.2 GUARANTIES
- ------------- ----------
EXHIBIT 5.2.13 TRANSACTIONS WITH AFFILIATES
- -------------- ----------------------------
EXHIBIT 9.11.1 FORM OF SUBSTITUTION AGREEMENT
- -------------- ------------------------------
5
<PAGE>
LOAN AGREEMENT
R&D SYSTEMS COMPANY, a Delaware corporation with a principal place of
business at 5225 N. Academy Blvd., Suite 100, Colorado Springs, Colorado 80918
(hereinafter the "Borrower"), FLEET BANK OF MASSACHUSETTS, N.A., a national
banking association organized under the laws of the United States and having a
head office at 75 State Street, Boston, Massachusetts 02109 (hereinafter
sometimes the "Agent", sometimes "Fleet" and sometimes a "Lender") as Agent for
itself and each of the other Lenders who now and/or hereafter become parties to
this Agreement pursuant to the terms of Section 9.11 hereof, and such Lenders,
------------
Fleet and THE FIRST NATIONAL BANK OF BOSTON, a national banking association,
organized under the laws of the United States and having a head office at 100
Federal Street, Boston, Massachusetts 02111 (hereinafter sometimes "Bank of
Boston" and sometimes a "Lender") as Lenders and Bank of Boston as co-agent,
hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND ACCOUNTING AND OTHER TERMS
Section 1.1. 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):
"Adjusted Libor Rate" means, with respect to any Libor Loan to be made
--------------------
by the Lenders for the Interest Period applicable to such Libor Loan, the
interest rate per annum determined by the Agent (fixed throughout such Interest
Period (subject to adjustments for the Libor Rate Reserve Percentage)) and
rounded upwards, if necessary, to the next 1/16 of 1%) which is equal to the
quotient of (i) the rate of interest determined by the Agent to be the average
of the interest rates per annum at which Dollar deposits in immediately
available funds are offered to each Reference Lender by first-class banks in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the Business Day on which such Interest Period begins, in an
amount approximately equal to the principal amount of such Libor Loan, for a
period of time equal to such Interest Period and (ii) a number equal to the
number one minus the Libor Rate Reserve Percentage. The "Libor Rate Reserve
Percentage" applicable to any Interest Period means the average of the maximum
effective rates (expressed as a decimal) of the statutory
1
<PAGE>
reserve requirements (without duplication, but including, without limitation,
basic, supplemental, marginal and emergency reserves) applicable to each
Reference Lender during such Interest Period under regulations of the Board of
Governors of the Federal Reserve System (or any successor), including without
limitation Regulation D or any other regulation dealing with maximum reserve
requirements which are applicable to each Reference Lender with respect to its
"Eurocurrency Liabilities", as that term may be defined from time to time by the
Board of Governors of the Federal Reserve System (or any successor) or are
otherwise imposed by the Board of Governors of the Federal Reserve System (or
any successor) and which in any other respect relate directly to the funding of
loans bearing interest at rates based on the interest rates at which Dollar
deposits in immediately available funds are offered to banks by first-class
banks in the London interbank market. If any Reference Lender fails to provide
its offered quotation to the Agent, the Adjusted Libor Rate shall be determined
on the basis of the offered quotation of the other Reference Lender. The
Adjusted Libor Rate shall be adjusted automatically on and as of the effective
date of any change in the Libor Rate Reserve Percentage.
"Advance" and "Advances" means the funding by any Lender of all or a
------- --------
portion of the Loans in accordance with this Agreement.
"Affiliate" means singly and collectively, TA, Summit and any Person
---------
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the Borrower. For purposes of
this definition, a Person shall be deemed to be "controlled by" the Borrower if
the Borrower possesses, directly or indirectly, power either to (i) vote 25% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) direct or cause the direction of the management
and policies of such Person whether by contract or otherwise, and the legal
representative, successor or assign of any such Person.
"Agent" means Fleet or any other Person which is at the time in
-----
question serving as the agent under the terms of Article 8 hereof and the other
Financing Documents.
"Agreement" means this loan agreement, as the same may from time to
---------
time be amended.
"A.M." means a time from and including 12 o'clock midnight to and
----
excluding 12 o'clock noon on any Business Day using Eastern Standard (Daylight
Savings) time.
2
<PAGE>
"Applicable Margin" means for each Libor Loan, two and three quarters
-----------------
percent (2.75%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of the quarterly financial statements for the
Borrower's March 31, 1996 fiscal quarter and each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to Section 5.3.3 hereof,
-------------
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) EBITDA for such fiscal quarter and
for the three immediately preceding Borrower fiscal quarters, (i) is less than
2.75:1.0, but greater than or equal to 2.25:1.0 and if and so long as no Event
of Default or Default exists and is continuing, the Applicable Margin shall,
subject to the last sentence of this definition, be two and one half percent
(2.50%), or (ii) is less than 2.25:1.0, but greater than or equal to 1.75:1.0
and if and so long as no Event of Default or Default exists and is continuing,
the Applicable Margin shall, subject to the last sentence of this definition, be
two and one quarter percent (2.25%), or (iii) less than 1.75:1.0, but greater
than or equal to 1.25:1.0 and if and so long as no Event of Default or Default
exists and is continuing , the Applicable Margin shall, subject to the last
sentence of this definition, be two percent (2.0%), or (iv) less than 1.25:1.0
and if and so long as no Event of Default or Default exists and is continuing,
the Applicable Margin shall, subject to the next-to-last sentence of this
definition, be one and three quarters percent (1.75%); provided further,
however, that if on any date the Borrower would be entitled to an Applicable
Margin other than 2.75% except for the fact that a Default exists, the
Applicable Margin shall not change until the first to occur of (a) such Default
becoming an Event of Default and (b) waiver or cure of such Default, at which
time the Applicable Margin shall be adjusted or remain the same in accordance
with the provisions of this definition preceding this further proviso.
Any change in the Applicable Margin required pursuant to the foregoing
shall become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question and only after, in the case of a decrease in the
Applicable Margin, receipt by the Agent of a written request for such rate
decrease from the Borrower; provided, however, that each of the above-referenced
interest rates shall remain in effect only so long as Borrower qualifies
therefor and provided further, however, that interest rate reductions shall
become final only on the basis of Borrower's annual audited financial statements
and in the event that such annual audited financial statements establish that
the Borrower was not entitled to a rate
3
<PAGE>
reduction which was previously granted, the Borrower shall, upon written
demand by the Agent repay to the Agent for the account of each Lender an amount
equal to the excess of interest at the rate which should have been charged based
on such annual audited financial statements and the rate actually charged on the
basis of Borrower's quarterly financial statement(s) (provided that in the event
of a dispute as to the appropriate fiscal quarter as to which any adjustment
should be allocated, the decision of the independent accountants of the Borrower
shall be made in accordance with GAAP and shall be binding upon the Agent, the
Lenders and the Borrower absent manifest error); and provided further, however,
that in the event that Borrower fails to provide any financial statement on a
timely basis in accordance with Section 5.3.3, any interest rate increase
-------------
payable as a result thereof shall be retroactively effective to the date on
which the financial statement in question should have been received by the Agent
in accordance with Section 5.3.3, and the Borrower shall pay any amount due as a
-------------
result thereof upon written demand from the Agent. The Agent shall send the
Borrower written acknowledgement of each change in the Applicable Margin in
accordance with the Agent's customary procedures as in effect from time to time.
"Authorized Representative" means such senior personnel of the
-------------------------
Borrower as shall be duly authorized and designated in writing by the Borrower
to execute documents, instruments and agreements on its behalf and to perform
the functions of Authorized Representative under any of the Financing Documents.
"Borrowed Money" means any obligation to repay funded Indebtedness,
--------------
any Indebtedness evidenced by notes, bonds, debentures, guaranties or similar
obligations (excluding Indebtedness owing by the Borrower to any Subsidiary or
owing by a Subsidiary to the Borrower and excluding from "similar obligations",
Hardware Indebtedness the aggregate outstanding amount of which at any time is
less than $2,500,000 and other trade payables) including without limitation the
Loans and any obligation to pay money under a conditional sale or other title
retention agreement, the net aggregate rentals payable under any Capitalized
Lease Obligation, any reimbursement obligation for any letter of credit and any
obligations in respect of banker's and other acceptances or similar obligations.
"Borrower" has the meaning assigned in the first paragraph of this
--------
Agreement.
"Budget" has the meaning assigned to such term in Section 5.3.7.
------ -------------
4
<PAGE>
"Business Condition" means the financial condition, business, and
------------------
assets of a Person.
"Business Day" means (i) for all purposes other than as covered by
------------
clause (ii) below, any day on which banks in Boston, Massachusetts or New York,
New York are not authorized or required by applicable law to close; and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Libor Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the London interbank market.
"Capital Expenditures" means all expenditures paid or incurred by the
--------------------
Borrower or any Subsidiary in respect of (i) the acquisition, construction,
improvement or replacement of land, buildings, machinery, equipment, any other
fixed assets or leaseholds and (ii) to the extent related to and not included in
(i) above, materials, contract labor and direct labor, which expenditures have
been or should be, in accordance with GAAP, capitalized on the books of the
Borrower or such Subsidiary. Where a fixed asset is acquired by a lease which is
required to be capitalized pursuant to Statement of Financial Accounting
Standards number 13 or any successor thereto, the amount required to be
capitalized in accordance therewith shall be considered to be an expenditure in
the year such asset is first leased.
"Capitalized Lease Obligations" means all lease obligations which have
-----------------------------
been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
"Capitalized Software Development Costs" means the Borrower's and any
--------------------------------------
Subsidiaries' costs of software development which are capitalized on the
financial statements and books and records of the Person incurring such costs.
"Cash Equivalent Investments" means any Investment in (i) direct
---------------------------
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper rated in the highest grade by a nationally
recognized statistical rating agency or which, if not rated, is issued or
guaranteed by any issuer with outstanding long-term debt rated A or better by
any nationally recognized statistical rating agency; (iii) demand and time
deposits with, and certificates of deposit and bankers acceptances issued by,
any office of the Agent, any Lender or any other bank or trust
5
<PAGE>
company which is organized under the laws of the United States or any state
thereof and has capital, surplus and undivided profits aggregating at least
$200,000,000, the outstanding long-term debt of which or of the holding company
of which it is a subsidiary is rated investment grade by any nationally
recognized statistical rating agency; (iv) any short-term note which has a
rating of MIG-2 or better by Moody's Investors Service Inc. or a comparable
rating from any other nationally recognized statistical rating agency; (v) any
municipal bond or other governmental obligation (including without limitation
any industrial revenue bond or project note) which is rated A or better by any
nationally recognized statistical rating agency; (vi) any other obligation of
any issuer, the outstanding long-term debt of which is rated A or better by any
nationally recognized statistical rating agency; (vii) any repurchase agreement
with any financial institution described in clause (iii) above or with a
nationally recognized, publicly traded investment banking firm, relating to any
of the foregoing instruments and fully collateralized by such instruments; and
(viii) shares of any open-end diversified investment company that has its assets
invested only in investments of the types described in clause (i) through (vii)
above at the time of purchase and which maintains a constant net asset value per
share; provided that the purchase of any shares in any particular investment
company shall be limited to an aggregate amount owned at any one time of
$1,000,000. Each Cash Equivalent Investment shall have a maturity of less than
one year at the time of purchase; provided that the maturity of any repurchase
agreement shall be deemed to be the repurchase date and not the maturity of the
subject security and that the maturity of any variable or floating rate note
subject to prepayment at the option of the holder shall be the period remaining
(including any notice period remaining) before the holder is entitled to
prepayment.
"Change of Control" means, at any time prior to the completion of a
-----------------
Qualified Initial Public Offering, any one of the following events: (i) any
change in the ownership of the Borrower such that TA and Summit in the aggregate
own less than 51% of the equity interests in the Borrower or (ii) any decrease
in any of the voting rights in the Borrower now held by TA and Summit such that
they cease to collectively hold 51% or more of the voting rights in the
Borrower.
"Closing Date" means the date on which all of the conditions precedent
------------
set forth in Section 3.1 of this Agreement have been satisfied and the Term Loan
-----------
is funded in accordance with this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
6
<PAGE>
"Commitment" means the Lenders' several commitments to make or
----------
maintain the Loans as set forth in Section 2.1 hereof in the maximum outstanding
-----------
amount of each Lender's Pro Rata Share of $30,000,000 less the reductions set
forth in Section 2.1 and less any reductions and prepayments or repayments of
-----------
the Term Loan as set forth in Section 2.6.
-----------
"Commonly Controlled Entity" means a Person, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the meaning
of section 414(b) or (c) of the Code.
"Default" means an event or condition which with the giving of notice
-------
or lapse of time or both would become an Event of Default.
"Discharged Rights and Obligations" shall have the meaning assigned to
---------------------------------
such term in Section 9.11.4.
--------------
"Dollars" and the sign "$" mean lawful money of the United States of
-------
America.
"EBITDA" means, for any fiscal period, Net Income plus, to the extent
------ ----
accounted for in Net Income, Interest Expense, taxes, depreciation,
amortization, other noncash charges and non-recurring extraordinary costs
incurred by the Borrower and any Subsidiaries prior to March 31, 1996 in
connection with closing of the Loans and the Related Transactions (including
MSUIP Expense), for such period determined on an accrual and consolidated basis
in accordance with GAAP, plus, without duplication, Non-Compete Payments less,
---- ----
Capitalized Software Development Costs.
"Effective Prime" means the Prime Rate plus one percent (1.0%) per
---------------
annum; provided, however, that if, at any time on or after the receipt by the
Agent of the quarterly financial statements for the Borrower's March 31, 1996
fiscal quarter and each subsequent Borrower fiscal quarter provided to the Agent
by the Borrower pursuant to Section 5.3.3 hereof, the ratio of (a) total
-------------
Indebtedness for Borrowed Money of the Borrower and its Subsidiaries on a
consolidated basis as of the last day of the most recently ended fiscal quarter
of the Borrower to (b) EBITDA for such fiscal quarter and for the three
immediately preceding Borrower fiscal quarters, (i) is less than 2.75:1.0, but
greater than or equal to 2.25:1.0 and if and so long as no Event of Default or
Default exists and is continuing, Effective Prime shall, subject to the last
sentence of this definition, be the Prime Rate plus three quarters of one
percent (.75%), or (ii) is less than 2.25:1.0, but greater than or equal to
1.75:1.0 and if and so long as no Event of Default or Default exists and is
7
<PAGE>
continuing, Effective Prime shall, subject to the last sentence of this
definition, be the Prime Rate plus one half of one percent (.50%), or (iii) is
less than 1.75:1.0, but greater than or equal to 1.25:1.0 and if and so long as
no Event of Default or Default exists and is continuing, Effective Prime shall,
subject to the last sentence of this definition, be the Prime Rate plus one
quarter of one percent (.25%), or (iv) is less than 1.25:1.0 and if and so long
as no Event of Default or Default exists and is continuing, Effective Prime
shall, subject to the next-to-last sentence of this definition, be the Prime
Rate; provided, further, however, that if on any date the Borrower would be
entitled to an Effective Prime other than the Prime Rate plus 1.0% except for
the fact that a Default exists, the Effective Prime shall not change until the
first to occur of (a) such Default becoming an Event of Default and (b) waiver
or cure of such Default, at which time the Effective Prime shall be adjusted or
remain the same in accordance with the provisions of this definition preceding
this further proviso.
Any change in Effective Prime required pursuant to the foregoing shall
become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question and only after, in the case of a decrease in
Effective Prime, receipt by the Agent of a written request for such rate
decrease from the Borrower; provided, however, that each of the above-referenced
interest rates shall remain in effect only so long as Borrower qualifies
therefor and provided further, however, that interest rate reductions shall
become final only on the basis of Borrower's annual audited financial statements
and in the event that such annual audited financial statements establish that
the Borrower was not entitled to a rate reduction which was previously granted,
the Borrower shall, upon written demand by the Agent repay to the Agent for the
account of each Lender an amount equal to the excess of interest at the rate
which should have been charged based on such annual audited financial statements
and the rate actually charged on the basis of Borrower's quarterly financial
statement(s) (provided that in the event of a dispute as to the appropriate
fiscal quarter as to which any adjustment should be allocated, the decision of
the independent accountants of the Borrower shall be made in accordance with
GAAP and shall be binding upon the Agent, the Lenders and the Borrower absent
manifest error); and provided further, however, that in the event that Borrower
fails to provide any financial statement on a timely basis in accordance with
Section 5.3.3, any interest rate increase payable as a result thereof shall be
- -------------
retroactively effective to the date on which the financial statement in question
should have been received by the Agent in accordance with Section 5.3.3, and the
-------------
8
<PAGE>
Borrower shall pay any amount due as a result thereof upon written demand from
the Agent. The Agent shall send the Borrower written acknowledgement of each
change in the Effective Prime in accordance with the Agent's customary
procedures as in effect from time to time.
"Equity" means the Investments in Dollars by the New Stockholders in
------
the Borrower, made on or prior to the date of this Agreement in the aggregate
amount of not less than $26,000,000 as set forth in Exhibit 1.1.
-----------
"Equity Documents" means, collectively, all documents entered into by
----------------
the Borrower, the Old Stockholders and/or any of the New Stockholders in
connection with the investment of the Equity.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
-----
amended from time to time.
"Events of Default" has the meaning assigned to that term in Section
----------------- -------
6.1 of this Agreement.
- ---
"Excess Cash Flow" means, for any fiscal year of the Borrower, the sum
----------------
of EBITDA for each Borrower fiscal quarter in such fiscal year, minus the sum of
-----
(i) an amount equal to the sum of payments included in Total Debt Service paid
during each fiscal quarter in such fiscal year, (ii) to the extent not included
in Total Debt Service, all Capital Expenditures permitted under Section 5.2.17
--------------
and paid during each Borrower fiscal quarter in such fiscal year, (iii) Non-
Compete Payments (other than $1,500,000 paid at Closing) paid during each fiscal
quarter in such fiscal year, (iv) taxes payable during each Borrower fiscal
quarter in such fiscal year and (v) non-recurring extraordinary costs paid by
the Borrower and any Subsidiaries prior to March 31, 1996 in connection with the
closing of the Loans and the Related Transactions (including only the FICA and
other payroll tax withholdings portion of the MSUIP Expense).
"Exhibit" means, when followed by a letter, the exhibit attached to
-------
this Agreement bearing that letter and by such reference fully incorporated in
this Agreement.
"Facility Fee" means, the fee payable by the Borrower in accordance
------------
with Section 2.2.2 in an amount equal to 1.25% of the Commitment ($375,000).
-------------
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York, provided that (i) if such day is not a
--------
9
<PAGE>
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next succeeding Business Day as so published, and (ii) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to the Agent on such
day on such transactions as determined by the Agent in its discretion exercised
in good faith.
"Financing Documents" means, collectively, this Agreement, each Note,
-------------------
the Security Documents, the Side Letter, any agreement with any Lender providing
any interest rate protection arrangement and each other agreement, instrument or
document now or hereafter executed in connection herewith or therewith.
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States of America.
"Hardware Indebtedness" means Indebtedness of the Borrower and/or any
---------------------
Subsidiary incurred in the ordinary course of the Borrower's and/or any
Subsidiary's business (i) for the purchase price of computer equipment or
computer hardware, (ii) owing to a computer equipment or computer hardware
vendor pursuant to a purchase agreement or purchase order for such equipment or
hardware, (iii) to be sold by the Borrower and/or any Subsidiary to another
Person pursuant to a contract with such Person and in conjunction with the sale
or licensing by the Borrower and/or any Subsidiary of its software or any
modification or improvement thereof and (iv) as to which Indebtedness the
Borrower and/or any Subsidiary (a) are in compliance with the terms and
conditions of said purchase agreement or purchase order or (b) are disputing the
vendor's performance and any Borrower and/or Subsidiary noncompliance in good
faith and by proper proceedings and have properly reserved or made other
provision for the vendor's claims in accordance with and to the extent required
by GAAP.
"Hazardous Material" shall mean any substance or material defined or
------------------
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any United States federal, state
or local environmental statute, regulation or ordinance.
"Indebtedness" means, without duplication for any Person, (i) all
------------
indebtedness or other obligations of said Person for Borrowed Money or for the
deferred purchase price of property or services other than accounts payable or
trade payables incurred in the ordinary course of such Person's business,
including, without limitation, all reimbursement obligations of said Person with
respect to standby and/or documentary letters of credit (ii) all indebtedness or
other obligations of any other Person ("Other Person") for Borrowed Money or for
the deferred purchase price of property or services other than accounts payable
or trade
10
<PAGE>
payables incurred in the ordinary course of such Person's business, the
payment or collection of which said Person has guaranteed (except by reason of
endorsement for deposit or collection in the ordinary course of business) or in
respect of which said Person is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase or lease, to provide
funds for payment, to supply funds to purchase, sell or lease property or
services primarily to assure a creditor of such Other Person against loss or
otherwise to invest in or make a loan to the Other Person, or otherwise to
assure a creditor of such Other Person against loss, (iii) all indebtedness or
other obligations of any Person for Borrowed Money or for the deferred purchase
price of property or services secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in any property owned by said Person, whether or not said
Person has assumed or become liable for the payment of such indebtedness or
obligations; provided that if such Person has not assumed or become liable for
the payment of such indebtedness or obligations, the amount of such indebtedness
or obligations for purposes of this definition shall be limited to the higher of
the cost or fair market value of the property subject or contingently subject to
any Lien, (iv) Capitalized Lease Obligations of said Person and (v) obligations
of such Person under contracts pursuant to which such Person has agreed to
purchase interest rate protection or swap interest rate obligations.
"Interest Adjustment Date" means (i) as to any Prime Rate Loan to be
------------------------
converted to a Libor Loan the Business Day elected by the Borrower in its
applicable Interest Rate Election, but being not less than three (3) Business
Days after the receipt by the Agent before 12:00 o'clock P.M. on a Business Day
of an Interest Rate Election electing the Libor Rate as the interest rate on
such Loan; and (ii) as to any Libor Loan, the last Business Day of the Interest
Period pertaining to such Libor Loan.
"Interest Expense" means, with respect to any fiscal quarter, the
----------------
aggregate amount required to be accrued by the Borrower and any Subsidiaries in
such fiscal quarter for interest, fees (excluding, however, the Facility Fee
being paid to the Agent for the accounts of Fleet and Bank of Boston in
accordance with their Pro Rata Shares on the Closing Date), charges and
expenses, however characterized, on its Indebtedness, including, without
limitation, all such interest, fees, charges and expenses required to be accrued
with respect to Indebtedness under the Financing Documents, all determined in
accordance with GAAP.
"Interest Period" means:
---------------
With respect to each Libor Loan:
11
<PAGE>
(i) initially, the period commencing on the date of such Libor Loan
and ending one, two, three or six months thereafter as the Borrower may
elect in the applicable Interest Rate Election and subject to Section
-------
2.9; and
---
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Libor Loan and
ending one, two, three or six months thereafter as the Borrower may
elect in the applicable Interest Rate Election and subject to Section
-------
2.9;
---
provided that clauses (i) and (ii) of this definition are subject to the
-------- ----
following:
(A) any Interest Period (other than an Interest Period determined
pursuant to clause (C) below) which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
(B) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (C) below, end on the last Business Day of a calendar month; and
(C) for the Term Loan, no Interest Period shall end after the Term
Loan Repayment Date and for the Revolving Credit Loan, no Interest Period shall
end after the Revolving Credit Repayment Date; and
(D) with respect to all Libor Loans, no more than five (5) Interest
Periods may be in effect at any time.
"Interest Rate Election" means the Borrower's irrevocable telecopied
----------------------
or telephonic notice of election, which shall be promptly confirmed by a written
notice of election that Effective Prime or the Libor Rate shall apply to all or
any portion of the Loans, which shall, subject to this Agreement, be effective
on the next Interest Adjustment Date, such telecopied or telephonic notice and
written confirmation thereof to be in the form of Exhibit 1.4 and to be received
-----------
by the Agent prior to 12:00 o'clock P.M. on a Business Day and at least three
(3) Business Days prior to an Interest Adjustment Date in the case of a Libor
Loan, and by 12:00 p.m. on an Interest Adjustment Date in the case of a Prime
Rate Loan, each such Interest Rate Election, subject to the terms of this
Agreement to apply to the Advance or the Loan referred to in such Interest Rate
Election or to effect a change in the interest rate on the applicable portion of
the Loans then outstanding, as applicable, with respect to which such
12
<PAGE>
Interest Rate Election was made, such change to occur on the Interest
Adjustment Date next succeeding receipt of such Interest Rate Election by the
Agent. Any Interest Rate Election received by the Agent after 12 o'clock P.M.
on a Business Day shall be deemed, for all purposes of this Agreement to have
been received prior to 12 o'clock P.M. on the next succeeding Business Day.
"Investment" means any investment in any Person whether by means of a
----------
purchase of capital stock, notes, bonds, debentures or other evidences of
Indebtedness and/or by means of a capital or partnership contribution, loan,
deposit, advance or other means, excluding amounts due from customers for
services or products delivered or sold in the ordinary course of business.
"Lammle" means Guy Lammle, the chief executive officer of the
------
Borrower.
"Lender" means Fleet, Bank of Boston, or any financial institution
------
which hereafter becomes a party hereto pursuant to the terms of Section 9.11,
each in their individual capacity, and "Lenders" means Fleet and each of such
financial institutions.
"Libor Loan" means any portion of any Loan bearing interest at the
----------
Libor Rate.
"Libor Rate" means, for any Interest Period, the Adjusted Libor Rate
----------
in effect on the first day of such Interest Period (subject to adjustment as
provided in the definition of Adjusted Libor Rate) plus the Applicable Margin
for Libor Loans from time to time in effect.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including without
limitation any conditional sale or other title retention agreement and any
Capitalized Lease Obligation) having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the
applicable Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing.
"Loans" and "Loan" means at any time the outstanding principal amount
----- ----
of Indebtedness owed to the Lenders pursuant to this Agreement.
"Majority Lenders" means Lenders holding an aggregate Pro Rata Share
----------------
of the outstanding principal balance of the Loans in an amount equal to or in
excess of 66.67% of the total outstanding principal balance of the Loans and if
there is no outstanding principal balance of the Loans, Lenders having at
13
<PAGE>
least 66.67% of the Commitment.
"Material Adverse Effect" means material adverse effect on (i) the
-----------------------
ability of the Borrower and any Subsidiaries taken as a whole to fulfill their
obligations under any of the Financing Documents or (ii) the Business Condition
of the Borrower and any Subsidiaries taken as a whole.
"Material Agreements" means (i) agreements of the Borrower or any
-------------------
Subsidiary which have not yet been performed by the Borrower or any such
Subsidiary where the initial license fee is $250,000 or more, (ii) agreements of
the Borrower or any Subsidiary where the annual license, maintenance or support
fees are $30,000 or more, (iii) agreements of Borrower existing on the date
hereof with each of Progress Software Corporation and VMARK Software Inc., and
(iv) the non-competition agreement between the Borrower and Lammle of even date
herewith.
"MSUIP Expense" means compensation and expenses incurred by the
-------------
Borrower in the amount of $7,000,000 in granting phantom stock options in the
Borrower pursuant to Borrower's management stock unit incentive plan.
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Net Income" means, for any fiscal period, the net after tax income
----------
(loss) of the Borrower and any Subsidiaries for such period determined on an
accrual and consolidated basis in accordance with GAAP.
"New Stockholders" means Lammle, Lammle immediate family members and
----------------
trusts for their benefit, TA, TL and Summit.
"Noncompete Payments" means the payments to be made by the Borrower to
-------------------
Lammle pursuant to a non-competition agreement between said Persons of even date
herewith.
"Note" means any promissory note of the Borrower payable to the order
----
of a Lender and substantially in the form of Exhibit 1.5 or Exhibit 1.6 and
-------- --- -----------
evidencing all or a portion of the Loan and "Notes" means all of the Notes,
collectively.
"Obligations" mean any and all Indebtedness, obligations and
-----------
liabilities of Borrower and/or any Subsidiaries under any of the Financing
Documents to any one or more of the Lenders and/or the Agent of every kind and
description, absolute or contingent, due or to become due, whether for payment
or performance, now existing or hereafter arising, including, without
limitation, all Loans, interest, taxes, fees, charges, and expenses under the
Financing Documents and attorneys' fees chargeable to the
14
<PAGE>
Borrower and/or any Subsidiaries or incurred by any of the Lenders and/or the
Agent under any of the Financing Documents.
"Officer's Certificate" means a certificate signed by an Authorized
---------------------
Representative and delivered to the Agent on behalf of the Lenders.
"Old Stockholders" means Lammle and Roger Linn and their immediate
----------------
family members and/or trusts for the benefit of any of the foregoing Persons.
"PBGC" means the Pension Benefit Guaranty Corporation established
----
pursuant to subtitle A of Title IV of ERISA.
"P.M." means a time from and including 12 o'clock noon on any Business
----
Day to the end of such Business Day using Eastern Standard (Daylight Savings)
time.
"Permitted Encumbrances" means each Lien granted pursuant to any of
----------------------
the Security Documents, those Liens, security interests and defects in title
permitted under Section 5.2.1 and those Liens listed on Exhibit 1.8 hereto.
------------- -----------
"Person" means an individual, corporation, partnership, limited
------
liability company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of
----
ERISA maintained for employees of the Borrower or any Commonly Controlled
Entity.
"Premises" has the meaning assigned to such term in Section 4.1.22.1.
-------- ----------------
"Prime Rate" means (i) the floating rate of interest per annum
----------
designated from time to time by the Agent as being its "prime rate" of interest,
such interest rate to be adjusted on the effective date of any change thereof by
the Agent, it being understood that such rate of interest may not be the lowest
rate of interest from time to time charged by the Agent or (ii) during the last
four (4) Business Days of each calendar year and the first two (2) Business Days
of the immediately succeeding calendar year, if higher than (i), the Federal
Funds Rate, such interest rate to be adjusted on the effective date of any
change thereof by the Federal Reserve Bank of New York.
"Prime Rate Loan(s)" means any portion of the Loans bearing interest
------------------
at Effective Prime.
"Pro Rata Share" means (i) with respect to the Commitment,
--------------
15
<PAGE>
each Lender's percentage share of the Commitment as set forth immediately
opposite such Lender's name on Exhibit 1.9, and (ii) with respect to the Loans,
-----------
each Lender's percentage share of the aggregate outstanding principal balance of
the Loans and "Pro Rata Shares" means such percentage shares of the Lenders.
"Projections" means the Borrower's written projections of Borrower's
-----------
3-year future performance on a consolidated basis delivered to the Agent prior
to the Closing and attached to this Agreement as Exhibit 1.12.
------------
"Qualified Initial Public Offering" means the Borrower and/or any
---------------------------------
Subsidiary filing a Form S-1 or any other form of registration statement then
available for registration with the Securities and Exchange Commission or
otherwise conducting an initial public offering of any class of the Borrower's
or any Subsidiary's securities, which such offering generates $30,000,000 or
more in net proceeds and results in a price per share of $20.00 or more (subject
to adjustment for stock splits, stock dividends, recapitalizations and the
like).
"Reference Lender(s)" means the Agent unless the Agent resigns said
-------------------
responsibility, at which time and thereafter such term means one or two Lenders
selected by the Agent in its discretion from time to time as a reference lender
for purposes of determining the Adjusted Libor Rate.
"Related Transactions" means the Borrower's receipt of the Equity, the
--------------------
Borrower's repurchase of certain capital stock from certain of the Old
Stockholders on or prior to the Closing Date and the Borrower's issuance of
capital stock to the New Stockholders, the issuance of certain stock options by
the Borrower, the reincorporation of the Borrower in Delaware and the merger of
the Borrower's predecessor into the Borrower and any other transactions
described in the Related Transaction Documents.
"Related Transaction Documents" means the documents listed on Exhibit
----------------------------- -------
1.2.
- ---
"Request" means a written request for the Loans in the form of Exhibit
------- -------
1.10, received by the Agent on behalf of the Lenders from the Borrower in
- ----
accordance with this Agreement, specifying the date on which the Borrower
desires such Loans and the disbursement instructions of the Borrower with
respect thereto.
"Reportable Event" shall have the meaning assigned to that term in
----------------
Section 4043 of ERISA for which the requirement of 30 days' notice to the PBGC
has not been waived by the PBGC.
"Revolving Credit Loan" means the revolving credit loans to
---------------------
16
<PAGE>
be made by the Lenders to the Borrower from time to time in the maximum
outstanding principal amount of the Revolving Credit Loan Commitment, all
subject and pursuant to Section 2.1.0.
-------------
"Revolving Credit Loan Commitment" means the Lenders' several
--------------------------------
commitments to make Revolving Credit Loans to the Borrower in accordance with
Section 2.1.0 and this Agreement and in the maximum outstanding amount of each
- -------------
Lender's Pro Rata Share of $5,000,000, as such amount may be reduced pursuant to
Section 2.6.4.
- -------- -----
"Revolving Credit Note" means each revolving credit note of the
---------------------
Borrower, payable to the order of a Lender in the form of Exhibit 1.5 hereto
-----------
evidencing the Indebtedness of the Borrower to such Lender with respect to the
Revolving Credit Loan.
"Revolving Credit Repayment Date" means the earlier to occur of (i)
-------------------------------
December 31, 2000 and (ii) such earlier date on which the Revolving Credit Loan
becomes due and payable pursuant to the terms hereof.
"Section" means, when followed by a number, the section or subsection
-------
of this Agreement bearing that number.
"Security Documents" means any and all documents, instruments and
------------------
agreements now or hereafter providing security for the Loans and any other
Indebtedness of the Borrower or any Subsidiary to the Lenders and/or the Agent
arising under or in connection with any of the Financing Documents, including
without limitation the following documents, instruments and agreements between
the Agent and the Borrower or any Subsidiary; any mortgages on and collateral
assignments of real property interests (leasehold and easement) of the Borrower
and any Subsidiary granting Liens thereon; landlord lien waivers and consents as
may be reasonably requested by the Agent (provided that the Borrower shall only
be required to use its best efforts to obtain such landlord waivers and consents
with respect to such leased premises in accordance with the Financing Documents)
security agreements granting first Liens on all Borrower's and any Subsidiary's
fixtures and tangible and intangible personal property; collateral assignments
of Borrower's and any Subsidiary's contracts, licenses, permits, easements and
leases; collateral assignments of Borrower's and any Subsidiary's copyrights;
conditional assignments of Borrower's and any Subsidiary's trademarks; any
Subordination Agreement; the software escrow agreement referred to in Section
-------
5.1.24; any guaranty by a Subsidiary; any pledge of the capital stock of any
- ------
Subsidiary; casualty insurance policies providing coverage to the Agent for the
benefit of the Lenders, UCC-1 financing statements or similar filings perfecting
the above-referenced security interests, pledges and assignments, all
as executed, delivered to and accepted by the Agent on or prior
17
<PAGE>
to the Closing Date or subsequent to the Closing Date as may be required by
this Agreement as same may be amended in writing by the Agent and any other
party or parties thereto.
"Selling Lender" shall have the meaning assigned to such term in
--------------
Section 9.11.1.
- --------------
"Side Letter" means that certain side letter of even date with this
-----------
Agreement between the Borrower and the Agent regarding certain fees payable by
the Borrower.
"Single Employer Plan" means any Plan as defined in Section
--------------------
4001(a)(15) of ERISA.
"Stockholders" means, collectively, the Old Stockholders and the New
------------
Stockholders.
"Subsidiary" means any corporation or entity other than the Borrower
----------
of which more than 50% of the outstanding capital stock or voting interests or
rights having ordinary voting power to elect a majority of the board of
directors or other managers of such entity (irrespective of whether or not at
the time capital stock or voting interests or rights of any other class or
classes of such Person shall or might have voting power upon the occurrence of
any contingency) is at the time directly or indirectly owned by the Borrower or
by the Borrower and/or one or more Subsidiaries or the management of which
corporation or entity is under control of the Borrower and/or any other
Subsidiary, directly or indirectly through one or more Persons and any other
Person which, under GAAP, should at any time for financial reporting purposes be
consolidated or combined with the Borrower and/or any other Subsidiary.
"Substituted Lender" has the meaning set forth in Section 9.11 hereof.
------------------ -----------
"Substitution Agreement" has the meaning assigned to such term in
----------------------
Section 9.11.1.
- --------------
"Summit" means Summit Ventures IV, L.P., Summit Investors III, L.P. or
------
any other venture capital or investment fund managed by Summit Partners L.P.
"TA" means any venture capital or other fund or entity for which TA
--
Associates, Inc., a Delaware corporation and/or one or more general partners of
TA Associates, Inc. directly or indirectly through one or more intermediaries
serves as general partner, manager or in a like capacity.
18
<PAGE>
"Term Loan" means the term loan in the aggregate principal amount of
---------
$25,000,000 to be made or maintained by the Lenders pursuant to Section 2.1.1
-------------
hereof.
"Term Note" means a term note of the Borrower payable to the order of
---------
a Lender in the form of Exhibit 1.6 hereto evidencing the Indebtedness of the
-----------
Borrower to such Lender with respect to the Term Loan.
"Term Loan Repayment Date" means the earlier to occur of (i) December
------------------------
31, 2000 and (ii) such earlier date on which the Term Loan becomes due and
payable pursuant to the terms hereof.
"TL" means Technology Leaders II L.P., Technology Leaders II Offshore
--
C.V., or any other venture capital or investment fund managed by either
Technology Leaders Management, Inc. or Technology Leaders II Management L.P.
"Total Debt Service" means, at any date of determination, the sum of
------------------
(i) Interest Expense and (ii) scheduled and mandatory principal payments for the
fiscal period in question due on account of any Indebtedness of the Borrower,
but excluding any mandatory payments of principal required pursuant to Sections
--------
2.6.1.2, 2.6.1.3, 2.6.1.4 and 2.6.1.5.
- ------- ------- ------- -------
"Unused Fees" has the meaning assigned to such term in Section 2.2.2.
----------- -------------
Section 1.2. Accounting Terms. All accounting terms not specifically
------------ ----------------
defined herein shall be construed in accordance with GAAP, calculations of
amounts for the purposes of calculating any financial covenants or ratios
hereunder shall be made in accordance with GAAP applied on a basis consistent
with those used in the Borrower's financial statements referred to in Section
-------
4.1.5 (other than departures therefrom not material in their impact), and all
- -----
financial data submitted pursuant to this Agreement shall be prepared in
accordance with GAAP (except, in the case of unaudited financial statements, the
absence of footnotes and that such statements are subject to changes resulting
from year-end adjustments made in accordance with GAAP).
Section 1.3. Other Terms. The words "hereof," "herein" and
------------ -----------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
19
<PAGE>
ARTICLE 2.
AMOUNT AND TERMS OF THE LOANS
Section 2.1. The Loans.
- ----------- ----------
Section 2.1.0. The Revolving Credit Loans. Each of the Lenders
------------- --------------------------
severally agrees, subject to the terms and conditions of this Agreement, to make
Advances of Revolving Credit Loans to the Borrower from time to time after
receipt by the Agent from time to time before the Revolving Credit Repayment
Date of, and at the times provided for in, a Request and an Interest Rate
Election from the Borrower in accordance with this Agreement, during the period
commencing on the Closing Date and ending on the Business Day immediately
preceding the Revolving Credit Repayment Date, in an aggregate principal amount
at any one time outstanding not to exceed the lesser of (i) such Lender's Pro
Rata Share of the Revolving Credit Loan Commitment less (ii) in each case, such
Lender's Pro Rata Share of the aggregate amount of any reductions of the
Revolving Credit Loan Commitment made pursuant to Section 2.6.4.
-------------
Promptly after receipt of a Request and Interest Rate Election, Agent
shall notify each Lender by telephone, telex or telecopy of the proposed
borrowing. Subject to the immediately preceding paragraph, each Lender agrees
that after its receipt of notification from Agent of Agent's receipt of a
Request and Interest Rate Election, such Lender shall send its Pro Rata Share
(or such portion thereof as may be necessary to provide Agent with such Pro Rata
Share in Dollars and in immediately available funds, without consideration or
use of any contra accounts of any Lender) of the requested Loan by wire transfer
to Agent so that Agent receives such Pro Rata Share in Dollars and in
immediately available funds not later than 12:00 P.M. (Boston, Massachusetts
time) on the first day of the Interest Period for any such requested Libor Loan
and on the Business Day for such Advance set forth in Borrower's Request for any
such requested Prime Rate Loan, and Agent shall advance funds to the Borrower by
depositing such funds in Borrower's account with the Agent upon Agent's receipt
of such Pro Rata Shares in the amount of the Pro Rata Shares of such Loan in
Agent's possession. Agent's failure to receive any Pro Rata Share from a Lender
other than Fleet shall not excuse Agent from advancing Fleet's Pro Rata Share to
the Borrower. Unless Agent shall have been notified by any Lender (which notice
may be telephonic if confirmed promptly in writing) prior to the first day of
the Interest Period in respect of any Loan which such Lender is obligated to
make under this Agreement, that such Lender does not intend to make available to
Agent such
20
<PAGE>
Lender's Pro Rata Share of such Loan on such date, Agent may assume that such
Lender has made such amount available to Agent on such date and Agent in its
sole discretion may, but shall not be obligated to, make available to the
Borrower a corresponding amount on such date. If such corresponding amount is
not in fact made available to Agent by such Lender, Agent shall be entitled to
recover such corresponding amount from such Lender promptly upon demand by Agent
together with interest thereon, for each day from such date until the date such
amount is paid to Agent, at the Federal Funds Rate for three (3) Business Days
and thereafter at the interest rate on the Loan in question. If such Lender
does not pay such corresponding amount forthwith upon Agent's demand therefor,
Agent shall promptly notify the Borrower and the Borrower shall promptly pay
such corresponding amount to Agent. Nothing contained in this Section shall be
deemed to relieve any Lender from its obligation to fulfill its obligations
hereunder or to prejudice any rights which the Borrower may have against any
Lender as a result of any default by such Lender hereunder.
Section 2.1.1. Term Loans. Each of the Lenders severally agrees,
------------- ----------
subject to the terms and conditions of this Agreement, to make a Term Loan to
the Borrower in the amount of its respective Pro Rata Share of $25,000,000.
Borrower shall pay on the last day of each calendar quarter ending on or in
between the dates set forth below the amount of the Term Loans set forth
immediately opposite such dates below:
<TABLE>
<CAPTION>
Repayment Quarterly
Dates Payment Amount
--------- --------------
<S> <C>
September 30, 1996 through
December 31, 1996 $1,000,000
March 31, 1997 through $1,000,000
December 31, 1997
March 31, 1998 through $1,500,000
December 31, 1998
March 31, 1999 through $1,500,000
December 31, 1999
March 31, 2000 through $1,750,000
December 31, 2000
</TABLE>
<PAGE>
Section 2.2. Interest and Fees on the Loans.
----------- ------------------------------
Section 2.2.1. Interest. Interest shall accrue and be paid currently
------------- --------
on the Loans at Effective Prime or the Libor Rate for each of the Loans'
Interest Periods in accordance with the Borrower's Interest Rate Elections for
the Loans subject to and in accordance with the terms and conditions of this
Agreement and the Note(s); provided that if a Default or an Event of Default
exists and is continuing, no Interest Rate Election electing the Libor Rate
shall be effective and any Loan or portion thereof with respect to which any
such Interest Rate Election would otherwise have been effective shall bear
interest at Effective Prime plus, so long as an Event of Default exists and is
continuing, two percent (2.0%); (provided that the Borrower may elect one-month
Interest Periods while a Default exists, so long as no Event of Default exists)
all of the foregoing being applicable until such Default or Event of Default is
cured or waived and an Interest Rate Election electing the Libor Rate for such
Loan or portion thereof which is effective in accordance with this Agreement is
submitted to the Agent; and provided further that the Borrower shall submit
Interest Rate Elections so that on any date on which under Section 2.1.1 a
-------------
regularly scheduled payment of principal of the Term Loans is to be made, at
least the amount of the Term Loans to be so repaid is bearing interest at
Effective Prime and/or such repayment date is an Interest Adjustment Date for
outstanding Libor Loans in such amount of the Term Loans. The Borrower shall
pay such interest to the Agent for the pro rata account of each Lender in
arrears on the Loans (including without limitation Libor Loans) outstanding from
time to time after the Closing Date, such payments to be made monthly on the
last Business Day of each calendar month of each year commencing March 31, 1996.
All provisions of each Note and any other agreements between the Borrower and
the Lenders are expressly subject to the condition that in no event, whether by
reason of acceleration of maturity of the Indebtedness evidenced by any Note or
otherwise, shall the amount paid or agreed to be paid to the Lenders which is
deemed interest under applicable law exceed the maximum permitted rate of
interest under applicable law (the "Maximum Permitted Rate"), which shall mean
the law in effect on the date of this Agreement, except that if there is a
change in such law which results in a higher Maximum Permitted Rate, then each
Note shall be governed by such amended law from and after its effective date.
In the event that fulfillment of any provision of any Note, or this Agreement or
any document, instrument or agreement providing security for any Note results in
the rate of interest charged under any Note being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be reduced to
eliminate such excess. If, notwithstanding the foregoing, any Lender receives
an amount which under applicable law would cause the interest rate under any
Note to exceed the Maximum Permitted
22
<PAGE>
Rate, the portion thereof which would be excessive shall automatically be
deemed a prepayment of and be applied to the unpaid principal balance of such
Note to the extent of then outstanding Prime Rate Loans and not a payment of
interest and to the extent said excessive portion exceeds the outstanding
principal amount of Prime Rate Loans, said excessive portion shall be repaid to
the Borrower.
Section 2.2.2. Fees. On the Closing Date the Borrower shall pay the
------------- ----
Facility Fee to the Agent for the accounts of Fleet and Bank of Boston in
accordance with their Pro Rata Shares. In addition, on the last Business Day of
each March, June, September and December commencing March 31, 1996 and
continuing through the Revolving Credit Repayment Date, the Borrower shall pay
to the Agent for the pro rata account of each Lender, a fee in an amount equal
to .50% per annum of the amount, if any, by which the average actual daily
amount of the Revolving Credit Loan Commitment for the quarterly period just
ended (or in the case of the first such payment, the period from the Closing
Date to the date such payment is due) exceeds the average of the actual daily
outstanding principal balances of the Revolving Credit Loans (the "Unused
Fees"). In addition, the Borrower shall pay to the Agent for its own account
certain fees as specified in the Side Letter.
Section 2.2.3. Increased Costs - Capital. If, after the date hereof,
------------- -------------------------
any Lender shall have reasonably determined that the adoption after the date
hereof of any applicable law, governmental rule, regulation or order regarding
capital adequacy of banks or bank holding companies, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender with any policy, guideline,
directive or request regarding capital adequacy (whether or not having the force
of law and whether or not failure to comply therewith would be unlawful) of any
such authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on the capital of such Lender or such Lender's
holding company as a consequence of the obligations hereunder of such Lender to
a level below that which such Lender could have achieved but for such adoption,
change or compliance (taking into consideration the policies of such Lender with
respect to capital adequacy immediately before such adoption, change or
compliance and assuming that the capital of such Lender was fully utilized prior
to such adoption, change or compliance) by an amount reasonably deemed by such
Lender to be material, then such Lender shall notify the Agent and the Borrower
thereof and the Borrower shall pay to the Agent for the account of such Lender
from time to time as specified by such Lender such additional amounts (which
shall be deemed additional interest) as shall be sufficient to compensate such
Lender for such reduced return,
23
<PAGE>
each such payment to be made by the Borrower within ten (10) Business Days
after each demand by such Lender, provided that the liability of the Borrower to
pay such costs shall only accrue with respect to costs accruing from and after
the 90th day prior to the date of each such demand. A certificate in reasonable
detail of one of the officers of such Lender describing the event giving rise to
such reduction and setting forth the amount to be paid to such Lender hereunder
and a computation of such amount shall accompany any such demand and shall, in
the absence of manifest error, be presumed correct. In determining such amount,
such Lender shall act reasonably and will use any reasonable averaging and
attribution methods which will, to the extent such increased costs or reductions
relate to such Lender's loans bearing interest at a rate based on the Adjusted
Libor Rate in general and are not attributable solely to the Loans hereunder, be
applied generally to such Lender's loans bearing interest at a rate based on the
Adjusted Libor Rate and such Lender's Libor Loans. If the Borrower shall, as a
result of the requirements of this Section 2.2.3 above, be required to pay any
-------------
Lender the additional costs referred to therein and the Borrower, in its sole
discretion, shall deem such additional amounts to be material, the Borrower
shall have the right to substitute another bank satisfactory to the Agent for
such Lender which has certified the additional costs to the Borrower, and the
Agent shall use reasonable efforts to assist the Borrower to locate such
substitute bank. Any such substitution shall take place in accordance with
Section 9.11 and otherwise be on terms and conditions reasonably satisfactory to
- ------------
the Agent, and until such time as such substitution shall be consummated, the
Borrower shall continue to pay such additional costs. Upon any such
substitution, the Borrower shall pay or cause to be paid to the Lender that is
being replaced, all principal, interest (to the date of such substitution) and
other amounts owing hereunder to such Lender and such Lender will be released
from liability hereunder.
Section 2.3. Notations. At the time of (i) the making of each Loan evidenced
- ----------- ---------
by any Note, (ii) each change in the interest rate under any Note effected as a
result of an Interest Rate Election; and (iii) each payment or prepayment of any
Note, each Lender may enter upon its records an appropriate notation evidencing
(a) such Lender's Pro Rata Share of the Loans and (b) the interest rate and
Interest Adjustment Date applicable thereto or (c) such payment or prepayment
(voluntary or involuntary) of principal and (d) in the case of payments or
prepayments (voluntary or involuntary) of principal, the portion of the
applicable Loan which was paid or prepaid. No failure to make
24
<PAGE>
any such notation shall affect the Borrower's unconditional obligations to
repay the Loans and all interest, fees and other sums due in connection with
this Agreement and/or any Note in full, nor shall any such failure, standing
alone, constitute grounds for disproving a payment of principal by the Borrower.
However, in the absence of manifest error, such notations and each Lender's
records containing such notations shall constitute presumptive evidence of the
facts stated therein, including, without limitation, the outstanding amount of
such Lender's Pro Rata Share of the Loans and all amounts due and owing to such
Lender at any time. Any such notations and such Lender's records containing
such notations may be introduced in evidence in any judicial or administrative
proceeding relating to this Agreement, the Loans or any Note.
Section 2.4. Computation of Interest. Interest due under this Agreement and
- ----------- -----------------------
any Note shall be computed on the basis of a year of 360 days for the actual
number of days elapsed.
Section 2.5. Time of Payments and Prepayments in Immediately Available Funds.
- ----------- ---------------------------------------------------------------
Section 2.5.1. Time. All payments and prepayments of principal,
------------- ----
fees, interest and any other amounts owed from time to time under this Agreement
and/or under each Note shall be made to the Agent for the pro rata account of
each Lender at the address referred to in Section 9.6 in Dollars and in
-----------
immediately available funds prior to 12:00 o'clock P.M. on the Business Day that
such payment is due, provided that the Borrower hereby authorizes and instructs
the Agent to charge against the Borrower's accounts with the Agent on each date
on which a payment is due hereunder and/or under any Note and on any subsequent
date if and to the extent any such payment is not made when due an amount up to
the principal, interest and fees due and payable to the Lenders, the Agent or
any Lender hereunder and/or under any Note and such charge shall be deemed
payment hereunder and under the Note(s) in question to the extent that
immediately available funds are then in such accounts. The Agent shall use
reasonable efforts to give subsequent notice of any such charge to the Borrower
within a reasonable period, but the failure to give such notice shall not affect
the validity of any such charge. To the extent that immediately available funds
are then in such accounts, the failure of the Agent to charge any such account
or the failure of the Agent to charge any such account prior to 12 o'clock P.M.
shall not be basis for an Event of Default under Section 6.1.1 and any amount
-------------
due on the Loans on such date shall be deemed paid; provided that the Agent
shall have the right to charge any such account on any subsequent date for such
unpaid payment and an Event of Default shall exist if
25
<PAGE>
sufficient immediately available funds are not in such accounts on the date
the Agent so charges such account after the expiration of any applicable cure
period. In the event of any charge against the Borrower's accounts by the Agent
pursuant to the immediately preceding sentence, the Agent shall provide notice
to the Borrower of such charge within a reasonable time thereafter, but the
failure to provide such notice shall not in any way be a basis for any liability
of the Agent nor shall such failure adversely affect the validity and
effectiveness of any such action by the Agent. Any such payment or prepayment
which is received by the Agent in Dollars and in immediately available funds
after 12 o'clock P.M. on a Business Day shall be deemed received for all
purposes of this Agreement on the next succeeding Business Day unless the
failure by Agent to receive such funds prior to 12 o'clock P.M. is due to
Agent's failure to charge the account of Borrower prior to 12 o'clock P.M.
except that solely for the purpose of determining whether a Default or Event of
Default has occurred under Section 6.1.1, any such payment or prepayment if
-------------
received by the Agent prior to the close of the Agent's business on a Business
Day shall be deemed received on such Business Day. All payments of principal,
interest, fees and any other amounts which are owing to any or all of the
Lenders or the Agent hereunder and/or under any of the Notes that are received
by the Agent in immediately available Dollars prior to 12:00 o'clock P.M. on any
Business Day shall, to the extent owing to the Lenders other than the Agent, be
sent by wire transfer by the Agent to any such other Lenders (in each case,
without deduction for any claim, defense or offset of any type) before 3:00
o'clock P.M. on the same Business Day. Each such wire transfer shall be
addressed to each Lender in accordance with the wire instructions set forth in
Exhibit 1.9 hereto. The amount of each payment wired by the Agent to each such
- -----------
Lender shall be such amount as shall be necessary to provide such Lender with
its Pro Rata Share of such payment (without consideration or use of any contra
accounts of any Lender), or with such other amount as may be owing to such
Lender in accordance with this Agreement (in each case, without deduction for
any claim, defense or offset of any type). Each such wire transfer shall be
sent by the Agent only after the Agent has received immediately available
Dollars from or on behalf of the Borrower and each such wire transfer shall
provide each Lender receiving same with immediately available Dollars on receipt
by such Lender. Any such payments of immediately available Dollars received by
the Agent after 12:00 o'clock P.M. and before 3:00 o'clock P.M. on any Business
Day shall be forwarded in the same manner by the Agent to such Lender(s) as soon
as practicable on said Business Day, and if any such payments of immediately
available Dollars are received by the Agent after 3:00 o'clock P.M. on a
Business Day, the Agent shall so forward same to such
26
<PAGE>
Lender(s) before 10:00 o'clock A.M. on the immediately succeeding Business
Day. Any such wire transfer from the Agent to a Lender which is not received by
such Lender within said time frames shall not, standing alone, result in
additional interest expense or other liability to the Borrower.
Section 2.5.2. Setoff, etc. Regardless of the adequacy of any
------------- -----------
collateral for any of the Obligations, upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and any other Indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower irrespective of whether or not such Lender shall have made any
demand under this Agreement or any Note and although such obligations may be
unmatured. Each such Lender agrees to promptly notify the Borrower and the
Agent after any such setoff and application; provided that the failure to give
such notice shall not affect the validity of such setoff and application.
Promptly following any notice of setoff received by the Agent from a Lender
pursuant to the foregoing, the Agent shall notify each other Lender thereof.
The rights of each Lender under this Section 2.5.2 are in addition to all other
-------------
rights and remedies (including, without limitation, other rights of setoff)
which such Lender may have and are subject to Section 9.12.
------------
Section 2.5.3. Unconditional Obligations and No Deductions.
------------- ---------------------------------------------
Section 2.5.3.1. The Borrower's obligation to make all payments
---------------
provided for in this Agreement and the other Financing Documents shall be
unconditional. Each such payment shall be made without deduction for any claim,
defense or offset of any type, including without limitation any withholdings and
other deductions on account of income or other taxes (except to the extent
provided in Section 2.5.3.2) and regardless of whether any claims, defenses or
---------------
offsets of any type exist.
Section 2.5.3.2 Notwithstanding anything to the contrary
---------------
contained in this Agreement, the Borrower shall be entitled, to the extent it is
required to do so by law, to deduct or withhold income or interest, fees or
other amounts payable hereunder for the account of any Lender other than a
Lender (i) which is a domestic corporation (as such term is defined in Section
7701 of the Code) for Federal income tax purposes or (ii) who has the prescribed
forms on file with the Borrower for the
27
<PAGE>
applicable year to the extent deduction or withholding of such taxes is not
required as a result of the filing of such prescribed forms; provided that if
Borrower shall so deduct or withhold any such taxes, it shall promptly provide a
statement to the Agent and such Lender, setting forth the amount of such taxes
so deducted or withheld, the applicable rate and any other information or
documentation which such Lender may reasonably request for assisting such Lender
to obtain any allowable credits or deductions for the taxes so deducted or
withheld in the jurisdiction or jurisdictions in which such Lender is subject to
tax.
Section 2.6. Prepayment and Certain Payments.
----------- --------------------------------
Section 2.6.1. Mandatory Payments.
------------- ------------------
Section 2.6.1.1. In addition to each other principal payment required
---------------
hereunder, the outstanding principal balances of the Term Loans shall be repaid
on the Term Loan Repayment Date and the outstanding principal balance of the
Revolving Credit Loans shall be repaid on the Revolving Credit Repayment Date.
Section 2.6.1.2. On or before the 90th day after the end of each
---------------
fiscal year of the Borrower commencing with the fiscal year ending December 31,
1996, the Borrower shall prepay to the Agent for the pro rata account of each
Lender an amount of the outstanding principal balances of the Term Loans equal
to (i) 75% of the amount, if any, of Excess Cash Flow for such fiscal year less
----
(ii) voluntary prepayments of the Term Loan made during such fiscal year. Such
prepayments shall be in addition to any and all other mandatory and voluntary
prepayments required or permitted hereunder and shall be applied to the
principal installments of the Term Loans in accordance with Section 2.6.1.6.
-------- -------
Section 2.6.1.3. In the event that the Borrower or any Subsidiary is
----------------
entitled to receive, collectively, proceeds from any casualty insurance policies
maintained by any of them on account of any interest of the Borrower and/or any
Subsidiary in any property, which proceeds are in an amount in excess of
$100,000 with respect to any occurrence or related series of occurrences in any
12-month period, such proceeds shall be received by the Agent and, to the extent
that such proceeds result from a casualty to property of the Borrower and/or any
Subsidiary, so long as no Default or Event of Default exists and is continuing
and the Borrower elects to repair, replace or restore such property, such
proceeds shall be released to the Borrower subject to reasonable procedures and
conditions
28
<PAGE>
established by the Agent to the extent necessary to so repair, replace or
restore such property within 6 months (or as soon as reasonably practicable if
such restoration, replacement or repair is not susceptible to being completed
within 6 months) from the date of receipt of such proceeds by the Agent and to
the extent such proceeds are not so used or do not result from such a casualty,
the Borrower shall make a prepayment of the Term Loans for the pro rata account
of each Lender upon written notice from the Agent. All such payments shall be
applied to the principal installments of the Term Loans in accordance with
Section 2.6.1.6.
- ---------------
Section 2.6.1.4. In the event that the Borrower and/or any Subsidiary
---------------
sells, assigns or otherwise transfers title to any asset other than in the
ordinary course of its business for net cash proceeds in the aggregate since the
Closing Date in excess of $100,000, the Borrower and/or such Subsidiary shall
remit 100% of the net cash proceeds of such sale, assignment or other transfer
to the Agent for the pro rata account of each Lender to be applied to the
principal installments of the Term Loans in accordance with Section 2.6.1.6
---------------
within 10 Business Days of the date of Borrower's or any Subsidiary's receipt of
such net cash proceeds; provided, however, that Borrower may sell any of its
equipment which is obsolete, worn-out or no longer used or useful in Borrower's
business and Borrower may use the proceeds of such sale to purchase other
equipment which is useful or necessary in the operation of Borrower's business.
Section 2.6.1.5. In the event that the Borrower and/or any Subsidiary
---------------
files a Form S-1 or any other form of registration statement then available for
registration with the Securities and Exchange Commission (other than an offering
on Form S-8 in respect of employee stock options) or otherwise conducts a
Qualified Initial Public Offering of any class of the Borrower's or any
Subsidiary's securities, the Borrower and/or such Subsidiary upon receipt of the
net aggregate cash consideration from the sale of any such registered shares of
its capital stock shall prepay to the Agent for the pro rata account of each
Lender an amount of the outstanding principal balances of the Term Loans in an
amount equal to that amount necessary to reduce the outstanding principal
balance of the Term Loans plus the Revolving Credit Loan Commitment to less than
or equal to 2.00 times EBITDA for the rolling four quarter period consisting of
the fiscal quarter in which repayment is made and the three immediately
preceding fiscal quarters.
Section 2.6.1.6. Any amounts repaid by the Borrower and/or any
---------------
Subsidiary under this Section 2.6.1 shall be paid without premium or penalty and
-------------
shall be applied to the
29
<PAGE>
principal installments of the Term Loans under Section 2.1.1 in accordance
-------------
with the following: the first $1,000,000 shall be applied to reduce an equal
amount of each of the four (4) quarterly payments due in the year ending
December 31, 2000; the next $3,000,000 shall be applied to reduce an equal
amount of each of the twelve (12) quarterly payments due in the years ending
December 31, 1998, December 31, 1999 and December 31, 2000, respectively;
thereafter, such amounts shall be applied on a pro-rata basis to the respective
amounts of the remaining payments to reduce such remaining quarterly payments.
In the event that any payment or prepayment of a Libor Loan under this Section
-------
2.6.1 is received on a date other than the last day of an Interest Period, such
- -----
payment or prepayment shall be held by the Agent in a separate interest-bearing
account and be pledged to the Agent as collateral for the Obligations of the
Borrower arising in connection with this Agreement, the Notes and the other
Financing Documents until the last day of the then current Interest Period, at
which time the Agent shall apply such payment or prepayment, pro rata for the
Lenders, to the outstanding Libor Loans, for which such day is an Interest
Adjustment Date.
Section 2.6.2. Voluntary Prepayments. All or any portion of the
------------- ---------------------
unpaid principal balance of the Loans (other than portions of any Loans
constituting Libor Loans) may be prepaid at any time, without premium or
penalty, by giving the Agent at least 3 days' prior written notice of such
prepayment and by a payment to the Agent for the pro rata account of each Lender
of such prepayment in immediately available Dollars by the Borrower; provided
that each such partial payment or prepayment of principal of the Loans shall be
in a principal amount of at least $100,000 or an integral multiple of $50,000 in
excess thereof and provided further that each such prepayment of the Term Loans
shall be applied to the principal installments of the Term Loans in the manner
set forth in Section 2.6.1.6.
---------------
Section 2.6.3. Prepayment of Libor Loans.__Notwithstanding anything
------------- -------------------------
to the contrary contained in any Note or in any other agreement executed in
connection herewith or therewith, the Borrower shall be permitted to prepay any
portion of the Loans constituting Libor Loans only in accordance with Section
-------
2.9 hereof.
- ---
Section 2.6.4. Permanent Reduction of Commitment. At the Borrower's
------------- ---------------------------------
option the Commitment and the Revolving Credit Loan Commitment may be
permanently and irrevocably reduced in whole or in part by an amount of at least
$250,000 and to the extent in excess thereof in integral multiples of $100,000
at any time; provided that (i) the Borrower gives the Agent written notice of
the exercise of such option at least three (3) Business
30
<PAGE>
Days prior to the effective date thereof, (ii) the aggregate outstanding
balance of the Loans, if any, does not exceed the Commitment and the aggregate
outstanding balance of the Revolving Credit Loans, if any, does not exceed the
Revolving Credit Loan Commitment, both as so reduced in any such case on the
effective date of such reduction and (iii) the Borrower is not, and after giving
effect to such reduction, would not be in violation of Section 2.6.3. Any such
-------------
reduction shall concurrently reduce the Dollar amount of each Lender's Pro Rata
Share of the Commitment and the Revolving Credit Loan Commitment.
Section 2.7. Payment on Non-Business Days. Whenever any payment to be made
- ----------- ----------------------------
hereunder or under any Note shall be stated to be due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of fees, if any, and interest under this Agreement and under such Note.
Section 2.8. Use of Proceeds. The Borrower shall use the proceeds of the Term
- ----------- ---------------
Loans to repurchase capital stock from the Old Stockholders and to pay costs
incurred by the Borrower in connection with the closing of the Loans, including
without limitation, the Facility Fee and costs incurred in connection with the
Related Transactions and shall use the proceeds of the Revolving Credit Loans to
repurchase such capital stock, pay such costs and for Borrower's working capital
needs and for Investments permitted by Section 5.2.12.
--------------
Section 2.9. Special Libor Loan Provisions. The Libor Loans shall be subject
- ----------- -----------------------------
to and governed by the following terms and conditions:
Section 2.9.1. Requests. Each Request accompanied by an Interest
------------- --------
Rate Election selecting the Libor Rate must be received by the Agent in
accordance with the definition of Interest Rate Election.
Section 2.9.2. Libor Loans Unavailable. Notwithstanding any other
------------- ------------------------
provision of this Agreement, if, prior to or on the date on which all or any
portion of the Loans is to be made as or converted into a Libor Loan, any of the
Lenders (or the Agent with respect to (ii) below) shall reasonably determine
(which determination shall be conclusive and binding on the Borrower), that
(i) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not offered to such Lender in the London interbank
market,
31
<PAGE>
(ii) by reason of circumstances affecting the London interbank
market, adequate and reasonable means do not exist for ascertaining the
Adjusted Libor Rate, or
(iii) the Adjusted Libor Rate shall no longer represent the effective
cost to such Lender for Dollar deposits in the London interbank market for
reasons other than the fact, standing alone, that the Adjusted Libor Rate
is based on an averaging of rates determined by the Agent and that such
Lender's rate may exceed such average,
such Lender may elect not to accept any Interest Rate Election electing a Libor
Loan and such Lender shall notify the Agent by telephone or telex thereof,
stating the reasons therefor, not later than the close of business on the second
Business Day prior to the date on which such Libor Loan is to be made. The
Agent shall promptly give notice of such determination and the reason therefor
to the Borrower, and all or such portion of the Loans, as the case may be, which
are subject to any of Section 2.9.2 (i), (ii) through (iii) as a result of such
--------------
Lender's determination shall be made as or converted into, as the case may be,
Prime Rate Loans and such Lender shall have no further obligation to make Libor
Loans, until further written notice to the contrary is given by the Agent to the
Borrower. If such circumstances subsequently change so that such Lender shall
no longer be so affected, such Lender's obligation to make or maintain its Pro
Rata Share of all or any portion of the Loans as Libor Loans shall be reinstated
when such Lender obtains actual knowledge of such change of circumstances and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent and the Borrower. Upon or after receipt by the
Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the Interest Adjustment Date for the then current Interest Period for
the other Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate
for such Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such
Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During any
period throughout which any of the Lenders has or have no obligation to make or
maintain its or their Pro Rata Share(s) of the Loans as Libor Loans, no Interest
Rate Elections electing the Libor Rate shall be effective with regard to the
Loans to the extent of the Pro Rata Share(s) of such Lender(s), but shall be
effective as to the other Lenders.
32
<PAGE>
Section 2.9.3. Libor Lending Unlawful. In the event that any change
------------- ----------------------
in applicable laws or regulations (including the introduction of any new
applicable law or regulation) or in the interpretation thereof (whether or not
having the force of law) by any governmental or other regulatory authority
charged with the administration thereof, shall make it unlawful for any of the
Lenders to make or continue to maintain its Pro Rata Share of all or any portion
of the Loans as Libor Loans, each such Lender shall promptly notify the Agent by
telephone or telex thereof, and of the reasons therefor, and the obligation of
such Lender to make or maintain its Pro Rata Share of the Loans or such portion
thereof as Libor Loans shall, upon the happening of such event, terminate and
the Agent shall, by telephonic notice to the Borrower, declare that such
obligation has so terminated with respect to such Lender, and such Pro Rata
Share of the Loans or any portion thereof to the extent then maintained as Libor
Loans, shall, on the last day on which such Lender can lawfully continue to
maintain such Pro Rata Share of the Loans or any portion thereof as Libor Loans,
automatically convert into Prime Rate Loans without additional cost to the
Borrower. If circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such_change of circumstances, and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent and the Borrower. Upon or after receipt by the
Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the Interest Adjustment Date for the then current Interest Period for
the other Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate
for such Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such
Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During any
period throughout which any of the Lenders has or have no obligation to make or
maintain its or their Pro Rata Share(s) of the Loans as Libor Loans, (i) no
Interest Rate Elections electing the Libor Rate shall be effective with regard
to the Loans to the extent of the Pro Rata Share(s) of such Lender(s), but shall
be effective as to the other Lenders and (ii) any of the Lenders which has or
have no_obligation to make or maintain its or their Pro Rata Share(s) of the
Loans as Libor Loans shall use reasonable efforts to make available to the
Borrower an alternative index for establishing a fixed interest rate facility
providing a yield to such Lenders equal to the Libor Rate, but only to the
extent that any such Lenders, independently and without regard to this
33
<PAGE>
Agreement or the Libor Loans, are generally providing such alternative index to
similarly situated customers of such Lenders in the ordinary course of such
Lenders' business.
Section 2.9.4. Additional Costs on Libor Loans. The Borrower further
------------- -------------------------------
agrees to pay to the Agent for the account of the applicable Lender or Lenders
such amounts (which shall be deemed additional interest) as will compensate any
of the Lenders for any increase in the cost to such Lender of making or
maintaining (or of its obligation to make or maintain) all or any portion of its
Pro Rata Share of the Loans as Libor Loans and for any reduction in the amount
of any sum receivable by such Lender under this Agreement in respect of making
or maintaining all or any portion of such Lender's Pro Rata Share of the Loans
as Libor Loans, in either case, from time to time by reason of:
(i) any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, such
Lender, under or pursuant to any law, treaty, rule, regulation (including,
without limitation, any Regulations of the Board of Governors of the Federal
Reserve System) or requirement in effect on or after the date hereof, any
interpretation thereof by any governmental authority charged with
administration thereof or by any central bank or other fiscal or monetary
authority or other authority, or any requirement imposed by any central bank
or such other authority whether or not having the force of law; or
(ii) any change in (including the introduction of any new)
applicable law, treaty, rule, regulation or requirement or in the
interpretation thereof by any official authority, or the imposition of any
requirement of any central bank, whether or not having the force of law,
which shall subject such Lender to any tax (other than taxes on net income
imposed on such Lender), levy, impost, charge, fee, duty, deduction or
withholding of any kind whatsoever or change the taxation of such Lender
with respect to making or maintaining all or any portion of its Pro Rata
Share of the Loans as Libor Loans and the interest thereon (other than any
change which affects, and to the extent that it affects, the taxation of net
income of such Lender); provided, that with respect to any withholding the
foregoing shall not apply to any withholding tax described in sections 1441,
1442 or 3406 of the Code, or any succeeding provision of any legislation
that amends, supplements or replaces any such section, or to any tax, levy,
impost, duty, charge, fee, deduction or withholding that results from any
noncompliance by a Lender with any federal, state or foreign law or from any
failure by
34
<PAGE>
a Lender to file or furnish any report, return, statement or form the filing
or furnishing of which would not have an adverse effect on such Lender and
would eliminate such tax, impost, duty, deduction or withholding;
In any such event, such Lender shall promptly notify the Agent thereof, and of
the reasons therefor, and the Agent shall promptly notify the Borrower thereof
in writing stating the reasons provided to the Agent by such Lender therefor and
the additional amounts required to fully compensate such Lender for such
increased or new cost or reduced amount as reasonably determined by such Lender.
Such additional amounts shall be payable on each date on which interest is to be
paid hereunder or, if there is no outstanding principal amount under any of the
Notes, within 20 Business Days after the Borrower's receipt of said notice.
Such Lender's certificate as to any such increased or new cost or reduced amount
(including calculations, in reasonable detail, showing how such Lender computed
such cost or reduction) shall be submitted by the Agent to the Borrower and
shall, in the absence of manifest error, be presumptive. In determining any
such amount, the Lender(s) shall act reasonably and will use reasonable
averaging and attribution methods which will, to the extent such increased costs
or reductions relate to such Lender's loans bearing interest at a rate based on
the Adjusted Libor Rate in general and are not attributable solely to the Loans
hereunder, be applied generally to such Lender's loans bearing interest at a
rate based on the Adjusted Libor Rate and such Lender's Libor Loans.
Notwithstanding anything to the contrary set forth above, the Borrower shall not
be obligated to pay any amounts pursuant to this Section 2.9.4 as a result of
-------------
any requirement or change referenced above with respect to any period prior to
the ninetieth (90th) day prior to the date on which the Borrower is first
notified thereof (other than any amounts which relate to any such requirement or
change which is adopted with retroactive effect in which case the Borrower shall
be obligated to pay all such amounts accrued from the date as of which such
requirement or change is retroactively effective) unless the failure to give
such notice within such ninety (90) day period resulted from reasonable
circumstances beyond such Lender's reasonable control.
Section 2.9.5. Libor Funding Losses. In the event that any payment or
------------- --------------------
prepayment of a Libor Loan is received on a date other than the last day of an
Interest Period, such payment or prepayment shall be held by the Agent in a
separate account and considered pledged to the Agent as collateral for the
obligations of the Borrower arising in connection with this Agreement, the Notes
and the other Financing Documents until the end of the then current Interest
Period, at which time the Agent shall apply
35
<PAGE>
such payment or prepayment, pro rata for the Lenders, to the outstanding Libor
Loans. Notwithstanding the foregoing, in the event any of the Lenders shall
incur any loss or reasonable expense (including, without limitation, any loss or
reasonable expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund or maintain all or any
portion of the Loans as Libor Loans) as a result of:
(i) payment or prepayment by the Borrower of all or any portion
of any Libor Loan on a date other than the Interest Adjustment Date for such
Libor Loan, for any reason; provided, however that this clause shall not be
deemed to grant the Borrower any right to convert a Libor Loan to a Prime
Rate Loan prior to the end of any Interest Period or to imply such right;
(ii) conversion of all or any portion of any Libor Loan on a day
other than the last day of an Interest Period applicable to such Loan to a
Prime Rate Loan for any reason including, without limitation, acceleration
of the Loans upon or after an Event of Default, any Interest Rate Election
or any other cause whether voluntary or involuntary and whether or not
referred to or described in this Agreement, other than any such conversion
resulting solely from application of Sections 2.9.2 or 2.9.3 by any Lender;
--------------- -----
or
(iii) any failure by the Borrower to borrow the Loans as Libor
Loans on the date specified in any Interest Rate Election selecting the
Libor Rate, other than any such failure resulting solely from application of
Sections 2.9.2 or 2.9.3 by any Lender;
-------------- -----
such Lender shall promptly notify the Agent thereof, and of the reasons
therefor. Upon the request of the Agent, the Borrower shall pay directly to the
Agent for the account of such Lender the amount of Dollars for each Libor Loan
as to which an event described in any of clauses (i) through (iii) of this
Section 2.9.5 occurred, calculated as follows: the current rate for United
- -------------
States Treasury securities (Bills on a discounted basis shall be converted to a
bond equivalent) with a maturity date closest to the Interest Adjustment Date
for any Libor Loan as to which an event described in any of clauses (i) through
(iii) above in this Section 2.9.5 occurred shall be subtracted from the Adjusted
-------------
Libor Rate component of the Libor Rate in effect for such Libor Loan at the time
of occurrence of any such event. If the result is zero or a negative number,
there shall be no such amount. If the result is a positive number, then the
resulting percentage shall be multiplied by the amount of the principal
36
<PAGE>
balance of such Libor Loan. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the Interest Period as to which an
event described in any of clauses (i) through (iii) above in this Section 2.9.5
-------------
occurred. Said amount shall be reduced to present value calculated by using the
number of days remaining in such Interest Period and using the above referenced
United States Treasury security rate and the number of days remaining in such
Interest Period. The resulting amount shall be the amount due to such Lender on
account of such Libor Loan upon occurrence of an event described in any of
clauses (i) through (iii) above in this Section 2.9.5 as to such Libor Loan.
-------------
Each Lender shall furnish to the Borrower, upon written request from the
Borrower received by the Agent, a written statement setting forth the
computation of any such amounts payable to such Lender under this Section 2.9.5.
-------------
Section 2.9.6. Banking Practices. Each Lender agrees that upon the
------------- -----------------
occurrence of any of the events described in Sections 2.2.3 and/or 2.9.2, 2.9.4
--------------- ----- -----
or 2.9.5, such Lender will exercise all reasonable efforts to take such
-----
reasonable actions at no expense to such Lender (other than reasonable expenses
which are covered by the Borrower's advance deposit of funds with such Lender
for such purpose, or if such Lender agrees, which the Borrower has agreed to pay
or reimburse to such Lender in full upon demand), in accordance with such
Lender's usual banking practices in such situations and subject to any statutory
or regulatory requirements applicable to such Lender, as such Lender may take
without the consent or participation of any other Person to, in the case of an
event described in Sections 2.2.3 and/or 2.9.4 or 2.9.5, mitigate the cost of
-------------- ----- -----
such events to the Borrower and, in the case of an event described in Sections
--------
2.9.2(i), (ii) or (iii), to seek Dollar deposits in any other interbank Libor
- -------- ---- -----
market in which such Lender regularly participates and in which the applicable
determination(s) described in Sections 2.9.2(i), (ii) or (iii), as the case may
----------------- ---- -----
be, does not apply.
Section 2.9.7. Borrower's Options on Unavailability or Increase Cost
------------- -----------------------------------------------------
of Libor Loans. In the event of any conversion of all or any portion of any
- --------------
Lender's Pro Rata Share of any Libor Loans to a Prime Rate Loan for reasons
beyond the Borrower's control or in the event that any Lender's Pro Rata Share
of all or any portion of the Libor Loans becomes subject, under Sections 2.9.4
--------------
or 2.9.5, to additional costs, the Borrower shall have the option, subject to
-----
the other terms and conditions of this Agreement, to convert such Lender's Pro
Rata Share to a Prime Rate Loan by making Interest Rate Elections for Interest
Periods which (i) end on the Interest Adjustment Date for such Libor Loan or
(ii) end on Business Days occurring prior to such Interest Adjustment Date, in
which case, at the end of the last
37
<PAGE>
of such Interest Periods any such Libor Rate Loan shall automatically convert
to a Prime Rate Loan and the Borrower shall have no further right to make an
Interest Rate Election with respect to such Prime Rate Loan other than an
Interest Rate Election which is effective on the Interest Adjustment Date for
such Libor Loan. The Borrower's options set forth in this Section 2.9.7 may be
-------------
exercised, if and only if the Borrower pays, concurrently with delivery to the
Agent of each such Interest Rate Election and thereafter in accordance with
Sections 2.9.4, 2.9.5 and 2.9.6 all amounts provided for therein to the Agent in
- -------------- ----- -----
accordance with this Agreement.
If the Borrower shall, as a result of the requirements of Section
-------
2.9.4 above, be required to pay any Lender the additional costs referred to
- -----
therein, but not be required to pay such additional costs to the other Lender or
Lenders and the Borrower, in its sole discretion, shall deem such additional
amounts to be material or in the event that Libor Loans from a Lender are
unavailable to the Borrower as a result solely of the provisions of Sections
--------
2.9.2, 2.9.3 or 2.9.4, but are available from the other Lender or Lenders, the
- ----- ----- -----
Borrower shall have the right to substitute another bank satisfactory to the
Agent for such Lender which is entitled to such additional costs or which is
relieved from making Libor Loans and such Lender hereby agrees to such
substitution, and the Agent shall use reasonable efforts (with all reasonable
costs of such efforts by the Agent to be borne by the Borrower) to assist the
Borrower to locate such substitute bank. Any such substitution shall take place
in accordance with Section 9.11 and otherwise be on terms and conditions
------------
reasonably satisfactory to the Agent, and until such time as such substitution
shall be consummated, the Borrower shall continue to pay such additional costs
and comply with the above-referenced Sections. Upon any such substitution, the
Borrower shall pay or cause to be paid to the Lender that is being replaced, all
principal, interest (to the date of such substitution) and other amounts owing
hereunder to such Lender and such Lender will be released from liability
hereunder.
Section 2.9.8. Assumptions Concerning Funding of Libor Loans. The
------------- ---------------------------------------------
calculation of all amounts payable to the Lenders under this Section 2.9 shall
-----------
be made as though each Lender actually funded its relevant Libor Loans through
the purchase of a deposit in the London interbank market bearing interest at the
Libor Rate in an amount equal to that Libor Loan and having a maturity
comparable to the relevant Interest Period and through the transfer of such
deposit from an offshore office of such Lender to a domestic office of such
Lender in the United States of America; provided, however, that each Lender may
fund each of its Libor Loans in any manner it sees fit and the foregoing
38
<PAGE>
assumption shall be utilized solely for the calculation of amounts payable
under this Section 2.9, but in no event shall Borrower be liable for any
-----------
additional tax as a result of such Lender's funding decisions.
Section 2.10 Interest Rate Protection. On or before March 31, 1996, the
------------ ------------------------
Borrower shall enter into an interest rate protection arrangement covering
not less than $12,500,000 of the then outstanding Term Loans. Such interest
rate protection arrangement may consist of any one or a combination of the
following: (i) the purchase of an interest rate swap arrangement from a
financial institution or nationally recognized investment banking firm, in each
case, reasonably acceptable to the Majority Lenders covering such Loans
effectively converting the Borrower's interest payment obligations with respect
to such portion of the Term Loans to a fixed rate per annum equal to the Libor
Rate as of the Closing Date, plus two percent (2%) for a term expiring not
earlier than March 31, 1998 or (ii) the purchase of an interest rate cap from a
financial institution or nationally recognized investment banking firm, in each
case, reasonably acceptable to the Majority Lenders covering such Loans at a cap
rate per annum equal to the Libor Rate as of the Closing Date, plus two percent
(2%)for a term expiring not earlier than March 31, 1998. The other terms and
conditions of any such interest rate swap or interest rate cap shall be
reasonably satisfactory to the Majority Lenders.
ARTICLE 3.
CONDITIONS OF LENDING
Section 3.1. Conditions Precedent to the Commitment and to all Loans
----------- -------------------------------------------------------
Section 3.1.1. The Commitment and Initial Loans. The Commitment and
------------- --------------------------------
the obligation of the Lenders to make the initial Advances of the Loans are
subject to performance by the Borrower of all of its obligations under this
Agreement and to the satisfaction of the conditions precedent that all legal
matters incident to the transactions contemplated hereby or incidental to the
Loans shall be reasonably satisfactory to counsel for the Agent and the Lenders
shall have received on or before the Closing Date all of the following, each
dated the Closing Date or another date acceptable to the Lenders and each to be
in form and substance reasonably satisfactory to the Agent or if any of the
following is not a deliverable, the satisfaction of such condition in form and
substance reasonably satisfactory to the Agent:
39
<PAGE>
Section 3.1.1.1. The Financing Documents, including, without
---------------
limitation, those hereinafter set forth and the Borrower's certificate of
incorporation or other organizational documents.
Section 3.1.1.2. Certificate of the secretary of the Borrower
---------------
certifying as to the resolutions of the shareholders or board of directors of
the Borrower authorizing and approving each of the Financing Documents to which
the Borrower is a party and other matters contemplated hereby and certifying as
to the names and signatures of the Authorized Representative(s) of the Borrower
authorized to sign each Financing Document to be executed and delivered by or on
behalf of the Borrower. The Agent and the Lenders may conclusively rely on each
such certificate until the Agent shall receive a further certificate cancelling
or amending the prior certificate and submitting the signatures of the
Authorized Representative(s) named in such further certificate.
Section 3.1.1.3. Favorable opinions of Messrs. Holland & Hart,
---------------
counsel for the Borrower, in form and substance reasonably satisfactory to the
Agent.
Section 3.1.1.4. An Officer's Certificate stating that:
---------------
Section 3.1.1.4.1. The representations and warranties contained
-----------------
in Section 4.1 and/or contained in any of the other Financing Documents are
-----------
correct on and as of the Closing Date as though made on and as of such date; and
Section 3.1.1.4.2. No Default or Event of Default has occurred
-----------------
and is continuing, or would result from the making of the Loans.
Section 3.1.1.5. A copy of the Borrower's Certificate of
---------------
Incorporation, certified by the Delaware Secretary of State, and, to the extent
available, a qualification application for Colorado and an amended application
for qualification in all other states where Borrower does business (i.e.,
California, Georgia, Illinois, Minnesota, New Jersey and Texas) which will be
signed on the Closing Date or as soon as available and, whether or not available
on the Closing Date, will be filed within 10 days after the Closing Date.
Evidence of qualification of the Borrower to do business in such states shall be
provided to the Agent within 15 days after the Closing Date.
Section 3.1.1.6. Evidence that (i) the ownership interests
---------------
in the Borrower are as set forth in Exhibit 1.1, (ii)
-----------
40
<PAGE>
the New Stockholders have invested the Equity in the Borrower on or prior to
the Closing Date, as set forth on Exhibit 1.1 and (iii) that except for receipt
-----------
and application of the proceeds of the Term Loans, the Related Transactions have
been completed in accordance with the Related Transaction Documents.
Section 3.1.1.7. A Request and an Interest Rate Election.
---------------
Section 3.1.1.8. All documents, instruments and agreements necessary
---------------
to terminate, cancel and discharge the documents, instruments and agreements
evidencing or securing any and all existing Indebtedness of the Borrower and
Liens securing such Indebtedness other than those listed in Exhibit 3.1.1.8.
---------------
Section 3.1.1.9. Payment to the Agent and the Lenders of the fees
---------------
specified in this Agreement or the Side Letter as being payable on the Closing
Date and all reasonable out-of-pocket costs and expenses incurred by the Agent
and Fleet in connection with the transactions contemplated hereby, including,
but not limited to, reasonable outside legal expenses and any accounting fees,
auditing fees, appraisal fees, and other fees associated with any independent
analyses of the Borrower and evidence that all other reasonable fees and costs
payable by the Borrower in connection with the transactions contemplated by this
Agreement and completed on the Closing Date have been paid in full.
Section 3.1.1.10. An Officer's Certificate in the form of Exhibit
---------------- -------
3.1.1.10, duly completed and reflecting, inter alia, compliance by the Borrower
- -------- ----- ----
as of the opening of business on the first Business Day after the Closing Date
but based on the Borrower's financial information as of the last day of the
Borrower's most recent fiscal quarter, adjusted to give effect to the Loans made
on the Closing Date and the Equity to be received by Borrower on or prior to the
Closing Date, with the financial covenants provided for herein.
Section 3.1.1.11. Such other information about the Borrower and/or
----------------
its Business Condition as the Lenders may reasonably request.
Section 3.1.1.12. True copies of, and/or true copies of any
----------------
revisions to, the financial statements, the Projections, the pro forma March 8,
1996 financial statements giving effect to the Loans and the Equity to be
received on or prior to the Closing Date, and other information provided
pursuant to Section 4.1.5 and certification by the Borrower of the Projections.
-------------
41
<PAGE>
Section 3.1.1.13. Certificates of fire, business interruption,
----------------
liability and extended coverage insurance policies, each such policy to name the
Agent as loss payee and, on all liability policies, as additional insured.
Section 3.1.1.14. True descriptions of any pending or, to Borrower's
----------------
knowledge, threatened litigation against or by Borrower which is not disclosed
on Exhibit 4.1.6.
-------------
Section 3.1.1.15. Evidence that all necessary material third party
----------------
consents have been obtained and all required filings with any governmental
authority have been duly completed other than (i) any consent, with respect to
Borrower's assignment of its interest in any contract or agreement, by any other
party thereto, (ii) the consent of the landlords of the premises leased by the
Borrower in Colorado Springs, Colorado and Dallas, Texas, which consent the
Borrower shall not be required to provide until 7 Business Days after the date
hereof, (iii) any Uniform Commercial Code ("UCC") filings necessary to release
the Liens not otherwise permitted hereunder encumbering those assets of Ultimate
Data Systems, Inc. ("UDS") acquired by the Borrower, (iv) any filings necessary
to release the Liens encumbering, or the assignment of, the SHIMS trademark, (v)
any UCC filings to be made by Lenders pursuant to the terms of the Financing
Documents and not yet made on the date hereof, (vi) any UCC filing necessary to
release the UCC-1 financing statement no. 952043101 filed with the Colorado
Secretary of State on June 7, 1995 naming the Borrower as debtor and
International Business Machines Corporation as secured party, and (vii) the
filing of Borrower's application for authority to transact business in Colorado
and Borrower's amended application for authority to transact business in each of
California, Georgia, Illinois, Minnesota, New Jersey and Texas.
Section 3.1.1.16. The financial statements described in Section 4.1.5
---------------- -------------
together with the Borrower's pro forma balance sheet as of March 8, 1996. Such
financial statements shall be accompanied by an Officer's Certificate of the
chief financial officer of the Borrower to the effect that (i) the
representations of the Borrower set forth in Section 4.1.14 are accurate as of
--------------
the Closing Date and (ii) that no Material Adverse Effect has occurred since
December 31, 1995 except as set forth or reflected in the financial statements
described in Section 4.1.5 or otherwise disclosed in writing and acceptable to
-------- -----
the Agent.
Section 3.1.1.17. True copies of the Equity Documents and all
----------------
documents, instruments and agreements relating to the Borrower's capital
structure and the Related Transaction Documents.
42
<PAGE>
Section 3.1.1.18. The fact that the representations and warranties of
----------------
the Borrower contained in Article 4, infra, and in each of the other Financing
-----
Documents are true and correct in all material respects on and as of the Closing
Date except as altered hereafter by actions not prohibited hereunder. The
Borrower's delivery of each Note to the Lenders shall be deemed to be a
representation and warranty by the Borrower as of the date thereof to such
effect.
Section 3.1.1.19. That there has been no enactment of any law by any
----------------
governmental authority having jurisdiction over the Agent or any Lender which
would make it unlawful in any respect for such Lender to make the Loans and no
Material Adverse Effect has occurred.
Section 3.1.2. The Commitment and the Loans. The Commitment and the
------------- ----------------------------
obligation of each Lender to make or maintain its Pro Rata Share of any Advance
or Loan are subject to performance by the Borrower of all its obligations under
this Agreement and to the satisfaction of the following further conditions
precedent:
(a) The fact that, immediately prior to and upon the making of each
Loan, no Event of Default or Default shall have occurred and be continuing;
(b) The fact that the representations and warranties of the Borrower
contained in Article 4, infra and in each of the other Financing Documents, are
-----
true and correct in all material respects on and as of the date of each Advance
or Loan except as altered hereafter by actions consented to or not prohibited
hereunder. The Borrower's delivery of the Notes to the Lenders and each of the
Borrower's Requests shall be deemed to be a representation and warranty by the
Borrower as of the date of such Advance or Loan as to the facts specified in
Section 3.1.2(a) and (b);
- ---------------- ---
(c) Receipt by Agent on or prior to the Business Day specified in the
definition of Interest Rate Election of a written Request stating the amount
requested for the Loan or Advance in question and an Interest Rate Election for
such Loan or Advance, all signed by a duly authorized officer of the Borrower on
behalf of the Borrower;
(d) That there exists no law or regulation by any governmental
authority having jurisdiction over the Agent or any of the Lenders which would
make it unlawful in any respect for such Lender to make its Pro Rata Share of
the Loan or Advance,
43
<PAGE>
including, without limitation, Regulations U, T, G and X of the Board of
Governors of the Federal Reserve System and no Material Adverse Effect has
occurred.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Borrower. The
----------- ----------------------------------------------
Borrower represents and warrants to the Agent and the Lenders that, after giving
effect to the Loans and the application of the proceeds thereof (which
representations and warranties shall survive the making of the Loans) as
follows:
Section 4.1.1. Organization and Existence. The Borrower and any
------------- --------------------------
Subsidiary is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
the Borrower's predecessor was duly qualified to do business in all
jurisdictions in which such qualification was required prior to the merger of
the Borrower's predecessor with the Borrower, all as noted on Exhibit 4.1.1,
-------------
except where failure to so qualify would not reasonably be expected to have a
Material Adverse Effect, and has all requisite power and authority to conduct
its business, to own its properties and to execute and deliver, and to perform
all of its obligations under the Financing Documents. Within 10 Business Days of
the date hereof, Borrower will be qualified to do business in the jurisdictions
listed on Exhibit 4.1.1.
-------------
Section 4.1.2. Authorization and Absence of Defaults. Except as
------------- -------------------------------------
described on Exhibit 4.1.2, the execution, delivery to the Agent and/or the
-------------
Lenders and performance by the Borrower and any Subsidiary of the Financing
Documents and Related Transaction Documents have been duly authorized by all
necessary corporate and governmental action and do not and will not (i) require
any consent or approval of the shareholders or board of directors of the
Borrower or any Subsidiary which has not been obtained, (ii) violate any
provision of any law, rule, regulation (including, without limitation,
Regulations U and X of the board of governors of the federal reserve system),
written order, writ, judgment, injunction, decree, or award presently in effect
having applicability to the Borrower and/or any Subsidiary and/or the articles
of organization or by-laws, as applicable, of the Borrower and/or any
Subsidiary, (iii) result in a material breach of or constitute a material
default under any indenture or loan or credit agreement or any Material
Agreement or lease to which the Borrower and/or any Subsidiary is or are a party
or parties
44
<PAGE>
or by which it or they or its or their properties may be bound or affected;
or (iv) result in, or require, the creation or imposition of any Lien on any of
the Borrower's and/or any Subsidiary's respective properties or revenues other
than Liens granted to the Agent by any of the Financing Documents securing the
Obligations. The Borrower and any Subsidiary are in compliance with any such
applicable law, rule, regulation, written order, writ, judgment, injunction,
decree, or award or any such indenture, Material Agreement or lease, except
where the failure to be in compliance could not reasonably be expected to have a
Material Adverse Effect.
Section 4.1.3. Acquisition of Consents. Except as noted on Exhibit
------------- ----------------------- -------
4.1.3, no material authorization, consent, approval, license, exemption of or
- -----
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, other than those
which have been obtained, is or will be necessary to the valid execution and
delivery to the Agent and/or the Lenders or performance by the Borrower or any
Subsidiary of any Financing Documents and each of the foregoing which has been
obtained is in full force and effect.
Section 4.1.4. Validity and Enforceability. Each of the Financing
------------- ---------------------------
Documents when delivered hereunder will constitute the legal, valid and binding
obligations of each of the Borrower and any Subsidiary which is or are a party
thereto enforceable against the Borrower, and any Subsidiary which is or are a
party thereto in accordance with their respective terms except as the
enforceability thereof may be limited by the effect of general principles of
equity and bankruptcy, reorganization, moratorium and similar laws affecting the
rights and remedies of creditors generally.
Section 4.1.5. Financial Information. The following information with
------------- ---------------------
respect to the Borrower has heretofore been furnished to the Agent:
Section 4.1.5.1. Audited annual financial statements of the
---------------
Borrower for the periods ended December 31, 1994 and December 31, 1995; and
Section 4.1.5.2. The Projections.
---------------
Section 4.1.5.3. The pro forma financial statements of the
---------------
Borrower as of the Closing Date provided pursuant to Section 3.1.1.12.
----------------
45
<PAGE>
Each of the financial statements referred to above in Section 4.1.5.1
---------------
was prepared in accordance with GAAP (subject, in the case of interim
statements, to the absence of footnotes and normal year-end adjustments) applied
on a consistent basis, except as stated therein. To the best of the Borrower's
knowledge, each of the financial statements referred to above in Sections
--------
4.1.5.1 and 4.1.5.3 fairly presents the financial condition or pro forma
- ------- -------
financial condition, as the case may be, of the Person being reported on at such
dates and is complete and correct in all material respects and no Material
Adverse Effect has occurred since the date thereof. The Projections were
prepared by the Borrower in good faith.
Section 4.1.6. No Litigation. There are no actions, suits or
------------- -------------
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower and/or any Subsidiary or any of their properties before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which if determined adversely to the
Borrower and/or any Subsidiary would draw into question the legal existence of
the Borrower and/or any such Subsidiary and/or the validity, authorization
and/or enforceability of any of the Financing Documents and/or any provision
thereof and/or could have a Material Adverse Effect except those matters, if
any, described on Exhibit 4.1.6 none of which, in Borrower's good faith opinion,
--------------
is likely to (i) have such Material Adverse Effect or (ii) draw into question
(a) the legal existence of the Borrower and/or any such Subsidiary or (b) the
validity, authorization and/or enforceability of any of the Financing Documents
and/or any provision thereof.
Section 4.1.7. Regulation U. The Borrower is not engaged in the
------------- ------------
business of extending credit for the purpose of purchasing or carrying "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR Part 221), does not own and has no present
intention of acquiring any such margin stock or a "margin security" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR, Part 207). None of the proceeds of the Loans will be used directly or
indirectly by the Borrower for the purpose of purchasing or carrying, or for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry, any such margin security or margin stock or for any other
purpose which might constitute the transaction contemplated hereby a "purpose
credit" within the meaning of said Regulation G or Regulation U, or cause this
Agreement to violate any other regulation of the Board of Governors of the
Federal Reserve System or the Securities and Exchange Act of 1934, as amended,
or any rules or regulations promulgated under either said statute.
46
<PAGE>
Section 4.1.8. Absence of Adverse Agreements. Neither
------------- -----------------------------
the Borrower nor any Subsidiary is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
corporate or partnership restriction which would be reasonably likely to have a
Material Adverse Effect.
Section 4.1.9. Taxes. The Borrower and each Subsidiary has filed all
------------- -----
tax returns (federal, state and local) required to be filed and paid all taxes
shown thereon to be due, including interest and penalties, except for those
taxes, if any, which are being contested in good faith and by appropriate
proceedings, and for which proper reserve or other provision has been made in
accordance with GAAP and except where any failure to file or pay would not be
reasonably likely to have a Material Adverse Effect on the Borrower or any
Subsidiary and except as described in Exhibit 4.1.9.
-------------
Section 4.1.10. ERISA. Borrower and any Commonly Controlled Entity
-------------- -----
do not maintain or contribute to any Plan which is not in substantial compliance
with ERISA.
Neither Borrower nor any Commonly Controlled Entity maintain, contributes
to, or is required to make or accrue a contribution or has within any of the six
preceding years maintained, contributed to or been required to make or accrue a
contribution to any Plan subject to regulation under Title IV of ERISA, any Plan
that is subject to the minimum funding requirements of Section 412 of the Code
or Section 302 of ERISA, or any Multiemployer Plan.
Section 4.1.11. Ownership of Properties.
-------------- -----------------------
Section 4.1.11.1. Except for Permitted Encumbrances and except as
----------------
otherwise permitted by Section 5.2.1, Borrower and any Subsidiary has good title
-------------
to all of its properties and assets free and clear of all restrictions and Liens
of any kind other than those which are not reasonably likely to have a Material
Adverse Effect or a material adverse effect on the validity, authorization
and/or enforceability of the Financing Documents and/or any provision thereof.
Section 4.1.11.2. Exhibit 4.1.11 accurately and completely
---------------- --------------
lists the location of all real property owned or leased by Borrower or any
Subsidiary. Borrower and each Subsidiary enjoys quiet possession under all
material leases of real property to which it is a party as a lessee, and all of
such leases are valid, subsisting and, to Borrower's knowledge, in full force
and effect except where the failure to be in full
47
<PAGE>
force and effect does not interfere with Borrower's quiet enjoyment or is not
reasonably likely to have a Material Adverse Effect.
Section 4.1.11.3. To Borrower's knowledge, except as specified
----------------
in Exhibit 4.1.11, none of the real property occupied by Borrower or any
--------------
Subsidiary is located within any federal, state or municipal flood plain zone.
Section 4.1.11.4. Except as set forth in Exhibit4.1.11, all of
---------------- -------------
the material properties used in the conduct of the Borrower's and each
Subsidiary's business (i) are in good repair, working order and condition
(reasonable wear and tear excepted) and reasonably suitable for use in the
operation of Borrower's, and each Subsidiary's business; and (ii) to Borrower's
knowledge are currently operated and maintained, in all material respects, in
accordance with the requirements of applicable governmental authorities.
Section 4.1.12. Accuracy of Representations and Warranties. None of
-------------- ------------------------------------------
Borrower's representations or warranties set forth in this Agreement or in any
document or certificate furnished pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary to make any statement
of fact contained herein or therein, in light of the circumstances under which
it was made, not misleading; except that unless provided otherwise any such
document or certificate which is dated speaks as of the date stated and not the
present.
Section 4.1.13. No Investment Company. Neither the Borrower nor any
-------------- ---------------------
Subsidiary is an "investment company" or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, which is required to register thereunder.
Section 4.1.14. Solvency, etc. After giving effect to the
-------------- -------------
consummation of each Loan outstanding and to be made under this Agreement as of
the time this representation and warranty is given, the Borrower (a) will be
able to pay its debts as they become due, (b) will have funds and capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (c) will own property (including contracts and other intangible
assets) and be entitled to proceeds from services performed in the aggregate
having a value both at fair valuation and at fair saleable value in the ordinary
course of the Borrower's business greater than the amount required to pay its
Indebtedness, including for this purpose unliquidated and
48
<PAGE>
disputed claims. The Borrower will not be rendered insolvent by the execution
and delivery of this Agreement and the consummation of any transactions
contemplated herein.
Section 4.1.15. Approvals. Except as set forth in Exhibit 4.1.3, all
-------------- --------- -------------
approvals required of Borrower from all Persons including without limitation all
governmental authorities with respect to the Financing Documents have been
obtained except where the failure to obtain any such approval is not reasonably
likely to have a Material Adverse Effect.
Section 4.1.16. Ownership Interests. The schedule of ownership
-------------- -------------------
interests in the Borrower and any Subsidiaries set forth in Exhibit 1.1 is true,
-----------
accurate and complete and the investments to be made for all ownership interests
disclosed therein have in fact been fully paid in immediately available Dollars
after giving effect to the closing of the Related Transactions.
Section 4.1.17. Licenses, Registrations, Compliance with Laws, etc.
-------------- --------------------------------------------------
Exhibit 4.1.17 accurately and completely describes all permits, governmental
- --------------
licenses, registrations and approvals, material to carrying out of Borrower's
and each of the Subsidiaries' businesses as presently conducted and required by
law or the rules and regulations of any federal, foreign governmental, state,
county or local association, corporation or governmental agency, body,
instrumentality or commission having jurisdiction over the Borrower or any of
the Subsidiaries, including but not limited to the United States Environmental
Protection Agency, the United States Department of Labor, the United States
Occupational Safety and Health Administration, the United States Equal
Employment Opportunity Commission, the Federal Trade Commission and the United
States Department of Justice and analogous and related state and foreign
agencies. All existing material authorizations, licenses and permits are in full
force and effect, are duly issued in the name of, or validly assigned to the
Borrower or a Subsidiary and the Borrower or a Subsidiary has full power and
authority to operate thereunder. There is no material violation or material
failure of compliance or, to Borrower's knowledge, allegation of such violation
or failure of compliance on the part of the Borrower or any Subsidiary with any
of the foregoing permits, licenses, registrations, approvals, rules or
regulations and there is no action, proceeding or investigation pending or to
the knowledge of the Borrower threatened nor has the Borrower or any Subsidiary
received any notice of such which might result in the termination or suspension
of any such permit, license, registration or approval which in any case could
have a Material Adverse Effect.
49
<PAGE>
Section 4.1.18. Principal Place of Business; Books and Records. The
-------------- ----------------------------------------------
Borrower's chief executive offices are located at Borrower's addresses set forth
in Section 9.6. All of the Borrower's books and records are kept at one or more
-----------
of its addresses set forth in Section 9.6.
-----------
Section 4.1.19. Subsidiaries. The Borrower has no Subsidiaries.
-------------- ------------
Section 4.1.20. Copyright. To Borrower's knowledge except as set
-------------- ---------
forth in Exhibit 4.1.20 the Borrower has not violated any of the provisions of
--------------
the Copyright Revision Act of 1976, 17 U.S.C. 101, et seq. The Borrower has not
-- ---
filed any registration statements, notices and statements of account with the
United States Copyright Office. Exhibit 4.1.20 accurately and completely sets
--------------
forth all registered copyrights held by the Borrower or any of the Subsidiaries
and contains exceptions to the representations contained in this Section 4.1.20.
--------------
To Borrower's knowledge no inquiries regarding any such filings have been
received by the Copyright Office.
Section 4.1.21. Environmental Compliance. Neither the Borrower nor,
-------------- ------------------------
to the knowledge of the Borrower, any other Person:
Section 4.1.21.1. has ever caused, permitted, or suffered to exist
----------------
any Hazardous Material to be spilled, placed, held, located or disposed of on,
under, or about, any of the premises leased by the Borrower (the "Premises"), or
from the Premises into the atmosphere, any body of water, any wetlands, or on
any other real property, nor to Borrower's knowledge does any Hazardous Material
exist on, under or about the Premises other than as disclosed on Exhibit 4.1.21,
--------------
or in respect of Hazardous Material used or disposed of in compliance with law;
Section 4.1.21.2. has any knowledge that the Premises has ever
----------------
been used (whether by the Borrower or, to the knowledge of the Borrower, by any
other Person) as a treatment, storage or disposal (whether permanent or
temporary) site for any Hazardous Waste as defined in 42 U.S.C.A. 6901, et seq.
-- ---
(the Resource Recovery and Conservation Act); and
Section 4.1.21.3. has any knowledge of any notice of violation,
----------------
Lien or other notice issued by any governmental agency with respect to the
environmental condition of the Premises or any other property occupied by the
Borrower.
Section 4.1.22. Material Agreements, etc. Exhibit 4.1.22 attached
-------------- ------------------------- --------------
hereto accurately and completely lists all Material Agreements, all of which are
presently in effect.
50
<PAGE>
All of the Material Agreements are legally valid, binding, and, to Borrower's
knowledge, in full force and effect and neither the Borrower, any of the
Subsidiaries nor, to Borrower's knowledge, any other parties thereto are in
material default thereunder.
Section 4.1.23. Patents, Trademarks and Other Property Rights.
-------------- ---------------------------------------------
Exhibit 4.1.23 attached hereto contains a complete and accurate schedule of all
- --------------
registered trademarks, registered copyrights and patents of the Borrower and/or
any of the Subsidiaries, and pending applications therefor, and all other
intellectual property in which the Borrower and/or any of the Subsidiaries has
any rights other than "off-the shelf" software which is generally available to
the general public at retail. Except as set forth in Exhibit 4.1.23, the
--------------
Borrower and any Subsidiaries own, possess, or have licenses to use all the
patents, trademarks, service marks, trade names, copyrights and non-governmental
licenses, and all rights with respect to the foregoing, necessary for the
conduct of their respective businesses as now conducted, without, to the
Borrower's knowledge any conflict with the rights of others with respect
thereto.
Section 4.1.24. Related Transaction Documents. The Borrower has,
-------------- -----------------------------
prior to the date hereof, delivered to the Lenders true copies of the Related
Transaction Documents, and each and every amendment or modification thereto.
ARTICLE 5.
COVENANTS OF THE BORROWER
Section 5.1. Affirmative Covenants of the Borrower Other than
----------- ------------------------------------------------
Reporting Requirements. From the date hereof and thereafter for so long as
- ----------------------
there is Indebtedness of the Borrower to any Lender and/or the Agent under any
of the Financing Documents or any part of the Commitment is in effect, the
Borrower will, with respect to itself and, unless noted otherwise below, with
respect to each of its Subsidiaries, ensure that each Subsidiary will, unless
the Majority Lenders shall otherwise consent in writing:
Section 5.1.1. Payment of Taxes, etc. Pay and discharge all taxes
------------- ---------------------
and assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for the same which, if
unpaid, might become a Lien upon any of its properties, provided that (unless
and until foreclosure, restraint, sale or any similar proceeding is pending and
is not stayed, discharged or
51
<PAGE>
bonded within 30 days after commencement) the Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim which is being contested
in good faith and by proper proceedings and for which proper reserve or other
provision has been made in accordance with GAAP, unless failure to pay would not
be reasonably likely to have a Material Adverse Effect.
Section 5.1.2. Maintenance of Insurance. Maintain on the collateral
------------- ------------------------
under any of the Security Documents insurance against loss by fire, hazards
included within the term "extended coverage", and such other hazards, casualties
and contingencies as the Agent may from time to time require, in an amount equal
to the greater of (i) $3,200,000 or (ii) one hundred percent (100%) of the
replacement cost of the collateral under any of the Security Documents and
business interruption insurance in the amount of at least $4,000,000. All
policies of such insurance and all renewals thereof shall be in form and
substance acceptable to Agent, shall be made payable in case of loss to the
Agent as loss payee and as its interest may appear and shall contain an
endorsement requiring thirty (30) days prior written notice to the Agent prior
to cancellation or change in the coverage, scope or amount of any such policies.
Borrower shall also keep in full force and effect a policy of public liability
insurance against claims of bodily injury, death or property damage occurring in
any building in which the limits of liability shall not be less than One Million
Dollars ($1,000,000) per person and Two Million Dollars ($2,000,000) per
accident, together with an excess liability policy in the amount of Five Million
Dollars ($5,000,000) which shall be in addition to the limits above set forth.
Borrower shall increase the limits of such liability insurance to such higher
amounts as the Agent may from time to time reasonably require. Certificates of
all such insurance shall be delivered to the Agent concurrently with the
execution and delivery of this Agreement, and thereafter all renewal or
replacement certificates shall be delivered to the Agent not less than thirty
(30) days prior to the expiration date of the policy to be renewed or replaced,
accompanied by evidence satisfactory to the Agent that all premiums payable with
respect to such policies have been paid by Borrower. Borrower shall have the
right of free choice in the selection of the agent or the insurer through or by
which the insurance required hereunder is to be placed; provided, however, said
insurer has at all times a general policyholder's rating of A or A+ in Best's
latest rating guide. Furthermore, the Agent shall have the right and is hereby
constituted and appointed the true and lawful attorney irrevocable of Borrower,
in the name and stead of Borrower, but in the uncontrolled discretion of said
attorney, (i) to adjust,
52
<PAGE>
sue for, compromise and collect any amounts due under such insurance policies
in the event of loss and (ii) to give releases for any and all amounts received
in settlement of losses under such policies; and the same shall, subject to
Section 2.6.1.3 of this Agreement, at the option of the Agent, be applied, after
- ---------------
first deducting the costs of collection, on account of any Indebtedness the
payment of which is secured by any of the Financing Documents, whether or not
then due, or, notwithstanding the claims of any subsequent lienor, be used or
paid over to Borrower for use in repairing or replacing any damaged or destroyed
collateral under any of the Security Documents.
Section 5.1.3. Preservation of Existence, etc. Preserve and maintain
------------- ------------------------------
in full force and effect its legal existence, and all material rights,
franchises and privileges in the jurisdiction of its organization, preserve and
maintain (except for sales, licenses or other scopes of use granted in the
ordinary course of Borrower's business consistent with past practice) all
material licenses, governmental approvals, trademarks, patents, trade secrets,
copyrights and trade names owned or possessed by it and which are necessary or,
in the reasonable business judgment of the Borrower, desirable in view of its
business and operations or the ownership of its properties and qualify or remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or, in its reasonable business judgement, desirable
in view of its business and operations and ownership of its properties except
where the failure to so qualify will not have a Material Adverse Effect.
Section 5.1.4. Compliance with Laws, etc. Comply with the
------------- -------------------------
requirements of all present and future applicable laws, rules, regulations and
written orders of any governmental authority having jurisdiction over it and/or
its business including, without limitation, regulations of the United States
Copyright Office and the Copyright Royalty Tribunal, except where the failure to
comply would not be reasonably likely to have a Material Adverse Effect.
Section 5.1.5. Visitation Rights. Permit, during normal business
-------------- -----------------
hours and upon the giving of reasonable notice, the Agent, the Lenders and any
agents or representatives thereof, to examine and make copies of (at their cost
and expense prior to a Default or Event of Default and at Borrower's cost and
expense during the continuance of a Default or Event of Default) and abstracts
from the records and books of account of, and visit the properties of the
Borrower and any Subsidiary to discuss the affairs, finances and accounts of the
Borrower or any Subsidiary with any of their partners, officers or management
level
53
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employees and/or any independent certified public accountant of the Borrower
and/or any Subsidiary.
Section 5.1.6. Keeping of Records and Books of Account. Keep
------------- ---------------------------------------
adequate records and books of account, in which complete entries will be made in
accordance with GAAP and with applicable requirements of any governmental
authority having jurisdiction over the Borrower and/or any Subsidiary in
question, reflecting all financial transactions.
Section 5.1.7. Maintenance of Properties, etc. Maintain and preserve
------------- ------------------------------
all of its properties necessary or useful in the proper conduct of its business,
in good working order and condition, ordinary wear and tear excepted, and in
accordance with each of the Security Documents.
Section 5.1.8. Post-Closing Items. Complete in a timely fashion all
------------- ------------------
actions required in the post-closing letter between the Borrower and the Agent
dated the Closing Date.
Section 5.1.9. Other Documents, etc. Except as otherwise required by
------------- --------------------
this Agreement, pay, perform and fulfill all of its obligations and covenants
under each material document, instrument or agreement to which it is a party
including, without limitation, the Related Transaction Documents; provided that
so long as the Borrower or any Subsidiary is contesting any claimed default by
it or them under any of the foregoing by proper proceedings conducted in good
faith and for which any proper reserve or other provision in accordance with and
to the extent required by GAAP has been made, such default shall not be deemed a
violation of this covenant.
Section 5.1.10. Minimum Interest Coverage Ratio. Maintain a ratio of
-------------- -------------------------------
EBITDA to Interest Expense of not less than 4.0:1.0, such ratio to be measured
(i) at each Borrower fiscal quarter end on or prior to December 31, 1996 for the
period commencing January 1, 1996 and ending on such fiscal quarter end and (ii)
at each Borrower fiscal quarter end thereafter for the rolling four Borrower
fiscal quarter period consisting of the Borrower fiscal quarter then ending and
the three immediately preceding Borrower fiscal quarters.
54
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Section 5.1.11. Minimum Debt Service Coverage Ratio. Maintain a
-------------- -----------------------------------
ratio of (i) EBITDA less, for the fiscal period in question, the sum of taxes
paid or payable and Capital Expenditures to (ii) the sum of Total Debt Service
and Non-Compete Payments (excluding the $1,500,000 Non-Compete Payment made on
the Closing Date) of not less than 1.20:1.00, such ratio to be measured (i) at
each Borrower fiscal quarter end on or prior to December 31, 1996 for the period
commencing January 1, 1996 and ending on such fiscal quarter end and (ii) at
each Borrower fiscal quarter end thereafter for the rolling four Borrower fiscal
quarter period consisting of the Borrower fiscal quarter then ending and the
three immediately preceding Borrower fiscal quarters.
Section 5.1.12. Maximum Ratio of Total Indebtedness for Borrowed
-------------- ------------------------------------------------
Money to EBITDA. Maintain at the end of each fiscal quarter of the Borrower in
- ---------------
each period set forth below a ratio of (i) total Indebtedness for Borrowed Money
of the Borrower and its Subsidiaries on a consolidated basis as of the last day
of such fiscal quarter to (ii) EBITDA for the rolling four Borrower fiscal
quarter period consisting of such fiscal quarter and the three immediately
preceding Borrower fiscal quarters of not greater than the ratio set forth below
opposite such period:
Borrower Fiscal Quarter(s) Ending Ratio
- --------------------------------- -----
March 31, 1996 3.75:1.00
June 30, 1996 3.50:1.00
September 30, 1996 3.25:1.00
December 31, 1996 3.00:1.00
March 31, 1997 2.75:1.00
June 30, 1997 2.50:1.00
September 30, 1997 2.25:1.00
December 31, 1997 2.00:1.00
March 31, 1998 1.75:1.00
June 30, 1998 and 1.50:1.00
each Borrower fiscal
quarter thereafter
55
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Section 5.1.13. Officer's Certificates and Requests. Provide each
-------------- -----------------------------------
Officer's Certificate required under this Agreement and each Request so that the
statements contained therein are accurate and complete in all material respects.
Section 5.1.14. Depository. Use the Agent as a depository of
-------------- ----------
Borrower's funds; provided, however, that the Borrower may maintain accounts at
Norwest Bank Colorado, Nationsbank and Bank of Boston.
Section 5.1.15. Chief Executive Officer. Maintain Guy Lammle as
-------------- -----------------------
chief executive officer of the Borrower and as the Person with principal
executive, operating and management responsibility for the Borrower's business
or obtain a replacement of comparable experience and training in the Borrower's
industry within 120 days of his ceasing to act in such capacity.
Section 5.1.16. Notice of Purchase of Real Estate and Leases.
-------------- --------------------------------------------
Promptly notify the Agent in the event that the Borrower shall purchase any real
estate or enter into any lease of real estate or of equipment material to the
operation of the Borrower's business, supply the Agent with a copy of the
related purchase agreement or of such lease, as the case may be, and if
requested by the Agent, execute and deliver, or cause to be executed and
delivered, to the Agent for the benefit of the Lenders a deed of trust or
mortgage or assignment, together with landlord consents, in the case of leased
property, reasonably satisfactory in form and substance to the Agent, granting a
valid first Lien (subject to any Liens permitted under Section 5.2.1 hereof) on
-------------
such real property or leasehold as security for the Financing Documents.
Section 5.1.17. Additional Assurances. From time to time hereafter,
-------------- ---------------------
execute and deliver or cause to be executed and delivered, such additional
instruments, certificates and documents, and take all such actions, as the Agent
shall reasonably request for the purpose of implementing or effectuating the
provisions of the Financing Documents, and upon the exercise by the Agent of any
power, right, privilege or remedy pursuant to the Financing Documents which
requires any consent, approval, registration, qualification or authorization of
any governmental authority or instrumentality, exercise and deliver all
applications, certifications, instruments and other documents and papers that
the Agent may be so required to obtain.
Section 5.1.18. Appraisals. During the continuance of an Event of
-------------- ----------
Default, permit the Agent and its agents, at any time and in the sole discretion
of the Agent or at the request of the
56
<PAGE>
Majority Lenders, to conduct appraisals of the Borrower's business, the cost
of which shall be borne by the Borrower.
Section 5.1.19. Environmental Compliance. Comply in all material
-------------- ------------------------
respects with the requirements of all federal, state, and local environmental
laws; notify the Lenders promptly in the event of any spill of Hazardous
Material materially affecting the Premises occupied by the Borrower from time to
time; forward to the Lenders promptly any written notices relating to such
matters received from any governmental agency; and pay promptly when due any
uncontested fine or assessment against the Premises.
Section 5.1.20. Remediation. Immediately contain and remove any
-------------- -----------
Hazardous Material found on the Premises in compliance with applicable laws and
at the Borrower's expense, subject however, to the right of the Agent, at the
Agent's option but at the Borrower's expense, to have an environmental engineer
or other representative review the work being done.
Section 5.1.21. Site Assessments. Promptly upon the request of the
-------------- ----------------
Agent, based upon the Agent's reasonable belief that a material Hazardous Waste
or other environmental problem exists with respect to any Premises, provide the
Agent with a Phase I environmental site assessment report and, if Agent finds a
reasonable basis for further assessment in such Phase I assessment, a Phase II
environmental site assessment report, or an update of any existing report, all
in scope, form and content and performed by such company as may be reasonably
satisfactory to the Agent.
Section 5.1.22. Indemnity. Indemnify, defend, and hold the Agent and
-------------- ---------
the Lenders harmless from and against any claim, cost, damage, expense
(including without limitation reasonable attorneys' fees and expenses), loss,
liability, or judgment now or hereafter arising as a result of any claim for
environmental cleanup costs, any resulting damage to the environment and any
other environmental claims against the Borrower, any Subsidiary, the Lenders
and/or the Agent arising out of the transactions contemplated by this Agreement,
or any of the Premises. The provisions of this Section shall continue in effect
and shall survive, until the applicable statute of limitations has expired, any
termination of this Agreement, foreclosure, a deed in lieu transaction, payment
and satisfaction of the Obligations of Borrower, and release of any collateral
for the Loans.
Section 5.1.23. Trademarks, Copyrights, etc. Concurrently with the
-------------- ---------------------------
acquisition of any material trademark, tradename, copyright, patent or service
mark collaterally assign
57
<PAGE>
and grant a first priority perfected Lien (or a second priority Lien if
Borrower or any Subsidiary acquired such item subject to an existing Lien)
thereon to the Agent pursuant to documents in form and substance reasonably
satisfactory to the Agent.
Section 5.1.24. Maintenance of Escrow. Comply with all of the terms
-------------- ---------------------
and conditions of that certain software escrow agreement dated on or prior to
June 19, 1992 by and among Borrower and National Safe Depository and the
Financing Document which is the agreement supplemental thereto between National
Safe Depository and the Agent dated on or about the Closing Date, including,
without limitation, the payment of all amounts due thereunder and the
requirement to deposit modifications, updates, new releases or documentation
related to previously deposited materials.
Section 5.2. Negative Covenants of the Borrower. From the date hereof
----------- ----------------------------------
and thereafter for so long as there is Indebtedness of the Borrower to any
Lender and/or the Agent under any of the Financing Documents or any part of
the Commitment is in effect, the Borrower will not, with respect to itself and,
unless noted otherwise below, with respect to each of the Subsidiaries, will
ensure that each such Subsidiary will not, without the prior written consent of
the Majority Lenders:
Section 5.2.1. Liens, etc. Create, incur, assume or suffer to exist
------------- ----------
any Lien of any nature, upon or with respect to any of its properties, now owned
or hereafter acquired, or assign as collateral or otherwise convey as
collateral, any right to receive income, except that the foregoing restrictions
shall not apply to any Liens:
Section 5.2.1.1. For taxes, assessments or governmental charges
---------------
or levies on property if the same shall not at the time be delinquent or
thereafter can be paid without penalty or interest, or (if foreclosure,
distraint, sale or other similar proceedings shall not have been commenced or if
commenced not stayed, bonded or discharged within 30 days after commencement)
are being contested in good faith and by appropriate proceedings diligently
conducted and for which proper reserve or other provision has been made in
accordance with and to the extent required by GAAP;
Section 5.2.1.2. Imposed by law, such as landlords', carriers',
---------------
warehousemen's and mechanics' liens, bankers' set off rights and other similar
Liens arising in the ordinary course of business for sums not yet due or being
contested in good faith and by appropriate proceedings diligently conducted and
for which proper reserve or other provision has been made in accordance with and
to the extent required by GAAP;
58
<PAGE>
Section 5.2.1.3. Arising in the ordinary course of business out of
---------------
pledges or deposits under worker's compensation laws, unemployment insurance,
old age pensions, or other social security or retirement benefits, or similar
legislation;
Section 5.2.1.4. arising from or upon any judgment or award, provided
---------------
that such judgment or award is being contested in good faith by proper appeal
proceedings and only so long as execution thereon shall be stayed;
Section 5.2.1.5. Those set forth on Exhibit 1.8;
--------------- -----------
Section 5.2.1.6. Those now or hereafter granted pursuant to the
---------------
Security Documents or otherwise now or hereafter granted to the Agent for the
benefit of the Lenders as collateral for the Loans and/or Borrower's other
Obligations arising in connection with or under any of the Financing Documents;
Section 5.2.1.7. Deposits to secure the performance of bids, trade
---------------
contracts (other than for Borrowed Money), leases, statutory obligations, surety
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of the Borrower's or any Subsidiary's business;
Section 5.2.1.8. Easements, rights of way, restrictions and other
---------------
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of business by any Borrower or any
Subsidiary;
Section 5.2.1.9. Liens securing Indebtedness permitted to exist under
---------------
Section 5.2.8.3; provided that the Lien securing any such Indebtedness is
- ---------------
limited to the item of property purchased or leased in each case;
Section 5.2.1.10. UCC-1 financing statements filed solely for notice
----------------
or precautionary purposes by lessors under operating leases which do not secure
Indebtedness and which are limited to the items of equipment leased pursuant to
the lease in question; and
Section 5.2.1.11. Liens, whether recorded or unrecorded,
----------------
securing Hardware Indebtedness.
59
<PAGE>
Section 5.2.2. Assumptions, Guaranties, etc. of Indebtedness of Other
-------------- ------------------------------------------------------
Persons. Assume, guarantee, endorse or otherwise become directly or
- -------
contingently liable in connection with any obligation or Indebtedness of any
other Person, except:
Section 5.2.2.1. Guaranties by endorsement of negotiable
---------------
instruments for deposit or collection or similar transactions in the ordinary
course of business;
Section 5.2.2.2. Assumptions, guaranties, endorsements and
---------------
contingent liabilities within the definition of Indebtedness and permitted by
Section 5.2.8; and
- -------------
Section 5.2.2.3. Those set forth on Exhibit 5.2.2.
--------------- -------------
Section 5.2.3. Acquisitions, Dissolution, etc. Acquire, in one or a
-------------- ------------------------------
series of transactions, all or any substantial portion of the assets or
ownership interests in another Person, or dissolve, liquidate, wind up, merge or
consolidate or combine with another Person or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) any
material assets, whether now owned or hereafter acquired, (except that Borrower
may, in the ordinary course of business, convert a license for intellectual
property for which it receives an ongoing royalty fee into a perpetual license
for which it receives a lump sum payment of Dollars and that Borrower may, under
its Agreement with the Distribution Team, Inc., exercise its option to purchase
a perpetual license to use software for a total purchase price of $500,000) or
any of the Borrower's or any Subsidiary's interests in real property other than
assets which are replaced within 30 days of any asset sale, assignment, lease or
disposition with assets of like kind, usefulness and value; provided, however,
that for so long as the Borrower shall maintain a ratio of Indebtedness for
Borrowed Money to EBITDA measured as set forth in Section 5.1.12 of less than
---------------
2.75:1.00, Borrower shall be permitted to acquire all or any portion of the
assets of or ownership interests in another Person (by merger, consolidation or
otherwise so long as the Borrower survives) having aggregate (for all such
acquisitions since the Closing Date but excluding the Related Transactions)
consideration not to exceed $2,500,000 and provided, further that for so long as
the Borrower shall maintain a ratio of Indebtedness for Borrowed Money to EBITDA
measured as set forth in Section 5.1.12 of less than 2.00:1.00, Borrower shall
--------------
be permitted to acquire all or any portion of the assets or ownership interests
in another Person (by merger, consolidation or otherwise so long as the Borrower
survives) having aggregate (for all such acquisitions since the Closing Date)
consideration not to exceed $5,000,000. At the time of any such acquisition
60
<PAGE>
the Borrower shall provide or grant or cause to be provided or granted to the
Agent a first priority perfected Lien on the assets or ownership interests
acquired, including without limitation the assets owned by any Subsidiary, to
the extent that the Agent does not already have such a Lien. Prior to the
consummation of any such permitted transaction, Borrower shall submit to the
Agent a pro-forma Compliance Certificate on a consolidated basis (including the
to-be-acquired assets and any assumed liabilities or if ownership interests are
acquired, the to-be acquired Person if such Person is to be a Subsidiary and if
not, the to-be acquired ownership interests, all measured as set forth below in
this Section 5.2.3), which such pro-forma Compliance Certificate shall indicate
-------------
that no Default or Event of Default exists or would exist following consummation
of the permitted transaction and that the Borrower would be, in compliance with
(on a consolidated basis including the to-be-acquired assets and any assumed
liabilities or if ownership interests are acquired, the to-be acquired Person if
such Person is to be a Subsidiary and if not, the to-be acquired ownership
interests), Sections 5.1.10, 5.1.11 and 5.1.12 following consummation of the
--------------- ------ ------
permitted transaction, including the to-be-acquired assets, Person or ownership
interests and the operating results thereof on the same basis and for the same
periods as the Borrower is measured for each such covenant, respectively.
Section 5.2.4. Change in Nature of Business. Make any material
------------- ----------------------------
change in the nature of its business.
Section 5.2.5. Ownership. Cause or permit the occurrence of any
------------- ---------
Change of Control.
Section 5.2.6. Sale and Leaseback. Enter into any sale and
------------- ------------------
leaseback arrangement with any lender or investor, or enter into any leases
except in the normal course of business at reasonable rents comparable to those
paid for similar leasehold interests in the area.
Section 5.2.7. Sale of Accounts, etc. Sell, assign, discount or
------------- ---------------------
dispose in any way of any accounts receivable, promissory notes or trade
acceptances held by the Borrower or any Subsidiary, with or without recourse,
except in the ordinary course of the Borrower's or any Subsidiary's business.
Section 5.2.8. Indebtedness. Incur, create, become or be liable
------------- ------------
directly or indirectly in any manner with respect to or permit to exist any
Indebtedness except:
Section 5.2.8.1. Indebtedness under the Financing Documents;
---------------
61
<PAGE>
Section 5.2.8.2. Indebtedness with respect to trade payable
---------------
obligations and other normal accruals and customer deposits in the ordinary
course of business not yet due and payable in accordance with customary trade
terms or with respect to which the Borrower or any Subsidiary is contesting in
good faith the amount or validity thereof by appropriate proceedings and then
only to the extent such person has set aside on its books adequate reserves
therefor in accordance with and to the extent required by GAAP;
Section 5.2.8.3. Indebtedness with respect to Capitalized Lease
---------------
Obligations and purchase money Indebtedness with respect to real or personal
property in an aggregate amount outstanding at any time not to exceed
$1,000,000; provided that the amount of any purchase money Indebtedness does not
exceed 90% of the lesser of the cost or fair market value of the asset purchased
with the proceeds of such Indebtedness;
Section 5.2.8.4. Unsecured Indebtedness in an aggregate amount
---------------
outstanding at any time not to exceed $250,000;
Section 5.2.8.5. Indebtedness listed on Exhibit 3.1.1.8;
--------------- ---------------
Section 5.2.8.6. Indebtedness owing by the Borrower to any
---------------
Subsidiary or by any Subsidiary to the Borrower or any other Subsidiary.
Section 5.2.8.7. Indebtedness permitted by Section 5.2.2 and
--------------- -------------
Indebtedness secured by Liens permitted under Section 5.2.1.4.
----------------
Section 5.2.8.8. Hardware Indebtedness in aggregate outstanding
---------------
principal amount not in excess of $2,500,000.
Section 5.2.8.9. Indebtedness outstanding as a refinancing of
---------------
Indebtedness permitted under another clause of this Section 5.2.8 other than
-------------
Section 5.2.8.2 or 5.2.8.8; provided that such Indebtedness as refinanced
- --------------- -------
continues to qualify as permitted Indebtedness under the clause of this Section
-------
5.2.8 under which the refinanced Indebtedness was permitted under this Section
- ----- -------
5.2.8.
- -----
Section 5.2.9. Other Agreements. Amend any of the terms or
-------------- ----------------
conditions of any of the Related Transaction Documents in a manner materially
adverse to the Agent or any of the Lenders, its certificate of incorporation, if
any, any subordination agreement or any indenture, agreement, document,
62
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note or other instrument evidencing, securing or relating to any other
Indebtedness permitted under Section 5.2.8 in manner adverse to the interests of
-------------
the Agent or the Lenders.
Section 5.2.10. Payment or Prepayment of Equity. Make any payment or
-------------- -------------------------------
prepayment of any principal of or interest on or any payment, prepayment,
redemption, defeasance, sinking fund payment, other repayment of principal or
capital or deposit for the purpose of any of the foregoing on or in connection
with the Equity, except for payment, but not prepayment, of the Non-Compete
Payments.
Section 5.2.11. Dividends, Payments and Distributions. Declare or
-------------- -------------------------------------
pay any dividends, management fees or like fees or make any other distribution
of cash or property or both to any of the Stockholders other than compensation
for services rendered to the Borrower and/or any Subsidiary or use any of its
assets for payment, purchase, conversion, redemption, retention, acquisition or
retirement of any beneficial interest in the Borrower or set aside or reserve
assets for sinking or like funds for any of the foregoing purposes, make any
other distribution by reduction of capital or otherwise in respect of any
beneficial interest in the Borrower or permit any Subsidiary which is not a
wholly-owned Subsidiary so to do, provided however, that in the event of a
Qualified Initial Public Offering, and subject at all times to the Borrower's
compliance with the provisions of Section 2.6.1.5, the Borrower shall be
---------------
permitted to redeem or convert shares of the Borrower's convertible
participating preferred stock and/or redeemable preferred stock.
Notwithstanding anything to the contrary set forth in this Agreement, the New
Stockholders may at any time convert their shares of the Borrower's convertible
participating preferred stock in accordance with the provisions of the
Borrower's Amended and Restated Certificate of Incorporation.
Section 5.2.12. Investments in or to Other Persons. Make or commit
-------------- ----------------------------------
to make any Investment in or to any other Person (including, without limitation,
any Subsidiary) other than (i) advances to employees for business expenses not
to exceed $10,000 in the aggregate outstanding for any one employee and not to
exceed $50,000 in the aggregate outstanding at any one time to all such
employees, (ii) other employee loans not to exceed $100,000 in the aggregate
outstanding at any one time to all such employees, (iii) Cash Equivalent
Investments, (iv) Investments by the Borrower in any Subsidiary (a) which is
organized under the laws of a state in the United States of America and
substantially all of the assets of which are located in the United States of
America or (b) which is organized under the laws of a nation under the laws of
which the Agent could obtain, on behalf of the
63
<PAGE>
Lenders, a first priority perfected Lien; provided that at all times at least
85% of the higher of the cost or fair market value of the Borrower's and any
Subsidiaries' assets taken as a whole shall be at all times located in the
United States of America, all determined in accordance with GAAP, and in the
case of (iv)(a) and (b) the assets and Borrower-owned capital stock of which is
encumbered by first priority perfected Liens in form and substance satisfactory
to the Agent granted to and held by the Agent for the benefit of the Lenders,
(v) Investments in accounts, contract rights and chattel paper (as defined in
the Uniform Commercial Code) and notes receivable, arising or acquired in the
ordinary course of business and (vi) Investments described on Exhibit 5.2.2.
--------------
Section 5.2.13. Transactions with Affiliates. Except as contemplated
-------------- ----------------------------
by the Equity Documents and Related Transaction Documents and except for
Borrower's exercise of its option under its agreement with Distribution Team,
Inc. referred to in Section 5.2.3, engage in any transaction or enter into any
-------------
agreement with an Affiliate, or in the case of Affiliates or Subsidiaries, with
the Borrower or another Affiliate or Subsidiary, except in the ordinary course
of business, as permitted by any other provision of this Agreement and then only
on an arm's length basis except as set forth on Exhibit 5.2.13.
--------------
Section 5.2.14. Change of Fiscal Year. Change its fiscal year.
-------------- ---------------------
Section 5.2.15. Subordination of Claims. Subordinate any present or
-------------- -----------------------
future claim against or obligation of another Person, except as ordered in a
bankruptcy or similar creditors' remedy proceeding of such other Person.
Section 5.2.16. Compliance with ERISA. With respect to Borrower and
-------------- ---------------------
any Commonly Controlled Entity permit the occurrence of any of the following
events to the extent that any such events would result in a Material Adverse
Effect on Borrower, (a) withdraw from or cease to have an obligation to
contribute to, any Multiemployer Plan, (b) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code) involving any Plan, (c)
except for any deficiency caused by a waiver of the minimum funding requirement
under section 412 of the Code, as described above, incur or suffer to exist any
material "accumulated funding deficiency" (as defined in section 302 of ERISA
and section 412 of the Code) of the Borrower or any Commonly Controlled Entity,
whether or not waived, involving any Single Employer Plan, (d) incur or suffer
to exist any Reportable Event or the appointment of a trustee or institution of
proceedings for appointment of a trustee for any Single Employer
64
<PAGE>
Plan if, in the case of a Reportable Event, such event continues unremedied
for ten (10) days after notice of such Reportable Event pursuant to sections
4043(a), (c) or (d) of ERISA is given, if in the reasonable opinion of the
Majority Lenders any of the foregoing is likely to result in a Material Adverse
Effect, (e) allow or suffer to exist any event or condition, which presents a
material risk of incurring a material liability of the Borrower or any Commonly
Controlled Entity to PBGC by reason of termination of any such Plan or (f) cause
or permit any Plan maintained by Borrower and/or any Commonly Controlled Entity
to be out of compliance with ERISA.
Section 5.2.17. Capital Expenditures. Incur Capital Expenditures (i)
-------------- --------------------
during calendar year 1996 in excess of $1,000,000, (ii) during calendar year
1997 in excess of $1,250,000, (iii) during calendar year 1998 in excess of
$1,500,000 and (iv) during calendar year 1999 in excess of $2,000,000.
Subject to the foregoing, the Borrower shall make its Capital
Expenditures substantially in accordance with and for the purposes outlined in
the Budget for the Borrower fiscal year in question.
Section 5.2.18. Hazardous Waste. Become involved, or permit, to the
-------------- ---------------
extent reasonably possible after the exercise by the Borrower of reasonable due
diligence and preventive efforts, any tenant of its real property to become
involved, in any operations at such real property generating, storing,
disposing, or handling Hazardous Material or any other activity that could lead
to the imposition on the Borrower or the Agent or any Lender, or any such real
property of any material liability or Lien under any environmental laws.
Section 5.3. Reporting Requirements. From the date hereof and thereafter
----------- ----------------------
for so long as the Borrower is indebted to any Lender and/or the Agent under any
of the Financing Documents, the Borrower will, unless the Majority Lenders shall
otherwise consent in writing, furnish or cause to be furnished to the Agent for
distribution to the Lenders:
Section 5.3.1. As soon as possible and in any event upon acquiring
-------------
knowledge of an Event of Default or Default, continuing on the date of such
statement, the written statement of an Authorized Representative setting forth
details of such Event of Default or Default and the actions which the Borrower
has taken and proposes to take with respect thereto;
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Section 5.3.2. As soon as practicable after the end of each Borrower
-------------
fiscal year and in any event within 90 days after the end of each such fiscal
year, consolidated and consolidating balance sheets of the Borrower and any
Subsidiaries as at the end of such year, and the related statements of income
and cash flows or shareholders' equity of the Borrower and any Subsidiaries
setting forth in each case the corresponding figures for the preceding fiscal
year, such statements to be certified by a firm of independent certified public
accountants selected by Borrower and reasonably acceptable to the Majority
Lenders, to be accompanied by a true copy of said auditors' management letter,
if one was provided to the Borrower;
Section 5.3.3. As soon as is practicable after the end of each fiscal
-------------
quarter of each Borrower fiscal year and in any event within 45 days thereafter,
consolidated balance sheets of the Borrower and any Subsidiaries as of the end
of such period and the related statements of income and cash flows and
shareholders' equity of the Borrower and any Subsidiaries, subject to changes
resulting from year-end adjustments, together, subject to Section 5.3.7, with a
-------------
comparison to the Budget for the applicable period, such balance sheets and
statements to be prepared and certified by an Authorized Representative in an
Officer's Certificate as having been prepared in accordance with GAAP except for
footnotes and year-end adjustments, and to be in form reasonably satisfactory to
the Agent;
Section 5.3.4. Simultaneously with the furnishing of each of the
-------------
year-end consolidated and consolidating financial statements of the Borrower and
any Subsidiaries to be delivered pursuant to Section 5.3.2 and each of the
-------------
consolidated quarterly statements of the Borrower and the Subsidiaries to be
delivered pursuant to Section 5.3.3 an Officer's Certificate of an Authorized
-------------
Representative which shall contain a statement in the form of Exhibit 3.1.1.10
----------------
to the effect that no Event of Default or Default has occurred, without having
been waived in writing, or if there shall have been an Event of Default not
previously waived in writing pursuant to the provisions hereof, or a Default,
such Officer's Certificate shall disclose the nature thereof and the actions the
Borrower has taken and prepare to take with respect thereto. Each such
Officer's Certificate shall also contain a calculation of and certify to the
accuracy of the amounts required to be calculated in the financial covenants of
the Borrower contained in this Agreement and described in Exhibit 3.1.1.10;
------- --------
Section 5.3.5. Promptly after the commencement thereof, notice of all
-------------
material actions, suits and proceedings before any court or governmental
department, commission, board, bureau,
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agency or instrumentality, domestic or foreign, affecting the Borrower and/or
any Subsidiary;
Section 5.3.6. [Intentionally Omitted]
-------------
Section 5.3.7. On or before January 31 of each fiscal year of the
-------------
Borrower, an updated proposed budget, prepared on a quarterly basis, and updated
financial projections for the Borrower and any Subsidiaries on a consolidated
basis (together, the "Budget") for such fiscal year, setting forth in detail
reasonably satisfactory to the Agent the projected results of operations of the
Borrower and any Subsidiaries on a consolidated quarterly basis, detailed
Capital Expenditures plan and stating underlying assumptions and accompanied by
a written statement of an Authorized Representative certifying as to the
approval of such Budget by Borrower's board of directors.
Section 5.3.8. Such other information respecting the Business
-------------
Condition of the Borrower or any Subsidiaries as the Agent or any Lender may
from time to time reasonably request;
Section 5.3.9. Written notice of the fact and of the details of any
-------------
sale or transfer of any ownership interest in the Borrower or any Subsidiary
given promptly after the Borrower acquires knowledge thereof; provided, however,
that this clause shall not be deemed to constitute or imply any consent to any
such sale or transfer;
Section 5.3.10. Prompt written notice of loss of any key personnel or
--------------
any Material Adverse Effect and an explanation thereof and of the actions the
Borrower and/or such Subsidiary propose to take with respect thereto; and
Section 5.3.11. Written notice of the following events, as soon as
--------------
possible and in any event within 15 days after the Borrower knows or has reason
to know thereof: (i) the occurrence of any Reportable Event with respect to any
Plan, or (ii) the institution of proceedings or the taking of any other action
by PBGC or the Borrower or any Commonly Controlled Entity to terminate, withdraw
or partially withdraw from any Plan and, with respect to any Multiemployer
Plan, the Reorganization (as defined in Section 4241 of ERISA) or Insolvency (as
defined in Section 4245 of ERISA) of such Multiemployer Plan and in addition to
such notice, deliver to the Agent whichever of the following may be applicable:
(a) an Officer's Certificate setting forth details as to such Reportable Event
and the action that the Borrower or Commonly Controlled Entity proposes to take
with respect thereto, together with a copy of any notice of such Reportable
Event that may be required to be filed with PBGC, or
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b) any notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated, as the
case may be.
ARTICLE 6.
EVENTS OF DEFAULT
Section 6.1. Events of Default. The Borrower shall be in default
----------- -----------------
under each of the Financing Documents, upon the occurrence of any one or more of
the following events ("Events of Default"):
Section 6.1.1. If the Borrower shall fail to make due and punctual
-------------
payment of any principal, fees, interest and/or other amounts payable under this
Agreement as provided in any Note and/or in this Agreement when the same is due
and payable except that it shall not be an Event of Default if any interest,
fees and/or other amounts (excluding principal) is paid within 5 days after it
is due and payable, whether at the due date thereof or at a date fixed for
prepayment or if the Borrower shall fail to make any such payment of fees,
interest, principal and/or any other amount under this Agreement and/or under
any Note on the date when such payment becomes due and payable by acceleration;
Section 6.1.2. If the Borrower or any Subsidiary shall make an
-------------
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall admit in writing its inability to pay its
debts as they become due or shall file a voluntary petition in bankruptcy, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, adjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy laws or other applicable federal, state
or other statute, law or regulation, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of it or of all or any
substantial part of its properties, or if partnership or corporate action shall
be taken for the purpose of effecting any of the foregoing; or
Section 6.1.3. To the extent not described in Section 6.1.2, (i)
------------- -------------
if the Borrower or any Subsidiary shall be the subject of a bankruptcy
proceeding, or (ii) if any proceeding against any of them seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution,
or similar relief under the present or any future federal bankruptcy law or
other applicable federal, foreign, state or other statute, law or regulation
shall be commenced, or (iii) if any trustee, receiver
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or liquidator of any of them or of all or any substantial part of any or all
of their properties shall be appointed without their consent or acquiescence;
provided that in any of the cases described above in this Section 6.1.3, such
-------------
proceeding or appointment shall not be an Event of Default if the Borrower or
the Subsidiary in question shall cause such proceeding or appointment to be
discharged, vacated, dismissed or stayed within sixty (60) days after
commencement thereof; or
Section 6.1.4. If final unappealable judgment or judgments
-------------
aggregating more than $500,000 shall be rendered against the Borrower or any
Subsidiary and shall remain undischarged, unstayed or unpaid for an aggregate of
sixty (60) days (whether or not consecutive) after entry thereof; or
Section 6.1.5. If the Borrower or any Subsidiary shall default (after
-------------
giving effect to any applicable grace period) in the due and punctual payment of
the principal of or interest on any Indebtedness for Borrowed Money exceeding in
the aggregate $250,000 (other than the Loans), or if any default shall have
occurred and be continuing after any applicable grace period under any mortgage,
note or other agreement evidencing, securing or providing for the creation of
such Indebtedness for Borrowed Money, which results in the acceleration of such
Indebtedness or which permits, or with the giving of notice would permit, any
holder or holders of any such Indebtedness for Borrowed Money to accelerate the
stated maturity thereof; or
Section 6.1.6. If there shall be a default in the performance of the
-------------
Borrower's obligations under Section 5.1.3 (insofar as such Section requires the
-------------
preservation of the corporate existence of the Borrower or any Subsidiary), any
of Sections 5.1.2, 5.1.10, through 5.1.13 or Section 5.2 (other than Sections
-------------- ------ ------ ----------- --------
5.2.4, 5.2.9, 5.2.13, 5.2.15, 5.2.16 and 5.2.18) of this Agreement; or
- ----- ----- ------ ------ ------ ------
Section 6.1.7. If there shall be any Default in the performance of
-------------
any covenant or condition contained in this Agreement or in any of the other
Financing Documents to be observed or performed pursuant to the terms hereof or
any Financing Document, as the case may be, or to the extent such Default would
have a Material Adverse Effect, by the Borrower under any of the Related
Transaction Documents, other than a covenant or condition referred to in any
other subsection of this Section 6.1 and such Default shall continue unremedied
-----------
or unwaived, (i) in the case of any covenant or condition contained in Section
-------
5.3, for fifteen (15) Business Days, or (ii) in the case of any other covenant
- ---
or condition for which no other grace period is provided, for thirty (30) days,
or (iii) in the case of
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any other covenant or condition for which another grace period is provided,
for such grace period, or (iv) if any of the representations and warranties made
or deemed made by the Borrower to the Agent and/or any Lender pursuant to any of
the Financing Documents proves to have been false or misleading in any material
respect when made and such falseness or misleading representation or warranty
would be reasonably likely to have a material adverse effect on the Agent or any
Lender or their rights and remedies or a Material Adverse Effect; or
Section 6.1.8. If there shall be any attachment of any deposits or
-------------
other property of the Borrower and/or any Subsidiary in the possession of any
Lender or any attachment of any other property of the Borrower and/or any
Subsidiary in an amount exceeding $250,000 other than an attachment by the
vendor owed money under Hardware Indebtedness of the item(s) of computer
equipment or computer hardware purchased with the Hardware Indebtedness in
question, if such attachment arises out of a dispute between the Borrower and/or
any Subsidiary and such vendor, which attachment and vendor claim(s) are being
contested in good faith and by proper proceedings by the Borrower and/or such
Subsidiary and for which proper reserve or other provision has been made in
accordance with and to the extent required by GAAP, which shall not be
discharged, vacated or stayed within thirty (30) days of the date of such
attachment; or
Section 6.1.9. Any certification of the financial statements,
-------------
furnished to the Agent pursuant to Section 5.3.2, shall contain any
-------------
qualification; provided, however, that such qualifications will not be deemed an
Event of Default if in each case (i) such certification shall state that the
examination of the financial statements covered thereby was conducted in
accordance with generally accepted auditing standards, including but not limited
to all such tests of the accounting records as are considered necessary in the
circumstances by the independent certified public accountants preparing such
statements, (ii) such financial statements were prepared in accordance with GAAP
and (iii) such qualification does not involve the "going concern" status of the
entity being reported upon.
ARTICLE 7.
REMEDIES OF LENDERS
Upon the occurrence and during the continuance of any one or more of
the Events of Default, the Agent, at the request of the Majority Lenders, shall,
by written notice to the Borrower, declare the obligation of the Lenders to make
or maintain the
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Loans to be terminated, whereupon the same and the Commitment shall forthwith
terminate, and the Agent, at the request of the Majority Lenders, shall, by
notice to the Borrower, declare the entire unpaid principal amount of each Note
and all fees and interest accrued and unpaid thereon and/or under this
Agreement, and/or any of the other Financing Documents and any and all other
Indebtedness under this Agreement, each Note and/or any of the other Financing
Documents to the Agent and/or any of the Lenders and/or to any holder of all or
any portion of each Note to be forthwith due and payable, whereupon each Note,
and all such accrued fees and interest and other such Indebtedness shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that upon the occurrence of an Event of Default
under Sections 6.1.2 or 6.1.3, all of the unpaid principal amount of each Note,
-------------- -----
all fees and interest accrued and unpaid thereon and/or under this Agreement
and/or under any of the other Financing Documents and any and all other such
Indebtedness of the Borrower to any of the Lenders and/or to any such holder
shall thereupon be due and payable in full without any need for the Agent and/or
any Lender to make any such declaration or take any action and the Lenders'
obligations to make the Loans shall simultaneously terminate. The Agent shall,
in accordance with the votes of the Majority Lenders, exercise all remedies on
behalf of and for the account of each Lender and on behalf of its respective Pro
Rata Share of the Loans, its Note and Indebtedness of the Borrower owing to it
or any of the foregoing, including, without limitation, all remedies available
under or as a result of this Agreement, the Notes or any of the other Financing
Documents or any other document, instrument or agreement now or hereafter
securing any Note without any such exercise being deemed to modify in any way
the fact that each Lender shall be deemed a separate creditor of the Borrower to
the extent of its Note and Pro Rata Share of the Loans and any other amounts
payable to such Lender under this Agreement and/or any of the other Financing
Documents and the Agent shall be deemed a separate creditor of the Borrower to
the extent of any amounts owed by the Borrower to the Agent.
ARTICLE 8
AGENT
Section 8.1. Appointment. The Agent is hereby appointed as Agent, hereunder
- ----------- -----------
and each Lender hereby authorizes the Agent to act under the Financing
Documents as its Agent hereunder and thereunder, respectively. The Agent agrees
to act as such upon the express conditions contained in this Article 8. The
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provisions of this Article 8 are solely for the benefit of the Agent, and,
except as expressly provided in Section 8.6, neither the Borrower nor any third
-----------
party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Financing Documents to which the Agent is a party, the Agent shall
act solely as Agent of the Lenders and does not assume nor shall the Agent be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for the Borrower, any of the Stockholders, any Affiliate or any
Subsidiary. Notwithstanding anything to the contrary contained herein, Bank of
Boston shall have no responsibilities, obligations or authority as an Agent, its
responsibilities, obligations or authority being limited to those it may have
solely in its capacity as a Lender.
Section 8.2. Powers; General Immunity.
- ----------- ------------------------
Section 8.2.1. Duties Specified. Each Lender irrevocably authorizes
------------- ----------------
the Agent to take such action on such Lender's behalf, including, without
limitation, to execute and deliver the Financing Documents to which the Agent is
a party and to exercise such powers hereunder and under the Financing Documents
and other instruments and agreements referred to herein as are specifically
delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. The Agent shall have only those
duties and responsibilities which are expressly specified in this Agreement or
in any of the Financing Documents and may perform such duties by or through its
agents or employees. The duties of the Agent shall be mechanical and
administrative in nature; and the Agent shall not have by reason of this
Agreement or any of the Financing Documents a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or any of the Security Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any of the Financing
Documents or the other instruments and agreements referred to herein except as
expressly set forth herein or therein.
Section 8.2.2. No Responsibility For Certain Matters. The Agent
------------- -------------------------------------
shall not be responsible to any Lender for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of any of
the Financing Documents or any other document, instrument or agreement now or
hereafter executed in connection herewith or therewith, or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates
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or any other documents in connection herewith or therewith by or on behalf of
the Borrower, any of the Stockholders, and/or any Subsidiary to the Agent or any
Lender, or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default.
Section 8.2.3. Exculpatory Provisions. Neither the Agent nor any of
------------- ----------------------
its officers, directors, employees or agents shall be liable to any Lender for
any action taken or omitted hereunder or under any of the Financing Documents,
or in connection herewith or therewith unless caused by its or their gross
negligence or willful misconduct. If the Agent shall request instructions from
Lenders with respect to any action (including the failure to take an action) in
connection with any of the Financing Documents, the Agent shall be entitled to
refrain from taking such action unless and until the Agent, shall have received
instructions from the Majority Lenders (or all of the Lenders if the action
requires their consent). Without prejudice to the generality of the foregoing,
(i) the Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Borrower, any
of the Stockholders, and/or any Subsidiary), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under any of the Financing Documents or the
other instruments and agreements referred to herein in accordance with the
instructions of the Majority Lenders (or all of the Lenders if the action
requires their consent). The Agent shall be entitled to refrain from exercising
any power, discretion or authority vested in it under any of the Financing
Documents or the other instruments and agreements referred to herein unless and
until it has obtained the instructions of the Majority Lenders (or all of the
Lenders if the action requires their consent).
Section 8.2.4. Agent Entitled to Act as Lender. The agency hereby
------------- -------------------------------
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon, Fleet in its individual capacity as a
Lender hereunder. With respect to its participation in the Loans and the
Commitment, Fleet shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not performing the
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duties and functions delegated to it hereunder, and the term "Lender" or
"Lenders" or any similar term shall, unless the context clearly otherwise
indicates, include Fleet in its individual capacity. The Agent and its
affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with the Borrower,
any of the Stockholders, or any Affiliate or Subsidiary as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower and/or any of such other Persons for services in
connection with this Agreement and otherwise without having to account for the
same to Lenders.
Section 8.3. Representations and Warranties; No Responsibility or Appraisal of
- ----------- -----------------------------------------------------------------
Creditworthiness. Each Lender represents and warrants that it has made its own
- ----------------
independent investigation of the financial condition and affairs of the
Borrower, the Stockholders and any Subsidiaries of any of them in connection
with the making of the Loans hereunder and has made and shall continue to make
its own appraisal of the creditworthiness of the Borrower, the Stockholders and
the Subsidiaries. The Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to make any such investigation or any such
appraisal on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto whether coming into its possession before the
making of any Loan or any time or times thereafter (except for information
received by the Agent under Section 5.3 hereof which the Agent will promptly
-----------
forward to the Lenders), and the Agent shall further not have any responsibility
with respect to the accuracy of or the completeness of the information provided
to any of the Lenders.
Section 8.4. Right to Indemnity. Each Lender severally agrees to indemnify
- ----------- ------------------
the Agent proportionately to its Pro Rata Share of the Loans, to the extent the
Agent shall not have been reimbursed by or on behalf of the Borrower, for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation,
counsel fees and disbursements) or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder or in any way relating to or arising out of this
Agreement and/or any of the other Financing Documents; provided that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. If any
indemnity furnished to the Agent for any purpose shall, in the
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opinion of the Agent, be insufficient or become impaired, the Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
Section 8.5. Payee of Note Treated as Owner. The Agent may deem and treat
- ----------- ------------------------------
the payee of any Note as the owner thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of that Note or of any Note or Notes issued in exchange
for such Note.
Section 8.6. Resignation by Agent.
- ----------- --------------------
Section 8.6.1. The Agent may resign from the performance of all its
-------------
functions and duties under the Financing Documents at any time by giving 30
days' prior written notice to the Borrower and each of the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent, of
appointment pursuant to Sections 8.6.2 and 8.6.3 below or as otherwise provided
-------------- -----
below.
Section 8.6.2. Upon any such notice of resignation, the Majority
-------------
Lenders shall appoint a successor Agent, who shall be a Lender and, so long as
no Default or Event of Default exists and is continuing, who shall be reasonably
satisfactory to the Borrower and in any event shall be an incorporated bank or
trust company with a combined surplus and undivided capital of at least Five
Hundred Million Dollars ($500,000,000).
Section 8.6.3. If a successor Agent shall not have been so appointed
-------------
within said 30 day period, the resigning Agent, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, shall then
appoint a successor Agent, who shall be a Lender and who shall serve as the
Agent, until such time, if any, as the Majority Lenders, and so long as no
Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent as provided above.
Section 8.6.4. If no successor Agent has been appointed pursuant to
-------------
Sections 8.6.2 or 8.6.3 by the 40th day after the date such notice of
- -------------- -----
resignation was given by the resigning Agent, the resigning Agent's resignation
shall become effective and the Majority Lenders shall thereafter perform all the
duties of the resigning Agent under the Financing Documents including without
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limitation directing the Borrower on how to submit Requests and Interest Rate
Elections and otherwise on administration of the Agent's duties under the
Financing Documents and the Borrower shall comply therewith so long as such
directions do not have a Material Adverse Effect on the Borrower or any
Subsidiary until such time, if any, as the Majority Lenders, and so long as no
Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent, as provided above.
Section 8.7. Successor Agent. Upon the acceptance of any appointment as the
- ----------- ---------------
Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent, shall be discharged from its
duties and obligations as the Agent under the Financing Documents. After any
retiring Agent's resignation hereunder as the Agent the provisions of this
Article 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under the Financing Documents.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. Consent to Jurisdiction and Service of Process.
- ----------- ----------------------------------------------
Section 9.1.1. Except to the extent prohibited by applicable law,
-------------
the Borrower irrevocably:
Section 9.1.1.1. agrees that any suit, action, or other legal
---------------
proceeding arising out of any of the Financing Documents or any of the Loans may
be brought in the courts of record of The Commonwealth of Massachusetts or any
other state(s) in which any of the Borrower's assets are located or the courts
of the United States located in The Commonwealth of Massachusetts or any other
state(s) in which any of the Borrower's assets are located;
Section 9.1.1.2. consents to the jurisdiction of each such
---------------
court in any such suit, action or proceeding; and
Section 9.1.1.3. waives any objection which it may have to
---------------
the laying of venue of such suit, action or proceeding in any of such courts.
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For such time as any of the Indebtedness of the Borrower to any Lender
and/or the Agent shall be unpaid in whole or in part and/or the Commitment is in
effect, the Borrower irrevocably designates the registered agent or agent for
service of process of the Borrower as reflected in the records of the Secretary
of State of Delaware as its registered agent, and, in the absence thereof, the
Secretary of State of Delaware as its agent to accept and acknowledge on its
behalf service of any and all process in any such suit, action or proceeding
brought in any such court and agrees and consents that any such service of
process upon such agent and written notice of such service to the Borrower by
registered or certified mail shall be taken and held to be valid personal
service upon the Borrower regardless of where the Borrower shall then be doing
business and that any such service of process shall be of the same force and
validity as if service were made upon it according to the laws governing the
validity and requirements of such service in each such state and waives any
claim of lack of personal service or other error by reason of any such service.
Any notice, process, pleadings or other papers served upon the aforesaid
designated agent shall, within three (3) Business Days after such service, be
sent by the method provided therefor under Section 9.6 to the Borrower at its
-----------
address set forth in this Agreement. EACH OF THE PARTIES HERETO HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF ANY DISPUTE BETWEEN THE BORROWER AND
THE AGENT AND/OR THE LENDERS WITH RESPECT TO THE FINANCING DOCUMENTS AND/OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREBY.
Section 9.2. Rights and Remedies Cumulative. No right or remedy conferred
- ----------- ------------------------------
upon or reserved to the Agent and/or the Lenders in any of the Financing
Documents is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given under any of the Financing
Documents or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy under any of the Financing
Documents, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 9.3. Delay or Omission not Waiver. No delay in exercising or
- ----------- ----------------------------
failure to exercise by the Agent and/or the Lenders of any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by any of the Financing
Documents or by law to the Agent and/or any of the Lenders may be exercised
from time to time, and as often as may be deemed expedient, by the Agent and/or
any of the Lenders.
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Section 9.4. Waiver of Stay or Extension Laws. The Borrower covenants (to the
- ----------- --------------------------------
extent that it may lawfully do so) that it will not at any time insist upon, or
plead or in any manner whatsoever claim or take the benefit or advantage of, any
stay or extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of any of the Financing
Documents; and the Borrower (to the extent that it may lawfully do so) hereby
expressly waives all benefit and advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Agent and/or any of the Lenders, but will suffer and permit the execution of
every such power as though no such law had been enacted, except to the extent
the Agent or any Lender is guilty of wilful misconduct or gross negligence.
Section 9.5. Amendments, etc. No amendment, modification, termination, or
- ----------- ---------------
waiver of any provision of any of the Financing Documents nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in a written notice given to the Borrower by the Agent and
consented to in writing by the Majority Lenders (or by the Agent acting alone if
any specific provision of this Agreement provides that the Agent, acting alone,
may grant such amendment, modification, termination, waiver or departure) and
the Agent shall give any such notice if the Majority Lenders so consent or
direct the Agent to do so; provided, however, that any such amendment,
modification, termination, waiver or consent shall require a written notice
given to the Borrower by the Agent and consented to in writing by all of the
Lenders if the effect thereof is to (i) change any of the provisions affecting
the interest rate on the Loans, (ii) extend or modify the Commitment, (iii)
discharge or release the Borrower from its obligation to repay all principal due
under the Loans or release any collateral or guaranty for the Loans, (iv) change
any Lender's Pro Rata Share of the Commitment or the Loans, (v) modify this
Section 9.5, (vi) change the definition of Majority Lenders, (vii) extend any
- ------------
scheduled due date for payment of principal, interest or fees or (viii) permit
the Borrower to assign any of its rights under or interest in this Agreement,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. Any amendment or modification of
this Agreement must be signed by the Borrower, the Agent and at least all of the
Lenders consenting thereto who shall then hold the Pro Rata Shares of the Loans
required for such amendment or modification under this Section 9.5 and the Agent
-----------
shall sign any such amendment if such Lenders so consent or direct the Agent to
do so provided that any Lender dissenting therefrom shall be given an
opportunity to sign any such amendment or modification.
78
<PAGE>
Any amendment of any of the Security Documents must be signed by each of the
parties thereto. No notice to or demand on the Borrower and no consent, waiver
or departure from the terms of this Agreement granted by the Agent and/or the
Lenders in any case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances.
Section 9.6. Addresses for Notices, etc. All notices, requests, demands and
- ----------- --------------------------
other communications provided for hereunder (other than those which, under the
terms of this Agreement, may be given by telephone, which shall be effective
when received verbally) shall be in writing (including telecopied communication)
and mailed (provided that in the case of items referred to in the next-to-last
sentence of Section 9.1 and the items set forth below as requiring a copy to
-----------
legal counsel for the Borrower, the Agent or a Lender, such items shall be
mailed by overnight courier for delivery the next Business Day), telecopied or
delivered to the applicable party at the addresses indicated below:
If to the Borrower:
R&D Systems Company
5225 N. Academy Blvd.
Suite 100
Colorado Springs, CO 80918
Attention: Kathy Cunningham,
Chief Administrative Officer
Telecopy: (719)599-3823
With a copy to (if given pursuant to any of Section 5.3.1, 5.3.5,
------------- -----
5.3.9, 5.3.10 and 5.3.11):
- ----- ------ ------
Holland & Hart
555 Seventeenth Street
Suite 2900
Denver, CO 80202
Attention: Betty Carter Arkell, Esquire
Telecopy: (303)295-8261
If to Fleet as the Agent and/or a Lender:
Fleet Bank of Massachusetts, N.A.
Mailstop MABOFO4M
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Vice President
Telecopy: (617) 346-1633
79
<PAGE>
With a copy to (if given pursuant to any of Sections 5.3.1,
--------------
5.3.5, 5.3.9, 5.3.10 and 5.3.11)
----- ----- ------ ------
Hinckley, Allen & Snyder
One Financial Center
Boston, MA 02111
Attention: Malcolm Farmer III, Esquire
Telecopy: (401) 345-9020
If to any other Lender, to the address set forth on Exhibit 1.9.
-----------
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to the delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall be effective when received. Requests, certificates, other
items provided pursuant to Section 5.3 and other routine mailings or notices
-----------
need not be accompanied by a copy to legal counsel for the Lenders or the
Borrower.
Section 9.7. Costs, Expenses and Taxes. The Borrower agrees to pay on demand
- ----------- -------------------------
the reasonable fees and out-of-pocket expenses of Messrs. Hinckley, Allen &
Snyder, counsel for the Agent and of any local counsel retained by the Agent in
connection with the preparation, execution, delivery and administration
(excluding expenses of any Lender's sale of a participation in or sale or
assignment of all or a portion of such Lender's Commitment or Loans other than
any such sale pursuant to Section 2.2.3 or 2.9.7) of the Financing Documents and
------------- -----
the Loans and Bank of Boston's commercial finance examination fee and expenses
in amount not to exceed $3,500 and incurred prior to the Closing Date. The
Borrower agrees to pay on demand all reasonable costs and expenses (including
without limitation reasonable attorneys' fees) incurred by the Agent and/or any
Lender, upon or after the occurrence and during the continuance of any Default
or Event of Default, if any, in connection with the enforcement of any of the
Financing Documents and any amendments, waivers, or consents with respect
thereto. In addition, the Borrower shall pay on demand any and all stamp and
other taxes and fees payable or determined to be payable in connection with the
execution and delivery of the Financing Documents, and agrees to save the
Lenders and the Agent harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
or fees, except those resulting from the Lenders' or Agent's gross negligence or
willful misconduct.
80
<PAGE>
Section 9.8. Participations. Subject to compliance with the proviso in the
- ----------- --------------
first sentence of Section 9.11, any Lender may sell participations in all
------------
or part of the Loans made by it and/or its Pro Rata Share of the Commitment or
any other interest herein to a financial institution having at least
$500,000,000 of assets, in which event the participant shall not have any rights
under any of the Financing Documents (the participant's rights against such
Lender in respect of that participation to be those set forth in the Agreement
executed by such Lender in favor of the participant relating thereto) and all
amounts payable by the Borrower hereunder or thereunder shall be determined as
if such Lender had not sold such participation. Such Lender may furnish any
information concerning the Borrower and any Subsidiary in the possession of such
Lender from time to time to participants (including prospective participants);
provided that such Lender and any participant comply with the proviso in Section
-------
9.11.7 as if any such participant was a Substituted Lender.
- ------
Section 9.9. Binding Effect; Assignment. This Agreement shall be binding
- ----------- --------------------------
upon and inure to the benefit of the Borrower, the Agent and the Lenders and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Lenders. This Agreement and all
covenants, representations and warranties made herein and/or in any of the other
Financing Documents shall survive the making of the Loans, the execution and
delivery of the Financing Documents and shall continue in effect so long as any
amounts payable under or in connection with any of the Financing Documents or
any other Indebtedness of the Borrower to the Agent and/or any Lender remains
unpaid or the Commitment remains outstanding; provided, however, that Sections
--------
2.2.3 and 9.7 shall, except to the extent agreed to in a pay-off letter by the
- ----- ---
Agent and the Lenders in their complete discretion, survive and remain in full
force and effect for 90 days following repayment in full of all amounts payable
under or in connection with all of the Financing Documents and any other such
Indebtedness.
Section 9.10. Actual Knowledge. For purposes of this Agreement, neither the
- ------------ ----------------
Agent nor any Lender shall be deemed to have actual knowledge of any fact or
state of facts unless the senior loan officer or any other officer responsible
for the Borrower's account established pursuant to this Agreement at the Agent
or such Lender, shall, in fact, have actual knowledge of such fact or state of
facts or unless written notice of such fact shall have been received by the
Agent or such Lender in accordance with Section 9.6.
-----------
81
<PAGE>
Section 9.11. Substitutions and Assignments. Upon the request of any
- ------------ -----------------------------
Lender, the Agent and such Lender may, subject to the terms and conditions
hereinafter set forth, take the actions set forth below to substitute one or
more financial institutions having at least $500,000,000 in assets (a
"Substituted Lender") as a Lender or Lenders hereunder having an amount of the
Loans as specified in the relevant Substitution Agreement executed in connection
therewith; provided that no Lender, Selling Lender or Substituted Lender shall
have a Pro Rata Share of the Commitment and the Loans in the aggregate of less
than 25% and Fleet and/or its Affiliates shall retain for their own account at
least 25% of the Term Loan and 25% of the Revolving Credit Loan Commitment.
Section 9.11.1. In connection with any such substitution the
--------------
Substituted Lender and the Agent shall enter into a Substitution Agreement in
the form of Exhibit 9.11.1 hereto (a "Substitution Agreement") pursuant to which
--------------
such Substituted Lender shall be substituted for the Lender requesting the
substitution in question (any such Lender being hereinafter referred to as a
"Selling Lender") to the extent of the reduction in the Selling Lender's portion
of the Loans specified therein. In addition, such Substituted Lender shall
assume such of the obligations of each Selling Lender under the Financing
Documents as may be specified in the Substitution Agreement and this Agreement
shall be amended by execution and delivery of each Substitution Agreement to
include such Substituted Lender as a Lender for all purposes under the Financing
Documents and to substitute for the then existing Exhibit 1.9 to this Agreement
-----------
a new Exhibit 1.9 in the form of Schedule A to such Substitution Agreement
-----------
setting forth the portion of the Loans belonging to each Lender following
execution thereof. Each Lender and the Borrower hereby appoint the Agent as
Agent on its behalf to countersign and accept delivery of each Substitution
Agreement and, to the extent applicable, the provisions of Article 8 hereof
shall apply mutatis mutandis with respect to such appointment and anything done
------- --------
or omitted to be done by the Agent in pursuance thereof. The Agent shall
provide the Borrower with prior written notice of any substitution of any Lender
under this Section 9.11 including the name and Pro Rata Share of the Substituted
------------
Lender.
Section 9.11.2. Without prejudice to any other provision of this
--------------
Agreement, each Substituted Lender shall, by its execution of a Substitution
Agreement, agree that neither the Agent nor any Lender is any way responsible
for or makes any representation or warranty as to: (a) the accuracy and/or
completeness of any information supplied to such Substituted Lender in
connection therewith, (b) the financial condition, creditworthiness, affairs,
status or nature of the Borrower, any of the Stockholders and/or any of the
Subsidiaries or the
82
<PAGE>
observance by the Borrower, or any other party of any of its obligations under
this Agreement or any of the other Financing Documents or (c) the legality,
validity, effectiveness, adequacy or enforceability of any of the Financing
Documents.
Section 9.11.3. The Agent shall be entitled to rely on any
--------------
Substitution Agreement delivered to it pursuant to this Section 9.11 which is
------------
complete and regular on its face as to its contents and appears to be signed on
behalf of the Substituted Lender which is a party thereto, and the Agent shall
have no liability or responsibility to any party as a consequence of relying
thereon and acting in accordance with and countersigning any such Substitution
Agreement. The effective date of each Substitution Agreement shall be the date
specified as such therein and each Lender prior to such effective date shall,
for all purposes hereunder, be deemed to have and possess all of their
respective rights and obligations hereunder up to 12:00 o'clock Noon on the
effective date thereof.
Section 9.11.4. Upon delivery to the Agent of any Substitution
--------------
Agreement pursuant to and in accordance with this Section 9.11 and acceptance
------------
thereof by the Agent (which delivery shall be evidenced and accepted exclusively
and conclusively by the Agent's countersignature thereon pursuant to the terms
hereof without which such Substitution Agreement shall be ineffective): (i)
except as provided hereunder and in Section 9.11.5, the respective rights of
--------------
each Selling Lender and the Borrower against each other under the Financing
Documents with respect to the portion of the Loans being assigned or delegated
shall be terminated and each Selling Lender and the Borrower shall each be
released from all further obligations to the other hereunder with respect
thereto (all such rights and obligations to be so terminated or released being
referred to in this Section 9.11 as "Discharged Rights and Obligations"); and
------------
(ii) the Borrower and the Substituted Lender shall each acquire rights against
each other and assume obligations towards each other which differ from the
Discharged Rights and Obligations only in so far as the Borrower and the
Substituted Lender have assumed and/or acquired the same in place of the Selling
Lender in question; and (iii) the Agent, the Substituted Lender and the other
Lenders shall acquire the same rights and assume the same obligations between
themselves as they would have acquired and assumed had such Substituted Lender
been an original party to this Agreement as a Lender possessing the Discharged
Rights and Obligations acquired and/or assumed by it in consequence of the
delivery of such Substitution Agreement to the Agent.
Section 9.11.5. Discharged Rights and Obligations shall not include,
--------------
and there shall be no termination or release pursuant to this Section 9.11 of
------------
(i) any rights or obligations
83
<PAGE>
arising pursuant to any of the Financing Documents in respect of the period or
in respect of payments hereunder made during the period prior to the effective
date of the relevant Substitution Agreement or, (ii) any rights or obligations
relating to the payment of any amount which has fallen due and not been paid
hereunder prior to such effective date or rights or obligations for the payment
of interest, damages or other amounts becoming due hereunder as a result of such
nonpayment.
Section 9.11.6. With respect to any substitution of a
--------------
Substituted Lender taking place after the Closing Date, the Borrower shall issue
to such Substituted Lender and to such Selling Lender, new Notes reflecting the
inclusion of such Substituted Lender as a Lender and the reduction in the
respective Loans of such Selling Lender, such new Notes to be issued against
receipt by the Borrower of the existing Notes of such Lender which shall be
marked "cancelled". The Selling Lender or the Substituted Lender shall pay to
the Agent for its own account an assignment fee in the amount of $3,000 for each
assignment hereunder, which shall be payable at or before the effective date of
the assignment.
Section 9.11.7. Each Lender may furnish to any financial
--------------
institution having at least $500,000,000 in assets which such Lender proposes to
make a Substituted Lender or to a Substituted Lender any information concerning
such Lender, the Borrower, Stockholders and any Subsidiary in the possession of
that Lender from time to time; provided that any Lender providing any
confidential information about the Borrower, any of the Stockholders and/or any
Subsidiary to any such financial institution shall first obtain such financial
institution's agreement to keep confidential any such confidential information.
Section 9.12. Payments Pro Rata. The Agent agrees that promptly
------------ -----------------
after its receipt of each payment from or on behalf of the Borrower in respect
of any obligations of the Borrower hereunder it shall distribute such payment to
the Lenders pro rata based upon their respective Pro Rata Shares, if any, of the
obligations with respect to which such payment was received. Each of the Lenders
agrees that, if it should receive any amount hereunder (whether by voluntary
payment, by realization upon security, by the exercise of the right of setoff
under Section 2.5.2 or otherwise or banker's lien, by counterclaim or cross
-------------
action, by the enforcement of any right under the Financing Documents, or
otherwise), which is applicable to the payment of the Obligations of a sum which
with respect to the related sum or sums received by other Lenders is in a
greater proportion than the total amount of such Obligation then owed and due to
such Lender bears to the total amount of such Obligation then owed and
84
<PAGE>
due to all of the Lenders immediately prior to such receipt, except for any
amounts received pursuant to Section 2.2.3, then such Lender receiving such
-------------
excess payment shall purchase for cash without recourse or warranty from the
other Lenders an interest in the Obligations of the Borrower to such Lenders in
such amount as shall result in a proportional participation by all the Lenders
in such amount; provided further, however, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 9.13 Indemnification. The Borrower irrevocably agrees to and
------------ ---------------
does hereby indemnify and hold harmless Agent and each of the Lenders, their
agents or employees and each Person, if any, who controls any of the Agent and
the Lenders within the meaning of Section 15 of the Securities Act of 1933, as
amended, and each and all and any of them (the "Indemnified Parties"), against
any and all losses, claims, actions, causes of action, damages (excluding
consequential damages) or liabilities (including any amount paid in settlement
of any action, commenced or threatened and any amount described in Section 8.4)
-----------
(collectively, the "Damages"), joint or several, to which they, or any of them,
may become subject under statutory law or at common law, and to reimburse the
Indemnified Parties for any legal or other out-of-pocket expenses reasonably
incurred by it or them in connection with investigating, preparing for or
defending against any of the Indemnified Parties, insofar as such losses,
claims, damages, liabilities or actions arise out of or are related to any act
or omission of the Borrower and/or any Subsidiary with respect to any of the
Related Transactions, this Agreement, any of the Notes, any of Loans and/or any
offering of securities by the Borrower and/or any Subsidiary after the date
hereof and/or in connection with the Securities and Exchange Act of 1933 and/or
failure to comply with any applicable federal, state or foreign governmental
law, rule, regulation, order or decree, including without limitation, any
Damages which arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact with respect to matters relative to any of
the foregoing contained in any document distributed in connection therewith, or
the omission or alleged omission to state in any of the foregoing a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, but excluding any Damages to the
extent arising from or due to the gross negligence or willful misconduct of any
of the Indemnified Parties.
Promptly upon receipt of notice of the commencement of any action, or
information as to any threatened action against any of
85
<PAGE>
the Indemnified Parties in respect of which indemnity or reimbursement may be
sought from the Borrower on account of the agreement contained in this Section
-------
9.13, notice shall be given to the Borrower in writing of the commencement or
- ----
threatening thereof, together with a copy of all papers served, but the omission
so to notify the Borrower of any such action shall not release the Borrower from
any liability which it may have to such Indemnified Parties unless, and only to
the extent that, such omission materially prejudiced Borrower's ability to
defend against such action.
In case any such action shall be brought against any of the
Indemnified Parties, the Borrower shall be entitled to participate in (and, to
the extent that it shall wish, to select counsel and to direct) the defense
thereof at its own expense. Any of the Indemnified Parties shall have the right
to employ its or their own counsel in any case, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless the
employment of such counsel shall have been authorized in writing by the Borrower
in connection with the defense of such action or the Borrower shall not have
employed counsel to have charge of the defense of such action or such
Indemnified Party shall have received an opinion from an independent counsel
that there may be defenses available to it which are different from or
additional to those available to the Borrower (in which case the Borrower shall
not have the right to direct the defense of such action on behalf of such
Indemnified Party), in any of which events the same shall be borne by the
Borrower. If any Indemnified Party settles any claim or action with respect to
which the Borrower has agreed to indemnify such Indemnified Party pursuant to
the terms hereof, the Borrower shall have no liability pursuant to this Section
-------
9.13 to such Indemnified Party with respect to such claim or action unless the
- ----
Borrower shall have consented in writing to the terms of such settlement.
The provisions of Section 9.13 shall be effective only to the fullest
------------
extent permitted by law.
Section 9.13A. Governing Law. This Agreement and each Note shall be
------------- -------------
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts.
Section 9.14. Severability of Provisions. Any provision of this
------------ --------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
86
<PAGE>
Section 9.15. Headings. Article and Section headings in this
------------ --------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.16. Counterparts. This Agreement may be executed and
------------ ------------
delivered in any number of counterparts each of which shall be deemed an
original, and this Agreement shall be effective when at least one counterpart
hereof has been executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as a sealed instrument by their respective officers thereunto duly
authorized, as of March 14, 1996.
In the presence of: R&D SYSTEMS COMPANY
/s/ MICHAEL S. QUINN By: /s/ K J CUNNINGHAM
- ---------------------- ------------------------
Name: K J Cunningham
Title: Chief Administrative Officer
In the presence of: FLEET BANK OF MASSACHUSETTS, N.A., as
Agent for the Lenders and as a Lender
/s/ MALCOLM FARMER III By: /s/ THOMAS W. DAVIS
- ---------------------- ------------------------
Name: Thomas W. Davis
Title: VP
In the presence of: THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
/s/ MALCOLM FARMER III By: /s/ C. CHRISTOPHER MCCABE
- ---------------------- ------------------------
Name: C. Christoper McCabe
Title: Director
87
<PAGE>
Exhibit 10.8
NET MASTER LEASE
THIS LEASE is made in duplicate this 11th day October, 1994, by and
between PLUMTREE OFFICE INVESTORS, LTD., a Colorado limited partnership,
hereinafter called "Lessor", and R & D SYSTEMS COMPANY, a Colorado corporation,
hereinafter collectively called "Lessee."
WITNESSETH:
That in consideration of the payment of the rent and the keeping and
performance of the covenants and agreements by Lessee, as hereinafter set forth,
Lessor has agreed to lease and hereby does lease and demise unto Lessee that
certain office building known and described as Plumtree Center, consisting of
approximately 45,000 rentable square feet, described as Lot 1, Plumtree Center,
Filing Number 2, El Paso County, Colorado, hereinafter called the "Leased
Premises", and the address of which is 5225 N. Academy Boulevard, Colorado
Springs, CO 80918, hereinafter called the "Building".
TO HAVE AND TO HOLD the same, with all the appurtenances, unto Lessee,
from 12 o'clock noon on the day of closing of the purchase of the Building by
Lessor for, during and until 12 o'clock noon on the day which is four (4) years
after the date of closing, hereinafter the "Lease Term," at and for a Base Rent
for the full term aforesaid in the sum of One Million Eight Hundred Thousand and
no/100 Dollars ($1,800,000.00), payable in installments, the initial payment
being the sum of Thirty-Seven Thousand Five Hundred and no/100 Dollars
($37,500.00), together with additional rent as set forth hereinafter, due upon
execution of this Lease. Thereafter installments of Thirty-Seven Thousand Five
Hundred and no/100 Dollars ($37,500.00) per month, together with additional rent
as set forth hereinafter, shall be paid in advance, the first such installment
being due and payable on the first calendar month following the month in which
falls the first day of this Lease with other installments being due and payable
on the first day of each and every calendar month of said term thereafter until
the full payment of the total sum shall be made. Base Rental Rate shall mean
$10.00 per rentable square foot of the Leased Premises. All rentals shall be
paid without notice at the office of Lessor in accordance with Paragraph 4
below.
1. SERVICES
--------
Lessee understands that Lessor shall designate a property management
company to supply property management services to the Building. The costs of
these services, together with other services supplied to Lessee, shall be paid
by Lessee to Lessor as additional rent in accordance with the more specific
provisions of this Lease. Lessor agrees to supply to Lessee heating,
electrical, air conditioning, sewer and plumbing, elevator, trash, snow and ice
removal, janitorial, lighting, property management services, and other contract
services in accordance with the custom for comparable first class office
buildings in the Colorado Springs area and the costs of all such services shall
be based upon commercially reasonable rates. In the event of any interruption,
reduction or discontinuance of services which is beyond Lessor's control, Lessor
shall not be liable for damages to persons or property as a result thereof, nor
shall the occurrence of any such event in any way be construed as an eviction of
Lessee or cause or permit an abatement, reduction or setoff of rent, or operate
to release Lessee from any of Lessee's
<PAGE>
obligations hereunder. In the event of any such interruption, reduction or
discontinuance of service, Lessor must demonstrate a diligent effort to effect
such repairs as soon as reasonably possible. If Lessor's failure to make such
diligent effort results in three (3) consecutive days of interruption of such
services and such interruption does not result from either (a) Lessee's actions
or omissions, or from (b) actions or omissions under the control of any public
authority or utility provider, rent, and additional rent shall be abated for
each day of further interruption and such abatement will be Lessee's sole
remedy.
2. QUIET ENJOYMENT
---------------
Subject to the provisions of this Lease, Lessor covenants that Lessee
on paying the rent and performing the covenants of this Lease on its part to be
performed, shall and may peacefully and quietly have, hold and enjoy the
Premises for the term of this Lease. Lessor shall not be responsible for the
acts or omissions of any third party which may interfere with Lessee's use and
enjoyment of the Premises.
3. PAYMENT OF RENT
---------------
A. BASE RENT. Lessee agrees to pay all Base Rents, Additional
---------
Rents, and sums to be paid to Lessor under this Lease at the times and in the
manner herein provided without notice or demand. Rental checks will be made
payable to the order of Plumtree Office Investors, Ltd., and be paid at c/o
Diamante Properties Corp., 121 East Pikes Peak Avenue, Suite 335, Colorado
Springs, Colorado 80903. Lessor reserves the right to change the party to whom
payment will be made and the address of the same by providing five (5) days
prior written notice to Lessee. Notwithstanding the foregoing, Lessee shall be
entitled to collect all rents payable from subtenants of the Building so long as
Lessee is not in default hereunder.
Lessee's covenants to pay rental and other sums due under this Lease
are independent of any other covenant, condition, provision or agreement herein
contained, and said rental payments shall not be subject to setoff or deductions
of any kind by Lessee, with the exception that Lessee may setoff against amounts
owing under this Lease any amounts not paid when due by Lessor under Note and
the Deed of Trust dated October 11, 1994 encumbering the premises for the
benefit of Plumtree of Colorado Springs.
B. ADDITIONAL RENT. In addition to the foregoing, it is hereby
----------------
agreed that Lessee shall pay to Lessor as Additional Rent during each calendar
year during the term hereof, all "Real Estate Taxes," all costs of water and
sanitary and storm drainage services, all charges for electricity, gas, fuel,
telephone, trash removal, snow removal, janitorial services, a property
management fee to the management firm designated by Lessor from time to time
equal to four and one-half percent (4-1/2%) of the Base Rent payable with
respect to the Building, all insurance costs associated with the Building, and
all other utility costs, common area maintenance and repair costs, elevator and
HVAC maintenance costs, and all costs of maintaining the building as a first-
class office building (collectively "Charges").
(1) For purposes hereof, "Real Estate Taxes" shall mean all real
property taxes and assessments levied against the Building by any governmental
or quasi-governmental authority, including any taxes, assessments, surcharges,
or service or other fees of a nature not
2
<PAGE>
presently in effect which shall hereafter be levied on the Building as a result
of the use, ownership or operation of the Building or for any other reason,
whether in lieu of or in addition to any current real estate taxes and
assessments; provided, however, that any taxes which shall be levied on the
rentals of the Building shall be determined as if the Building was Lessor's only
property and provided further, that in no event shall the term "Taxes and
Assessments," as used herein, include any federal, state or local income taxes
levied or assessed on Lessor, unless such taxes are a specific substitute for
real property taxes; such term shall, however, include gross taxes on rentals
and expenses incurred by Lessor for consultants which have been approved in
advance in writing by Lessee, whose approval shall not be unreasonably withheld
or delayed, and in contesting the amount or validity of any such Taxes or
Assessments (all of the foregoing are collectively referred to herein as
"Taxes"). "Assessments" shall include any and all so-called special assessments,
license tax, business license fee, business license tax, commercial rental tax,
levy, charge or tax imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, water, drainage or the improvement or special district
thereof, against the Premises or the Building, or against any legal or equitable
interest of Lessor therein. For the purposes of this Lease, any special
assessment shall be deemed payable in such number of installments as is
permitted by law, whether or not actually so paid. In addition, Lessee shall be
liable for and shall pay before delinquency and Lessee hereby agrees to
indemnify and hold Lessor harmless from and against any liability in connection
with all taxes levied against any personal property, fixtures, machinery,
equipment, apparatus, systems and appurtenances placed by or on behalf of Lessee
in or about the Premises ("Equipment Taxes"). If any Equipment Taxes are levied
against Lessor or Lessor's property or if the assessed value of Lessor's
property is increased by the inclusion therein of a value placed upon such
personal property, fixtures, machinery, equipment, apparatus, systems or
appurtenances of Lessee, and if Lessor, after written notice to Lessee, pays the
Equipment Taxes or taxes based upon such an increased assessment (which Lessor
shall have the right to do regardless of the validity of such levy, but under
proper protest if requested by Lessee prior to such payment and if payment under
protest is permissible), Lessee shall pay to Lessor upon thirty (30) days
advance notice, as Additional Rent hereunder, the taxes so levied against Lessor
or the proportion of such taxes resulting from such increase in the assessment;
provided, however, that in any such event, Lessee shall have the right, on
behalf of Lessor, to bring suit in any court of competent jurisdiction to
recover the amount of any such tax so paid under protest, and any amount so
recovered shall belong to Lessee (provided Lessee has previously paid such
amount to Lessor). Notwithstanding the foregoing to the contrary, Lessee shall
cooperate with Lessor to the extent reasonably necessary to cause the fixtures,
furnishings, equipment and other personal property to be assessed and billed
separately from the real property of which the Premises form a part, and the
Lessor shall use reasonable efforts to treat all other tenants on the same
basis.
(2) Lessee shall pay to Lessor as Additional Rent during each calendar
year during the term hereof, in advance on the first (1st) day of each month, an
estimate of the Charges for the calendar year as reasonably estimated by Lessor,
at the rate of one twelfth (1/12) thereof, on the same date and at the same
place Base Rent is payable, with an adjustment to be made between the parties at
a later date as hereinafter provided. Lessor shall deliver to Lessee within
ninety (90) days following the end of one calendar year an estimate of the
Charges for the new calendar year (the "Budget Sheet"). Until receipt of the
Budget Sheet, Lessee shall continue to pay its monthly Charges based upon the
estimate for the preceding calendar year. To the extent that the Budget Sheet
reflects an estimate of Charges for the new calendar year greater
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than the amount actually paid to the date of receipt of the Budget Sheet for the
new calendar year, Lessee shall thereafter pay the amount of its monthly Charges
as set forth in the Budget Sheet. As soon as practicable following the end of
any calendar year, but not later than April 1st, Lessor shall submit to Lessee a
statement in reasonable detail, with supporting documentation if requested by
Lessee, describing the computations of the Charges for the calendar year just
completed (the "Statement"), and the differences, if any, between the actual
Charges for the calendar year just completed and the actual amount of the
Charges paid by Lessee to Lessor. To the extent that the actual Charges for the
period covered by the Statement is higher than the estimated Charges which
Lessee previously paid during the calendar year just completed, Lessee shall
also pay to Lessor such balance within thirty (30) days following receipt of the
Statement from Lessor. To the extent that the actual Charges for the period
covered by the Statement is less then the estimated Charges which Lessee
previously paid during the calendar year just completed, Lessor shall credit,
within thirty (30) days, the excess against any sums then owing or next becoming
due from Lessee under this Lease.
C. NET LEASE. Lessor and Lessee agree that the Base Rent paid
---------
hereunder shall be completely net to Lessor and Lessee shall be responsible for
the payment to Lessor, as Additional Rent, of all expenses of every kind and
nature related to the occupancy, operation, maintenance and repair of the
Building (collectively "Operating Expenses"), including, without limiting the
generality of the foregoing, all costs incurred in an effort to maintain the
Building in the condition of a first-class office building. Lessee will pay as
Additional Rent its share, if any, of any common area charges for the Building.
For purposes of this Lease, "common area" shall refer to areas of the Property
and Building which are not reserved for the exclusive use of any tenant and
common areas within the Plumtree Center for which the Building is assessed a
share of the costs of operating and maintaining in accordance with the
Declaration of Covenants for Plumtree Center or any maintenance agreements
pertaining to the Plumtree Center or any maintenance agreements pertaining to
the Plumtree Center, as the same may be amended from time to time.
Notwithstanding the foregoing, Lessee shall not be responsible for the cost of
any curative action required of, or repair, replacement or alteration made by
Lessor to (i) remedy damages caused by or resulting from the negligence or
tortious actions of Lessor or Lessor's agents; (ii) costs in connection with a
transfer or disposition of all or any portion of the building and/or the
Building Complex; and (iii) accounting, legal or other fees incurred in
connection with the preparation of Lessor's income tax returns. Operating
Expenses will include costs of capital improvements which reduce other Operating
Expenses or which are required under any governmental law or regulation,
provided that these costs are amortized over the useful life of the improvement.
Operating Expenses will not include depreciation on the Building, brokerage
commissions, the costs of any items for which Lessor is reimbursed by insurance,
the costs of any interior maintenance within the offices of Lessee to the extent
such areas are maintained by Lessee, and the costs of any capital expenditures
to the extent they upgrade or improve the Building as opposed to repairing or
replacing existing items.
D. RETURNED CHECK FEE. A fee of the greater of $100.00 or actual
------------------
cost associated with any returned check shall be paid by the Lessee to the
Lessor for any returned check.
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4. DEPOSIT
-------
Lessee, concurrently with the execution of this Lease, has deposited
with Lessor and shall keep on deposit in an interest-bearing account at all
times during the term of this Lease, the sum of Thirty-Seven Thousand Five
Hundred and no/100 Dollars ($37,500.00) for the purpose hereinafter set forth,
to be held by Lessor. If at any time during the term of this Lease, Lessee
shall be in default in the performance of any of the terms, provisions,
covenants or conditions of this Lease, Lessor shall have the right to apply said
deposit, or so much thereof as may be necessary, toward damage to the Leased
Premises, the costs or expenses associated with such default, and for any
attorney's fees and legal costs incurred by Lessor by reason of such default;
and in the event such deposit shall be diminished by any such payment from or
application of the same, Lessee shall and will forthwith pay to Lessor, or its
agent, as Lessor may request, such sum as shall be necessary to restore said
deposit to the original amount mentioned above. Provided that Lessee is not
then in default under this Lease, on each anniversary date of this Lease all
interest that has accrued on the security deposit shall be paid by Lessor to
Lessee. If the amount of said deposit shall be insufficient to pay, reimburse
and fully discharge such expenses and damages, Lessee shall be and remain liable
for the balance thereof remaining unpaid, and shall pay the amount of such
deficiency to Lessor. Within thirty (30) days after the termination of the
Lessee's tenancy, Lessor shall return to Lessee such part or portion of said
deposit, plus accrued interest, as shall not be required to pay, discharge and
reimburse Lessor for the said expenses and damages.
In the event the property in which the Leased Premises is located is
sold or otherwise conveyed, or a new management agent is named by Lessor, said
security deposit shall be transferred by Lessor to the new owner of the property
or new management agent, and notice thereof acknowledged by the new owners shall
be given to Lessee, and upon such transfer, Lessor shall be released from any
and all liability associated therewith.
5. INSURANCE
---------
A. "ALL-RISK" COVERAGE. Lessor will, at the expense of Lessee as
------------------
Additional Rent, obtain and keep in force from the commencement of construction
of the improvements to the Premises and during the term of this Lease, "all-
risk" coverage insurance naming Lessor and Lessee as their interests may appear
and such other parties as Lessor or Lessee may designate as additional insureds,
in the customary form in the City of Colorado Springs for buildings and
improvements of similar character, on all buildings and improvements now or
after this date located on the Premises. The amount of insurance will be
designated by Lessor no more frequently than once every twelve (12) months; will
be set forth on an "agreed amount endorsement" to the policy of insurance; will
not be less than the agreed value of the buildings and improvements; and will be
subject to arbitration pursuant to this Lease if Lessor and Lessee do not agree
with regard to the value. Lessor and Lessee agree that the value of the
existing building on the premises as of the date this Lease is executed is
$4,000,000.00.
B. GENERAL LIABILITY. Lessee will, at its sole expense, obtain and
-----------------
keep in force during the term of this Lease commercial general liability
insurance with a combined single limit of not less than $1,000,000.00 for injury
to or death of any one person, for injury to or death of
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any number of persons in one occurrence, and for damage to property, insuring
against any and all liability of Lessee, including without limitation coverage
for contractual liability, host liquor liability, and non-owned automobile
liability, with respect to the Premises or arising out of the use or occupancy
of the Premises. Such insurance will insure the performance by Lessee of the
indemnity agreement as to liability for injury to or death of persons and damage
to property set forth in this Lease. Such insurance will be noncontributing with
any insurance that may be carried by Lessor. The limits and coverage of all such
insurance will be adjusted by agreement of Lessor and Lessee during every third
lease year during the term of this Lease in conformity with the then prevailing
custom of insuring liability in the City of Colorado Springs, and any
disagreement regarding such adjustment will be submitted to arbitration in the
manner provided in this Lease.
C. OTHER MATTERS. All insurance required in this paragraph and all
-------------
renewals of it will be issued by companies authorized to transact business in
the State of Colorado and rated at least a Class X by Best's Insurance Reports
(property liability) or approved by Lessor. The builder's "all-risk" coverage
insurance will be payable to Lessor, Lessee, and any lender as their interests
may appear. The "all-risk" coverage insurance and the general liability
insurance will be carried in the joint names of Lessee, Lessor, and such other
parties having an interest in the Premises as Lessor and Lessee may designate.
All insurance policies will be subject to approval by Lessor and any lender as
to form and substance; will expressly provide that such policies will not be
canceled or altered without thirty (30) days' prior written notice to Lessor and
any lender, in the case of "all-risk" coverage insurance, and to Lessor, in the
case of general liability insurance; will, to the extent obtainable, provide
that no act or omission of Lessee that would otherwise result in forfeiture or
reduction of the insurance will affect or limit the obligation of the insurance
company to pay the amount of any loss sustained; and will, to the extent
obtainable, contain a waiver by the insurer of its rights of subrogation against
Lessor. Upon issuance, each insurance policy or a duplicate or certificate of
such policy will be delivered to Lessor and any lender whom Lessor designates.
Lessee may satisfy its obligation under this paragraph by appropriate
endorsements of its blanket insurance policies.
D. ADDITIONAL INSUREDS. All policies of liability insurance that
-------------------
Lessee is obligated to maintain according to this Lease (other than any policy
of workmen's compensation insurance) will name Lessor and such other persons or
firms as Lessor specifies from time to time as additional insureds. A current
certificate of insurance shall be delivered to Lessor displaying that the
coverages required by this Lease are in full force and effect at all times
during the term of this Lease. All public liability, property damage liability,
and casualty policies maintained by Lessee will be written as primary policies,
not contributing with and not in excess of coverage that Lessor may carry. No
insurance required to be maintained by Lessee by this paragraph will be subject
to any deductible without Lessor's prior written consent.
6. HAZARDOUS MATERIALS
-------------------
(1) Lessee shall not cause or permit any Hazardous Material to be
brought upon, kept, or used in or about the Premises by Lessee, its agents,
employees, contractors, licensees or invitees, without the prior written consent
of Lessor. If Lessee breaches the obligations stated in the preceding sentence,
or if the presence of Hazardous Material on the Premises caused or permitted by
Lessee results in contamination of the Premises of Building, or
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any part thereof, or if contamination of the Premises or Building by Hazardous
Material otherwise occurs for which Lessee is legally liable to Lessor for
damage resulting therefrom, then Lessee shall indemnify, defend and hold Lessor,
its agents, employees, legal representatives, successors and assigns, harmless
from any and all claims, judgments, damages, penalties, fines, costs
liabilities, or losses (including, without limitation, diminution in value of
the Premises and Building, damages for the loss or restriction on use of any
rentable or usable space or of any amenity of the Premises or 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 Lease term as a result of such contamination.
This indemnification of Lessor by Lessee 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 or about the Building or the soil or ground water on or under the
building. Without limiting the foregoing if the presence of any Hazardous
Material on or about the Building caused or permitted by Lessee results in any
contamination of any portion thereof, Lessee shall promptly take all actions at
its sole expense as are necessary to return the Building to the condition
existing prior to the introduction of such Hazardous Material, subject to
obtaining Lessor's prior written consent to the actions to be taken by Lessee.
Lessor may properly require its consent to the selection of the contractors and
other experts involved in the inspection, testing and removal or abatement
activities, the scope of activities to be performed, the manner and method for
performance of such activities, and such other matters as may be required or
requested by Lessor for the safety of and continued use of the Building and all
occupants thereof. The obligation and liabilities of Lessee herein shall survive
expiration or termination of this Lease.
(2) "Hazardous Material," as used in this Lease, shall be construed in
its broadest sense and shall include asbestos, other asbestotic material (which
is currently or may be designated in the future as a Hazardous Material), any
petroleum base products, pesticides, paint and solvents, polychlorinated
biphenyl, lead, cyanide, DDT, acids, ammonium compounds and other chemical
products (excluding commercial use cleaning materials in ordinary quantities)
and any substance or material if defined or designated as a hazardous or toxic
substance, or other similar term, by any federal, state or local law statute,
regulation or ordinance affecting the Building or Premises presently in effect
or that may be promulgated in the future, as such statutes, regulations and
ordinances may be amended from time to time.
(3) The provisions of this Section 6 shall not be applicable with
respect to the dentist currently occupying a portion of the Premises, so long as
such dentist complies with all applicable laws and ordinances pertaining to
Hazardous Materials.
7. CHARACTER OF OCCUPANCY
----------------------
Lessee agrees to occupy the Leased Premises for general offices only
and to use them in a careful, safe and proper manner; to pay promptly for any
damage to the Leased Premises; not to use or permit the Leased Premises to be
used for any purposes prohibited by the laws of the United States or any
applicable law, statute, regulation or ordinance. Lessee further agrees that it
will not commit waste nor suffer nor permit waste to be committed nor permit any
nuisance on or in the Leased Premises. Lessee shall procure, at its sole
expense, all permits and licenses
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required for the operation of the Building. Lessee shall make, at its sole
expense, all repairs and improvements required in order to comply with any law,
statute, regulation, or ordinance. In addition, the terms of this Lease shall be
subject in all respects to the provisions of all covenants affecting the
Building, including the Declaration of Covenants for Plumtree Center, as the
same may be amended from time to time, and any failure by Lessee to comply with
the terms and provisions thereof shall be a default under this Lease.
8. ALTERATIONS BY LESSOR
---------------------
Lessee agrees to permit Lessor at any time upon reasonable advance
notice and prior written consent, which shall not be unreasonably withheld
(except in the event of an emergency), to enter the Leased Premises to examine
and inspect the same or make such repairs, additions or alterations as Lessor
may deem necessary or proper for the safety, improvement or preservation
thereof, and it is expressly understood that Lessor shall at all times have the
right at its election to make such alterations or changes in other portions of
the Building as it may from time to time deem necessary and desirable, as long
as such alterations and changes do not unreasonably interfere with Lessee's use
and occupancy of the Leased Premises.
9. ALTERATIONS BY LESSEE
---------------------
Lessee agrees to make no alterations in or additions to the Leased
Premises without first obtaining the written consent of Lessor; and all
alterations, additions or improvements made by either party at the expense of
the Lessee (except only movable office furniture not attached to the Building)
shall be deemed a part of the real estate and the property of Lessor and shall
remain upon and be surrendered with the Leased Premises as a part thereof,
without molestation, disturbance or injury at the end of said term, whether by
lapse of time or otherwise. At its option, Lessor may require removal of all
improvements made by Lessee to the Leased Premises and that the Leased Premises
be returned to their condition at the time this Lease was executed, unless the
parties agree at the time Lessor grants its consent to such alterations that
such removal shall not be required. In the event Lessee makes any additions,
alterations or improvements in excess of $1,000.00, a performance bond shall be
posted by the Lessee insuring the Lessor against any liability for mechanic's
liens.
All improvements to the Leased Premises if requested in writing by
Lessee and approved by Lessor shall be made at the sole cost and expense of
Lessee. Lessee shall comply with all requirements of Lessor with respect to the
proposed improvements, including, without limiting the generality of the
foregoing the following:
(1) The Improvements will not result in a violation of or require a
change in any certificate of occupancy applicable to the Premise or to the
Building;
(2) The character, outside appearance of the Building or any part
thereof shall not be changed in any material way without Lessor's consent which
consent shall not be unreasonably withheld, and such Improvements shall not
adversely affect or weaken or impair (temporarily or permanently) the structure
of the Premises or Building, either during the making of such Improvements or
upon their completion;
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(3) In performing the work involved in making such Improvements,
Lessee shall be bound by and observe all of the terms of this Lease and any
applicable laws, regulations, or covenants affecting the Building; and
(4) Lessee shall provide notice to Lessor at least ten (10) business
days prior to commencement of any Improvements, and Lessor shall be entitled to
post notices on and about the Premises with respect to Lessor's non-liability
for mechanics' liens and Lessee shall not permit such notices to be defaced or
removed.
All Improvements to the Premises, including, by way of illustration
but not by limitation, all counters, screens, grilles, special cabinetry work,
fixed partitions and panelling, carpeting, drapes or other window coverings and
light fixtures, shall be deemed a part of the real estate and the property of
Lessor and shall remain upon and be surrendered with the Premises as a part
thereof without molestation, disturbance or injury at the end of the Lease term.
All movable partitions, machines and equipment which are installed in the
Premises by or for Lessee, without expense to Lessor, and can be removed without
structural damage to or defacement of the Building or the Premises, and all
furniture, furnishings and other articles of personal property owned by Lessee
and located in the Premises (all of which are herein called "Lessee's Property")
shall be and remain the property of Lessee and may be removed by it at any time
during the term of this Lease. However, if any of Lessee's Property is removed,
Lessee shall repair or pay the cost of repairing any damage to the Building or
the Premises resulting from such removal. All additions or improvements which
are to be surrendered with the Premises shall be surrendered with the Premises,
as a part thereof, at the end of the term or the earlier termination of this
Lease.
If Lessor permits persons requested by Lessee to perform any
Improvements to the Premises, which consent shall not be unreasonably withheld,
then prior to the commencement of any such work costing $1,000.00 or more in any
one instance, Lessee shall deliver to Lessor certificates issued by insurance
companies qualified to do business in the State of Colorado evidencing that
workmen's compensation, public liability insurance and property damage
insurance, all in amounts, with companies and on forms satisfactory to Lessor,
are in force and maintained by all such contractors and subcontractors engaged
by Lessee to perform such work. All such policies shall name Lessor as an
additional insured and shall provide that the same may not be canceled or
modified without thirty (30) days prior written notice to Lessor. Lessor shall
respond within five business days to any written request for consent to
Improvements. If Lessor shall fail to respond, Lessor's consent to such
improvements shall be presumed to have been given.
Lessee shall not permit any lien or claim for lien of any mechanic,
laborer or supplier or any other lien to be filed against the Building, the
common areas, the land which comprises the Building, or any part of such
property arising out of work performed, or alleged to have been performed by, or
at the direction of, or on behalf of Lessee. If Lessee fails to have such lien
or claim for lien so released or to deliver such bond to Lessor, Lessor without
investigating the validity of such lien, may pay or discharge.
Lessee hereby agrees to indemnify, defend and save Lessor harmless of
and from all liability, loss, damages, costs or expenses, including attorneys'
fees, incurred in connection with any claims of any nature whatsoever for work
performed for, or materials or supplies furnished to
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Lessee, including lien claims of laborers, materialmen and others. Should any
such liens be filed or recorded against the Building with respect to work done
for or materials supplied to or on behalf of Lessee or should any action
affecting the title thereto be commenced, Lessee shall cause such liens to be
released of record within twenty (20) days after notice thereof. If Lessee
desires to contest any such claim of lien, Lessee shall nonetheless cause such
lien to be insured against by purchase of a bond from a title company
satisfactory to Lessor at Lessee's expense. If Lessee shall be in default in
paying any charge for which such a mechanic's lien or suit to foreclose such a
lien has been recorded or filed and shall not have caused the lien to be
released as aforesaid, Lessor may (but without being required to do so) pay such
lien or claim and any costs associated therewith, and the amount so paid,
together with interest at the default Interest Rate, as defined hereinafter, and
reasonable attorneys' fees incurred in connection therewith, shall be
immediately due from Lessee to Lessor as additional rent.
10. REPAIRS AND MAINTENANCE
-----------------------
Lessee agrees to pay, as Additional Rent, all costs incurred in
keeping the Building, including all exterior areas, in good order, condition and
repair in accordance with the standards prevailing for a first-class office
building in the Colorado Springs area.
(1) Notwithstanding any other provisions of this Lease, Lessee shall
pay all costs and expenses of repairing and maintaining in a first-class
condition all portions of the Building (including exterior areas), including,
without limiting the generality of the foregoing, the structural portions of the
Building, the elevators, plumbing, air conditioning, heating and electrical
systems. Except in the event of an emergency, Lessee shall have the right to
approve in advance any single repair expenditure in excess of $5,000.00, which
approval shall not be unreasonably withheld or delayed. If Lessee does not
object to any such repair expenditure in a writing delivered to Lessor within
five (5) business days after Lessor's delivery of written notice to Lessee
requesting approval of the expenditure, Lessee's approval shall be deemed to
have been given. Lessee shall also pay all costs to maintain and keep in good
order and repair the Building roof; all exterior doors, the Building ventilating
systems; elevators; escalators; Building telephone and electrical closets;
public portions of the Building or Building complex, including but not limited
to the balconies, landscaping, walkways, and upper floor lobbies and corridors,
and interior portions of the Building above and below grade; the interior
surfaces of the ceilings, walls and floors, all doors, interior glass partitions
or glass surfaces and pipes, electrical wiring, switches and fixtures; common
areas; and parking areas.
(2) Lessor shall have the right to do such acts and expend such funds
at the expense of Lessee as are reasonably required to perform such work in
order the maintain the Building in such condition. Lessor shall have no
liability to Lessee for any damage, inconvenience or interference with the use
of the Premises by Lessee as a result of performing any such work.
(3) Lessee shall do all acts required to comply with all applicable
laws, ordinances, regulations and rules of any public authority relating to its
occupancy of the Building.
Notwithstanding the foregoing, Lessee owns and shall be responsible
for the maintenance and repair of the R & D Systems and Prudential signs;
provided that Lessee agrees that it will not
10
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remove the Prudential sign without the prior written consent of Lessor so long
as Prudential is a tenant of the Building.
11. ASSIGNMENT AND SUBLETTING
-------------------------
Lessee shall not assign this Lease or any right hereunder or sublet
the Leased Premises or any part thereof, nor permit any persons other than
Lessee and its employees to operate in said Leased Premises without the prior
written consent of Lessor, which consent shall not be unreasonably withheld. A
consent to any assignment of this Lease or any subletting of said Leased
Premises shall not constitute a waiver or discharge of the provisions of this
paragraph with respect to a subsequent assignment or subletting.
All subleases shall be in writing and Lessee shall provide copies of
all subleases to Lessor within thirty (30) days of execution thereof. All
subleases shall be in a form approved by Lessor. Further, all subleases shall
contain an express provision providing that if an event of default by Lessee
exists under this Lease, then upon notice thereof to the subtenant from Lessor,
all rentals payable by the subtenant shall be paid directly to Lessor, for
Lessee's account, until subsequent notice from Lessor that such event of default
has been cured. Notwithstanding the foregoing, receipt by Lessor of rent
directly from the subtenant shall not be considered a waiver of such event of
default by Lessee nor an acceptance of such subtenant.
In the event of any Transfer of this Lease of all or any part of the
Premises by Lessee without the prior written consent of Lessor, Lessor, in
addition to any rights arising upon a default by Lessee, shall have the right to
re-enter and take possession of the Premises or the part thereof subject to such
Transfer, and to enforce all rights of Lessee, and receive and collect all rents
and other payments due to Lessee, in accordance with such sublet or assignment
of the Premises, or any part thereof, as if Lessor was the sublessor or
assignor, and to do whatever Lessee is permitted to do pursuant to the terms of
such sublease or assignment.
Within ten (10) days after the sale of a majority of the stock of
Lessee or merger of Lessee with another entity, Lessee shall deliver to Lessor
certified financial statements of the purchaser and newly established entity.
If Lessor determines, in its reasonable discretion, that the financial condition
of the Lessee is materially and adversely affected by such transaction, such
stock transfer or merger shall be deemed a default under this Lease.
At the time of making a request for Lessor's consent to a Transfer and
not less than thirty (30) days prior to the proposed effective date thereof,
Lessee shall provide to Lessor such information as Lessor, its accountants and
attorneys, shall reasonably require with respect to such proposed Transfer,
including but not limited to name and address of the proposed transferee,
description of business operations, financial information and certificate of
corporate authority and good standing or partnership certificates, as
applicable.
Consent of Lessor to a Transfer shall not relieve Lessee from seeking
consent to any subsequent Transfers.
Subletting or assignments by subtenants or assignees shall not be
permitted under any circumstances, nor shall Lessee be permitted to assign this
Lease or subject all or any part of the
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Premises during any period of time that all or any portion of the Base Rent is
abated. Further, no option to renew or extend the term of this Lease or to lease
additional space, if any, shall be exercisable by any subtenant or assignee.
All subleases, assignments, and modifications shall be in writing and
a copy thereof provided to Lessor within ten (10) days of its effective date.
All subleases shall further contain an express provision that in the event of
any default by Lessee under this Lease and upon notice thereof to the subtenant
from Lessor, all rentals payable by the subtenant shall be paid directly to
Lessor, for the Lessee's account, until subsequent notice from Lessor that such
default has been cured. Notwithstanding the foregoing, receipt by Lessor or
rent directly from the subtenant shall not be considered a waiver of the default
on the part of Lessee, nor an acceptance of such subtenant.
In the event a sublease or assignment is made as herein provided,
Lessee shall pay Lessor a charge of Two Hundred Fifty and no/100 Dollars
($250.00) in order to reimburse Lessor for all of the necessary legal and
accounting services required in order to accomplish such assignment or
subletting.
The provisions of this Article 11 shall not be applicable with respect
to the two existing leases on the Property and any modifications thereof which
are not in conflict with the terms of this Lease and do not extend the term of
such lease beyond the term of this Lease, which are deemed approved by Lessor,
provided that any other modifications of such leases shall be subject to the
terms hereof.
12. ASSIGNMENT OR SALE BY LESSOR
----------------------------
In the event Lessor shall assign this Lease and/or sell or convey the
Building, the same shall operate to release Lessor from any future liability
upon any of the covenants or conditions, express or implied, herein contained in
favor of Lessee, and in such event Lessee agrees to look solely to the successor
in interest of Lessor in and to this Lease. This Lease shall not be affected by
such assignment or sale, and Lessee agrees to attorn to the purchaser or
assignee.
13. INJURY TO PERSON OR PROPERTY
----------------------------
Lessee agrees that Lessor, its agents and employees will not be liable
for any loss, injury, death, or damage (including consequential damages) to
persons, property, or Lessee's business occasioned by theft, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order, requisition,
order of governmental body or authority, or from any acts or omissions of any
other tenant, occupant, or visitor of the premises, or from any cause beyond
Lessor's control.
14. INDEMNITY TO LESSOR
-------------------
Lessee will indemnify Lessor, its agents, and employees against, and
hold Lessor, its agents, and employees harmless from, any and all demands,
claims, causes of action, fines, penalties, damages (including consequential
damages), losses, liabilities, judgments, and expenses (including without
limitation attorneys' fees and court costs) incurred in connection with or
arising from: (a) the use or occupancy of the premises by Lessee or any person
claiming
12
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under Lessee; (b) any acts, omissions, or negligence of Lessee or any person
claiming under Lessee or the employees, agents, contractors, invitees, or
visitors of Lessee or any such person; (c) any breach, violation, or
nonperformance by tenant or any person claiming under Lessee or the employees,
agents, contractors, invitees, or visitors of Lessee or any such person or any
term, covenant, or provision of this Lease or any law, ordinance, or
governmental requirements of any kind; or (d) (except for loss of use of all or
any portion of the premises or Lessee's property located within the leased
Premises that is proximately caused by or results proximately from the
negligence of Lessor), any injury or damage to the person, property, or business
of Lessee, its employees, agents, contractors, invitees, visitors, or any other
person entering upon the premises under the express or implied invitation of
Lessee. If any action or proceeding is brought against Lessor, its employees, or
agents by reason of any such claim, Lessee upon notice from Lessor, will defend
the claim at Lessee's expense.
15. ESTOPPEL CERTIFICATE
--------------------
Lessee agrees that from time to time upon not less than ten (10)
business days prior written request by Lessor, Lessee (or any permitted
assignee, sublessee, licensee, concessionee or other occupant of the Premises
claiming by, through or under Lessee) will deliver to Lessor, a statement in
writing signed by Lessee certifying (a) that this Lease is unmodified and in
full force and effect (or if there have been modifications, that this Lease as
modified is in full force and effect and identifying the modifications); (b) the
dates to which the rent and other charges have been paid; (c) that Lessor is not
in default under any provision of this Lease, or, if in default, the nature
thereof in detail; (d) that Lessee is in occupancy and paying rent on a current
basis with no rental offsets or claims; (e) that there has been no prepayment of
rent other than that provided for in this Lease; (f) that there are no actions,
whether voluntary or otherwise, pending against Lessee under the bankruptcy laws
of the United States or any State thereof, and (g) such other matters as may be
required by a prospective purchaser or lender of the Building. Lessee's failure
to deliver such a statement within ten (10) days of the request by Lessor shall
be conclusive upon Lessee that this Lease is in full force and effect, without
modification except as may be represented by Lessor, that there are no uncured
defaults in Lessor's performance and that not more than one month's rental has
been paid in advance. Lessee hereby appoints Lessor as attorney-in-fact for
Lessee with full power and authority to execute and deliver in the name of
Lessee any such certificate in the event Lessee fails to do so on request.
16. SURRENDER AND NOTICE
--------------------
Lessee agrees to surrender and deliver possession of the Leased
Premises promptly at the expiration of this Lease, or in the case of the
termination of this Lease by Lessor by reason of a breach in any one or more of
the covenants or agreements hereof, in accordance with the laws of the State of
Colorado and any court order pertaining thereto. This lease shall be construed
and governed by the laws of the State of Colorado.
17. ACCEPTANCE OF PREMISES BY LESSEE
--------------------------------
Lessor and Lessee agree that the possession of the Building by Lessee
shall be conclusive evidence as against Lessee that said Premises are in good
and satisfactory condition when possession was taken.
13
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18. FIRE, RESTORATION OF PREMISES
-----------------------------
Lessor and Lessee agree that if the Leased Premises, or the Building
shall be so damaged by fire or other casualty as to render the Leased Premises
wholly untenantable, and if such damage shall be so great that a competent
architect, in good standing and selected by Lessor, shall certify in writing to
Lessor and Lessee that the Leased Premises, with the exercise of reasonable
diligence, cannot be made fit for occupancy within ninety (90) days from the
happening thereof, then this Lease shall cease and terminate from the date of
the occurrence of such damage at the sole option of Lessor; and Lessee thereupon
shall surrender to Lessor the Leased Premises and all interest therein
hereunder, and Lessor may reenter and take possession of the Leased Premises and
remove Lessee therefrom. Lessee shall pay rent, duly apportioned, up to the
time of such damage.
If, however, the damage shall be such that said architect shall
certify that the Leased Premises can be made tenantable within said ninety (90)
day period from the happening of such damage, then Lessor shall repair the
damage so done with all reasonable speed and the rent shall be abated only for
the period during which Lessee shall be deprived of the use of the Leased
Premises by reason of such damage and the repair thereof.
If the Leased Premises, without the fault of Lessee, shall be slightly
damaged by fire or other casualty, but not so as to render the same untenantable
Lessor shall cause the same to be repaired with reasonable promptness.
In case the Building throughout be so damaged, whether by fire or
otherwise (though said Leased Premises may not be affected) that Lessor within
sixty (60) days after the happening of such damage shall decide to reconstruct,
rebuild, or raze the Building, then upon thirty (30) days' notice in writing to
that effect given by Lessor to Lessee, this Lease shall cease and terminate from
the date of the occurrence of said damage, and Lessee shall pay the rent,
properly apportioned up to such date, and both parties hereto shall be
discharged of all further obligations hereunder.
19. EMINENT DOMAIN, TERMINATION OF LEASE
------------------------------------
If the Leased Premises or such portion thereof as shall render the
remaining portion unusable by the Lessee for its intended purpose shall be taken
by right of eminent domain, then this Lease, at the option of Lessor, shall
forthwith cease and terminate, and the current rent shall be properly
apportioned to the date of such taking; and in such event Lessor shall receive
the entire award for the lands and improvements so taken. Notwithstanding the
foregoing, Lessee shall have the right to make its own claim for damages caused
by the taking and receive the award pertaining to such claim.
20. DEFAULT--EVENTS OF DEFAULT
--------------------------
The following occurrences are "events of default":
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(1) Lessee defaults in the due and punctual payment of rent, and the
default continues for five (5) business days after notice from Lessor;
(a) Lessee vacates or abandons the Premises;
(b) This lease or the Premises or any part of the Premises
are taken upon execution or by other process of law directed against Lessee, or
are taken upon or subjected to any attachment by any creditor of Lessee or
claimant against Lessee, and the attachment is not discharged within fifteen
(15) days after its levy;
(c) Lessee files a petition in bankruptcy or insolvency or
for reorganization or arrangement under the bankruptcy laws of the United States
or under any insolvency act of any state, or is dissolved, or makes an
assignment for the benefit of creditors;
(d) Involuntary proceedings under any bankruptcy laws or
insolvency act or for the dissolution of Lessee are instituted against Lessee,
or a receiver or trustee is appointed for all or substantially all of Lessee's
property, and the proceeding is not dismissed or the receivership or trusteeship
is not vacated within sixty (60) days after the institution or appointment;
(e) Lessee fails to take possession of the Premises on the
commencement date of the term; or
(f) Lessee breaches any of the other agreements, terms,
covenants, or conditions that this Lease requires Lessee to perform, and the
breach continues for a period of thirty (30) days after notice by Lessor to
Lessee, or such longer period as may be necessary to cure such breach, so long
as Lessee continuously and diligently works to cure the breach.
21. DEFAULTS BY LESSEE
------------------
(1) If Lessee at any time is in default with respect to any rental
payments or other charges payable by Lessee, and if the default continues for a
period of 5 business days after written notice from Lessor to Lessee; or if
Lessee is in default in the prompt and full performance of any other of its
promises, covenants, or agreements contained in this Lease, and if the default
or breach of performance continues for more than a reasonable time (in no event
to exceed 30 days) after written notice from Lessor to Lessee specifying the
particulars of such default or breach of performance; or if Lessee vacates or
abandons the Premises, Lessor may treat the occurrence of any one or more of the
foregoing events as a breach of this Lease, and in addition to any or all other
rights or remedies of Lessor by law, Lessor may, at the option of Lessor,
without further notice or demand of any kind to Lessee or any other person:
(a) Declare the term ended, reenter the Premises, take
possession of the Premises, and remove all persons from the Premises; or
(b) Without declaring this lease terminated, reenter the
Premises, occupy the whole or any part of the Premises for and on account of
Lessee, and collect any
15
<PAGE>
unpaid rentals and other charges which have become payable or which may
thereafter become payable; or
(c) Even though it may have reentered the Premises, elect to
terminate this Lease and all of the rights of Lessee in or to the Premises.
If Lessor has reentered the Premises under the provisions of
subparagraph (b) above, Lessor will not be deemed to have terminated this lease,
or the liability of Lessee to pay any rental or other charges accruing after
Lessor's entry, or to have terminated Lessee's liability for damages under any
of the provisions of this lease, by any reentry or by any action, in unlawful
detainer or otherwise, to obtain possession of the Premises, unless Lessor has
notified Lessee in writing that it has elected to terminate this lease. Lessee
further covenants that the service by Lessor of any notice pursuant to the
unlawful detainer statutes of the state where the shopping center is situated
and the surrender of possession pursuant to such notice will not (unless Lessor
elects to the contrary at the time of or at any time subsequent to the serving
of such notices and such election is evidenced by a written notice to Lessee) be
deemed to be a termination of this lease. In the event of any entry or taking
possession of the Premises, Lessor will have the right, but not the obligation,
to remove all or any part of the personal property located in them and may place
it in storage at a public warehouse at the expense and risk of Lessee.
(2) If Lessor elects to terminate this Lease pursuant to the
provisions of subparagraph (a) or (c) above, Lessor may recover from Lessee as
damages:
(a) The worth at the time of award of any unpaid rental that
had been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid rental that would have been earned after termination until the time of
award exceeds the amount of such rental loss Lessee proves could have been
reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid rental for the balance of the term after the time of award exceeds the
amount of such rental loss Lessee proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its obligations
under this lease or which in the ordinary course of things would be likely to
result from Lessee's failure, including, but not limited to, any costs or
expenses incurred by Lessor in retaking possession of the Premises, including
reasonable attorneys' fees; maintaining or preserving the Premises after such
default; preparing the Premises for reletting to a new Lessee, including repairs
or alterations to the Premises for such reletting; leasing commissions; or any
other costs necessary or appropriate to relet the Premises.
As used in subparagraphs (a) and (b), the "worth at the time of award"
is computed by allowing interest at the maximum lawful rate but in no event
greater than 18% per annum. As used in subparagraph (c), the "worth at the time
of award" is computed by discounting such
16
<PAGE>
amount at the discount rate of the Federal Reserve Bank situated nearest to the
location of the Premises at the time of award plus 1%.
The term "rental" will be deemed to be the minimum annual rental and
all other sums required to be paid by Lessee pursuant to the terms of this
lease. All such sums, other than the minimum annual rental, will, for the
purpose of calculating any amount due under the provisions of subparagraph (c),
be computed on the basis of the average monthly amount accruing during the
immediately preceding 60-month period, except that if it becomes necessary to
compute the rental before such a 60-month period has elapsed then the rental
will be computed on the basis of the average monthly amount accruing during the
shorter period.
Notwithstanding any other provisions of this paragraph, Lessor agrees
that if the default complained of, other than for the payment of monies, is of
such a nature that it cannot be cured within the period requiring such curing as
specified in the written notice relating to it, then the default will be deemed
to be cured if Lessee, within such period, has commenced the curing and
continues with all due diligence to cause the curing and completes the curing
with the use of such diligence.
The rights and remedies given to Lessor in this paragraph will be in
addition and supplemental to all other rights or remedies that Lessor may have
under laws then in force.
22. REMEDIES UPON BREACH
--------------------
Any rents or other amounts owing to Lessor hereunder which are not
paid within ten (10) business days of the date they are due, shall thereafter
bear interest from the due date at the rate of eighteen percent (18%) per annum
("Interest Rate") until paid. Similarly, any amounts paid by Lessor to cure an
default of Lessee or to perform any obligation of Lessee, shall bear interest
from the date paid by Lessor at the Interest Rate until paid. In addition to
the foregoing, Lessee shall pay to Lessor whenever any Base Rent, Additional
Rent or any other sums due hereunder remain unpaid more than ten (10) days
after the due date thereof, a late charge equal to ten percent (10%) of the
amount due. Further, in the event of default by Lessee, in addition to all
other rights and remedies, Lessor shall be entitled to receive from Lessee all
sums, the payment of which may previously have been waived or abated by Lessor,
or which may have been paid by Lessor pursuant to any agreement to grant Lessee
a rental abatement or the monetary inducement or allowance or moving allowance,
together with interest thereon from the date or dates such amounts were paid by
Lessor or would have been due from Lessee but for the abatement, at the Interest
Rate, until paid; it being understood and agreed that such concession or
abatement was made on the condition and basis that Lessee fully perform all
obligations and covenants under the Lease for the entire term.
23. PREMISES LEFT VACANT--LESSOR MAY TAKE POSSESSION
------------------------------------------------
Lessor and Lessee agree that if Lessee shall abandon or vacate the
Leased Premises before the end of the term of this Lease, Lessor may, at its
option and without notice, and using such force as may be necessary, enter the
Leased Premises, remove any signs of Lessee therefrom, and relet the same, or
any part thereof, as Lessor may see fit for the account of Lessee, without
thereby voiding or terminating this Lease, and, for the purpose of such
reletting, Lessor
17
<PAGE>
is authorized to make any repairs, changes, alterations or additions in or to
the Leased Premises, as may in the opinion of Lessor, be necessary or desirable
for the purpose of such reletting, and if a sufficient sum shall not be realized
from such reletting (after payment of all the costs and expenses of such
repairs, changes or alterations, and the expense of such reletting and the
collection of rent accruing therefrom) to equal the aggregate monthly rental
agreed for the balance of this Lease Term or for any renewal period to be paid
by Lessee under the provisions of this Lease, then Lessee agrees to pay such
total deficiency upon demand therefore, and if no other rental can be obtained
after reasonable effort by Lessor for a period of sixty (60) days after Lessee's
breach as contemplated herein, then Lessee shall be liable for the total rental
due for the balance of the period from the date of such default.
24. REMOVAL OF LESSEE'S PROPERTY
----------------------------
Lessor and Lessee agree that if Lessee shall fail to remove all
effects from the Leased Premises upon the abandonment thereof or upon the
termination of this Lease for any cause whatsoever, Lessor, at its option, may
remove such effects in any manner that it shall choose, and store them without
liability to Lessor for loss or damage thereof, and Lessee agrees to pay Lessor
on demand any and all expenses incurred in such removal, including court costs
and attorney's fees and storage charges on such effects for any length of time
they shall be in Lessor's possession; and/or Lessor, at its option, without
notice, may sell said effects, or any of them, at private sale and without legal
process, for such prices as Lessor may obtain, and apply the proceeds of such
sale upon any amounts due under this Lease from Lessee to Lessor and upon the
expense incident to the removal and sale of said effects, rendering the surplus,
if any, to Lessee.
25. CONSTRUCTIVE EVICTION--NOTICE REQUIREMENT
-----------------------------------------
If Lessee believes that Lessor has or is committing an act or acts
which constitute constructive eviction, Lessee must provide Lessor with written
notice specifying the act or acts which allegedly constitute a constructive
eviction, and Lessor shall have ten (10) days from the receipt of said notice to
cure the alleged constructive eviction. Lessee shall not exercise his legal
rights to assert a constructive eviction until Lessor's ten (10) day cure period
has expired, and Lessee shall be deemed to have conclusively waived its rights
to assert a constructive eviction if it abandons the Premises before the cure
period has expired.
26. NO IMPLIED SURRENDER OR WAIVER
------------------------------
Lessor and Lessee agree that no act or thing done by Lessor or its
agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Leased Premises, and no agreement to accept a surrender of the
Leased Premises shall be valid, unless the same be made in writing and
subscribed by Lessor. The mention in this Lease of any particular remedy shall
not preclude Lessor from any other remedy Lessor might have, either in law or in
equity, nor shall the waiver of any violation of any covenant or condition
contained in this Lease or any of the rules and regulations set forth herein, or
hereafter adopted by Lessor, prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of any
original violation.
18
<PAGE>
27. COSTS OF CONVERSION
-------------------
In case it should be necessary or proper for Lessor to bring any
action under this Lease or to place this Lease with an attorney for the
enforcement of any of Lessor's rights hereunder, then Lessee agrees in each and
any such case to reimburse Lessor for Lessor's reasonable attorney's fees and
legal expenses, including, but not limited to, direct in-house legal expenses.
28. WAIVER
------
The receipt by Lessor of rent with knowledge of the breach of any
covenant in this Lease, shall not be deemed a waiver of such breach. The
failure to enforce any of the rules and regulations set forth herein, or
hereafter adopted, against Lessee and/or any other Lessee in the Building shall
not be deemed a waiver of such rules and regulations or any covenant thereof.
The receipt by Lessor of rent from any assignee, subtenant, or occupant of the
Leased Premises shall not be deemed a waiver of the covenant contained in this
Lease against assignment and subletting, or an acceptance of the assignee,
subtenant or occupant as Lessee, or a release of Lessee from the further
observance or performance by Lessee of the covenants in this Lease to be
observed and performed by the Lessee. No provisions of this Lease shall be
deemed to have been waived by Lessor unless such waiver be in writing and signed
by Lessor.
29. HOLDING OVER--TENANCY MONTH TO MONTH
------------------------------------
Lessor and Lessee agree that if after the expiration of this Lease,
Lessee shall remain in possession of the Leased Premises and continue to pay
rent and without any express agreement as to such holding over, then such
holding over shall be deemed to be a tenancy from month-to-month, and Lessee
shall be regarded as a Lessee from month-to-month, subject to all the terms and
conditions of this Lease, except that the base monthly rental rate for any such
holdover period shall be an amount equal to one and one half (1-1/2) times the
last base monthly rental amount.
30. PAYMENTS AFTER TERMINATION
--------------------------
Lessor and Lessee agree that no payments of money by Lessee to Lessor
after the termination of this Lease, in any manner, or after the giving of any
notice (other than a demand for payment of money) by Lessor to Lessee, shall
reinstate, continue or extend the term of this Lease or affect any notice given
to Lessee prior to the payment of such money, it being agreed that after the
service of notice or the commencement of a suit or after final judgment granting
Lessor possession of the Leased Premises, Lessor may receive and collect any
sums of rent due, or any other sums of money due under the terms of this Lease,
and the payment of such sums of money, whether as rent or otherwise, shall not
waive said notice, or in any manner affect any pending suit or any judgment
theretofore obtained.
31. COMPLETION OF THE LEASED PREMISES
---------------------------------
It is mutually understood and agreed that anything to the contrary or
apparent contrary herein, Lessee has occupied the Leased Premises for several
years and that its continued
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<PAGE>
occupancy of the Leased Premises shall be conclusive evidence as against Lessee
that the Leased Premises are complete and satisfactory whether all of the
Building and tenant spaces shall be completed or not.
32. NOTICE
------
Any notice to be given to Lessor as provided for in this Lease shall
be delivered in writing in person, or by certified mail to Robert Spade, 121 E.
Pikes Peak Avenue, Suite 335, Colorado Springs, Colorado 80903; with a copy to
Richard Nipert, Bright, Gibson & Nipert, P.C., 1140 Grant Street, Suite 100,
Denver, Colorado 80203. Any notice to be given Lessee under the terms and
provisions of this Lease shall be in writing and may be given in person or by
certified mail to the chief official of Lessee located in the Leased Premises or
sent to Lessee by mail at its principal office in the Building.
33. COMMON AREAS
------------
(1) The "common area" of the property is that part of the property
designated by Lessor from time to time for the common use of all tenants
including, among other facilities, parking areas, sidewalks, landscaping, curbs,
truckways, delivery passages, loading area, private street and alleys, and
lighting facilities and certain common areas provided for the common use of
parties in the Plumtree complex pursuant to the Declaration of Covenants for
Plumtree Center, as the same may be amended from time to time. Lessor reserves
the right to change from time to time the dimensions and location of the common
areas as well as the dimension, identity and type of any buildings (except the
Leased Premises) on the property and to construct additional buildings or
additional stories on existing buildings or other improvements on the property
(except the Leased Premises) for street, park, utility and other public
purposes. Lessee and its employees, customers, invitees, sublessees,
concessionaires and licensees shall have the non-exclusive right to use the
common area, as constituted from time to time, such use to be in common with
Lessor, other tenants of the property and other persons entitled to use the
same, and subject to the rules and regulations governing use as they may be
amended from time to time, including the designation of specific areas for
automobiles owned by any tenant or subtenant, its employees, sublessees,
concessionaires or licensees. Lessee shall not take any action which would
interfere with the rights of other persons to use the common area. Lessor may
temporarily close any part of the common area for such periods of time as may be
necessary to prevent the public from obtaining prescriptive rights or to make
repairs or alterations.
(2) Lessor will operate and maintain the interior and exterior common
areas associated with the Building. The costs shall be those of operating and
maintaining the common area in a manner deemed by Lessor reasonable and
appropriate and for the best interests of the property, including, without
limitation: all costs and expense of managing, operating, maintaining,
repairing, lighting, providing janitorial service, cleaning, painting, striping,
policing, insuring, providing utilities, removing snow, ice and debris;
efficiency studies (if approved in Lessee's reasonable discretion) and
regulating traffic; costs and expenses, if any, of heating the common areas;
costs and expenses of inspection maintenance, and depreciation of machinery and
equipment used in the operation and maintenance of the common facilities,
including, if any, the common area heating equipment, and personal property
taxes and other charges incurred in connection with such equipment; costs and
expenses of maintaining, planting, replanting, and
20
<PAGE>
replacing flowers and shrubbery and planters and other landscaping; real estate
taxes and special assessments applicable to common area and land underlying
same; sprinkler maintenance costs; and administrative cost of operating and
maintaining the common area. Such costs and expenses shall not include
depreciation (other than depreciation above specified). The costs of operating
and maintaining the common areas shall also include the costs assessed to the
Building pursuant to the Declaration of Covenants of Plumtree Center, as the
same may be amended from time to time.
(3) Lessee shall pay Lessor, as Additional Rent, the costs of
operating and maintaining the common areas on a monthly basis on the same date
Base Rent is due.
(4) The charge required hereunder shall be paid by Lessee in twelve
(12) monthly installments in such amounts as are estimated by Lessor at the
beginning of a twelve (12) month period commencing and ending on dates
designated by Lessor, each such installment being due on the first day of each
month. The monthly payments to be made by Lessor shall be adjusted and revised
to compensate for any overpayment or underpayment made by Lessee in such
preceding twelve (12) month period. Within ninety (90) days after the end of
each twelve (12) month period, Lessor shall make available Lessor's records
related to Lessor's operating cost for such preceding twelve (12) month period.
34. RULES AND REGULATIONS
---------------------
Lessor and Lessee agree that the following rules and regulations shall
be and are hereby made a part of this Lease, and Lessee agrees that its
employees and agents, or any others permitted by Lessee to occupy or enter the
Leased Premises, will at all times abide by said rules and regulations and that
a default in the performance and observance thereof shall operate the same as
any other defaults herein:
(1) The sidewalks, entries, passages, corridors, stairways and
elevators of the Building shall not be obstructed by Lessee or its agents or
employees, or be used for any purpose other than ingress and egress to and from
the Leased Premises.
(2) (a) Furniture, equipment or supplies shall be moved in or out of
the Building only upon the elevator and/or through the access designated by
Lessor and then only during such hours and in such manner as may be prescribed
by Lessor.
(b) No safe or article of property, the weight of which may, in
the opinion of Lessor, may constitute a hazard or danger to the Building or its
equipment, shall be moved into the Premises.
(c) Safes and other equipment, the weight of which is not
excessive, shall be moved into, from or about the Building only during such
hours and in such manner as shall be prescribed by Lessor, and Lessor shall have
the right to designate the location of such articles in the Leased Premises.
(3) No additional sign, advertisement, or notice shall be inscribed,
painted or affixed on any part of the inside or outside of the Leased Premises
or the Building unless
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<PAGE>
approved by Lessor as to color, size, style and location; but there shall be no
obligation or duty on Lessor to allow any additional sign, advertisement or
notice to be inscribed, painted or affixed on any part of the inside or outside
of the Leased Premises or of the Building. A directory in a conspicuous place,
with the name of Lessee, will be provided by Lessor, with the original building
standard directory strips being paid for by Lessor. Any necessary revision in
the building standard suite sign and directory strip, will be made by Lessee
within a reasonable time after notice of the error or change making the revision
necessary; such revisions being at the sole expense of Lessee. No furniture
shall be placed in front of the Building or in any lobby or corridor without the
prior written consent of Lessor. Lessor shall have the right to remove all non-
permitted signs and furniture, without notice to Lessee, at the expense of
Lessee.
(4) Lessee shall not do or permit anything to be done in the Leased
Premises, or bring or keep anything therein, which will in any way increase the
cost of fire insurance for the Building, or on property kept therein, or in any
way injure or annoy other occupants or their guests, or conflict with the laws
relating to fire, or with any regulations of the fire department, or with any
insurance policy upon the Building or any part thereof, or conflict with any
applicable fire or health law, statute, regulation or ordinance.
(5) Lessee shall not employ any person or persons other than the
janitor for the purpose of cleaning or taking care of the Leased Premises
without the written consent of Lessor, which consent shall not be unreasonably
withheld.
(6) Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of Lessee, its agents or
employees, shall be paid for by Lessee. No person shall waste water by tying
back or wedging the faucets in any manner.
(7) No animals, except handicapped assistance animals, shall be
allowed in the offices, halls, corridors and elevators in the Building. No
person shall disturb the occupants of this or adjoining buildings or Premises by
the use of any radio or musical instrument or by the making of loud or improper
noises.
(8) Bicycles or other vehicles shall not be permitted in the offices,
halls, corridors and elevators in the Building, nor shall any obstruction of
sidewalks or entrances of the Building be permitted. Bicycles shall not be
locked to trees, downspout, signs or other portions of the Building or
surrounding Premises.
(9) Lessee shall not allow anything to be placed in the outside
window ledges of the Building, nor shall anything be thrown by Lessee, its
agents or employees, out of the windows or doors, or down the halls, elevator
shafts or ventilating ducts or shafts of the Building. Lessee, except in the
case of fire or other emergency, shall not open any outside window as this
interferes with the proper functioning of the Building air conditioning system.
(10) No additional lock or locks or security system shall be placed by
Lessee on any door in the Building unless written consent of Lessor shall first
have been obtained, which consent shall not be unreasonably withheld. A master
key to all areas of the Leased Premises and to the toilet rooms will be
furnished by Lessee to Lessor. A reasonable charge for extra keys will
22
<PAGE>
be made to Lessee. At the termination of this tenancy, Lessee shall promptly
return to Lessor all keys to all areas of the Leased Premises.
(11) No awnings shall be placed over the windows except by the prior
written consent of Lessor. No inside screening, draping, shades or blinds shall
be hung on or over the windows except by the prior written consent of Lessor.
(12) Whenever heat generating machines or equipment, including
telephone equipment, are used in the Leased Premises, and such machines or
equipment affect the temperature otherwise maintained by the air conditioning
system, Lessor reserves the right to require Lessee to install supplemental air
conditioning units in the Leased Premises. The cost of such installation,
operation and maintenance of such supplemental air conditioning, shall be paid
by Lessee upon demand by Lessor.
(13) Lessee shall not install or operate any steam or gas engine or
boiler, or carry on any mechanical business in the Leased Premises. The use of
oil, gas or flammable liquids for heating, lighting or any other purpose is
expressly prohibited. Explosives or other articles deemed extra hazardous shall
not be brought into the Building, with the exception of items used by the
dentist occupying a portion of the Premises, to the extent such items are used
in accordance with law and are customarily used by dentists in their practice.
(14) Any painting or decorating as may be agreed to be done by, and at
the expense of Lessor, shall be done during regular working hours; should Lessee
desire such work done on Sundays, holidays or outside of regular working hours,
Lessee shall pay for the extra costs thereof.
(15) Except normal picture hanging and except as otherwise permitted
by Lessor, Lessee shall not mark upon, paint signs upon, cut, drill into, drive
nails or screws into, or in any way deface the walls, ceilings, partitions or
floors of the Leased Premises or of the Building, and any defacement, damage or
injury caused by Lessee, its agents or employees shall be paid for by Lessee.
(16) Lessor shall at all times have the right, by its officers or
agents, to enter the Leased Premises, to inspect and examine the same, and to
show the same to persons wishing to lease them, and may at any time within 270
days prior to the termination of this lease, place upon the doors and windows of
the Leased Premises the notice "For Rent", which notice shall not be removed by
Lessee.
(17) Lessor reserves the right to make other reasonable rules and
regulations, or amend these rules and regulations, as Lessor's judgment may from
time to time be necessary and desirable for the safety, care and cleanliness of
the Leased Premises, and for the preservation of good order thereof, provided
that no such new rules and regulations shall materially and adversely alter
Lessee's rights under this Lease.
(18) No storing of vehicles shall be permitted.
23
<PAGE>
35. SUBORDINATION
-------------
Lessor and Lessee agree that this Lease is subject to, and subordinate
to, all ground or underlying leases and to all present mortgages affecting the
real estate on which the Building is located and the Building of which the
Leased Premises is a part, and to all renewals and extensions thereof, and to
any mortgage or mortgages which may hereafter be executed affecting the same.
36. AMENDMENT OR MODIFICATION
-------------------------
Lessee acknowledges and agrees that it has not relied upon any
statement, representation, agreement or warranty except such as is expressed
herein, and that no amendment or modification to this Lease shall be valid or
binding unless expressed in writing and executed by Lessor and Lessee in the
same manner as in the execution of this Lease.
37. SEVERABILITY CLAUSE
-------------------
If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of Lessor and Lessee that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of Lessor and Lessee that in lieu of each clause or provision of this
Lease that is illegal, invalid or unenforceable there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable. The caption of each paragraph hereof is added as a matter of
convenience only and shall be considered to be of no effect in the construction
of any provision or provisions of this Lease.
38. SUCCESSORS AND ASSIGNS
----------------------
All terms, conditions and covenants to be observed and performed by
Lessor and Lessee shall be applicable to and binding upon their respective
heirs, administrators, executors, successors and assigns.
39. NO PARTNERSHIP
--------------
It is expressly understood that Lessor and Lessee are not partners or
joint venturers and the Lessor has no right, title or interest in and to the
business of Lessee, and that Lessor has no right to represent or bind Lessee in
any respect whatsoever and that nothing herein contained shall be deemed, held
or construed as making Lessor a partner, joint venturer, or associates of
Lessee, nor as rendering Lessor liable for any debts, liabilities or obligations
incurred by Lessee. Neither is the relationship between Lessor and Lessee that
of principal and agent. It is expressly understood that the relationship
between the parties hereto is and shall at all times remain, that of Lessor and
Lessee.
24
<PAGE>
40. ADDENDUM
--------
Where there is an Addendum to this Lease, if there are any conflicts
between the provisions of the Addendum and the provisions of this Lease, the
provisions of the Addendum shall control.
41. BROKERS
-------
Lessee warrants that it has not dealt with any real estate broker or
agent in connection with the negotiation of this Lease to whom a real estate
commission might be due, or who might have an interest in this transaction.
Lessee agrees to indemnify and hold harmless Lessor and the Manager
from and against any and all liabilities and claims for commissions and fees
arising out of a breach of the foregoing representation. Lessor shall be
responsible for the payment of all commissions to the broker, if any, specified
in this Article, based upon the leasing commission policy of Lessor applicable
to the Complex as of the date of this Lease.
42. LEGAL COUNSEL
-------------
No representation or recommendation is made by the real estate broker
or its agents or employees as to the legal sufficiency, legal effect, or tax
consequences of this Lease, or the transactions relating thereto. It is
recommended that the Lessee employ an attorney prior to executing this Lease to
review the Lease and provide legal counsel.
43. OPTION TO RENEW
---------------
Lessee shall have the option to renew this Lease upon the terms and
conditions set forth in Exhibit "A" attached hereto.
44. LIABILITY OF LESSOR
-------------------
Lessor's liability under this Lease shall be limited to Lessor's
estate and interest in the Building (or to the proceeds thereof) and no other
property or other assets of Lessor or its partners (if Lessor is a partnership),
agents, employees, legal representatives, successors or assigns, shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Lessee's remedies under or with respect to this Lease, the relationship of
Lessor and Lessee hereunder or Lessee's use and occupancy of the Premises.
Nothing contained in this Paragraph shall be construed to permit Lessee to
offset against rents due a successor landlord, a judgment (or other judicial
process) requiring the payment of money by reason of any default of a prior
landlord, except as otherwise specifically set forth herein.
45. PRIOR TENANCIES
---------------
Lessee understands and acknowledges that portions of the building are
subject to the prior tenancies of Jeff M. Rayl, D.D.S. and Kathleen Rayl, and
Prudential Insurance Company of America, and that this Lease is subject to the
rights of said tenants. Notwithstanding the
25
<PAGE>
foregoing, upon commencement of this Lease term, the provisions hereof shall act
as and constitute an assignment to and acceptance by Lessee of all of Lessor's
right, title and interest with respect to the foregoing tenancies. More
specifically, Lessee shall be entitled to receive all rental payments payable by
said tenants accruing during the term of this Lease and Lessee shall be
obligated to perform all covenants and obligations on the part of the Lessor
with respect to said tenancies. In furtherance of the foregoing, Lessor agrees
to execute all documents in form mutually acceptable to Lessor and Lessee
reasonably necessary to effectuate the foregoing and shall execute any and all
notices to said tenants in form mutually acceptable to Lessor and Lessee
reasonably requested by Lessee with respect to effectuating the foregoing.
46. FORCE MAJEURE
-------------
In the event that either party shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of
strikes, riots, insurrection, or war, then performance of such act shall be
excused from the period of the delay and the period from the performance of any
such act shall be extended for a period equivalent to the period of such delay.
The provisions of this section shall not operate to excuse Lessee from prompt
payment of rents or any other payments required by the terms of this Lease.
47. DATE OF ACCEPTANCE
------------------
This Lease is conditioned upon the acceptance by Lessee and delivery
to Lessor of an executed Lease on or before October 11, 1994.
READ AND APPROVED this 11th day of October, 1994.
LESSOR:
PLUMTREE OFFICE INVESTORS, LTD.,
a Colorado limited partnership
DIAMANTE PROPERTIES CORP., a Colorado
corporation, Managing General Partner
By: /s/ Robert A. Spade
-------------------
Robert A. Spade, President
LESSEE:
R & D SYSTEMS COMPANY, a Colorado corporation
By: /s/ Guy M. Lammle
-----------------
CEO 10/11/94
--------------------
Name and Title
26
<PAGE>
Exhibit "A"
OPTION TO RENEW
(a) So long as Lessee is not in default under this Lease, either at
the time of exercise or at the time the extended term commences, Lessee will
have the option to extend the initial four (4) year term of this Lease for an
additional period of either three (3) or five (5) years (the "option period") on
the same terms, covenants, and conditions of this Lease, except that the monthly
rent during the option period will be determined pursuant to the following
paragraph. Lessee will exercise its option by giving Lessor written notice
("option notice") at least one (1) year prior to the expiration of the initial
term of this Lease, which notice shall include Lessee's election to extend the
term for either three (3) or five (5) years.
(b) The initial monthly rent for the option period will be determined
as follows:
(i) Lessor and Lessee will have fifteen (15) days after Lessor
receives the option notice within which to agree on the then-fair market rental
value of the Premises, and rental increases to the monthly rent for the option
period. If they agree on the initial monthly rent and rental increases for the
option period within fifteen (15) days, they will amend this Lease by stating
the initial monthly rent and rental increases for the option period.
(ii) The "then-fair market rental value of the Premises" means
what a landlord under no compulsion to lease the Premises and a tenant under no
compulsion to lease the Premises would determine as rents (including initial
monthly rent and rental increases) for the option period, as of the commencement
of the option period, taking into consideration the uses permitted under this
Lease, the quality, size, design, and location of the Premises, and the rent for
comparable buildings located in the vicinity of the Building. The then-fair
market rental value of the Premises and the rental increases in the monthly rent
for the option period will not be less than that provided during the initial
term.
(iii) Within seven (7) days after the expiration of the fifteen
(15) day period set forth in paragraph (b)(2), the parties will attempt to agree
upon the selection of an appraiser to determine the then-fair market rental
value of the Premises and rent escalators. If the parties cannot agree upon an
appraiser, each party will hire an appraiser with at least five years full-time
commercial appraisal experience in the Colorado Springs area. The then-fair
market rental value and rent escalators will then be determined by averaging the
rental values and escalators of the two appraisers. The determination of the
appraiser (if one is agreed upon by the parties) or the calculation of the
averages of the two appraisers shall conclusively determine the rental increases
during the renewal term. This rent determination process shall be completed
within ninety (90) days of option notice receipt by Lessor, or Lessor, at its
discretion, may terminate the lease renewal option. This rent determination
process shall be completed within ninety (90) days of receipt of the notice
<PAGE>
exercising the option by Lessor, or Lessor, at its discretion, may terminate
this Lease renewal option.
LESSOR:
PLUMTREE OFFICE INVESTORS, LTD.,
a Colorado limited partnership
DIAMANTE PROPERTIES CORP., a Colorado
corporation, Managing General Partner
By: /s/ Robert A. Spade
--------------------------
Robert A. Spade, President
LESSEE:
R & D SYSTEMS COMPANY, a Colorado
corporation
By: /s/ Guy M. Lammle
--------------------------
CEO
--------------------------
Name and Title
<PAGE>
EXHIBIT 10.15
STOCK PURCHASE AND RESTRICTION AGREEMENT
----------------------------------------
STOCK PURCHASE AND RESTRICTION AGREEMENT by and between R&D Systems
Company, a Delaware corporation (the "Company"), and Guy M. Lammle (the
"Officer"), dated as of March 14, 1996.
WHEREAS, the Officer is the Chief Executive Officer of the Company and
is purchasing 640,845 shares of the Company's Common Stock at a purchase price
of $0.50 per share; and
WHEREAS, the parties hereto believe that it is in the best interests of
the Company and the Officer to provide for certain rights and obligations of the
Company and the Officer with respect to the Shares under certain circumstances.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
Section 1. Definitions. For the purposes of this Agreement, the
-----------
following terms shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as
---
amended, and the rules and regulations thereunder.
(b) "Common Stock" shall mean the Company's Common
------------
Stock, par value $.01 per share.
(c) "Non-Vested Shares" shall mean all the Shares that
-----------------
are not Vested Shares.
(d) "Shares" shall mean the 640,845 shares of Common
------
Stock being purchased by the Officer on the date hereof and any additional
shares of Common Stock received as a dividend on, or otherwise on account of,
the Shares.
(e) "Termination Event" shall mean the termination of the
-----------------
Officer as an employee of the Company, whether by reason of retirement,
discharge or any other reason, voluntary or involuntary.
(f) "Vested Shares" shall initially mean none of the
-------------
Shares owned by the Officer on the date hereof, which number shall be increased
as follows:
(i) an additional 51,496.50 Shares on each of
June 30, September 30, December 31, and March 31, commencing on June 30, 1996
and continuing through and including March 31, 1998, so long as, in each case,
the Officer remains an employee of the Company on such date;
(ii) an additional 5,721.825 Shares on each
June 30, September 30, December 31, and March 31, commencing on June 30, 1996
and continuing through and
<PAGE>
including March 31, 2006, so long as, in each case, the Officer remains an
employee of the Company on such date, provided, however, that, (A) in the event
-------- -------
that the Company redeems the Senior Redeemable Preferred Stock issued or
issuable to the Investors (as defined in a certain Stock Purchase Agreement
dated the date hereof by and among the Company, the Investors and certain other
parties identified on the signature pages thereto (the "Investor Agreement")) in
full and in accordance with the terms thereof on or prior to September 30, 1997
and the Officer remains an employee of the Company on such date, the excess of
the following amount shall become Vested Shares hereunder (x) 45,774.6 Shares
minus (y) the number of Shares that have vested through such date on a quarterly
basis under this Section 1(g)(ii) and which have not previously been applied to
reduce the number of Shares subject to accelerated vesting hereunder ("Vested
Reduction Amount") and (B) if the Company achieves the Revenue and Operating
Profit targets set forth under either of Schedule A or B on Exhibit A hereto for
---------
any of calendar years 1996, 1997, 1998 and 1999 and the Officer remains an
employee of the Company on the date when the audited financial statements for
such year are delivered, the excess of the following amounts shall become Vested
Shares hereunder for each year with respect to which such targets are achieved:
(x) 45,774.6 Shares minus (y) the Vested Reduction Amount; provided, however,
that if none of the relevant Schedule A or B targets are met in a particular
calendar year through 1999, the Officer shall nonetheless be entitled to the
accelerated vesting provided hereunder for such year if the Company achieves
Revenue and Operating Profit levels for the following year which exceed the
relevant Schedule A or Schedule B targets for such following year by amounts
which equal or exceed the amounts by which the Company failed to achieve the
Revenue and Operating Profit targets on that Schedule for the prior year and the
Officer remains an employee of the Company when the audited financial statements
for such following year are delivered. The number of shares set forth in this
Section 1(f) shall be equitably adjusted to reflect any stock splits, stock
dividends and the like.
Section 2. Purchase and Sale of Shares; Investment Representations.
-------------------------------------------------------
(a) Purchase and Sale. On the date hereof and pursuant to the Company's
-----------------
1996 Stock Option and Grant Plan, the Company hereby sells to the Officer, and
the Officer hereby purchases from the Company, the Shares at a purchase price of
$0.50 per Share payable in cash for an aggregate purchase price of $320,242.50.
The Company and the Officer agree that the aggregate fair market value of the
Shares as of the date of this Agreement is $320,242.50.
(b) Investment Representations. In connection with the purchase and
--------------------------
sale of the Shares contemplated by Section 2(a) above, the Officer hereby
represents and warrants to the Company as follows:
(i) The Officer is purchasing the Shares for his own
account for investment only, and not for resale or with a view to the
distribution thereof.
(ii) The Officer has had such an opportunity as he has
deemed adequate to obtain from representatives of the Company such information
as is necessary to permit him to evaluate the merits and risks of his investment
in the Company.
2
<PAGE>
(iii) The Officer has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved in
the purchase of the Shares and to make an informed investment decision with
respect to such purchase.
(iv) The Officer can afford a complete loss of the value of
the Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(v) The Officer understands that the Shares are not
registered under the Act or any applicable state securities or "blue sky" laws
and may not be sold or otherwise transferred or disposed of in the absence of an
effective registration statement under the Act and under any applicable state
securities or "blue sky" laws (or exemptions from the registration requirements
thereof).
Section 3. Repurchase Option.
-----------------
3.1. Repurchase Option. In the event of a Termination Event, the
-----------------
Company shall have the right and option (the "Repurchase Option") to repurchase
all, but not less than all, of the Non-Vested Shares at a per share repurchase
price equal to the aggregate of (i) $0.50 (adjusted for stock splits, stock
dividends and the like) plus (ii) the documented, per share amount of any taxes
paid by the Officer with respect to such Non-Vested Shares on account of Section
83 of the Internal Revenue Code of 1986, as amended minus (iii) the amount of
any tax reduction realized by the Officer during the tax year in which the
repurchase occurs as a result of the application of the capital loss
attributable to the repurchase to offset other capital gains. The Company may
elect to exercise its Repurchase Option pursuant to the provision of Section 3.2
below. In the event that the Company does not elect to exercise its Repurchase
Option, all of the Non-Vested Shares shall thereafter be deemed to be Vested
Shares.
3.2. Exercise of Repurchase Option and Closing. The Company may
-----------------------------------------
exercise the Repurchase Option by delivering or mailing to the Officer, in
accordance with Section 8.7, written notice of its election to exercise within
45 days after the Termination Event. If and to the extent the Repurchase Option
is not so exercised within such 45-day period, the Repurchase Option shall
automatically expire and terminate effective upon the expiration of such 45-day
period. The closing of any such repurchase of Non-Vested Shares shall be held at
the principal office of the Company, or at such other location as the parties to
such repurchase may mutually determine. At any such closing, the Company shall
pay to the Officer and/or any holder of the Non-Vested Shares the aggregate
repurchase price for the Non-Vested Shares to be purchased by certified or bank
check. At such time, the Officer and/or any holder of the Non-Vested Shares
shall deliver to the Company the certificate or certificates representing the
Non-Vested Shares so repurchased, duly endorsed for transfer, free and clear of
any liens or encumbrances.
Section 4. Restrictions on Transfer of Shares. None of the Shares now
----------------------------------
owned or hereafter acquired shall be sold, assigned, transferred, pledged,
hypothecated, given away or in any other manner disposed of or encumbered,
whether voluntarily or by operation of law, unless such transfer is in
compliance with all foreign, federal and state securities laws (including,
without limitation, the Act), and such disposition is in accordance with the
terms and conditions of this
3
<PAGE>
Section 4. In connection with any transfer of Shares, the Company may require an
opinion of counsel to the transferor, reasonably satisfactory to the Company,
that such transfer is in compliance with all foreign, federal and state
securities laws (including without limitation, the Act). Any attempted
disposition of Shares not in accordance with the terms and conditions of this
Section 4 shall be null and void, and the Company shall not reflect on its
records any change in record ownership of any Shares as a result of any such
disposition, shall otherwise refuse to recognize any such disposition and shall
not in any way give effect to any such disposition of any Shares. The Officer is
also a party to a certain Stockholders' Agreement dated as of the date hereof by
and among the Company and its stockholders (the "Stockholders' Agreement").
Subject to the foregoing general provisions and except as otherwise amended by
this Section 4, Non-Vested Shares may be transferred to Permitted Transferees
(as defined in the Stockholders' Agreement) and Vested Shares may be transferred
in accordance with and subject to the provisions of the Stockholders' Agreement.
Section 5. Legend. Any certificate (s) representing the Shares shall
------
carry the following legends:
"The transferability of this Certificate and the shares
of stock represented hereby are subject to the restrictions,
terms and conditions (including repurchase and restrictions
against transfers) contained in a certain Stock Purchase and
Restriction Agreement dated as of March 14, 1996 between the
Company and Guy M. Lammle (copies of which are available at the
offices of the Company for examination)."
and
"The shares represented by this Stock Certificate have
not been registered under the Securities Act of 1933 or the
securities laws of any State. The shares may not be sold or
transferred in the absence of such registration or an exemption
from registration."
Section 6. Escrow. In order to more effectively carry out the
------
provisions of Sections 3 and 4 of this Agreement, the Company shall hold the
Shares in escrow together with a stock power endorsed by the Officer in blank.
The Company shall not dispose of the Shares except as otherwise provided in this
Agreement or the Stockholders' Agreement. If the Company exercises the
Repurchase Option, the Company is hereby authorized by the Officer to date and
complete the stock powers necessary for the transferto the Company of the Shares
it has duly elected to purchase and to transfer the Shares being purchased to
the Company. At such time as any Shares are transferred pursuant to Section 4
(including pursuant to the right of first refusal provisions in the
Stockholders' Agreement), the Company shall, at the written request of the
Officer, deliver to the Officer (or his proposed transferee) a certificate
representing such Shares with the balance of the Shares to be held in escrow
pursuant to this Section 6. All Shares which remain in escrow upon the
termination
4
<PAGE>
of this Agreement shall then be delivered to the Officer and/or the record
holders of such Shares. The right to vote the Shares and to receive cash
dividends on the Shares shall remain in the Officer unless and until the Shares
are purchased by the Company pursuant to the Repurchase Option.
Section 7. Withholding Taxes. The Officer acknowledges and agrees that
-----------------
the Company has the right to deduct from payments of any kind otherwise due to
the Officer, or from the Shares held pursuant to Section 6 hereof, any federal,
state or local taxes of any kind required by law to be withheld with respect to
the purchase of the Shares by the Officer. In furtherance of the foregoing the
Officer agrees that if he elects, in accordance with Section 83(b) of the
Internal Revenue Code of 1986, as amended, to recognize ordinary income in the
year of acquisition of the Shares, the Officer will pay to the Company all
withholding taxes shown as due on his Section 83(b) election form, or otherwise
ultimately determined to be due with respect to such election, based on the
difference, if any, between the purchase price for such Shares and the fair
market value of such Shares as of the date of the purchase of such Shares by the
Officer.
Section 8. Miscellaneous Provisions.
------------------------
8.1 Termination. The restrictions on transfers of Vested Shares
-----------
contemplated by Section 4 hereof shall terminate as provided in the
Stockholders' Agreement; provided, however, that all other provisions of this
Agreement (including restrictions on transfers of Non-Vested Shares) shall
remain in effect until all of the Shares shall have become Vested Shares.
8.2. Equitable Relief. The parties hereto agree and declare that legal
----------------
remedies may be inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
8.3. Change and Modifications. This Agreement may not be orally
------------------------
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Officer.
8.4. Governing Law; Entire Agreement. This Agreement shall be
-------------------------------
governed by and construed in accordance with the laws of the State of Delaware.
This Agreement, together with the Stockholders' Agreement and other agreements
specifically contemplated hereby and thereby, is intended by the parties as a
final expression of their agreement and intended to be complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement and the
Stockholders' Agreement and other agreements contemplated hereby and thereby
(including the exhibits hereto and thereto) supersede all prior agreements and
understandings between the parties with respect to such subject matter.
5
<PAGE>
8.5. Headings. The headings are intended only for convenience in
--------
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
8.6. Saving Clause. If any provision(s) of this Agreement shall be
-------------
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
8.7. Notices. All notices, requests, consents and other communications
-------
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Officer shall be
addressed as set forth underneath their signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other. Notices to any holder of the Shares other than the Officer shall be
addressed to the address furnished by such holder to the Company.
8.8. Benefit and Binding Effect. This Agreement shall be binding upon
--------------------------
and shall inure to the benefit of the parties hereto, their respective
successors, assigns, and legal representatives. The Company has the right to
assign this Agreement, and such assignee shall become entitled to all the rights
of the Company hereunder to the extent of such assignment. Notwithstanding
anything herein to the contrary, an assignment by the Company shall not relieve
the Company of the obligation to pay any part of the aggregate repurchase price
for Non-Vested Shares which is not paid by the Company's assignee.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Officer have executed this
Stock Purchase and Restriction Agreement as of the date first above written.
R&D SYSTEMS, INC.
5225 N. Academy Blvd.
Suite 200
Colorado Springs, CO 80918
Facsimile: (719) 599-3823
By: /s/ KJ CUNNINGHAM
------------------------------
Title:
OFFICER
/s/ GUY M. LAMMLE
---------------------------------
Guy M. Lammle
23234 E. Country Club
Scottsdale, AZ 85255
Facsimile:
7
<PAGE>
EXHIBIT A
---------
Schedule A
----------
Year Revenues Operating Profit Margin
- ---- -------- -----------------------
1995 (A) $ 35,124,139 $ 4,689,079
1996 43,905,173 8,781,035 (1)
1997 54,881,467 10,976,293
1998 68,601,834 13,720,367
1999 85,752,292 17,150,459
2000 107,190,365 21,438,073
Schedule B
----------
Year Revenues Operating Profit Margin
- ---- -------- -----------------------
1995 (A) $ 35,124,139 $ 4,689,079
1996 45,661,381 6,849,207 (1)
1997 59,359,795 8,903,969
1998 77,167,733 11,575,160
1999 100,318,053 15,047,708
2000 130,413,469 19,562,020
- ------------------------------
(A) Audited
(1) Before extraordinary MSUIP expense of $3,803,621
8
<PAGE>
EXHIBIT 10.17
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement made and entered into as of March 14, 1996
("Agreement"), by and between R&D Systems Company (the "Company," which term
shall include any Entity (as hereinafter defined), directly or indirectly,
controlled by or affiliated with the Company) and [each director]
("Indemnitee").
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's by-laws require the Company to indemnify its
directors and officers to the fullest extent permitted by law and permit it to
make other indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of such by-laws or any change in the ownership of the Company
or the composition of its Boards of Directors), which indemnification is
intended to be greater than that which is afforded by the Company's charter,
by-laws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's directors and officers liability insurance policies; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in entering and continuing in Indemnitee's position as a director of
the Company:
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
-----------
(a) "Corporate Status" describes the status of a person
who is serving or has served (i) as a director and/or
officer of the Company or any Subsidiary of the
Company, (ii) in any capacity with respect to any
employee benefit plan of the Company or any
Subsidiary of the Company, or (iii) as a director,
partner, trustee, officer, employee, agent or owner
of any other Entity at the request of the Company.
(b) "Entity" shall mean any corporation, partnership,
professional corporation, joint venture, trust,
foundation, association, organization or other legal
entity or any group or division of the Company or any
of its Subsidiaries.
<PAGE>
(c) "Expenses" shall mean all reasonable fees, costs and
expenses incurred in connection with any Proceeding (as
defined below), including, without limitation, attorneys'
fees, disbursements and retainers (including, without
limitation, any such fees, disbursements and retainers
incurred by Indemnitee pursuant to Section 10 of this
Agreement), fees and disbursements of expert witnesses,
private investigators and professional advisors (including,
without limitation, accountants and investment bankers),
court costs, transcript costs, fees of experts, travel
expenses, duplicating, printing and binding costs,
telephone and fax transmission charges, postage, delivery
services, secretarial services, and other disbursements and
expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to
those terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities,
losses, penalties, excise taxes, fines and amounts paid in
settlement.
(f) "Proceeding" shall mean any threatened, pending or
completed claim, action, suit, arbitration, alternate
dispute resolution process, investigation, administrative
hearing, appeal, or any other proceeding, whether civil,
criminal, administrative or investigative, whether formal
or informal, including a proceeding initiated by Indemnitee
pursuant to Section 10 of this Agreement to enforce
Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any Entity that is directly or
indirectly wholly-owned or controlled by the Company.
2. Services of Indemnitee. In consideration of the Company's
----------------------
covenants and commitments hereunder, Indemnitee agrees to serve or continue to
serve as a director of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company or any other Entity beyond any period otherwise required by law or by
other agreements or commitments of the parties, if any, and subject to the
foregoing, Indemnitee shall be free to resign from any position he holds at any
time.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee
----------------------
as follows:
(a) Subject to the exceptions contained in Section 4(a) below,
if Indemnitee was or is a party or is threatened to be made
a party to any Proceeding (other than an action by or in the
right of the Company) by reason of Indemnitee's Corporate
Status, Indemnitee shall be indemnified by the Company
against all Expenses and Liabilities incurred or paid by
2
<PAGE>
Indemnitee in connection with such Proceeding (referred to
herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as
"Indemnifiable Amounts").
(b) Subject to the exceptions contained in Section 4(b) below,
if Indemnitee was or is a party or is threatened to be made
a party to any Proceeding by or in the right of the Company
to procure a judgment in its favor by reason of Indemnitee's
Corporate Status, Indemnitee shall be indemnified by the
Company against all Indemnifiable Expenses.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
-----------------------------
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it
has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the
Proceeding out of which the claim for indemnification has
arisen, Indemnitee failed to act in good faith and in a
manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company or the
relevant Entity, or, with respect to any criminal action or
proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful, Indemnitee shall not be
entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a
court of competent jurisdiction that,
in connection with the subject of the
Proceeding out of which the claim for
indemnification has arisen, Indemnitee
failed to act in good faith and in a
manner Indemnitee reasonably believed
to be in or not opposed to the best
interests of the Company or the
relevant Entity, Indemnitee shall not
be entitled to payment of
Indemnifiable Expenses hereunder; or
(ii) it has been adjudicated finally by a
court of competent jurisdiction that
Indemnitee is liable to the Company or
the relevant Entity with respect to
any claim, issue or matter involved in
the Proceeding out of which the claim
for indemnification has arisen,
including, without limitation, a claim
that Indemnitee received an improper
personal benefit, no Indemnifiable
Expenses shall be paid with respect to
such claim, issue or matter unless the
Court of Chancery or another court in
which such Proceeding was brought
shall determine upon application that,
despite the adjudication of liability,
but in view of all the
3
<PAGE>
circumstances of the case, Indemnitee
is fairly and reasonably entitled to
indemnity for such Indemnifiable
Expenses which such court shall deem
proper.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
----------------------------------------------
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within twenty (20) calendar days of receipt of the request. At the request of
the Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, and without
- ----------
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or
-----------------------------
termination of any Proceeding nor the failure of the Company to award
indemnification or to determine that indemnification is payable shall create an
adverse presumption that Indemnitee is not entitled to indemnification
hereunder. In addition, the termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not create a presumption that Indemnitee did not act in good faith and in
a manner which Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company or, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's action was
unlawful.
8. Agreement to Advance Interim Expenses; Conditions. The Company
-------------------------------------------------
shall advance to Indemnitee all Indemnifiable Expenses incurred by Indemnitee in
connection with any Proceeding, including a Proceeding by or in the right of the
Company, in advance of the final disposition of such Proceeding, if Indemnitee
furnishes the Company with a written undertaking to repay the amount of such
Indemnifiable Expenses advanced to Indemnitee if it is finally determined by a
court of competent jurisdiction that Indemnitee is not entitled under this
Agreement to indemnification with respect to such Expenses. Such undertaking
shall be an unlimited general obligation of Indemnitee, shall be accepted by the
Company without regard to the financial ability of Indemnitee to make repayment,
and in no event shall be required to be secured.
4
<PAGE>
9. Procedure for Payment of Interim Expenses. Indemnitee shall submit
-----------------------------------------
to the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such request
and the undertaking required by Section 8.
10. Remedies of Indemnitee.
----------------------
(a) Right to Petition Court. In the event that Indemnitee
-----------------------
makes a request for payment of Indemnifiable Amounts
under Sections 3 and 5 above or a request for an
advancement of Indemnifiable Expenses under Sections 8
and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of
this Agreement, Indemnitee may petition the Court of
Chancery or other appropriate court with jurisdiction
over this matter to enforce the Company's obligations
under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under
---------------
Section 10(a) above, the Company shall have the burden of
proving that Indemnitee is not entitled to payment of
Indemnifiable Amounts hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in
--------
full for any Expenses incurred by Indemnitee in
connection with investigating, preparing for, litigating,
defending or settling any action brought by Indemnitee
under Section 10(a) above, or in connection with any
claim or counterclaim brought by the Company in
connection therewith, but only if and to the extent
Indemnitee prevails therein. If it shall be determined in
such action that Indemnitee is entitled to receive part
but not all of the advancement or indemnification sought,
the expenses incurred by Indemnitee in connection with
such action shall be appropriately prorated.
(d) Validity of Agreement. The Company shall be precluded
---------------------
from asserting in any Proceeding, including, without
limitation, an action under Section 10(a) above, that the
provisions of this Agreement are not valid, binding and
enforceable, that there is insufficient consideration for
this Agreement or that this Agreement and the actions of
the Company's Board of Directors in approving this
Agreement constituted a breach of their fiduciary
obligations and shall stipulate in court that the Company
is bound by all the provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company
----------------------------
(including its Board of Directors or any committee
thereof, independent legal counsel, or shareholders) to
make a determination concerning the permissibility of the
payment of Indemnifiable Amounts or the advancement of
Indemnifiable
5
<PAGE>
Expenses under this Agreement shall not be a defense in
any action brought under Section 10(a) above, and shall
not create a presumption that such payment or advancement
is not permissible.
11. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and
---------
authority to enter into, and be bound by the terms of,
this Agreement, and the execution, delivery and
performance of the undertakings contemplated by this
Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and
--------------
delivered by the Company in accordance with the
provisions hereof, shall be a legal, valid and binding
obligation of the Company, enforceable against the
Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws
affecting the enforcement of creditors' rights generally.
12. Insurance. The Company will use its commercially reasonable
---------
efforts to obtain and maintain a policy or policies of insurance with a
reputable insurance company or companies providing the Indemnitee with coverage
for losses from wrongful acts, and to ensure the Company's performance of its
indemnification obligations under this Agreement. In all policies of director
and officer liability insurance, Indemnitee shall be named as an insured in such
a manner as to provide Indemnitee at least the same rights and benefits as are
accorded to the most favorably insured of the Company's officers and directors.
Notwithstanding the foregoing, if the Company, after employing commercially
reasonable efforts as provided in the immediately preceding sentence, determines
in good faith that such insurance is not available, if the premium costs for
such insurance are disproportionate to the amount of coverage provided, or if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, the Company shall use its commercially
reasonable efforts to obtain and maintain a policy or policies of insurance with
coverage having features as similar as practicable to those described above.
13. Contract Rights Not Exclusive. The rights to payment of
-----------------------------
Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by this
Agreement shall be in addition to, but not exclusive of, any other rights which
Indemnitee may have at any time under applicable law, the Company's by-laws or
charter, or any other agreement, vote of shareholders or directors, or
otherwise, both as to action in Indemnitee's official capacity and as to action
in any other capacity as a result of Indemnitee's serving as a director of the
Company.
14. Successors. This Agreement shall be (a) binding upon all
----------
successors and assigns of the Company (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law) and (b) binding on and shall inure to the benefit of the
heirs,
6
<PAGE>
personal representatives, executors and administrators of Indemnitee. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
15. Subrogation. In the event of any payment of Indemnifiable Amounts
-----------
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
16. Change in Law. To the extent that a change in applicable law
-------------
(whether by statute or judicial decision) shall permit broader indemnification
than is provided under the terms of the by-laws of the Company and this
Agreement, Indemnitee shall be entitled to such broader indemnification and this
Agreement shall be deemed to be amended to such extent.
17. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
18. Indemnitee as Plaintiff. Except as provided in Section 10(c) of
-----------------------
this Agreement and in the next sentence or in connection with any
indemnification claim under any acquisition or investment agreement of even
date, Indemnitee shall not be entitled to payment of Indemnifiable Amounts or
advancement of Indemnifiable Expenses with respect to any Proceeding brought by
Indemnitee against the Company, any Subsidiary or any Entity which the Company
directly or indirectly controls or is affiliated with, any director or officer
thereof, or any third party, unless the Company has consented to the initiation
of such Proceeding. This Section shall not apply to counterclaims or affirmative
defenses asserted by Indemnitee in an action brought against Indemnitee.
19. Modifications and Waiver. Except as provided in Section 16 above
------------------------
with respect to changes in applicable law which broaden the right of Indemnitee
to be indemnified by the Company, no supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of 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 of this Agreement
(whether or not similar), nor shall such waiver constitute a continuing waiver.
20. General Notices. All notices, requests, demands and other
---------------
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified
7
<PAGE>
or registered mail with postage prepaid, on the third business day after the
date on which it is so mailed:
(i) If to Indemnitee, to:
[director]
------------------
------------------
------------------
Fax: (___) ________
(ii) If to the Company, to:
R&D Systems Company
5225 N. Academy Boulevard
Suite 200
Colorado Springs, CO 80918
Fax: (719) 599-3823
or to such other address or telefax number as may have been furnished in the
same manner by any party to the others.
21. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced under the laws of the jurisdiction in which R&D Systems Company or
its successor is incorporated from time to time (the "Jurisdiction") without
giving effect to the provisions thereof relating to conflicts of law.
22. Consent to Jurisdiction. The Company hereby irrevocably and
-----------------------
unconditionally consents to the jurisdiction of the courts of the Jurisdiction
and the United States District Court in the Jurisdiction. The Company hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any Proceeding arising out of or relating to this Agreement in the courts of the
Jurisdiction or the United States District Court for the District of the
Jurisdiction, and hereby irrevocably and unconditionally waives and agrees not
to plead or claim that any such Proceeding brought in any such court has been
brought in an inconvenient forum.
23. Agreement Governs. This Agreement is to be deemed consistent
-----------------
wherever possible with relevant provisions of the Company's by-laws and charter;
however, in the event of a conflict between this Agreement and such provisions,
the provisions of this Agreement shall control.
[Remainder of Page Intentionally Left Blank]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
R&D SYSTEMS COMPANY
By: /s/ GUY M. LAMMLE
----------------------------------
Name:
Title:
INDEMNITEE
/s/ DIRECTOR
-------------------------------------
9
<PAGE>
EXHIBIT 10.18
NON-COMPETITION AGREEMENT
-------------------------
This Agreement is made and entered into as of March 14, 1996 by and
between R&D Systems Company, a Delaware corporation (the "Company"), and Guy M.
Lammle ("Founder").
WHEREAS, certain investors have agreed to provide financing (the
"Financing") to the Company subject to the terms of that certain Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of the date hereof, by and
among the Company, the Founder, the other stockholders of the Company identified
therein, and the investors identified therein;
WHEREAS, a portion of the proceeds from the Financing will be used by
the Company to repurchase outstanding capital stock held by the Founder;
WHEREAS, the Founder is an executive of the Company; and
WHEREAS, the execution of this Agreement by the Company and the Founder
is a condition precedent to the transactions contemplated by the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company and the Founder agree as follows:
1. Confidential Information, Non-Competition and Non-Solicitation.
--------------------------------------------------------------
(a) Definitions.
-----------
(i) Proprietary Information. As used in this Agreement,
-----------------------
"Proprietary Information" means information which the Company
possesses or to which the Company has rights which has commercial
value. Proprietary Information includes, by way of example and
without limitation, trade secrets, product ideas, designs,
configurations, processes, techniques, formulas, software,
improvements, inventions, data, know-how, copyrightable
materials, marketing plans and strategies, sales and financial
reports and forecasts, and customer lists. Proprietary
Information includes information developed by the Founder in the
course of the Founder's employment by the Company or otherwise
relating to Inventions which belong to the Company under Section
1(d) below, as well as other information to which the Founder may
have access in connection with the Founder's employment.
(ii) Inventions and Developments. As used in this
---------------------------
Agreement, "Inventions and Developments" means any and all
inventions, developments, creative works and useful ideas of any
description whatsoever, whether or not
<PAGE>
patentable or copyrightable. Inventions and Developments include,
by way of example and without limitation, discoveries or
improvements which consist of or relate to any form of
Proprietary Information.
(iii) Company-Related Inventions and Developments.
-------------------------------------------
For purposes of this Agreement, "Company-Related Inventions and
Developments" means all Inventions and Developments which either
(A) relate at the time of conception or development to the actual
or demonstrably anticipated business of the Company or to its
actual or demonstrably anticipated research and development; (B)
result from or relate to any work performed for the Company,
whether or not during normal business hours; (C) are developed on
Company time; or (D) are developed through the use of the
Company's Proprietary Information, equipment and software, or
other facilities or resources.
(b) Confidentiality. The Founder understands and agrees that
---------------
the Founder's employment has created a relationship of confidence and
trust between the Founder and the Company with respect to (i) all
Proprietary Information, (ii) the confidential information of others
with which the Company has a business relationship with reasonable
expectations (whether as a result of a contract or otherwise) that such
information will not be disclosed and (iii) any information about the
financing and transactions related to the financing, including but not
limited to amounts paid, parties involved, ownership interests sold and
restrictions on the Company and its stockholders. The information
referred to in clauses (i), (ii) and (iii) of the preceding sentence is
referred to in this Agreement, collectively, as "Confidential
Information." At all times, both during the Founder's employment with
the Company and after its termination, the Founder will keep in
confidence and trust all such Confidential Information, and will not
use or disclose any such Confidential Information without the written
consent of the Company, except as may be necessary in the ordinary
course of performing the Founder's duties to the Company except to the
extent required by applicable law or court order (in each case
following notice to the Company) and except for disclosure to the
Founder's attorneys and assessments for tax, estate planning on legal
purposes. The restrictions set forth in this Section 1(b) will not
apply to information which is or becomes known to the public or in the
trade, unless such knowledge results from an unauthorized disclosure by
the Founder, but this exception will not affect the application of any
other provision of this Agreement to such information in accordance
with the terms of such provision.
(c) Documents, Records, etc. All documents, records, apparatus,
-----------------------
equipment and other physical property, whether or not pertaining to
Confidential Information, furnished to the Founder by the Company or
produced by the Founder in connection with the Founder's employment
will be and remain the sole property of the Company. The Founder will
return to the Company all such materials and property as and when
requested by the Company. In any event, the Founder will return all
such materials and property immediately upon termination of the
Founder's employment for any reason. The
2
<PAGE>
Founder will not retain with the Founder any such material or property
or any copies thereof after such termination, except that one copy of
any such materials may be delivered to independent counsel for the
Company to the extent the Founder deems it reasonably necessary to
preserve any of its rights hereunder, provided that such independent
counsel is reasonably acceptable to the Company, and the Founder
provides prior notice to the Company describing any such materials and
such independent counsel agrees to keep such material confidential.
(d) Ownership of Inventions and Developments. The Founder agrees
----------------------------------------
that all Company-Related Inventions and Developments which the Founder
conceives, creates or develops, in whole or in part, either alone or
jointly with others, prior to or during the course of the Founder's
employment with the Company will be the sole property of the Company.
The Founder agrees that the Company will be the sole owner of all
patents, copyrights and other proprietary rights in and with respect to
such Company-Related Inventions and Developments. To the fullest extent
permitted by law, such Company-Related Inventions and Developments will
be deemed works made for hire. The Founder hereby transfers and assigns
to the Company any proprietary rights which the Founder may have or
acquire in any such Company-Related Inventions and Developments. The
Founder agrees to execute any documents and take any actions that may
be required to effect and confirm such transfer and assignment and
waiver. The provisions of this Section 1(d) will apply to all Company-
Related Inventions and Developments which are conceived, created or
developed during the course of the Founder's employment with the
Company, whether before or after the date of this Agreement, and
whether or not further development or reduction to practice may take
place after termination of the Founder's employment, for which purpose
it will be presumed that any Company-Related Inventions and
Developments conceived by the Founder which are reduced to practice
within one year after termination of the Founder's employment were
conceived during the course of the Founder's employment with the
Company unless the Founder is able to establish a later conception date
by clear and convincing evidence. The provisions of this Section 1(d)
will not apply, however, to any Inventions and Developments which may
be disclosed in a separate Schedule attached to this Agreement prior to
its acceptance by the Company, representing Inventions and Developments
made by the Founder prior to the Founder's employment by the Company.
(e) Disclosure of Inventions and Developments. The Founder
-----------------------------------------
agrees promptly to disclose to the Company, or any persons designated
by it, all Company-Related Inventions and Developments which are or may
be subject to the provisions of Section 1(d).
(f) Obtaining and Enforcing Proprietary Rights. The Founder
------------------------------------------
agrees to assist the Company, at the Company's request from time to
time and at the Company's expense, to obtain and enforce patents,
copyrights or other proprietary rights with respect to Company-Related
Inventions and Developments in any and all countries. The Founder
3
<PAGE>
will execute all documents reasonably necessary or appropriate for this
purpose. This obligation will survive the termination of the Founder's
employment, provided that the Company will compensate the Founder at a
reasonable rate after such termination for time actually spent by the
Founder at the Company's request on such assistance. In the event that
the Company is unable for any reason whatsoever to secure the Founder's
signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions,
continuations, divisions or continuations in part), the Founder hereby
irrevocably designates and appoints the Company and its duly authorized
officers and agents as the Founder's agents and attorneys-in-fact to
act for the Founder and on the Founder's behalf, but only for the
purpose of executing and filing any such document and doing all other
lawfully permitted acts to accomplish the foregoing purposes with the
same legal force and effect as if executed by the Founder.
(g) Third-Party Agreements and Rights. The Founder hereby
---------------------------------
confirms that the Founder is not bound by the terms of any agreement
with any previous company or other party which restricts in any way the
Founder's use or disclosure of information or the Founder's engagement
in any business. The Founder represents to the Company that the
Founder's execution of this Agreement, the Founder's employment with
the Company and the performance of the Founder's proposed duties for
the Company will not violate any obligations the Founder may have to
any such previous company or other party. In the Founder's work for the
Company, the Founder will not disclose or make use of any information
in violation of any agreements with or rights of any such previous
company or other party, and the Founder will not bring to the premises
of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment
or other party.
(h) Non-competition and Non-solicitation. For a period
------------------------------------
beginning on the date hereof and ending on the later of the fourth
anniversary of the date hereof and the second anniversary of the date
on which the Founder ceases to be employed by the Company for any
reason whatsoever, the Founder, directly or indirectly, whether as
owner, sole proprietor, partner, shareholder, director, consultant,
agent, Founder, co-venturer or otherwise, (i) will not engage,
participate or invest in any business activity anywhere in the world
which develops, manufactures or markets products or performs services
which are competitive with the products or services of the Company at
the time of the Founder's termination, or products or services which
the Company has under development at the time of the Founder's
termination or which are the subject of active planning at any time
during the course of the Founder's employment (and which active
planning is not thereafter abandoned); provided, however, that the
-------- -------
Founder may own, as a passive investor, publicly-traded securities of
any corporation which competes with the business of the Company so long
as such securities do not, in the aggregate, constitute more than 1% of
any class of outstanding securities of such corporation, (ii) will
refrain from hiring or attempting to employ, recruiting or otherwise
soliciting, inducing or influencing any person to leave employment with
the Company or its resellers or distributors, and (iii)
4
<PAGE>
will refrain from directly or indirectly soliciting business from any
of the Company's customers, end users, resellers or distributors on
behalf of any business which competes with the Company. The Founder
understands that the restrictions set forth in this Section 1(h) are
intended to protect the Company's interest in its Proprietary
Information and established customer relationships and goodwill, and
agrees that such restrictions are reasonable and appropriate for this
purpose.
(i) Injunction. The Founder agrees that it would be difficult
----------
to measure any damages caused to the Company which might result from
any breach by the Founder of the promises set forth in this Agreement,
and that in any event money damages would be an inadequate remedy for
any such breach. Accordingly, the Founder agrees that if the Founder
breaches, or proposes to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it
may have, to an injunction or other appropriate equitable relief to
restrain any such breach without showing or proving any actual damage
to the Company.
2. Extent of Service. So long as the Founder is employed by the
-----------------
Company, the Founder shall devote all of the Founder's business time, attention
and energies, best efforts and business judgment, skill and knowledge to the
advancement of the Company's interests and to the discharge of the Founder's
duties and responsibilities hereunder. The Founder shall not engage in any other
business activity, except as may be approved by two-thirds of the Board of
Directors; provided, however, that nothing herein shall be construed as
preventing the Founder from the following:
(a) investing the Founder's assets in any other entity in a
manner not prohibited by Section 1(h) hereof and in such form or manner
as shall not require any material services on the Founder's part in the
operations or affairs of the companies or other entities in which such
investments are made; or
(b) acting as director of other companies so long as in a manner
not prohibited by Section 1(h); or
(c) engaging in religious, charitable or other community or
non-profit activities that do not impair the Founder's ability to
fulfill the Founder's duties and responsibilities consistent with the
foregoing.
3. No Employment Obligation. The Founder understands and agrees
------------------------
that this Agreement does not create an obligation on the part of the Company to
continue the Founder's employment by the Company. The Founder acknowledges and
agrees that, except as expressly provided in any subsequent agreement to the
contrary, he is an employee "at will."
5
<PAGE>
4. Inclusion of Company's Subsidiaries. For the purposes of Sections
-----------------------------------
1, 2, 3 and 5 hereof, all references to "Company" shall be deemed to include the
Company and each of its subsidiaries, as in existence from time to time.
5. Integration. This Agreement and the Stock Purchase Agreement
-----------
constitute the entire agreements between the parties with respect to the subject
matter hereof and supersede all prior agreements between the parties with
respect to any related subject matter.
6. Assignment; Successors and Assigns, etc. Neither the Company nor
---------------------------------------
the Founder may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, however, that the Company may assign its rights under this
Agreement without the consent of the Founder in the event that the Company shall
hereafter effect a reorganization, consolidate with or merge into any other
corporation, partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other corporation,
partnership, organization or other entity in which even for purposes of Section
1(h) hereof as used in determining the scope of the Company's business,
references to the Company shall be deemed to refer to the Company immediately
prior to such reorganization, consolidation or merger. This Agreement shall
inure to the benefit of and be binding upon the Company and the Founder, their
respective successors, executors, administrators, heirs and permitted assigns.
7. Enforceability. If any portion or provision of this Agreement
--------------
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
8. Waiver. No waiver of any provision hereof shall be effective
------
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
9. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, return
receipt requested, to the Founder at the last address the Founder has filed in
writing with the Company or, in the case of the Company, at its main offices,
attention of the Chairman of the Board of Directors.
10. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Founder and by a duly authorized representative
of the Company.
6
<PAGE>
11. Governing Law. This is a Colorado contract and shall be
-------------
construed under and be governed in all respects by the internal laws of the
State of Colorado, without giving effect to its conflicts of law principles.
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
13. Payment. In consideration of the covenants set forth in this
-------
Agreement and provided that the Founder is not in material breach of this
Agreement, the Company agrees to pay to the Founder, by certified or bank
cashier's check or by wire transfer, the sum of $1,500,000 on the date hereof,
$500,000 on the first anniversary of the date hereof and $500,000 on the second
anniversary of the date hereof. The Founder acknowledges that such payments
shall be deemed as payment in full by the Company for the performance of such
covenants by the Founder.
[Remainder of Page Intentionally Left Blank]
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Founder,
as of the date first above written.
COMPANY:
-------
R&D SYSTEMS COMPANY
By: /s/ KJ CUNNINGHAM
---------------------------------
Name:
Title:
FOUNDER:
-------
/s/ GUY M. LAMMLE
------------------------------------
Guy M. Lammle
8
<PAGE>
EXHIBIT 10.19
NON-COMPETITION AGREEMENT
-------------------------
This Agreement is made and entered into as of March 14, 1996 by and
between R&D Systems Company, a Delaware corporation (the "Company"), and Roger
H. Linn ("Founder").
WHEREAS, certain investors have agreed to provide financing (the
"Financing") to the Company subject to the terms of that certain Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of the date hereof, by and
among the Company, the Founder, the other stockholders of the Company identified
therein, and the investors identified therein;
WHEREAS, a portion of the proceeds from the Financing will be used by
the Company to repurchase outstanding capital stock held by the Founder;
WHEREAS, the Founder has been is an executive of the Company; and
WHEREAS, the execution of this Agreement by the Company and the Founder
is a condition precedent to the transactions contemplated by the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company and the Founder agree as follows:
1. Confidential Information, Non-Competition and Non-Solicitation.
--------------------------------------------------------------
(a) Definitions.
-----------
(i) Proprietary Information. As used in this
-----------------------
Agreement, "Proprietary Information" means information which
the Company possesses or to which the Company has rights which
has commercial value. Proprietary Information includes, by way
of example and without limitation, trade secrets, product
ideas, designs, configurations, processes, techniques,
formulas, software, improvements, inventions, data, know-how,
copyrightable materials, marketing plans and strategies, sales
and financial reports and forecasts, and customer lists.
Proprietary Information includes information developed by the
Founder in the course of the Founder's employment by the
Company or otherwise relating to Inventions which belong to
the Company under Section 1(d) below, as well as other
information to which the Founder may have access in connection
with the Founder's employment.
(ii) Inventions and Developments. As used in this
---------------------------
Agreement, "Inventions and Developments" means any and all
inventions, developments, creative works and useful ideas of any
description whatsoever, whether or not
<PAGE>
patentable or copyrightable. Inventions and Developments include,
by way of example and without limitation, discoveries or
improvements which consist of or relate to any form of
Proprietary Information.
(iii) Company-Related Inventions and Developments.
-------------------------------------------
For purposes of this Agreement, "Company-Related Inventions
and Developments" means all Inventions and Developments which
either (A) relate at the time of conception or development to
the actual or demonstrably anticipated business of the Company
or to its actual or demonstrably anticipated research and
development; (B) result from or relate to any work performed
for the Company, whether or not during normal business hours;
(C) are developed on Company time; or (D) are developed
through the use of the Company's Proprietary Information,
equipment and software, or other facilities or resources.
(b) Confidentiality. The Founder understands and agrees that
---------------
the Founder's employment has created a relationship of confidence and
trust between the Founder and the Company with respect to (i) all
Proprietary Information (ii) the confidential information of others
with which the Company has a business relationship with reasonable
expectations (whether as a result of a contract or otherwise) that such
information will not be disclosed and (iii) any information about the
financing and transactions related to the financing, including but not
limited to amounts paid, parties involved, ownership interests sold and
restrictions on the Company and its stockholders. The information
referred to in clauses (i), (ii) and (iii) of the preceding sentence is
referred to in this Agreement, collectively, as "Confidential
Information." At all times, both during the Founder's employment with
the Company and after its termination, the Founder will keep in
confidence and trust all such Confidential Information, and will not
use or disclose any such Confidential Information without the written
consent of the Company, except as may be necessary in the ordinary
course of performing the Founder's duties to the Company except to the
extent required by applicable law or court order (in each case
following notice to the Company) and except for disclosure to the
Founder's attorneys and assessments for tax, estate planning on legal
purposes. The restrictions set forth in this Section 1(b) will not
apply to information which is or becomes known to the public or in the
trade, unless such knowledge results from an unauthorized disclosure by
the Founder, but this exception will not affect the application of any
other provision of this Agreement to such information in accordance
with the terms of such provision.
(c) Documents, Records, etc. All documents, records,
-----------------------
apparatus, equipment and other physical property, whether or not
pertaining to Confidential Information, furnished to the Founder by the
Company or produced by the Founder in connection with the Founder's
employment will be and remain the sole property of the Company. The
Founder will return to the Company all such materials and property as
and when requested by the Company. In any event, the Founder will
return all such materials and property immediately upon termination of
the Founder's employment for any reason. The
2
<PAGE>
Founder will not retain with the Founder any such material or property
or any copies thereof after such termination, except that one copy of
any such materials may be delivered to independent counsel for the
Company to the extent the Founder deems it reasonably necessary to
preserve any of its rights hereunder, provided that such independent
counsel is reasonably acceptable to the Company, and the Founder
provides prior notice to the Company describing any such materials and
such independent counsel agrees to keep such material confidential.
(d) Ownership of Inventions and Developments. The Founder
----------------------------------------
agrees that all Company-Related Inventions and Developments which the
Founder conceives, creates or develops, in whole or in part, either
alone or jointly with others, prior to or during the course of the
Founder's employment with the Company will be the sole property of the
Company. The Founder agrees that the Company will be the sole owner of
all patents, copyrights and other proprietary rights in and with
respect to such Company-Related Inventions and Developments. To the
fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. The Founder hereby
transfers and assigns to the Company any proprietary rights which the
Founder may have or acquire in any such Company-Related Inventions and
Developments. The Founder agrees to execute any documents and take any
actions that may be required to effect and confirm such transfer and
assignment and waiver. The provisions of this Section 1(d) will apply
to all Company-Related Inventions and Developments which are conceived,
created or developed during the course of the Founder's employment with
the Company, whether before or after the date of this Agreement, and
whether or not further development or reduction to practice may take
place after termination of the Founder's employment, for which purpose
it will be presumed that any Company-Related Inventions and
Developments conceived by the Founder which are reduced to practice
within one year after termination of the Founder's employment were
conceived during the course of the Founder's employment with the
Company unless the Founder is able to establish a later conception date
by clear and convincing evidence. The provisions of this Section 1(d)
will not apply, however, to any Inventions and Developments which may
be disclosed in a separate Schedule attached to this Agreement prior to
its acceptance by the Company, representing Inventions and Developments
made by the Founder prior to the Founder's employment by the Company.
(e) Disclosure of Inventions and Developments. The Founder
-----------------------------------------
agrees promptly to disclose to the Company, or any persons designated
by it, all Company-Related Inventions and Developments which are or may
be subject to the provisions of Section 1(d).
(f) Obtaining and Enforcing Proprietary Rights. The Founder
------------------------------------------
agrees to assist the Company, at the Company's request from time to
time and at the Company's expense, to obtain and enforce patents,
copyrights or other proprietary rights with respect to Company-Related
Inventions and Developments in any and all countries. The Founder
3
<PAGE>
will execute all documents reasonably necessary or appropriate for this
purpose. This obligation will survive the termination of the Founder's
employment, provided that the Company will compensate the Founder at a
reasonable rate after such termination for time actually spent by the
Founder at the Company's request on such assistance. In the event that
the Company is unable for any reason whatsoever to secure the Founder's
signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions,
continuations, divisions or continuations in part), the Founder hereby
irrevocably designates and appoints the Company and its duly authorized
officers and agents as the Founder's agents and attorneys-in-fact to
act for the Founder and on the Founder's behalf, but only for the
purpose of executing and filing any such document and doing all other
lawfully permitted acts to accomplish the foregoing purposes with the
same legal force and effect as if executed by the Founder.
(g) Third-Party Agreements and Rights. The Founder hereby
---------------------------------
confirms that the Founder is not bound by the terms of any agreement
with any previous company or other party which restricts in any way the
Founder's use or disclosure of information or the Founder's engagement
in any business. The Founder represents to the Company that the
Founder's execution of this Agreement, the Founder's employment with
the Company and the performance of the Founder's proposed duties for
the Company will not violate any obligations the Founder may have to
any such previous company or other party. In the Founder's work for the
Company, the Founder will not disclose or make use of any information
in violation of any agreements with or rights of any such previous
company or other party, and the Founder will not bring to the premises
of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment
or other party.
(h) Non-competition and Non-solicitation. For a period
------------------------------------
beginning on the date hereof and ending on the fourth anniversary of
the date hereof, the Founder, directly or indirectly, whether as owner,
sole proprietor, partner, shareholder, director, consultant, agent,
Founder, co-venturer or otherwise, (i) will not engage, participate or
invest in any business activity anywhere in the world which develops,
manufactures or markets products or performs services which are
competitive with the products or services of the Company at the time of
the Founder's termination, or products or services which the Company
has under development at the time of the Founder's termination or which
are the subject of active planning at any time during the course of the
Founder's employment (and which active planning is not thereafter
abandoned); provided, however, that the Founder may own, as a passive
-------- -------
investor, publicly-traded securities of any corporation which competes
with the business of the Company so long as such securities do not, in
the aggregate, constitute more than 1% of any class of outstanding
securities of such corporation, (ii) will refrain from hiring or
attempting to employ, recruiting or otherwise soliciting, inducing or
influencing any person to leave employment with the Company or its
resellers or distributors, and (iii) will refrain from directly or
indirectly soliciting business from any of the Company's customers, end
users, resellers or distributors on
4
<PAGE>
behalf of any business which competes with the Company. The Founder
understands that the restrictions set forth in this Section 1(h) are
intended to protect the Company's interest in its Proprietary
Information and established customer relationships and goodwill, and
agrees that such restrictions are reasonable and appropriate for this
purpose.
(i) Injunction. The Founder agrees that it would be difficult
----------
to measure any damages caused to the Company which might result from
any breach by the Founder of the promises set forth in this Agreement,
and that in any event money damages would be an inadequate remedy for
any such breach. Accordingly, the Founder agrees that if the Founder
breaches, or proposes to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it
may have, to an injunction or other appropriate equitable relief to
restrain any such breach without showing or proving any actual damage
to the Company.
2. Extent of Service. So long as the Founder is employed by the
-----------------
Company, the Founder shall devote all of the Founder's business time, attention
and energies, best efforts and business judgment, skill and knowledge to the
advancement of the Company's interests and to the discharge of the Founder's
duties and responsibilities hereunder. The Founder shall not engage in any other
business activity, except as may be approved by two-thirds of the Board of
Directors; provided, however, that nothing herein shall be construed as
preventing the Founder from the following:
(a) investing the Founder's assets in any other entity in a
manner not prohibited by Section 1(h) hereof and in such form or manner
as shall not require any material services on the Founder's part in the
operations or affairs of the companies or other entities in which such
investments are made; or
(b) acting as director of other companies so long as in a
manner not prohibited by Section 1(h); or
(c) engaging in religious, charitable or other community or
non-profit activities that do not impair the Founder's ability to
fulfill the Founder's duties and responsibilities consistent with the
foregoing.
3. No Employment Obligation. The Founder understands and agrees that
------------------------
this Agreement does not create an obligation on the part of the Company to
continue the Founder's employment by the Company. The Founder acknowledges and
agrees that, except as expressly provided in any subsequent agreement to the
contrary, he is an employee "at will."
4. Inclusion of Company's Subsidiaries. For the purposes of Sections 1,
-----------------------------------
2, 3 and 5 hereof, all references to "Company" shall be deemed to include the
Company and each of its subsidiaries, as in existence from time to time.
5
<PAGE>
5. Integration. This Agreement and the Stock Purchase Agreement
-----------
constitute the entire agreements between the parties with respect to the subject
matter hereof and supersede all prior agreements between the parties with
respect to any related subject matter.
6. Assignment; Successors and Assigns, etc. Neither the Company nor the
---------------------------------------
Founder may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, however, that the Company may assign its rights under this
Agreement without the consent of the Founder in the event that the Company shall
hereafter effect a reorganization, consolidate with or merge into any other
corporation, partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other corporation,
partnership, organization or other entity in which even for purposes of Section
1(h) hereof as used in determining the scope of the Company's business,
references to the Company shall be deemed to refer to the Company immediately
prior to such reorganization, consolidation or merger. This Agreement shall
inure to the benefit of and be binding upon the Company and the Founder, their
respective successors, executors, administrators, heirs and permitted assigns.
7. Enforceability. If any portion or provision of this Agreement shall
--------------
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
8. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
9. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, return
receipt requested, to the Founder at the last address the Founder has filed in
writing with the Company or, in the case of the Company, at its main offices,
attention of the Chairman of the Board of Directors.
10. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Founder and by a duly authorized representative
of the Company.
11. Governing Law. This is a Colorado contract and shall be construed
-------------
under and be governed in all respects by the internal laws of the State of
Colorado, without giving effect to its conflicts of law principles.
6
<PAGE>
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
[Remainder of Page Intentionally Left Blank]
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Founder,
as of the date first above written.
COMPANY:
R&D SYSTEMS COMPANY
By: /s/ GUY M. LAMMLE
------------------------------
Name:
Title:
FOUNDER:
-------
/s/ ROGER H. LINN
---------------------------------
Roger H. Linn
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-------------------------
Arthur Andersen LLP
Denver, Colorado,
March 14, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from December 31,
1996 NxTrend Technology, Inc. Financial Statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 730
<SECURITIES> 0
<RECEIVABLES> 10,276
<ALLOWANCES> 128
<INVENTORY> 580
<CURRENT-ASSETS> 11,854
<PP&E> 3,190
<DEPRECIATION> 1,939
<TOTAL-ASSETS> 16,596
<CURRENT-LIABILITIES> 15,583
<BONDS> 15,500
32,500
0
<COMMON> 15
<OTHER-SE> (47,062)
<TOTAL-LIABILITY-AND-EQUITY> (47,047)
<SALES> 39,620
<TOTAL-REVENUES> 39,620
<CGS> 9,473
<TOTAL-COSTS> 18,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 1,757
<INCOME-PRETAX> 4,827
<INCOME-TAX> 1,698
<INCOME-CONTINUING> 3,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,129
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
